##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the year ended December 31, 2004                                                        
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-27389





Interwoven, Inc.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 77-0523543                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

803 11th Avenue


Sunnyvale, California 94089


(Address of principal executive offices and zip code)


(408) 774-2000


(Registrants telephone number, including area code)


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


None


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


Common Stock, $.001 par value


(Title of Class)


þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










INTERWOVEN, INC.


TABLE OF CONTENTS


|              |  |                                                                                                                          |    |          |    | 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------ | -- | -------- | -- | 
|              |  |                                                                                                                          |    | Page No. |   
|              |  |                                                                                                                          |    |          |   
|PART I       
|Item 1.       |  | Business                                                                                                                 |    |          | 1  | 
|Item 2.       |  | Properties                                                                                                               |    |          | 7  | 
|Item 3.       |  | Legal Proceedings                                                                                                        |    |          | 7  | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                                  |    |          | 8  | 
|             
|PART II      
|Item 5.       |  | Market for the Registrants Common
    Equity, Related Stockholder Matters and Issuer Purchases of
    Equity Securities |    |          | 8  | 
|Item 6.       |  | Selected Financial Data                                                                                                  |    |          | 9  | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                |    |          | 10 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                           |    |          | 34 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                          |    |          | 35 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                                 |    |          | 36 | 
|Item 9A.      |  | Controls and Procedures                                                                                                  |    |          | 36 | 
|Item 9B.      |  | Other Information                                                                                                        |    |          | 37 | 
|             
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                                   |    |          | 37 | 
|Item 11.      |  | Executive Compensation                                                                                                   |    |          | 37 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                       |    |          | 37 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                       |    |          | 37 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                                   |    |          | 37 | 
|             
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                                           |    |          | 38 | 
|Signatures    |  |                                                                                                                          | 76 |         
|EXHIBIT 10.14
|EXHIBIT 10.17
|EXHIBIT 10.18
|EXHIBIT 10.27
|EXHIBIT 21.01
|EXHIBIT 23.01
|EXHIBIT 31.01
|EXHIBIT 31.02
|EXHIBIT 32.01
|EXHIBIT 32.02







---



##### Table of Contents



CAUTION REGARDING FORWARD LOOKING STATEMENTS









PART I







|        |         
|------- | --------
|Item 1. | Business

Overview




www.interwoven.com www.sec.gov


Interwoven Enterprise Content Management Platform, Services
and Solutions






1



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##### Table of Contents







| |         
| | --------
| | Products

Collaborative Document Management  WorkSite MP
Server and WorkSite Server.


E-mail Management  Interwovens e-mail
management software and WorkSite Communications Server
Software.


Imaging  Image Processing.


Enterprise Web Content Management  LiveSite
Content Publishing Server, TeamSite Content Management Server
and TeamSite XML Server.


Digital Asset Management  MediaBin Asset
Server.


Records Management  Records Manager.


Content Distribution  OpenDeploy Distribution
Server Software.


Content Intelligence  MetaTagger Content
Intelligence Server.


2



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Connectors  TeamPortal Software.


ECM Developers Suite  Interwoven Developer Suite.


Support and Service


Consulting.


Customer Support.


Training.


Customers




Sales and Marketing




3



---



##### Table of Contents









Research and Development






Acquisitions








4



---



##### Table of Contents





Competition






| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | companies addressing needs of the market in which we compete
    such as EMC Corporation, FileNet Corporation, Hummingbird Ltd.,
    IBM, Microsoft Corporation, Xerox Corporation, Open Text
    Corporation, Stellent, Inc., Oracle Corporation and Vignette
    Corporation;
|
| |  | intranet and groupware companies, such as IBM, Microsoft
    Corporation and Novell, Inc.;                                                                                                                                                                                     
|
| |  | in-house development efforts by our customers and
    partners; and                                                                                                                                                                                                            
|
| |  | various open source alternatives.                                                                                                                                                                                                                                              







| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | breadth of the enterprise content management solution;                                            
|
| |  | product functionality and features;                                                               
|
| |  | coverage of sales force and distribution channel;                                                 
|
| |  | availability of global support;                                                                   
|
| |  | quality and depth of integration of the individual software
    modules across the full ECM suite;
|
| |  | ease and speed of product implementation;                                                         
|
| |  | hardware implications and the total cost of ownership required
    to deploy ECM solutions;       
|
| |  | financial condition of vendors;                                                                   
|
| |  | vendor and product reputation;                                                                    
|
| |  | ability of products to support large numbers of concurrent users;                                 
|
| |  | price;                                                                                            
|
| |  | security;                                                                                         
|
| |  | interoperability with established software;                                                       

5



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| |   |                        
| | - | -----------------------
| |  | scalability; and       
|
| |  | ease of access and use.



Seasonality




Intellectual Property and Other Proprietary Rights












6



---



##### Table of Contents







Employees









|        |           
|------- | ----------
|Item 2. | Properties










|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



7



---



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|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Price Range of Common Stock






|                              |                |      |   |       |     |  |   |       | 
|----------------------------- | -------------- | ---- | - | ----- | --- |  | - | ----- | 
|                              |                | High |   |       | Low | 
|                              |                |      |   |       |     | 
|Year ended December 31, 2004: |                |      |   |       |     |  |   |      
|                              | Fourth quarter |      | $ | 11.30 |     |  | $ | 7.22  | 
|                              | Third quarter  |      | $ | 10.06 |     |  | $ | 6.40  | 
|                              | Second quarter |      | $ | 11.42 |     |  | $ | 8.04  | 
|                              | First quarter  |      | $ | 15.45 |     |  | $ | 9.51  | 
|Year ended December 31, 2003: |                |      |   |       |     |  |   |      
|                              | Fourth quarter |      | $ | 17.80 |     |  | $ | 10.56 | 
|                              | Third quarter  |      | $ | 13.24 |     |  | $ | 7.80  | 
|                              | Second quarter |      | $ | 11.40 |     |  | $ | 5.92  | 
|                              | First quarter  |      | $ | 13.76 |     |  | $ | 7.20  | 

8



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Holders of Record




Dividend Policy




Purchases of Equity Securities by the Issuer and Affiliated
Purchasers









|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                     |                                                                          |                                          |   |         |      |  |   |         |   |  |      |          |   |      |   |          |   |  |   |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------ | ---------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | ---- | -------- | - | ---- | - | -------- | - |  | - | ------- | -
|                                                     |                                                                          | Years Ended December 31,                 |  
|                                                     |                                                                          |                                          |  
|                                                     |                                                                          | 2004                                     |   |         | 2003 |  |   | 2002    |   |  | 2001 |          |   | 2000 |  
|                                                     |                                                                          |                                          |   |         |      |  |   |         |   |  |      |          |   |      |  
|                                                     |                                                                          | (In thousands, except per share amounts) |  
|Selected Consolidated Statements of Operations Data: |                                                                          |                                          |   |         |      |  |   |         |   |  |      |          |   |      |   |          |   |  |   |        
|                                                     | Total revenues                                                           |                                          | $ | 160,388 |      |  | $ | 111,512 |   |  | $    | 126,832  |   |      | $ | 204,633  |   |  | $ | 133,603 |  
|                                                     | Gross profit                                                             |                                          | $ | 108,628 |      |  | $ | 73,868  |   |  | $    | 84,230   |   |      | $ | 139,787  |   |  | $ | 92,488  |  
|                                                     | Loss from operations                                                     |                                          | $ | (24,406 | )    |  | $ | (49,861 | ) |  | $    | (153,497 | ) |      | $ | (136,215 | ) |  | $ | (43,500 | )
|                                                     | Net loss                                                                 |                                          | $ | (23,667 | )    |  | $ | (47,531 | ) |  | $    | (148,616 | ) |      | $ | (129,175 | ) |  | $ | (32,055 | )
|                                                     | Basic and diluted net loss per common share                              |                                          | $ | (0.58   | )    |  | $ | (1.72   | ) |  | $    | (5.80    | ) |      | $ | (5.17    | ) |  | $ | (1.40   | )
|                                                     | Shares used in computing basic and diluted net loss per common
    share |                                          |   | 40,494  |      |  |   | 27,585  |   |  |      | 25,607   |   |      |   | 24,985   |   |  |   | 22,995  |  

|                                          |                                                   |                |   |         |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |         | 
|----------------------------------------- | ------------------------------------------------- | -------------- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                                          |                                                   | December 31,   |  
|                                          |                                                   |                |  
|                                          |                                                   | 2004           |   |         | 2003 |  |   | 2002    |  |  | 2001 |         |  | 2000 |  
|                                          |                                                   |                |   |         |      |  |   |         |  |  |      |         |  |      |  
|                                          |                                                   | (In thousands) |  
|Selected Consolidated Balance Sheet Data: |                                                   |                |   |         |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |        
|                                          | Cash, cash equivalents and short-term investments |                | $ | 133,757 |      |  | $ | 140,487 |  |  | $    | 181,669 |  |      | $ | 219,968 |  |  | $ | 222,284 | 
|                                          | Working capital                                   |                | $ | 85,474  |      |  | $ | 94,401  |  |  | $    | 147,445 |  |      | $ | 186,999 |  |  | $ | 199,484 | 
|                                          | Total assets                                      |                | $ | 393,776 |      |  | $ | 421,825 |  |  | $    | 298,657 |  |      | $ | 438,110 |  |  | $ | 524,209 | 
|                                          | Bank borrowings                                   |                | $ |        |      |  | $ | 1,213   |  |  | $    |        |  |      | $ |        |  |  | $ |        | 
|                                          | Total stockholders equity                        |                | $ | 288,622 |      |  | $ | 300,934 |  |  | $    | 203,725 |  |      | $ | 352,005 |  |  | $ | 454,351 | 

9



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Overview






Results of Operations




10



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Revenues


|                    |                              |                                    |         |                   |    |      |         |              |    |              |         |    |    |   |    |   |  |  |     |    |  | 
|------------------- | ---------------------------- | ---------------------------------- | ------- | ----------------- | -- | ---- | ------- | ------------ | -- | ------------ | ------- | -- | -- | - | -- | - |  |  | --- | -- |  | 
|                    |                              | Years Ended December 31,           |         | Percentage Change
|                    |                              |                                    |         |                  
|                    |                              | 2004                               |         | 2003              |    | 2002 |         | 2003 to 2004 |    | 2002 to 2003
|                    |                              |                                    |         |                   |    |      |         |              |    |             
|                    |                              | (In thousands, except percentages)
|License             |                              | $                                  | 67,341  |                   |    | $    | 45,936  |              |    | $            | 57,309  |    |    |   | 47 | % |  |  | (20 | )%
|                    | Percentage of total revenues |                                    |         | 42                | %  |      |         | 41           | %  |              |         | 45 | %  |   |    |   |  |  |     |    | 
|Support and service |                              |                                    | 93,047  |                   |    |      | 65,576  |              |    |              | 69,523  |    |    |   | 42 | % |  |  | (6  | )%
|                    |                              | Percentage of total revenues       |         |                   | 58 | %    |         |              | 59 | %            |         |    | 55 | % |    |   |  |  |     |    |  | 
|                    |                              |                                    |         |                   |    |      |         |              |    |              |         |    |    |   |    |   |  |  |     |   
|                    |                              | $                                  | 160,388 |                   |    | $    | 111,512 |              |    | $            | 126,832 |    |    |   | 44 | % |  |  | (12 | )%
|                    |                              |                                    |         |                   |    |      |         |              |    |              |         |    |    |   |    |   |  |  |     |   



License.


Support and Service.




11



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Cost of Revenues


|                                     |                                            |                                    |        |                   |   |      |        |              |   |              |        |    |   |  |     |   |  |  |     |    | 
|------------------------------------ | ------------------------------------------ | ---------------------------------- | ------ | ----------------- | - | ---- | ------ | ------------ | - | ------------ | ------ | -- | - |  | --- | - |  |  | --- | -- | 
|                                     |                                            | Years Ended December 31,           |        | Percentage Change
|                                     |                                            |                                    |        |                  
|                                     |                                            | 2004                               |        | 2003              |   | 2002 |        | 2003 to 2004 |   | 2002 to 2003
|                                     |                                            |                                    |        |                   |   |      |        |              |   |             
|                                     |                                            | (In thousands, except percentages)
|Cost of license revenues             |                                            | $                                  | 13,336 |                   |   | $    | 5,368  |              |   | $            | 3,283  |    |   |  | 148 | % |  |  | 64  | % 
|                                     | Percentage of license revenues             |                                    |        | 20                | % |      |        | 12           | % |              |        | 6  | % |  |     |   |  |  |     |    | 
|                                     | Percentage of total revenues               |                                    |        | 8                 | % |      |        | 5            | % |              |        | 3  | % |  |     |   |  |  |     |    | 
|Cost of support and service revenues |                                            |                                    | 38,424 |                   |   |      | 32,276 |              |   |              | 39,319 |    |   |  | 19  | % |  |  | (18 | )%
|                                     | Percentage of support and service revenues |                                    |        | 41                | % |      |        | 49           | % |              |        | 57 | % |  |     |   |  |  |     |    | 
|                                     | Percentage of total revenues               |                                    |        | 24                | % |      |        | 29           | % |              |        | 31 | % |  |     |   |  |  |     |    | 
|                                     |                                            |                                    |        |                   |   |      |        |              |   |              |        |    |   |  |     |   |  |  |     |   
|                                     |                                            | $                                  | 51,760 |                   |   | $    | 37,644 |              |   | $            | 42,602 |    |   |  | 37  | % |  |  | (12 | )%
|                                     |                                            |                                    |        |                   |   |      |        |              |   |              |        |    |   |  |     |   |  |  |     |   

License.




Support and Service.




12



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Operating Expenses




| |                    
| | -------------------
| | Sales and Marketing

|                    |                              |                                    |        |                   |   |      |        |              |   |              |        |    |   |  |    |   |  |  |     |    | 
|------------------- | ---------------------------- | ---------------------------------- | ------ | ----------------- | - | ---- | ------ | ------------ | - | ------------ | ------ | -- | - |  | -- | - |  |  | --- | -- | 
|                    |                              | Years Ended December 31,           |        | Percentage Change
|                    |                              |                                    |        |                  
|                    |                              | 2004                               |        | 2003              |   | 2002 |        | 2003 to 2004 |   | 2002 to 2003
|                    |                              |                                    |        |                   |   |      |        |              |   |             
|                    |                              | (In thousands, except percentages)
|Sales and marketing |                              | $                                  | 70,824 |                   |   | $    | 57,959 |              |   | $            | 73,712 |    |   |  | 22 | % |  |  | (21 | )%
|                    | Percentage of total revenues |                                    |        | 44                | % |      |        | 52           | % |              |        | 58 | % |  |    |   |  |  |     |    | 







| |                         
| | ------------------------
| | Research and Development

|                         |                              |                                    |        |                   |   |      |        |              |   |              |        |    |   |  |    |   |  |  |    |    | 
|------------------------ | ---------------------------- | ---------------------------------- | ------ | ----------------- | - | ---- | ------ | ------------ | - | ------------ | ------ | -- | - |  | -- | - |  |  | -- | -- | 
|                         |                              | Years Ended December 31,           |        | Percentage Change
|                         |                              |                                    |        |                  
|                         |                              | 2004                               |        | 2003              |   | 2002 |        | 2003 to 2004 |   | 2002 to 2003
|                         |                              |                                    |        |                   |   |      |        |              |   |             
|                         |                              | (In thousands, except percentages)
|Research and development |                              | $                                  | 30,825 |                   |   | $    | 24,613 |              |   | $            | 26,599 |    |   |  | 25 | % |  |  | (7 | )%
|                         | Percentage of total revenues |                                    |        | 19                | % |      |        | 22           | % |              |        | 21 | % |  |    |   |  |  |    |    | 



13



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| |                           
| | --------------------------
| | General and Administrative

|                           |                              |                                    |        |                   |   |      |        |              |   |              |        |    |   |  |    |    |  |  |     |    | 
|-------------------------- | ---------------------------- | ---------------------------------- | ------ | ----------------- | - | ---- | ------ | ------------ | - | ------------ | ------ | -- | - |  | -- | -- |  |  | --- | -- | 
|                           |                              | Years Ended December 31,           |        | Percentage Change
|                           |                              |                                    |        |                  
|                           |                              | 2004                               |        | 2003              |   | 2002 |        | 2003 to 2004 |   | 2002 to 2003
|                           |                              |                                    |        |                   |   |      |        |              |   |             
|                           |                              | (In thousands, except percentages)
|General and administrative |                              | $                                  | 12,080 |                   |   | $    | 12,474 |              |   | $            | 14,299 |    |   |  | (3 | )% |  |  | (13 | )%
|                           | Percentage of total revenues |                                    |        | 8                 | % |      |        | 11           | % |              |        | 11 | % |  |    |    |  |  |     |    | 





| |                                         
| | ----------------------------------------
| | Amortization of Stock-Based Compensation

|                                         |                              |                                    |       |                   |   |      |       |              |   |              |       |   |   |  |     |   |  |  |     |    | 
|---------------------------------------- | ---------------------------- | ---------------------------------- | ----- | ----------------- | - | ---- | ----- | ------------ | - | ------------ | ----- | - | - |  | --- | - |  |  | --- | -- | 
|                                         |                              | Years Ended December 31,           |       | Percentage Change
|                                         |                              |                                    |       |                  
|                                         |                              | 2004                               |       | 2003              |   | 2002 |       | 2003 to 2004 |   | 2002 to 2003
|                                         |                              |                                    |       |                   |   |      |       |              |   |             
|                                         |                              | (In thousands, except percentages)
|Amortization of stock-based compensation |                              | $                                  | 4,982 |                   |   | $    | 2,348 |              |   | $            | 4,880 |   |   |  | 112 | % |  |  | (52 | )%
|                                         | Percentage of total revenues |                                    |       | 3                 | % |      |       | 2            | % |              |       | 4 | % |  |     |   |  |  |     |    | 

Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans (An Interpretation of APB Opinions No. 15 and
25)


|                                     |  |                          |       |  |      |   |       |      |  |   |       | 
|------------------------------------ |  | ------------------------ | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                     |  | Years Ended December 31, |      
|                                     |  |                          |      
|                                     |  | 2004                     |       |  | 2003 |   |       | 2002 | 
|                                     |  |                          |       |  |      |   |       |      | 
|Cost of support and service revenues |  | $                        | 319   |  |      | $ | 57    |      |  | $ | 118   | 
|Sales and marketing                  |  |                          | 1,708 |  |      |   | 957   |      |  |   | 2,872 | 
|Research and development             |  |                          | 1,049 |  |      |   | 1,157 |      |  |   | 1,632 | 
|General and administrative           |  |                          | 1,906 |  |      |   | 177   |      |  |   | 258   | 
|                                     |  |                          |       |  |      |   |       |      | 
|                                     |  | $                        | 4,982 |  |      | $ | 2,348 |      |  | $ | 4,880 | 
|                                     |  |                          |       |  |      |   |       |      | 



14



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Accounting for Stock
Issued to Employees,


Accounting for Stock Issued to
Employees,




| |                                  
| | ---------------------------------
| | Amortization of Intangible Assets

|                                  |                              |                                    |       |                   |   |      |       |              |   |              |       |   |   |  |    |   |  |  |     |    | 
|--------------------------------- | ---------------------------- | ---------------------------------- | ----- | ----------------- | - | ---- | ----- | ------------ | - | ------------ | ----- | - | - |  | -- | - |  |  | --- | -- | 
|                                  |                              | Years Ended December 31,           |       | Percentage Change
|                                  |                              |                                    |       |                  
|                                  |                              | 2004                               |       | 2003              |   | 2002 |       | 2003 to 2004 |   | 2002 to 2003
|                                  |                              |                                    |       |                   |   |      |       |              |   |             
|                                  |                              | (In thousands, except percentages)
|Amortization of intangible assets |                              | $                                  | 4,541 |                   |   | $    | 2,348 |              |   | $            | 3,722 |   |   |  | 93 | % |  |  | (37 | )%
|                                  | Percentage of total revenues |                                    |       | 3                 | % |      |       | 2            | % |              |       | 3 | % |  |    |   |  |  |     |    | 





| |                                    
| | -----------------------------------
| | In-Process Research and Development

|                                    |                              |                                    |   |                   |   |      |       |              |   |              |   |    |  |  |   |   |  |  |   |   |  |  |  |  | 
|----------------------------------- | ---------------------------- | ---------------------------------- | - | ----------------- | - | ---- | ----- | ------------ | - | ------------ | - | -- |  |  | - | - |  |  | - | - |  |  |  |  | 
|                                    |                              | Years Ended December 31,           |   | Percentage Change |   |     
|                                    |                              |                                    |   |                   |   |     
|                                    |                              | 2004                               |   | 2003              |   | 2002 |       | 2003 to 2004 |   | 2002 to 2003 |   |   
|                                    |                              |                                    |   |                   |   |      |       |              |   |              |   |   
|                                    |                              | (In thousands, except percentages) |   |                  
|In-process research and development |                              | $                                  |  |                   |   | $    | 5,174 |              |   | $            |  |    |  |  | * | % |  |  | * | % |  |  |  | 
|                                    | Percentage of total revenues |                                    |   |                  | % |      |       | 5            | % |              |   | % |  |  |   |   |  |  |   |   |  |  |  |  | 




*




15



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| |                                            
| | -------------------------------------------
| | Restructuring and Excess Facilities Charges

|                                            |                              |                                    |       |                   |   |      |        |              |   |              |        |    |   |  |     |    |  |  |     |    | 
|------------------------------------------- | ---------------------------- | ---------------------------------- | ----- | ----------------- | - | ---- | ------ | ------------ | - | ------------ | ------ | -- | - |  | --- | -- |  |  | --- | -- | 
|                                            |                              | Years Ended December 31,           |       | Percentage Change
|                                            |                              |                                    |       |                  
|                                            |                              | 2004                               |       | 2003              |   | 2002 |        | 2003 to 2004 |   | 2002 to 2003
|                                            |                              |                                    |       |                   |   |      |        |              |   |             
|                                            |                              | (In thousands, except percentages)
|Restructuring and excess facilities charges |                              | $                                  | 9,782 |                   |   | $    | 18,813 |              |   | $            | 38,084 |    |   |  | (48 | )% |  |  | (51 | )%
|                                            | Percentage of total revenues |                                    |       | 6                 | % |      |        | 17           | % |              |        | 30 | % |  |     |    |  |  |     |    | 











| |                       
| | ----------------------
| | Impairment of Goodwill

|                       |                              |                                    |   |                   |   |      |   |              |   |              |        |    |   |  |   |   |  |  |   |   | 
|---------------------- | ---------------------------- | ---------------------------------- | - | ----------------- | - | ---- | - | ------------ | - | ------------ | ------ | -- | - |  | - | - |  |  | - | - | 
|                       |                              | Years Ended December 31,           |   | Percentage Change
|                       |                              |                                    |   |                  
|                       |                              | 2004                               |   | 2003              |   | 2002 |   | 2003 to 2004 |   | 2002 to 2003
|                       |                              |                                    |   |                   |   |      |   |              |   |             
|                       |                              | (In thousands, except percentages)
|Impairment of goodwill |                              | $                                  |  |                   |   | $    |  |              |   | $            | 76,431 |    |   |  |  | % |  |  | * | %
|                       | Percentage of total revenues |                                    |   |                  | % |      |   |             | % |              |        | 60 | % |  |   |   |  |  |   |   | 






|  |                             
|- | ----------------------------
|* | Percentage is not meaningful

Goodwill and Other
Intangible Assets,


16



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##### Table of Contents



Interest Income and Other, Net


|                               |                              |                                    |       |                   |   |      |       |              |   |              |       |   |   |  |     |    |  |  |     |    | 
|------------------------------ | ---------------------------- | ---------------------------------- | ----- | ----------------- | - | ---- | ----- | ------------ | - | ------------ | ----- | - | - |  | --- | -- |  |  | --- | -- | 
|                               |                              | Years Ended December 31,           |       | Percentage Change
|                               |                              |                                    |       |                  
|                               |                              | 2004                               |       | 2003              |   | 2002 |       | 2003 to 2004 |   | 2002 to 2003
|                               |                              |                                    |       |                   |   |      |       |              |   |             
|                               |                              | (In thousands, except percentages)
|Interest income and other, net |                              | $                                  | 1,725 |                   |   | $    | 3,401 |              |   | $            | 5,958 |   |   |  | (49 | )% |  |  | (43 | )%
|                               | Percentage of total revenues |                                    |       | 1                 | % |      |       | 3            | % |              |       | 5 | % |  |     |    |  |  |     |    | 



Provision for Income Taxes


|                           |                              |                                    |     |                   |   |      |       |              |   |              |       |   |   |  |    |    |  |  |    |    | 
|-------------------------- | ---------------------------- | ---------------------------------- | --- | ----------------- | - | ---- | ----- | ------------ | - | ------------ | ----- | - | - |  | -- | -- |  |  | -- | -- | 
|                           |                              | Years Ended December 31,           |     | Percentage Change
|                           |                              |                                    |     |                  
|                           |                              | 2004                               |     | 2003              |   | 2002 |       | 2003 to 2004 |   | 2002 to 2003
|                           |                              |                                    |     |                   |   |      |       |              |   |             
|                           |                              | (In thousands, except percentages)
|Provision for income taxes |                              | $                                  | 986 |                   |   | $    | 1,071 |              |   | $            | 1,077 |   |   |  | (8 | )% |  |  | (1 | )%
|                           | Percentage of total revenues |                                    |     | 1                 | % |      |       | 1            | % |              |       | 1 | % |  |    |    |  |  |    |    | 



Liquidity and Capital Resources


|                                                      |  |                                    |         |                   |  |      |         |              |  |              |         |  |  |  |    |    |  |  |     |   
|----------------------------------------------------- |  | ---------------------------------- | ------- | ----------------- |  | ---- | ------- | ------------ |  | ------------ | ------- |  |  |  | -- | -- |  |  | --- | --
|                                                      |  | December 31,                       |         | Percentage Change
|                                                      |  |                                    |         |                  
|                                                      |  | 2004                               |         | 2003              |  | 2002 |         | 2003 to 2004 |  | 2002 to 2003
|                                                      |  |                                    |         |                   |  |      |         |              |  |             
|                                                      |  | (In thousands, except percentages)
|Cash, cash equivalents and
    short-term investments |  | $                                  | 133,757 |                   |  | $    | 140,487 |              |  | $            | 181,669 |  |  |  | (5 | )% |  |  | (23 | )%
|Working capital                                       |  | $                                  | 85,474  |                   |  | $    | 94,401  |              |  | $            | 147,445 |  |  |  | (9 | )% |  |  | (36 | )%
|Stockholders equity                                  |  | $                                  | 288,622 |                   |  | $    | 300,934 |              |  | $            | 203,725 |  |  |  | (4 | )% |  |  | 47  | % 







17



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Bank Borrowings.


18



---



##### Table of Contents





Facilities.


|                          |  |            |        |  |            |        |        |          |  |   |        | 
|------------------------- |  | ---------- | ------ |  | ---------- | ------ | ------ | -------- |  | - | ------ | 
|                          |  |            |        |  |            | Future |       
|                          |  | Occupied   |        |  | Excess     |        |        | Lease    | 
|Years Ending December 31, |  | Facilities |        |  | Facilities |        |        | Payments | 
|                          |  |            |        |  |            |        |        |          | 
|2005                      |  | $          | 9,251  |  |            | $      | 7,815  |          |  | $ | 17,066 | 
|2006                      |  |            | 8,349  |  |            |        | 7,332  |          |  |   | 15,681 | 
|2007                      |  |            | 4,932  |  |            |        | 5,498  |          |  |   | 10,430 | 
|2008                      |  |            | 736    |  |            |        | 1,991  |          |  |   | 2,727  | 
|2009                      |  |            | 691    |  |            |        | 1,258  |          |  |   | 1,949  | 
|Thereafter                |  |            | 5,091  |  |            |        | 1,049  |          |  |   | 6,140  | 
|                          |  |            |        |  |            |        |        |          | 
|                          |  | $          | 29,050 |  |            | $      | 24,943 |          |  | $ | 53,993 | 
|                          |  |            |        |  |            |        |        |          | 





|                          |  |            |        | 
|------------------------- |  | ---------- | ------ | 
|                          |  | Standby    |       
|                          |  | Letters of |       
|Years Ending December 31, |  | Credit     |       
|                          |  |            |       
|2005                      |  | $          | 11,672 | 
|2006                      |  | $          | 11,578 | 
|2007                      |  | $          | 2,771  | 
|2008                      |  | $          | 2,500  | 
|2009                      |  | $          | 2,500  | 
|After 2009                |  | $          | 1,000  | 



Financial Risk Management




19



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Critical Accounting Policies






| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | revenue recognition;                                                     
|
| |  | estimating the allowance for doubtful accounts and sales returns;        
|
| |  | estimating the accrual for restructuring and excess facilities
    costs;
|
| |  | accounting for income taxes; and                                         
|
| |  | valuation of long-lived assets, intangible assets and goodwill.          

Revenue Recognition.


Software Revenue Recognition, Modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain Transactions.






20



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##### Table of Contents









Allowance for Doubtful Accounts.


Allowance for Sales Returns. Revenue Recognition When Right of
Return Exists.


Restructuring and Excess Facilities Accrual.




21



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##### Table of Contents







Accounting for Income Taxes.




Impairment of Goodwill and Long-Lived Assets. Goodwill and Other Intangible Assets.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Step 1  We compare the fair value of our reporting
    unit to its carrying value, including goodwill. If the reporting
    units carrying value, including goodwill, exceeds the
    units fair value, we move on to Step 2. If the
    units fair value exceeds the carrying value, no further
    work is performed and no impairment charge is necessary.                                                                                                                                                                                                           
|
| |  | Step 2  We perform an allocation of the fair value of
    the reporting unit to its identifiable tangible and non-goodwill
    intangible assets and liabilities. This derives an implied fair
    value for the reporting units goodwill. We then compare
    the implied fair value of the reporting units goodwill
    with the carrying amount of the reporting units goodwill.
    If the carrying amount of the reporting units goodwill is
    greater than the implied fair value of its goodwill, an
    impairment charge would be recognized for the excess.



22



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##### Table of Contents







Accounting for the
Impairment or Disposal of Long-Lived Assets.




|                          |  |               |       |  |              |   |        |       |  |   |        | 
|------------------------- |  | ------------- | ----- |  | ------------ | - | ------ | ----- |  | - | ------ | 
|                          |  | Amortization  |       |  | Amortization |   |        |      
|                          |  | of Intangible |       |  | of Purchased |   |        |      
|Years Ending December 31, |  | Assets        |       |  | Technology   |   |        | Total | 
|                          |  |               |       |  |              |   |        |       | 
|2005                      |  | $             | 3,201 |  |              | $ | 10,901 |       |  | $ | 14,102 | 
|2006                      |  |               | 2,895 |  |              |   | 9,706  |       |  |   | 12,601 | 
|2007                      |  |               | 2,522 |  |              |   | 762    |       |  |   | 3,284  | 
|2008                      |  |               | 48    |  |              |   |       |       |  |   | 48     | 
|                          |  |               |       |  |              |   |        |       | 
|                          |  | $             | 8,666 |  |              | $ | 21,369 |       |  | $ | 30,035 | 
|                          |  |               |       |  |              |   |        |       | 



Recent Accounting Pronouncements




Factors That May Impact Our Business






23



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##### Table of Contents





| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | We have incurred annual losses throughout our operating
    history and may not be able to achieve consistent
    profitability.





| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Many factors can cause our revenues to fluctuate on a
    quarterly basis and if we fail to satisfy the expectations of
    investors or securities analysts, our stock price may
    decline.





| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | the discretionary nature of our customers purchases and
    their budget cycles;                                            
|
| |  | the inherent complexity, length and associated unpredictability
    of our sales cycle;                                      
|
| |  | the number of new information technology initiatives launched by
    our customers;                                          
|
| |  | the success or failure of any of our product offerings to meet
    with customer acceptance;                                 
|
| |  | the size and complexity of our license and service transactions;                                                             
|
| |  | delays in recognizing revenue from license transactions;                                                                     
|
| |  | timing of new product releases;                                                                                              
|
| |  | changes in competitors product offerings;                                                                                   
|
| |  | sales force capacity and the influence of resellers and systems
    integrator partners;                                     
|
| |  | our ability to integrate newly acquired products with our
    existing products and effectively sell newly acquired products;
|
| |  | the level of our sales incentive and commission related
    expenses; and                                                    
|
| |  | seasonal variations in our operating results.                                                                                





| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Our revenues are derived from a small number of software
    products and vertical markets.





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| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our products have a long and unpredictable sales cycle,
    which makes it difficult to forecast our future results and may
    cause our operating results to vary from period to
    period.





| |   |                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Licensing of our software products is often an enterprise-wide
    decision by our customers that involves many factors.
    Accordingly, our ability to license our product may be affected
    by changes in the strategic importance of content management
    projects to a customer, a customers budgetary constraints
    or changes in a customers personnel.
|
| |  | Passage through customer approval and expenditure authorization
    processes can be difficult and time consuming. Delays in the
    authorization approval process, even after vendor selection,
    could impact the timing and amount of revenues recognized in a
    quarterly period.                                                                            
|
| |  | Changes in our sales incentive plans may have an unpredictable
    impact on our sales cycle and contracting activities.                                                                                                                                                                                                                                              
|
| |  | The number, timing and significance of enhancements to our
    software products and the introduction of new software by our
    competitors and us may affect customer purchases.                                                                                                                                                                                    





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| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Our stock price may be volatile, and your investment in
    our common stock could suffer a decline in value.





| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in quarterly operating results;                                                                                                                                             
|
| |  | changes in financial estimates by us or in financial estimates
    or recommendations by any securities analysts who cover our
    stock;                                                                    
|
| |  | operating performance and stock market price and volume
    fluctuations of other publicly traded companies and, in
    particular, those that are Internet-related or otherwise deemed
    comparable to us;
|
| |  | announcements by us or our competitors of new products or
    services, technological innovations, significant acquisitions,
    strategic relationships or divestitures;                                    
|
| |  | announcements of investigations or regulatory scrutiny of our
    operations or lawsuits filed against us;                                                                                                   
|
| |  | announcements of negative conclusions about our internal
    controls;                                                                                                                                       
|
| |  | capital outlays or commitments;                                                                                                                                                                              
|
| |  | additions or departures of key personnel;                                                                                                                                                                    
|
| |  | sector factors including conditions or trends in our industry
    and the technology arena; and                                                                                                              
|
| |  | overall stock market factors, such as the price of oil futures,
    interest rates and the performance of the economy.                                                                                       





| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Competition from providers of software enabling content
    and collaboration management is increasing, which could cause us
    to reduce our prices and result in reduced gross margins or loss
    of market share.





| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | companies addressing needs of the market in which we compete
    such as EMC Corporation, FileNet Corporation, Hummingbird Ltd.,
    IBM, Microsoft Corporation, Xerox Corporation, Open Text
    Corporation, Stellent, Inc., Oracle Corporation and Vignette
    Corporation;
|
| |  | intranet and groupware companies, such as IBM, Microsoft
    Corporation and Novell, Inc.;                                                                                                                                                                                     
|
| |  | in-house development efforts by our customers and
    partners; and                                                                                                                                                                                                            
|
| |  | open source vendors such as RedHat, Inc., OpenCms and Mambo.                                                                                                                                                                                                                   

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| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our future revenues are dependent in part on our installed
    customer base continuing to license additional products, renew
    customer support agreements and purchase additional
    services.





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The timing of large customer orders may have a significant
    impact on our consolidated financial results from period to
    period.





| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | Economic conditions and significant world events have
    harmed and could continue to negatively affect our revenues and
    results of operations.



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| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Support and service revenues have represented a large
    percentage of our total revenues in 2004 and 2003. Our support
    and service revenues are vulnerable to reduced demand and
    increased competition.





| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Increases in support and service revenues as a percentage
    of total revenues may decrease overall margins.





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







28



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| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | We might not be able to protect and enforce our
    intellectual property rights, a loss of which could harm our
    business.







| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because a significant portion of our revenues are
    influenced by referrals from strategic partners and sold through
    resellers, our future success depends in part on those partners,
    but their interests differ from ours.





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| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Contractual issues may arise during the negotiation
    process that may delay the anticipated closure of license
    transactions and our ability to recognize revenue as
    anticipated.







Our revenues from
international operations are a significant part of our overall
operating results.






| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties in staffing, retaining staff and managing foreign
    operations;                                                                   
|
| |  | the expense of foreign operations and compliance with applicable
    laws;                                                                       
|
| |  | political and economic instability;                                                                                                              
|
| |  | the expense of localizing products for sale in various
    international markets;                                                                
|
| |  | reduced protection for intellectual property rights in some
    countries;                                                                       
|
| |  | protectionist laws and business practices that favor local
    competitors;                                                                      
|
| |  | difficulties in the handling of transactions denominated in
    foreign currency and the risks associated with foreign currency
    fluctuations;

30



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| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | changes in multiple tax and regulatory requirements;                                           
|
| |  | longer sales cycles and collection periods or seasonal
    reductions in business activity; and
|
| |  | economic conditions in international markets.                                                  





| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our workforce reductions may require us to incur severance
    costs and reduce our facilities commitments, which may cause us
    to incur expenses or recognize additional financial statement
    charges.







| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our products cannot scale to meet the demands of tens
    of thousands of concurrent users, our targeted customers may not
    license our solutions, which will cause our revenues to
    decline.







| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our products do not operate with a wide variety of
    hardware, software and operating systems used by our customers,
    our revenues would be harmed.



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





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Our products may lack essential functionality if we are
    unable to obtain and maintain licenses to third-party software
    and applications.







| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fluctuations in the exchange rates of foreign currency,
    particularly in Euro, British Pound and Australian Dollar and
    the various other local currencies of Asia and Europe, may harm
    our business.



32



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##### Table of Contents







| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | New legislation and potential new accounting
    pronouncements are likely to impact our future consolidated
    financial condition and results of operations.





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | When we account for employee stock options using the fair
    value method, it will significantly increase our compensation
    costs.





| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Charges to earnings resulting from the application of the
    purchase method of accounting and asset impairments may
    adversely affect the market value of our common stock.





33



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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk



Interest Rate Risk






|                                            |  |              |         |   |      |   |         |  
|------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                            |  | Years Ended  |        
|                                            |  | December 31, |        
|                                            |  |              |        
|                                            |  | 2004         |         |   | 2003 |  
|                                            |  |              |         |   |      |  
|Cash equivalents and short-term investments |  | $            | 122,033 |   |      | $ | 126,324 |  
|Average interest rate                       |  |              | 1.4     | % |      |   | 1.6     | %





Foreign Currency Risk






34



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Commodity Price Risk









|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

Quarterly Financial Information (Unaudited)


|                                                                        |  |                                          |        |  |               |   |        |          |  |   |           |   |  |   |        |  
|----------------------------------------------------------------------- |  | ---------------------------------------- | ------ |  | ------------- | - | ------ | -------- |  | - | --------- | - |  | - | ------ | -
|                                                                        |  | Three Months Ended                       |       
|                                                                        |  |                                          |       
|                                                                        |  | December 31,                             |        |  | September 30, |   |        | June 30, |  |   | March 31, |  
|                                                                        |  | 2004                                     |        |  | 2004          |   |        | 2004     |  |   | 2004      |  
|                                                                        |  |                                          |        |  |               |   |        |          |  |   |           |  
|                                                                        |  | (In thousands, except per share amounts) |       
|Total revenues                                                          |  | $                                        | 43,238 |  |               | $ | 40,261 |          |  | $ | 39,495    |   |  | $ | 37,394 |  
|Gross profit                                                            |  | $                                        | 29,985 |  |               | $ | 27,169 |          |  | $ | 26,677    |   |  | $ | 24,797 |  
|Total operating expenses                                                |  | $                                        | 29,934 |  |               | $ | 28,896 |          |  | $ | 42,153    |   |  | $ | 32,051 |  
|Income (loss) from operations                                           |  | $                                        | 51     |  |               | $ | (1,727 | )        |  | $ | (15,476   | ) |  | $ | (7,254 | )
|Net income (loss)                                                       |  | $                                        | 405    |  |               | $ | (1,502 | )        |  | $ | (15,586   | ) |  | $ | (6,984 | )
|Basic net income (loss) per common share                                |  | $                                        | 0.01   |  |               | $ | (0.04  | )        |  | $ | (0.39     | ) |  | $ | (0.17  | )
|Shares used in computing basic net income (loss) per common share       |  |                                          | 40,855 |  |               |   | 40,564 |          |  |   | 40,420    |   |  |   | 40,137 |  
|Diluted net income (loss) per common share                              |  | $                                        | 0.01   |  |               | $ | (0.04  | )        |  | $ | (0.39     | ) |  | $ | (0.17  | )
|Shares used in computing diluted net income (loss) per common
    share |  |                                          | 41,940 |  |               |   | 40,564 |          |  |   | 40,420    |   |  |   | 40,137 |  

|                                                                         |  |                                          |         |   |               |   |         |          |  |   |           |   |  |   |        |  
|------------------------------------------------------------------------ |  | ---------------------------------------- | ------- | - | ------------- | - | ------- | -------- |  | - | --------- | - |  | - | ------ | -
|                                                                         |  | Three Months Ended                       |        
|                                                                         |  |                                          |        
|                                                                         |  | December 31,                             |         |   | September 30, |   |         | June 30, |  |   | March 31, |  
|                                                                         |  | 2003                                     |         |   | 2003          |   |         | 2003     |  |   | 2003      |  
|                                                                         |  |                                          |         |   |               |   |         |          |  |   |           |  
|                                                                         |  | (In thousands, except per share amounts) |        
|Total revenues                                                           |  | $                                        | 33,658  |   |               | $ | 26,073  |          |  | $ | 26,195    |   |  | $ | 25,586 |  
|Gross profit                                                             |  | $                                        | 22,449  |   |               | $ | 17,387  |          |  | $ | 17,548    |   |  | $ | 16,484 |  
|Total operating expenses                                                 |  | $                                        | 35,476  |   |               | $ | 36,632  |          |  | $ | 25,579    |   |  | $ | 26,042 |  
|Loss from operations                                                     |  | $                                        | (13,027 | ) |               | $ | (19,245 | )        |  | $ | (8,031    | ) |  | $ | (9,558 | )
|Net loss                                                                 |  | $                                        | (12,397 | ) |               | $ | (18,840 | )        |  | $ | (7,194    | ) |  | $ | (9,100 | )
|Basic and diluted net loss per common share                              |  | $                                        | (0.38   | ) |               | $ | (0.71   | )        |  | $ | (0.28     | ) |  | $ | (0.36  | )
|Shares used in computing basic and diluted net loss per common
    share |  |                                          | 32,742  |   |               |   | 26,398  |          |  |   | 25,660    |   |  |   | 25,541 |  

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



Controls and Procedures








Managements Report on Internal Control over Financial
Reporting




36



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##### Table of Contents








Item 9B.Other
Information







PART III









|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant










|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



37



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##### Table of Contents






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |                                      
| | -------------------------------------
| | 1. Consolidated Financial Statements:



| |                                                         
| | --------------------------------------------------------
| | Reports of Independent Registered Public Accounting Firm
|
| | Consolidated Financial Statements:                      



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheets at December 31, 2004 and 2003                                                                          
|
| | Consolidated Statements of Operations for the years ended
    December 31, 2004, 2003 and 2002                                     
|
| | Consolidated Statements of Stockholders Equity and
    Comprehensive Loss for the years ended December 31, 2004,
    2003 and 2002
|
| | Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003 and 2002                                     



| |                                           
| | ------------------------------------------
| | Notes to Consolidated Financial Statements



| |                                 
| | --------------------------------
| | 2. Financial Statement Schedule:

Schedule II  Valuation and Qualifying
Accounts


(In thousands)


|                                                       |                              |            |   |       |            |  |               |          |   |         |             |        |   |        |   |     |   |  |   |       | 
|------------------------------------------------------ | ---------------------------- | ---------- | - | ----- | ---------- |  | ------------- | -------- | - | ------- | ----------- | ------ | - | ------ | - | --- | - |  | - | ----- | 
|                                                       |                              |            |   |       |            |  |               |          |   | Balance |            
|                                                       |                              | Balance at |   |       |            |  | Charged       |          |   |         |             | at End |  
|                                                       |                              | Beginning  |   |       |            |  | (credited) to |          |   |         |             | of     |  
|Description                                            |                              | of Period  |   |       | Write-offs |  |               | expenses |   |         | Adjustments |        |   | Period |  
|                                                       |                              |            |   |       |            |  |               |          |   |         |             |        |   |        |  
|Allowance for doubtful accounts
    and sales returns: |                              |            |   |       |            |  |               |          |   |         |             |        |   |        |   |    
|                                                       | Year ended December 31, 2004 |            | $ | 2,243 |            |  | $             | (558     | ) |         | $           | (54    | ) |        | $ |    |   |  | $ | 1,631 | 
|                                                       | Year ended December 31, 2003 |            | $ | 1,926 |            |  | $             | (531     | ) |         | $           | 292    |   |        | $ | 556 | * |  | $ | 2,243 | 
|                                                       | Year ended December 31, 2002 |            | $ | 2,178 |            |  | $             | (2,411   | ) |         | $           | 2,159  |   |        | $ |    |   |  | $ | 1,926 | 




*




| |             
| | ------------
| | 3. Exhibits:

|       |        |  |               |                                                                                                                        |      |  |       |      |  |  |          |  |  |          |       |  |  |  |  | 
|------ | ------ |  | ------------- | ---------------------------------------------------------------------------------------------------------------------- | ---- |  | ----- | ---- |  |  | -------- |  |  | -------- | ----- |  |  |  |  | 
|       |        |  |               | Incorporated by Reference                                                                                              |      |  |      
|       |        |  |               |                                                                                                                        |      |  | Filed |     
|Number |        |  | Exhibit Title |                                                                                                                        | Form |  |       | Date |  |  | Number   |  |  | Herewith |      
|       |        |  |               |                                                                                                                        |      |  |       |      |  |  |          |  |  |          |      
|       | 2.01   |  |               | Merger Agreement dated August 6, 2003, by and among
    Registrant, iManage, Inc. and Mahogany Acquisition Corporation |      |  | 8-K   |      |  |  | 08/08/03 |  |  |          | 2.01  |  |  |  |  | 
|       | 3.01   |  |               | Registrants Fourth Amended and Restated Certificate of
    Incorporation                                              |      |  | S-8   |      |  |  | 11/19/03 |  |  |          | 4.08  |  |  |  |  | 
|       | 3.02   |  |               | Registrants Amended and Restated Bylaws                                                                               |      |  | 10-K  |      |  |  | 06/20/01 |  |  |          | 3.03  |  |  |  |  | 
|       | 4.01   |  |               | Form of Certificate for Registrants common stock                                                                      |      |  | S-1   |      |  |  | 09/23/99 |  |  |          | 4.01  |  |  |  |  | 
|       | 10.01  |  |               | Form of Indemnity Agreement between Registrant and each of its
    directors and executive officers                    |      |  | S-1   |      |  |  | 07/27/99 |  |  |          | 10.01 |  |  |  |  | 
|       | 10.02* |  |               | 1996 Stock Option Plan and related agreements                                                                          |      |  | S-1   |      |  |  | 07/27/99 |  |  |          | 10.02 |  |  |  |  | 
|       | 10.03* |  |               | 1998 Stock Option Plan and related agreements                                                                          |      |  | S-1   |      |  |  | 07/27/99 |  |  |          | 10.03 |  |  |  |  | 
|       | 10.04* |  |               | 1999 Equity Incentive Plan                                                                                             |      |  | S-8   |      |  |  | 01/24/01 |  |  |          | 4.01  |  |  |  |  | 
|       | 10.05* |  |               | Forms of Option Agreements and Stock Option Exercise Agreements
    related to the 1999 Equity Incentive Plan          |      |  | S-1   |      |  |  | 09/03/99 |  |  |          | 10.04 |  |  |  |  | 

38



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##### Table of Contents



|       |         |  |               |                                                                                                                                                                        |      |  |       |      |  |  |          |   |  |          |       |   |  |  |   | 
|------ | ------- |  | ------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ----- | ---- |  |  | -------- | - |  | -------- | ----- | - |  |  | - | 
|       |         |  |               | Incorporated by Reference                                                                                                                                              |      |  |      
|       |         |  |               |                                                                                                                                                                        |      |  | Filed |     
|Number |         |  | Exhibit Title |                                                                                                                                                                        | Form |  |       | Date |  |  | Number   |   |  | Herewith |      
|       |         |  |               |                                                                                                                                                                        |      |  |       |      |  |  |          |   |  |          |      
|       | 10.06*  |  |               | 1999 Employee Stock Purchase Plan                                                                                                                                      |      |  | S-8   |      |  |  | 01/24/01 |   |  |          | 4.03  |   |  |  |   | 
|       | 10.07*  |  |               | Forms of Enrollment Form, Subscription Agreement, Notice of
    Withdrawal and Notice of Suspension related to the 1999 Employee
    Stock Purchase Plan               |      |  | S-1   |      |  |  | 09/03/99 |   |  |          | 10.05 |   |  |  |   | 
|       | 10.08*  |  |               | 2000 Stock Incentive Plan                                                                                                                                              |      |  | S-8   |      |  |  | 09/26/00 |   |  |          | 4.01  |   |  |  |   | 
|       | 10.09*  |  |               | Forms of Stock Option Agreement and Stock Option Exercise
    Agreements related to the 2000 Stock Incentive Plan                                                      |      |  | S-8   |      |  |  | 06/22/00 |   |  |          | 4.03  |   |  |  |   | 
|       | 10.10*  |  |               | Forms of Incentive Stock Option Agreement and Nonstatutory Stock
    Option Agreement under iManage, Inc. 1997 Stock Option Plan                                       |      |  | S-8   |      |  |  | 11/19/03 |   |  |          | 4.02  |   |  |  |   | 
|       | 10.11*  |  |               | iManage, Inc. 2000 Non-Officer Stock Option Plan and related
    forms of stock option and option exercise agreements                                                  |      |  | S-8   |      |  |  | 11/19/03 |   |  |          | 4.03  |   |  |  |   | 
|       | 10.12*  |  |               | 2003 Acquisition Plan and related forms of stock option and
    option exercise agreement                                                                              |      |  | S-8   |      |  |  | 11/19/03 |   |  |          | 4.07  |   |  |  |   | 
|       | 10.13   |  |               | Regional Prototype Profit Sharing Plan and Trust/ Account
    Standard Plan Adoption Agreement AA #001                                                                 |      |  | S-1   |      |  |  | 07/27/99 |   |  |          | 10.06 |   |  |  |   | 
|       | 10.14*  |  |               | Description of Director Compensation                                                                                                                                   |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 
|       | 10.15*  |  |               | Employment Agreement between Registrant and Martin W. Brauns
    dated February 27, 1998                                                                               |      |  | S-1   |      |  |  | 07/27/99 |   |  |          | 10.07 |   |  |  |   | 
|       | 10.16*  |  |               | Employment arrangement between Registrant and Martin W. Brauns                                                                                                         |      |  | 10-Q  |      |  |  | 08/13/03 |   |  |          | 10.04 |   |  |  |   | 
|       | 10.17*  |  |               | Compensatory Arrangements with Executive Officers                                                                                                                      |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 
|       | 10.18* |  |               | 2005 Executive Officer Incentive Bonus Plan                                                                                                                            |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 
|       | 10.19*  |  |               | Form of Amendment No. 1 to Stock Option Agreement between
    Registrant and each of the officers identified in this exhibit                                           |      |  | 10-Q  |      |  |  | 11/13/02 |   |  |          | 10.01 |   |  |  |   | 
|       | 10.20*  |  |               | Notice of Grant of Stock Options and Option Agreement and
    related Stock Option Agreement between Registrant and each of
    the officers identified in the exhibit |      |  | 10-Q  |      |  |  | 08/13/03 |   |  |          | 10.01 |   |  |  |   | 
|       | 10.21*  |  |               | Notice of Grant of Stock Options and Option Agreement and
    related Stock Option Agreement between Martin W. Brauns                                                  |      |  | 10-Q  |      |  |  | 08/13/03 |   |  |          | 10.02 |   |  |  |   | 
|       | 10.22 |  |               | Preferred Stock Warrant to Purchase Shares of Series E
    Preferred Stock of Registrant                                                                               |      |  | S-1   |      |  |  | 09/03/99 |   |  |          | 10.25 |   |  |  |   | 
|       | 10.23   |  |               | Ariba Plaza Sublease dated June 28, 2001 between Registrant
    and Ariba, Inc.                                                                                        |      |  | 10-Q  |      |  |  | 08/14/01 |   |  |          | 10.01 |   |  |  |   | 
|       | 10.24   |  |               | Amended and Restated Ariba Plaza Sublease dated August 6,
    2001 between Registrant and Ariba, Inc.                                                                  |      |  | 10-Q  |      |  |  | 11/14/01 |   |  |          | 10.01 |   |  |  |   | 
|       | 10.25   |  |               | Amended and Restated First Amendment to Amended and Restated
    Sublease dated May 6, 2001 between Registrant and Ariba,
    Inc.                                     |      |  | 10-Q  |      |  |  | 11/08/04 |   |  |          | 10.01 |   |  |  |   | 
|       | 10.26   |  |               | Office Lease for 303 East Wacker, Chicago, Illinois between 303
    Wacker Realty LLC and iManage, Inc. dated March, 17, 2003                                          |      |  | (1    | )    |  |  | (1       | ) |  |          | (1    | ) |  |  |   | 

39



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##### Table of Contents



|       |       |  |               |                                                                                                      |      |  |       |      |  |  |          |   |  |          |       |   |  |  |   | 
|------ | ----- |  | ------------- | ---------------------------------------------------------------------------------------------------- | ---- |  | ----- | ---- |  |  | -------- | - |  | -------- | ----- | - |  |  | - | 
|       |       |  |               | Incorporated by Reference                                                                            |      |  |      
|       |       |  |               |                                                                                                      |      |  | Filed |     
|Number |       |  | Exhibit Title |                                                                                                      | Form |  |       | Date |  |  | Number   |   |  | Herewith |      
|       |       |  |               |                                                                                                      |      |  |       |      |  |  |          |   |  |          |      
|       | 10.27 |  |               | First Amendment to Lease dated November 12, 2003 between
    iManage, Inc. and 303 Wacker Realty LLC |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 
|       | 10.28 |  |               | Sublease between Hyperion Solutions Corporation and iManage,
    Inc. dated January 17, 2002         |      |  | (2    | )    |  |  | (2       | ) |  |          | (2    | ) |  |  |   | 
|       | 10.29 |  |               | Revolving Line of Credit Note dated August 2, 2001, between
    Registrant and Wells Fargo Bank      |      |  | 10-Q  |      |  |  | 08/14/01 |   |  |          | 10.02 |   |  |  |   | 
|       | 10.30 |  |               | Amendment to Line of Credit Agreement dated June 1, 2004
    between Registrant and Wells Fargo Bank |      |  | 10-Q  |      |  |  | 11/08/04 |   |  |          | 10.02 |   |  |  |   | 
|       | 21.01 |  |               | Subsidiaries of the Registrant                                                                       |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 
|       | 23.01 |  |               | Consent of Independent Registered Public Accounting Firm                                             |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 
|       | 31.01 |  |               | Rule 13a-14(a)/15d-15(a) certification of the Chief
    Executive Officer                            |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 
|       | 31.02 |  |               | Rule 13a-14(a)/15d-15(a) certification of the Chief
    Financial Officer                            |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 
|       | 32.01 |  |               | Section 1350 certification of Chief Executive Officer                                                |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 
|       | 32.02 |  |               | Section 1350 certification of the Chief Financial Officer                                            |      |  |       |      |  |  |          |   |  |          |       |   |  |  | X | 






|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to Exhibit 10.18 of the iManage,
    Inc. Annual Report Form 10-K filed with the Commission on
    March 26, 2003
|   
|(2) | Incorporated by reference to Exhibit 10.13 of the iManage,
    Inc. Annual Report Form 10-K filed with the Commission on
    March 29, 2002



| |   |                                                      
| | - | -----------------------------------------------------
| | * | Management contract, compensatory plan or arrangement



|  |                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Confidential treatment has been requested with regard to certain
    portions of this document. Such portions were filed separately
    with the Commission.



|   |                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------
| | Portions of this exhibit have been omitted pursuant to an order
    granting confidential treatment.

40



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Goodwill and
Other Intangible Assets










41



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Internal Control 
Integrated Framework








Internal
Control  Integrated Framework Internal Control  Integrated
Framework










42



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##### Table of Contents



INTERWOVEN, INC.


CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         |  |         |          |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- |  | ------- | -------- | ------- | 
|                                                                                                                                                                                                        |                                                                                                | December 31,                               |        
|                                                                                                                                                                                                        |                                                                                                |                                            |        
|                                                                                                                                                                                                        |                                                                                                | 2004                                       |         |          | 2003    | 
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 
|                                                                                                                                                                                                        |                                                                                                | (In thousands, except per                  |        
|                                                                                                                                                                                                        |                                                                                                | share data)                                |        
|ASSETS                                                                                                                                                                                                 
|Current assets:                                                                                                                                                                                         |                                                                                                |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                        | Cash and cash equivalents                                                                      |                                            | $       | 22,466   |         |  | $       | 30,061   |        
|                                                                                                                                                                                                        | Short-term investments                                                                         |                                            |         | 111,291  |         |  |         | 110,426  |        
|                                                                                                                                                                                                        | Accounts receivable, net of allowances of $1,631 and $2,243 in
    2004 and 2003, respectively |                                            |         | 28,292   |         |  |         | 33,834   |        
|                                                                                                                                                                                                        | Prepaid expenses and other current assets                                                      |                                            |         | 8,450    |         |  |         | 8,629    |        
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 
|                                                                                                                                                                                                        |                                                                                                | Total current assets                       |         |          | 170,499 |  |         |          | 182,950 | 
|Property and equipment, net                                                                                                                                                                             |                                                                                                |                                            | 5,831   |          |         |  | 7,403   |         
|Goodwill, net                                                                                                                                                                                           |                                                                                                |                                            | 185,464 |          |         |  | 185,991 |         
|Other intangible assets, net                                                                                                                                                                            |                                                                                                |                                            | 30,035  |          |         |  | 43,134  |         
|Other assets                                                                                                                                                                                            |                                                                                                |                                            | 1,947   |          |         |  | 2,347   |         
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 
|                                                                                                                                                                                                        |                                                                                                | Total assets                               |         | $        | 393,776 |  |         | $        | 421,825 | 
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 
|                                                                                                                                                                                                       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                   
|Current liabilities:                                                                                                                                                                                    |                                                                                                |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                        | Bank borrowings                                                                                |                                            | $       |         |         |  | $       | 1,213    |        
|                                                                                                                                                                                                        | Accounts payable                                                                               |                                            |         | 5,568    |         |  |         | 4,576    |        
|                                                                                                                                                                                                        | Accrued liabilities                                                                            |                                            |         | 20,370   |         |  |         | 22,961   |        
|                                                                                                                                                                                                        | Restructuring and excess facilities accrual                                                    |                                            |         | 8,966    |         |  |         | 15,733   |        
|                                                                                                                                                                                                        | Deferred revenues                                                                              |                                            |         | 50,121   |         |  |         | 44,066   |        
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 
|                                                                                                                                                                                                        |                                                                                                | Total current liabilities                  |         |          | 85,025  |  |         |          | 88,549  | 
|Accrued liabilities                                                                                                                                                                                     |                                                                                                |                                            | 3,413   |          |         |  | 1,956   |         
|Restructuring and excess facilities accrual                                                                                                                                                             |                                                                                                |                                            | 16,716  |          |         |  | 30,386  |         
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 
|                                                                                                                                                                                                        |                                                                                                | Total liabilities                          |         |          | 105,154 |  |         |          | 120,891 | 
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 
|Commitments and contingencies                                                                                                                                                                           |                                                                                                |                                            |         |          |         |  |         |         
|Stockholders equity:                                                                                                                                                                                   |                                                                                                |                                            |         |          |         |  |         |         
|Common stock, $0.001 par value, 125,000 shares
    authorized at December 31, 2004 and 2003;
    41,087 shares and 40,008 shares issued and outstanding
    at December 31, 2004 and 2003, respectively |                                                                                                |                                            | 41      |          |         |  | 40      |         
|                                                                                                                                                                                                        | Additional paid-in capital                                                                     |                                            |         | 697,860  |         |  |         | 693,773  |        
|                                                                                                                                                                                                        | Deferred stock-based compensation                                                              |                                            |         | (2,067   | )       |  |         | (9,564   | )      
|                                                                                                                                                                                                        | Accumulated other comprehensive income (loss)                                                  |                                            |         | (205     | )       |  |         | 25       |        
|                                                                                                                                                                                                        | Accumulated deficit                                                                            |                                            |         | (407,007 | )       |  |         | (383,340 | )      
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 
|                                                                                                                                                                                                        |                                                                                                | Total stockholders equity                 |         |          | 288,622 |  |         |          | 300,934 | 
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 
|                                                                                                                                                                                                        |                                                                                                | Total liabilities and stockholders equity |         | $        | 393,776 |  |         | $        | 421,825 | 
|                                                                                                                                                                                                        |                                                                                                |                                            |         |          |         | 



43



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INTERWOVEN, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                         |                                             |                                        |        |        |         |   |        |        |         |   |        |        |          |  
|------------------------------------------------------------------------ | ------------------------------------------- | -------------------------------------- | ------ | ------ | ------- | - | ------ | ------ | ------- | - | ------ | ------ | -------- | -
|                                                                         |                                             | Years Ended December 31,               |       
|                                                                         |                                             |                                        |       
|                                                                         |                                             | 2004                                   |        |        | 2003    |   |        | 2002   |        
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|                                                                         |                                             | (In thousands, except per share data)  |       
|Revenues:                                                                |                                             |                                        |        |        |         |   |        |        |         |   |        |       
|                                                                         | License                                     |                                        | $      | 67,341 |         |   | $      | 45,936 |         |   | $      | 57,309 |         
|                                                                         | Support and service                         |                                        |        | 93,047 |         |   |        | 65,576 |         |   |        | 69,523 |         
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|                                                                         |                                             | Total revenues                         |        |        | 160,388 |   |        |        | 111,512 |   |        |        | 126,832  |  
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|Cost of revenues:                                                        |                                             |                                        |        |        |         |   |        |        |         |   |        |       
|                                                                         | License                                     |                                        |        | 13,336 |         |   |        | 5,368  |         |   |        | 3,283  |         
|                                                                         | Support and service                         |                                        |        | 38,424 |         |   |        | 32,276 |         |   |        | 39,319 |         
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|                                                                         |                                             | Total cost of revenues                 |        |        | 51,760  |   |        |        | 37,644  |   |        |        | 42,602   |  
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|                                                                         |                                             | Gross profit                           |        |        | 108,628 |   |        |        | 73,868  |   |        |        | 84,230   |  
|Operating expenses:                                                      |                                             |                                        |        |        |         |   |        |        |         |   |        |       
|                                                                         | Sales and marketing                         |                                        |        | 70,824 |         |   |        | 57,959 |         |   |        | 73,712 |         
|                                                                         | Research and development                    |                                        |        | 30,825 |         |   |        | 24,613 |         |   |        | 26,599 |         
|                                                                         | General and administrative                  |                                        |        | 12,080 |         |   |        | 12,474 |         |   |        | 14,299 |         
|                                                                         | Amortization of stock-based compensation    |                                        |        | 4,982  |         |   |        | 2,348  |         |   |        | 4,880  |         
|                                                                         | Amortization of intangible assets           |                                        |        | 4,541  |         |   |        | 2,348  |         |   |        | 3,722  |         
|                                                                         | In-process research and development         |                                        |        |       |         |   |        | 5,174  |         |   |        |       |         
|                                                                         | Restructuring and excess facilities charges |                                        |        | 9,782  |         |   |        | 18,813 |         |   |        | 38,084 |         
|                                                                         | Impairment of goodwill                      |                                        |        |       |         |   |        |       |         |   |        | 76,431 |         
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|                                                                         |                                             | Total operating expenses               |        |        | 133,034 |   |        |        | 123,729 |   |        |        | 237,727  |  
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|                                                                         |                                             | Loss from operations                   |        |        | (24,406 | ) |        |        | (49,861 | ) |        |        | (153,497 | )
|Interest income and other, net                                           |                                             |                                        | 1,725  |        |         |   | 3,401  |        |         |   | 5,958  |       
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|                                                                         |                                             | Loss before provision for income taxes |        |        | (22,681 | ) |        |        | (46,460 | ) |        |        | (147,539 | )
|Provision for income taxes                                               |                                             |                                        | 986    |        |         |   | 1,071  |        |         |   | 1,077  |       
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|                                                                         |                                             | Net loss                               |        | $      | (23,667 | ) |        | $      | (47,531 | ) |        | $      | (148,616 | )
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|Basic and diluted net loss per common share                              |                                             | $                                      | (0.58  | )      |         | $ | (1.72  | )      |         | $ | (5.80  | )     
|                                                                         |                                             |                                        |        |        |         |   |        |        |        
|Shares used in computing basic and diluted net loss per common
    share |                                             |                                        | 40,494 |        |         |   | 27,585 |        |         |   | 25,607 |       
|                                                                         |                                             |                                        |        |        |         |   |        |        |        



44



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INTERWOVEN, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


AND COMPREHENSIVE LOSS


For the Three Years Ended December 31, 2004


|                                                              |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |      |      |   |   |          |          |   |   |         |          |          |  
|------------------------------------------------------------- | --------------------------------- | ------------------ | ------ | - | -------------- | - | -- | ---------- |  | ----------- | ----------- | - |  | ------------- | ------- | - | ------------ | - | ------- | ------------- |  | - | ------- | - |  | ------ | ---- | ---- | - | - | -------- | -------- | - | - | ------- | -------- | -------- | -
|                                                              |                                   |                    |        |   |                |   |    |            |  | Accumulated |             |   |  |               |        
|                                                              |                                   | Common Stock       |        |   | Treasury Stock |   |    | Additional |  |             | Deferred    |   |  | Other         |         |   |              |   | Total   |              
|                                                              |                                   |                    |        |   |                |   |    | Paid-in    |  |             | Stock-based |   |  | Comprehensive |         |   | Accumulated  |   |         | Stockholders | 
|                                                              |                                   | Shares             |        |   | Amount         |   |    | Shares     |  |             | Amount      |   |  | Capital       |         |   | Compensation |   |         | Income (Loss) |  |   | Deficit |   |  | Equity |     
|                                                              |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |     
|                                                              |                                   | (In thousands)     |       
|Balances, January 1, 2002                                     |                                   |                    | 26,119 |   |                | $ | 26 |            |  |             | (197        | ) |  | $             | (3,594  | ) |              | $ | 553,085 |               |  | $ | (10,584 | ) |  | $      | 265  |      |   | $ | (187,193 | )        |   | $ | 352,005 |         
|Components of comprehensive loss:                             |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |      |      |   |   |          |          |   |   |         |         
|                                                              | Net loss                          |                    |        |  |                |   |    |           |  |             |             |  |  |               |         |  |              |   |         |              |  |   |         |  |  |        |      |     |   |   |          | (148,616 | ) |   |         | (148,616 | )       
|                                                              | Unrealized gain on investments    |                    |        |  |                |   |    |           |  |             |             |  |  |               |         |  |              |   |         |              |  |   |         |  |  |        |      | 58   |   |   |          |         |   |   |         | 58       |         
|                                                              |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |     
|                                                              |                                   | Comprehensive loss |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |      |      |   |   |          |          |   |   |         |          | (148,558 | )
|Treasury stock repurchased                                    |                                   |                    |       |   |                |   |   |            |  |             | (875        | ) |  |               | (10,067 | ) |              |   |        |               |  |   |        |   |  |        |     |      |   |   |         |          |   |   | (10,067 | )       
|Treasury stock retired                                        |                                   |                    | (1,072 | ) |                |   |   |            |  |             | 1,072       |   |  |               | 13,661  |   |              |   | (13,661 | )             |  |   |        |   |  |        |     |      |   |   |         |          |   |   |        |         
|Repurchase of common stock                                    |                                   |                    | (25    | ) |                |   |   |            |  |             |            |   |  |               |        |   |              |   | (24     | )             |  |   |        |   |  |        |     |      |   |   |         |          |   |   | (24     | )       
|Issuance of common stock under stock plans                    |                                   |                    | 612    |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   | 5,638   |               |  |   |        |   |  |        |     |      |   |   |         |          |   |   | 5,638   |         
|Deferred stock-based compensation                             |                                   |                    |       |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   |        |               |  |   | (1,724  | ) |  |        |     |      |   |   |         |          |   |   | (1,724  | )       
|Reversal of stock-based compensation for terminated employees |                                   |                    |       |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   | (5,742  | )             |  |   | 5,742   |   |  |        |     |      |   |   |         |          |   |   |        |         
|Amortization of stock-based compensation                      |                                   |                    |       |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   | 2,055   |               |  |   | 4,400   |   |  |        |     |      |   |   |         |          |   |   | 6,455   |         
|                                                              |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |     
|Balances, December 31, 2002                                   |                                   |                    | 25,634 |   |                |   | 26 |            |  |             |            |   |  |               |        |   |              |   | 541,351 |               |  |   | (2,166  | ) |  |        | 323  |      |   |   | (335,809 | )        |   |   | 203,725 |         
|Components of comprehensive loss:                             |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |      |      |   |   |          |          |   |   |         |         
|                                                              | Net loss                          |                    |        |  |                |   |    |           |  |             |             |  |  |               |         |  |              |   |         |              |  |   |         |  |  |        |      |     |   |   |          | (47,531  | ) |   |         | (47,531  | )       
|                                                              | Unrealized loss on investments    |                    |        |  |                |   |    |           |  |             |             |  |  |               |         |  |              |   |         |              |  |   |         |  |  |        |      | (298 | ) |   |          |         |   |   |         | (298     | )       
|                                                              |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |     
|                                                              |                                   | Comprehensive loss |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |      |      |   |   |          |          |   |   |         |          | (47,829  | )
|Stock issued and options assumed in acquisitions              |                                   |                    | 14,041 |   |                |   | 14 |            |  |             |            |   |  |               |        |   |              |   | 148,048 |               |  |   |        |   |  |        |     |      |   |   |         |          |   |   | 148,062 |         
|Repurchase of common stock                                    |                                   |                    | (24    | ) |                |   |   |            |  |             |            |   |  |               |        |   |              |   | (10     | )             |  |   |        |   |  |        |     |      |   |   |         |          |   |   | (10     | )       
|Issuance of common stock under stock plans                    |                                   |                    | 357    |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   | 2,459   |               |  |   |        |   |  |        |     |      |   |   |         |          |   |   | 2,459   |         
|Deferred stock-based compensation                             |                                   |                    |       |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   | 1,925   |               |  |   | (9,746  | ) |  |        |     |      |   |   |         |          |   |   | (7,821  | )       
|Amortization of stock-based compensation                      |                                   |                    |       |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   |        |               |  |   | 2,348   |   |  |        |     |      |   |   |         |          |   |   | 2,348   |         
|                                                              |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |     
|Balances, December 31, 2003                                   |                                   |                    | 40,008 |   |                |   | 40 |            |  |             |            |   |  |               |        |   |              |   | 693,773 |               |  |   | (9,564  | ) |  |        | 25   |      |   |   | (383,340 | )        |   |   | 300,934 |         
|Components of comprehensive loss:                             |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |      |      |   |   |          |          |   |   |         |         
|                                                              | Net loss                          |                    |        |  |                |   |    |           |  |             |             |  |  |               |         |  |              |   |         |              |  |   |         |  |  |        |      |     |   |   |          | (23,667  | ) |   |         | (23,667  | )       
|                                                              | Unrealized loss on investments    |                    |        |  |                |   |    |           |  |             |             |  |  |               |         |  |              |   |         |              |  |   |         |  |  |        |      | (264 | ) |   |          |         |   |   |         | (264     | )       
|                                                              | Cumulative translation adjustment |                    |        |  |                |   |    |           |  |             |             |  |  |               |         |  |              |   |         |              |  |   |         |  |  |        |      | 34   |   |   |          |         |   |   |         | 34       |         
|                                                              |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |     
|                                                              |                                   | Comprehensive loss |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |      |      |   |   |          |          |   |   |         |          | (23,897  | )
|Stock issued in acquisition                                   |                                   |                    | 118    |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   | 782     |               |  |   |        |   |  |        |     |      |   |   |         |          |   |   | 782     |         
|Issuance of common stock under stock plans                    |                                   |                    | 961    |   |                |   | 1  |            |  |             |            |   |  |               |        |   |              |   | 5,820   |               |  |   |        |   |  |        |     |      |   |   |         |          |   |   | 5,821   |         
|Reversal of stock-based compensation for terminated employees |                                   |                    |       |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   | (2,515  | )             |  |   | 2,515   |   |  |        |     |      |   |   |         |          |   |   |        |         
|Amortization of stock-based compensation                      |                                   |                    |       |   |                |   |   |            |  |             |            |   |  |               |        |   |              |   |        |               |  |   | 4,982   |   |  |        |     |      |   |   |         |          |   |   | 4,982   |         
|                                                              |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |     
|Balances, December 31, 2004                                   |                                   |                    | 41,087 |   |                | $ | 41 |            |  |             |            |   |  | $             |        |   |              | $ | 697,860 |               |  | $ | (2,067  | ) |  | $      | (205 | )    |   | $ | (407,007 | )        |   | $ | 288,622 |         
|                                                              |                                   |                    |        |   |                |   |    |            |  |             |             |   |  |               |         |   |              |   |         |               |  |   |         |   |  |        |     



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INTERWOVEN, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |       |        |         |          |        |         |         |  
|---------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------- | --------------------------------------------------- | ------ | ------- | ------- | ------- | ----- | ------ | ------- | -------- | ------ | ------- | ------- | -
|                                                                             |                                                                                 | Years Ended December 31,                                       |                                            
|                                                                             |                                                                                 |                                                                |                                            
|                                                                             |                                                                                 | 2004                                                           |                                             |                                                     | 2003   |         |         | 2002    |      
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|                                                                             |                                                                                 | (In thousands)                                                 |                                            
|Cash flows from operating activities:                                        |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |       |        |         |         
|                                                                             | Net loss                                                                        |                                                                | $                                           | (23,667                                             | )      |         | $       | (47,531 | )     |        | $       | (148,616 | )     
|                                                                             | Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                                |                                             |                                                     |        |         |         |         |       |        |         |          |       
|                                                                             |                                                                                 | Depreciation                                                   |                                             |                                                     | 4,276  |         |         |         | 6,312 |        |         |          | 8,647  |        
|                                                                             |                                                                                 | Amortization of deferred stock-based compensation              |                                             |                                                     | 4,982  |         |         |         | 2,348 |        |         |          | 4,880  |        
|                                                                             |                                                                                 | Amortization of intangible assets and purchased technology     |                                             |                                                     | 15,177 |         |         |         | 4,310 |        |         |          | 3,722  |        
|                                                                             |                                                                                 | Impairment of goodwill                                         |                                             |                                                     |       |         |         |         |      |        |         |          | 76,431 |        
|                                                                             |                                                                                 | In-process research and development                            |                                             |                                                     |       |         |         |         | 5,174 |        |         |          |       |        
|                                                                             |                                                                                 | Reduction in allowance for doubtful accounts and sales returns |                                             |                                                     | (612   | )       |         |         | (239  | )      |         |          | (252   | )      
|                                                                             |                                                                                 | Changes in operating assets and liabilities:                   |                                             |                                                     |        |         |         |         |       |        |         |          |        |        
|                                                                             |                                                                                 |                                                                | Accounts receivable                         |                                                     |        | 6,154   |         |         |       | (6,556 | )       |          |        | 12,729  |        
|                                                                             |                                                                                 |                                                                | Prepaid expenses and other assets           |                                                     |        | 579     |         |         |       | 638    |         |          |        | 304     |        
|                                                                             |                                                                                 |                                                                | Accounts payable and accrued liabilities    |                                                     |        | 528     |         |         |       | (4,318 | )       |          |        | (11,324 | )      
|                                                                             |                                                                                 |                                                                | Restructuring and excess facilities accrual |                                                     |        | (20,620 | )       |         |       | 2,070  |         |          |        | 25,101  |        
|                                                                             |                                                                                 |                                                                | Deferred revenues                           |                                                     |        | 5,971   |         |         |       | 5,021  |         |          |        | (2,736  | )      
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|                                                                             |                                                                                 |                                                                |                                             | Net cash used in operating activities               |        |         | (7,232  | )       |       |        | (32,771 | )        |        |         | (31,114 | )
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|Cash flows from investing activities:                                        |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |       |        |         |         
|                                                                             | Purchases of property and equipment                                             |                                                                |                                             | (2,670                                              | )      |         |         | (859    | )     |        |         | (1,967   | )     
|                                                                             | Purchases of investments                                                        |                                                                |                                             | (118,378                                            | )      |         |         | (93,153 | )     |        |         | (227,923 | )     
|                                                                             | Maturities and sales of investments                                             |                                                                |                                             | 117,249                                             |        |         |         | 122,051 |       |        |         | 249,035  |       
|                                                                             | Acquisition of businesses and technology, net of cash acquired                  |                                                                |                                             | (1,172                                              | )      |         |         | (9,502  | )     |        |         | (823     | )     
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|                                                                             |                                                                                 |                                                                |                                             | Net cash provided by (used in) investing activities |        |         | (4,971  | )       |       |        | 18,537  |          |        |         | 18,322  |  
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|Cash flows from financing activities:                                        |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |       |        |         |         
|                                                                             | Payment of bank borrowings                                                      |                                                                |                                             | (1,213                                              | )      |         |         | (201    | )     |        |         |         |       
|                                                                             | Net proceeds from issuance of common stock                                      |                                                                |                                             | 5,821                                               |        |         |         | 2,459   |       |        |         | 5,638    |       
|                                                                             | Repurchases of common stock and treasury stock                                  |                                                                |                                             |                                                    |        |         |         | (10     | )     |        |         | (10,091  | )     
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|                                                                             |                                                                                 |                                                                |                                             | Net cash provided by (used in) financing activities |        |         | 4,608   |         |       |        | 2,248   |          |        |         | (4,453  | )
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|Net decrease in cash and cash equivalents                                    |                                                                                 |                                                                | (7,595                                      | )                                                   |        |         | (11,986 | )       |       |        | (17,245 | )       
|Cash and cash equivalents at beginning of period                             |                                                                                 |                                                                | 30,061                                      |                                                     |        |         | 42,047  |         |       |        | 59,292  |         
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|Cash and cash equivalents at end of period                                   |                                                                                 | $                                                              | 22,466                                      |                                                     |        | $       | 30,061  |         |       | $      | 42,047  |         
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|Supplemental disclosures of non-cash investing and financing
    activities: |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |       |        |         |         
|                                                                             | Unrealized gain (loss) on investments                                           |                                                                | $                                           | (264                                                | )      |         | $       | (298    | )     |        | $       | 58       |       
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|                                                                             | Retirement of treasury stock                                                    |                                                                | $                                           |                                                    |        |         | $       |        |       |        | $       | 13,661   |       
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      
|                                                                             | Common stock issued and stock options assumed in acquisitions                   |                                                                | $                                           | 782                                                 |        |         | $       | 148,062 |       |        | $       |         |       
|                                                                             |                                                                                 |                                                                |                                             |                                                     |        |         |         |         |      



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                          
|-- | -------------------------
|1. | Organization and Business





|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation







| |                 
| | ----------------
| | Use of Estimates





| |                    
| | -------------------
| | Revenue Recognition

Software Revenue
Recognition, Modification of
SOP 97-2 Software Revenue Recognition with Respect
to Certain Transactions.




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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Persuasive evidence of an arrangement exists.


Delivery has occurred.


The fee is fixed or determinable.


Collectibility is probable.






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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                                                                
| | ---------------------------------------------------------------
| | Cash, Cash Equivalents and Short- and Long-Term
    Investments







| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |                            
| | ---------------------------
| | Allowance for Sales Returns





| |                      
| | ---------------------
| | Concentration of Risk



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                      
| | ---------------------
| | Financial Instruments

Derivative Instruments and Hedging Activities,






| |                       
| | ----------------------
| | Property and Equipment





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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets

Goodwill and Other Intangible
Assets,




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Step 1  The Company compares the fair value of its
    reporting unit to its carrying value, including goodwill. If the
    reporting units carrying value, including goodwill,
    exceeds the units fair value, the Company moves on to Step
    2. If the units fair value exceeds the carrying value, no
    further work is performed and no impairment charge is necessary.                                                                                                                                                                                                               
|
| |  | Step 2  The Company performs an allocation of the
    fair value of the reporting unit to its identifiable tangible
    and non-goodwill intangible assets and liabilities. This derives
    an implied fair value for the reporting units goodwill.
    The Company then compares the implied fair value of the
    reporting units goodwill with the carrying amount of the
    reporting units goodwill. If the carrying amount of the
    reporting units goodwill is greater than the implied fair
    value of its goodwill, an impairment charge would be recognized
    for the excess.









| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets

Accounting for the Impairment or Disposal of Long-Lived
Assets.




| |                                   
| | ----------------------------------
| | Restructuring and Related Expenses

Accounting for Costs Associated with Exit or Disposal
Activities. Liability Recognition for Certain Employee Termination
Benefits and Other Costs To Exit an Activity (Including Certain
Costs Associated with a Restructuring) Costs Associated with Lease


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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Modification or Termination.










| |            
| | -----------
| | Advertising





| |                           
| | --------------------------
| | Software Development Costs



52



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |             
| | ------------
| | Income Taxes

Accounting for Income Taxes




| |                         
| | ------------------------
| | Stock-based Compensation

Accounting
for Stock Issued to Employees, Accounting for Stock-Based Compensation. Accounting for
Stock Appreciation Rights and Other Variable Stock Option or
Awards Plans.




| |                                          
| | -----------------------------------------
| | Pro Forma Net Loss and Net Loss per Share



|                                             |                                                                                            |                          |   |         |      |  |   |         |   |  |   |          |  
|-------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                             |                                                                                            | Years Ended December 31, |  
|                                             |                                                                                            |                          |  
|                                             |                                                                                            | 2004                     |   |         | 2003 |  |   | 2002    |  
|                                             |                                                                                            |                          |   |         |      |  |   |         |  
|Net loss:                                    |                                                                                            |                          |   |         |      |  |   |         |   |  |   |         
|                                             | As reported                                                                                |                          | $ | (23,667 | )    |  | $ | (47,531 | ) |  | $ | (148,616 | )
|                                             | Stock-based employee compensation included in net loss as
    reported, net of related tax |                          |   | 4,982   |      |  |   | 2,348   |   |  |   | 6,455    |  
|                                             | Stock-based employee compensation using the fair value method,
    net of related tax      |                          |   | (19,411 | )    |  |   | (15,151 | ) |  |   | (24,806  | )
|                                             |                                                                                            |                          |   |         |      |  |   |         |  
|                                             | Pro forma                                                                                  |                          | $ | (38,096 | )    |  | $ | (60,334 | ) |  | $ | (166,967 | )
|                                             |                                                                                            |                          |   |         |      |  |   |         |  
|Basic and diluted net loss per common share: |                                                                                            |                          |   |         |      |  |   |         |   |  |   |         
|                                             | As reported                                                                                |                          | $ | (0.58   | )    |  | $ | (1.72   | ) |  | $ | (5.80    | )
|                                             | Pro forma                                                                                  |                          | $ | (0.94   | )    |  | $ | (2.19   | ) |  | $ | (6.52    | )



53



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                |  |                          |              |  |      |  |       |      |  |  |      |  
|--------------------------------------------------------------- |  | ------------------------ | ------------ |  | ---- |  | ----- | ---- |  |  | ---- | -
|                                                                |  | Years Ended December 31, |             
|                                                                |  |                          |             
|                                                                |  | 2004                     |              |  | 2003 |  |       | 2002 | 
|                                                                |  |                          |              |  |      |  |       |      | 
|Expected lives from vesting date (in years)  stock
    options |  |                          | 0.75-1.0     |  |      |  | 1.0   |      |  |  | 1.0  |  
|Risk-free interest rate  stock options                         |  |                          | 2.6%-3.7%    |  |      |  | 3.0   | %    |  |  | 3.8  | %
|Dividend yield                                                  |  |                          | 0.0%         |  |      |  | 0.0   | %    |  |  | 0.0  | %
|Volatility  stock options                                      |  |                          | 58.9%-118.9% |  |      |  | 115.1 | %    |  |  | 89.2 | %



|                                                   |  |                          |                |  |      |  |      |      |  |  |      |  
|-------------------------------------------------- |  | ------------------------ | -------------- |  | ---- |  | ---- | ---- |  |  | ---- | -
|                                                   |  | Years Ended December 31, |               
|                                                   |  |                          |               
|                                                   |  | 2004                     |                |  | 2003 |  |      | 2002 | 
|                                                   |  |                          |                |  |      |  |      |      | 
|Expected lives from vesting date (in years)  ESPP |  |                          | 0.5 to 2 years |  |      |  | 0.5  |      |  |  | 0.5  |  
|Risk-free interest rate  ESPP                     |  |                          | 1.1%-2.6%      |  |      |  | 1.0  | %    |  |  | 1.6  | %
|Dividend yield                                     |  |                          | 0.0%           |  |      |  | 0.0  | %    |  |  | 0.0  | %
|Volatility  ESPP                                  |  |                          | 45.0%-73.6%    |  |      |  | 56.8 | %    |  |  | 63.0 | %



| |                                                
| | -----------------------------------------------
| | Business Segment and Major Customer Information

Disclosures about Segments of an
Enterprise and Related Information,








| |                             
| | ----------------------------
| | Foreign Currency Translation



54



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Foreign Currency Translation,




| |                   
| | ------------------
| | Comprehensive Loss





|                                   |                                                          |                          |         |      |      |   |         |      |   |   |          |    | 
|---------------------------------- | -------------------------------------------------------- | ------------------------ | ------- | ---- | ---- | - | ------- | ---- | - | - | -------- | -- | 
|                                   |                                                          | Years Ended December 31, |        
|                                   |                                                          |                          |        
|                                   |                                                          | 2004                     |         |      | 2003 |   |         | 2002 |  
|                                   |                                                          |                          |         |      |      |   |         |      |  
|Net loss                           |                                                          | $                        | (23,667 | )    |      | $ | (47,531 | )    |   | $ | (148,616 | ) 
|Other comprehensive income (loss): |                                                          |                          |         |      |      |   |         |      |   |   |          |   
|                                   | Unrealized gain (loss) on available-for-sale investments |                          |         | (264 | )    |   |         | (298 | ) |   |          | 58 | 
|                                   | Cumulative translation adjustment                        |                          |         | 34   |      |   |         |     |   |   |          |   | 
|                                   |                                                          |                          |         |      |      |   |         |      |  
|                                   |                                                          |                          | (230    | )    |      |   | (298    | )    |   |   | 58       |   
|                                   |                                                          |                          |         |      |      |   |         |      |  
|Comprehensive loss                 |                                                          | $                        | (23,897 | )    |      | $ | (47,829 | )    |   | $ | (148,558 | ) 
|                                   |                                                          |                          |         |      |      |   |         |      |  



|                                                         |  |              |      |   |      |   |    |      |  |   |     | 
|-------------------------------------------------------- |  | ------------ | ---- | - | ---- | - | -- | ---- |  | - | --- | 
|                                                         |  | Years Ended  |     
|                                                         |  | December 31, |     
|                                                         |  |              |     
|                                                         |  | 2004         |      |   | 2003 |   |    | 2002 | 
|                                                         |  |              |      |   |      |   |    |      | 
|Unrealized gain (loss) on available-for-sale investments |  | $            | (239 | ) |      | $ | 25 |      |  | $ | 323 | 
|Cumulative translation adjustment                        |  |              | 34   |   |      |   |   |      |  |   |    | 
|                                                         |  |              |      |   |      |   |    |      | 
|                                                         |  | $            | (205 | ) |      | $ | 25 |      |  | $ | 323 | 
|                                                         |  |              |      |   |      |   |    |      | 



| |                          
| | -------------------------
| | Net Loss per Common Share





|                                            |                           |                          |         |        |      |   |         |        |  |   |          |        | 
|------------------------------------------- | ------------------------- | ------------------------ | ------- | ------ | ---- | - | ------- | ------ |  | - | -------- | ------ | 
|                                            |                           | Years Ended December 31, |        
|                                            |                           |                          |        
|                                            |                           | 2004                     |         |        | 2003 |   |         | 2002   | 
|                                            |                           |                          |         |        |      |   |         |        | 
|Net loss                                    |                           | $                        | (23,667 | )      |      | $ | (47,531 | )      |  | $ | (148,616 | )     
|Shares used in computing basic and diluted  |                           |                          |         |        |      |   |         |        |  |   |          |       
|                                            | net loss per common share |                          |         | 40,494 |      |   |         | 27,585 |  |   |          | 25,607 | 
|                                            |                           |                          |         |        |      |   |         |        | 
|Basic and diluted net loss per common share |                           | $                        | (0.58   | )      |      | $ | (1.72   | )      |  | $ | (5.80    | )     
|                                            |                           |                          |         |        |      |   |         |        | 

55



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##### Table of Contents



INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Pro Forma Net Loss and Net Loss per Share


Exchanges of Nonmonetary Assets  an amendment of
APB Opinion No. 29. Accounting for Nonmonetary Transactions,


Application of FASB Statement No. 109, Accounting
for Income Taxes, to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act
of 2004.


Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creations Act of
2004.


The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments


56



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##### Table of Contents



INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Revenue Recognition, , Revenue Recognition
in Financial Statements. Accounting for Revenue
Arrangements with Multiple Deliverables. Revenue Recognition
in Financial Statements  Frequently Asked Questions
and Answers


Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51.




|   |                         
|-- | ------------------------
|3. | Mergers and Acquisitions







57



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                         |                      |   |         |         | 
|---------------------------------------- | -------------------- | - | ------- | ------- | 
|Net tangible assets acquired             |                      | $ | 25,720  |        
|Customer list                            |                      |   | 11,056  |        
|Patent and patent applications           |                      |   | 4,032   |        
|Purchased technology                     |                      |   | 24,648  |        
|In-process research and development      |                      |   | 4,575   |        
|Intrinsic value of stock options assumed |                      |   | 7,821   |        
|Goodwill                                 |                      |   | 103,858 |        
|                                         |                      |   |        
|                                         | Total purchase price |   | $       | 181,710 | 
|                                         |                      |   |        







| |                                          
| | -----------------------------------------
| | Unaudited Pro Forma Results of Operations



|                                                                             |  |              |         |   |      |   |          |  
|---------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | -------- | -
|                                                                             |  | Years Ended  |        
|                                                                             |  | December 31, |        
|                                                                             |  |              |        
|                                                                             |  | 2003         |         |   | 2002 |  
|                                                                             |  |              |         |   |      |  
|Revenue(1)                                                                   |  | $            | 150,765 |   |      | $ | 168,158  |  
|Net loss(2)                                                                  |  | $            | (76,702 | ) |      | $ | (172,497 | )
|Basic and diluted earnings per share                                         |  | $            | (1.95   | ) |      | $ | (4.52    | )
|Weighted-average common shares and dilutive stock options
    outstanding(3) |  |              | 39,364  |   |      |   | 38,166   |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The pro forma results of operations for the years ended
    December 31, 2003 and 2002 include the reported revenues of
    iManage for the period from January 1, 2002 through
    November 18, 2003 in the periods iManage recognized such
    revenues. However, the purchase method of accounting requires
    the Company to reduce iManages reported deferred revenue
    to an amount equal to the fair value of the legal liability,
    resulting in lower revenue in periods following the merger than
    iManage would have achieved as a separate company. Therefore,
    revenues from iManage products for the period from
    November 18, 2003 to December 31, 2003 included in the
    pro forma results of operations reflect the lower amortization
    of deferred revenue stemming from this purchase accounting
    adjustment.
|   
|(2) | Pro forma net loss for 2003 includes in-process research and
    development costs of $4.6 million from the iManage
    acquisitions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

58



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | The calculations of weighted-average common shares and dilutive
    stock options outstanding for 2002 is calculated by multiplying
    the historical iManage common shares outstanding by the exchange
    rate of 0.523575 and adding this amount to the historical common
    shares outstanding of Interwoven, then taking into account a
    one-for-four reverse stock split in November 2003.





|                                    |                      |   |        |        | 
|----------------------------------- | -------------------- | - | ------ | ------ | 
|Net tangible liabilities acquired   |                      | $ | (2,557 | )     
|Customer list                       |                      |   | 220    |       
|Patent and patent applications      |                      |   | 474    |       
|Purchased technology                |                      |   | 2,721  |       
|In-process research and development |                      |   | 599    |       
|Goodwill                            |                      |   | 11,455 |       
|                                    |                      |   |       
|                                    | Total purchase price |   | $      | 12,912 | 
|                                    |                      |   |       





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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                  
|-- | -------------------------------------------------
|4. | Cash, cash equivalents and short-term investments



|                                                        |                                 |                              |         |                   |         |   |            |        |   |           |            |      |      |   |         |        |         | 
|------------------------------------------------------- | ------------------------------- | ---------------------------- | ------- | ----------------- | ------- | - | ---------- | ------ | - | --------- | ---------- | ---- | ---- | - | ------- | ------ | ------- | 
|                                                        |                                 |                              |         | December 31, 2004 |         |   |           
|                                                        |                                 |                              |         |                   |         |   |           
|                                                        |                                 |                              |         | Gross             |         |   | Gross      |        |   |          
|                                                        |                                 |                              |         | Unrealized        |         |   | Unrealized |        |   | Estimated |           
|                                                        |                                 | Cost                         |         |                   | Gains   |   |            | Losses |   |           | Fair Value |     
|                                                        |                                 |                              |         |                   |         |   |            |        |   |           |            |     
|Cash                                                    |                                 | $                            | 11,724  |                   |         | $ |           |        |   | $         |           |      |      | $ | 11,724  |       
|                                                        |                                 |                              |         |                   |         |   |            |        |   |           |            |     
|Cash equivalents:                                       |                                 |                              |         |                   |         |   |            |        |   |           |            |      |      |   |         |       
|                                                        | Money market funds              |                              |         | 10,742            |         |   |            |       |   |           |            |     |      |   |         | 10,742 |        
|                                                        |                                 |                              |         |                   |         |   |            |        |   |           |            |     
|                                                        |                                 | Total cash equivalents       |         |                   | 10,742  |   |            |        |  |           |            |      |     |   |         |        | 10,742  | 
|                                                        |                                 |                              |         |                   |         |   |            |        |   |           |            |     
|                                                        | Total cash and cash equivalents |                              |         | 22,466            |         |   |            |       |   |           |            |     |      |   |         | 22,466 |        
|                                                        |                                 |                              |         |                   |         |   |            |        |   |           |            |     
|Short-term investments:                                 |                                 |                              |         |                   |         |   |            |        |   |           |            |      |      |   |         |       
|                                                        | Government agencies             |                              |         | 68,055            |         |   |            | 1      |   |           |            | (213 | )    |   |         | 67,843 |        
|                                                        | Commercial paper                |                              |         | 6,383             |         |   |            |       |   |           |            | (2   | )    |   |         | 6,381  |        
|                                                        | Market auction preferred        |                              |         | 32,490            |         |   |            |       |   |           |            |     |      |   |         | 32,490 |        
|                                                        | Corporate obligations           |                              |         | 4,602             |         |   |            |       |   |           |            | (25  | )    |   |         | 4,577  |        
|                                                        |                                 |                              |         |                   |         |   |            |        |   |           |            |     
|                                                        |                                 | Total short-term investments |         |                   | 111,530 |   |            |        | 1 |           |            |      | (240 | ) |         |        | 111,291 | 
|                                                        |                                 |                              |         |                   |         |   |            |        |   |           |            |     
|Total cash, cash equivalents and short-term investments |                                 | $                            | 133,996 |                   |         | $ | 1          |        |   | $         | (240       | )    |      | $ | 133,757 |       
|                                                        |                                 |                              |         |                   |         |   |            |        |   |           |            |     

|                                                        |                                 |                              |         |                   |         |   |            |        |    |           |            |     |     |   |         |        |         | 
|------------------------------------------------------- | ------------------------------- | ---------------------------- | ------- | ----------------- | ------- | - | ---------- | ------ | -- | --------- | ---------- | --- | --- | - | ------- | ------ | ------- | 
|                                                        |                                 |                              |         | December 31, 2003 |         |   |           
|                                                        |                                 |                              |         |                   |         |   |           
|                                                        |                                 |                              |         | Gross             |         |   | Gross      |        |    |          
|                                                        |                                 |                              |         | Unrealized        |         |   | Unrealized |        |    | Estimated |           
|                                                        |                                 | Cost                         |         |                   | Gains   |   |            | Losses |    |           | Fair Value |    
|                                                        |                                 |                              |         |                   |         |   |            |        |    |           |            |    
|Cash                                                    |                                 | $                            | 14,163  |                   |         | $ |           |        |    | $         |           |     |     | $ | 14,163  |       
|                                                        |                                 |                              |         |                   |         |   |            |        |    |           |            |    
|Cash equivalents:                                       |                                 |                              |         |                   |         |   |            |        |    |           |            |     |     |   |         |       
|                                                        | Government agencies             |                              |         | 999               |         |   |            |       |    |           |            |    |     |   |         | 999    |        
|                                                        | Commercial paper                |                              |         | 4,995             |         |   |            |       |    |           |            |    |     |   |         | 4,995  |        
|                                                        | Money market funds              |                              |         | 9,904             |         |   |            |       |    |           |            |    |     |   |         | 9,904  |        
|                                                        |                                 |                              |         |                   |         |   |            |        |    |           |            |    
|                                                        |                                 | Total cash equivalents       |         |                   | 15,898  |   |            |        |   |           |            |     |    |   |         |        | 15,898  | 
|                                                        |                                 |                              |         |                   |         |   |            |        |    |           |            |    
|                                                        | Total cash and cash equivalents |                              |         | 30,061            |         |   |            |       |    |           |            |    |     |   |         | 30,061 |        
|                                                        |                                 |                              |         |                   |         |   |            |        |    |           |            |    
|Short-term investments:                                 |                                 |                              |         |                   |         |   |            |        |    |           |            |     |     |   |         |       
|                                                        | Government agencies             |                              |         | 43,065            |         |   |            | 22     |    |           |            | (13 | )   |   |         | 43,074 |        
|                                                        | Market auction preferred        |                              |         | 19,715            |         |   |            |       |    |           |            |    |     |   |         | 19,715 |        
|                                                        | Corporate obligations           |                              |         | 26,170            |         |   |            | 18     |    |           |            | (2  | )   |   |         | 26,186 |        
|                                                        | Certificates of deposit         |                              |         | 21,451            |         |   |            |       |    |           |            |    |     |   |         | 21,451 |        
|                                                        |                                 |                              |         |                   |         |   |            |        |    |           |            |    
|                                                        |                                 | Total short-term investments |         |                   | 110,401 |   |            |        | 40 |           |            |     | (15 | ) |         |        | 110,426 | 
|                                                        |                                 |                              |         |                   |         |   |            |        |    |           |            |    
|Total cash, cash equivalents and short-term investments |                                 | $                            | 140,462 |                   |         | $ | 40         |        |    | $         | (15        | )   |     | $ | 140,487 |       
|                                                        |                                 |                              |         |                   |         |   |            |        |    |           |            |    



60



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                      |  |                     |        |       |                     |   |      |       |       |   |            |  |  |       |     |   |            |   |        |  |  |   |      |  
|--------------------- |  | ------------------- | ------ | ----- | ------------------- | - | ---- | ----- | ----- | - | ---------- |  |  | ----- | --- | - | ---------- | - | ------ |  |  | - | ---- | -
|                      |  | Less than 12 Months |        |       | More than 12 Months |   |      | Total |      
|                      |  |                     |        |       |                     |   |      |       |      
|                      |  |                     |        | Gross |                     |   |      |       | Gross |   |            |  |  | Gross |    
|                      |  | Fair                |        |       | Unrealized          |   |      | Fair  |       |   | Unrealized |  |  | Fair  |     |   | Unrealized |  
|                      |  | Value               |        |       | Losses              |   |      | Value |       |   | Losses     |  |  | Value |     |   | Losses     |  
|                      |  |                     |        |       |                     |   |      |       |       |   |            |  |  |       |     |   |            |  
|Government agencies   |  | $                   | 36,502 |       |                     | $ | (131 | )     |       | $ | 35,910     |  |  | $     | (81 | ) |            | $ | 72,412 |  |  | $ | (212 | )
|Commercial paper      |  |                     | 452    |       |                     |   | (1   | )     |       |   | 1,000      |  |  |       | (2  | ) |            |   | 1,452  |  |  |   | (3   | )
|Corporate obligations |  |                     | 3,775  |       |                     |   | (20  | )     |       |   | 761        |  |  |       | (5  | ) |            |   | 4,536  |  |  |   | (25  | )
|                      |  |                     |        |       |                     |   |      |       |       |   |            |  |  |       |     |   |            |  
|                      |  | $                   | 40,729 |       |                     | $ | (152 | )     |       | $ | 37,671     |  |  | $     | (88 | ) |            | $ | 78,400 |  |  | $ | (240 | )
|                      |  |                     |        |       |                     |   |      |       |       |   |            |  |  |       |     |   |            |  





|                            |  |      |         |  |            |   |         | 
|--------------------------- |  | ---- | ------- |  | ---------- | - | ------- | 
|                            |  | Cost |         |  | Fair Value |  
|                            |  |      |         |  |            |  
|Due within one year         |  | $    | 69,211  |  |            | $ | 69,015  | 
|Due one year to five years  |  |      | 22,611  |  |            |   | 22,568  | 
|Due five years to ten years |  |      | 1,350   |  |            |   | 1,350   | 
|Due after ten years         |  |      | 29,100  |  |            |   | 29,100  | 
|                            |  |      |         |  |            |  
|                            |  | $    | 122,272 |  |            | $ | 122,033 | 
|                            |  |      |         |  |            |  



|   |                       
|-- | ----------------------
|5. | Property and Equipment



|                                                |  |              |        |  |      |   |        | 
|----------------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                                |  | December 31, |       
|                                                |  |              |       
|                                                |  | 2004         |        |  | 2003 |  
|                                                |  |              |        |  |      |  
|Computer software and equipment                 |  | $            | 28,442 |  |      | $ | 27,005 | 
|Furniture and office equipment                  |  |              | 3,773  |  |      |   | 3,939  | 
|Leasehold improvements                          |  |              | 10,604 |  |      |   | 10,026 | 
|                                                |  |              |        |  |      |  
|                                                |  |              | 42,819 |  |      |   | 40,970 | 
|Less: Accumulated depreciation and amortization |  |              | 36,988 |  |      |   | 33,567 | 
|                                                |  |              |        |  |      |  
|                                                |  | $            | 5,831  |  |      | $ | 7,403  | 
|                                                |  |              |        |  |      |  



61



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                     
|-- | ------------------------------------
|6. | Goodwill and Other Intangible Assets



|                                |                         |                |         |        |              |   |          |         |   |   |                |        |  |              |         |        |        |   |          |         |   |   |         |        | 
|------------------------------- | ----------------------- | -------------- | ------- | ------ | ------------ | - | -------- | ------- | - | - | -------------- | ------ |  | ------------ | ------- | ------ | ------ | - | -------- | ------- | - | - | ------- | ------ | 
|                                |                         | 2004           |         |        | 2003         |  
|                                |                         |                |         |        |              |  
|                                |                         | Gross Carrying |         |        | Accumulated  |   |          | Net     |   |   | Gross Carrying |        |  | Accumulated  |         |        | Net    |  
|                                |                         | Amount         |         |        | Amortization |   |          | Amount  |   |   | Amount         |        |  | Amortization |         |        | Amount |  
|                                |                         |                |         |        |              |   |          |         |   |   |                |        |  |              |         |        |        |  
|Purchased technology            |                         | $              | 34,971  |        |              | $ | (16,344  | )       |   | $ | 18,627         |        |  | $            | 33,343  |        |        | $ | (5,809   | )       |   | $ | 27,534  |       
|Patents and patent applications |                         |                | 4,506   |        |              |   | (1,690   | )       |   |   | 2,816          |        |  |              | 4,506   |        |        |   | (227     | )       |   |   | 4,279   |       
|Customer list                   |                         |                | 11,581  |        |              |   | (3,221   | )       |   |   | 8,360          |        |  |              | 11,277  |        |        |   | (373     | )       |   |   | 10,904  |       
|Acquired workforce              |                         |                | 464     |        |              |   | (232     | )       |   |   | 232            |        |  |              | 417     |        |        |   |         |         |   |   | 417     |       
|Non-compete agreements          |                         |                | 6,929   |        |              |   | (6,929   | )       |   |   |               |        |  |              | 6,929   |        |        |   | (6,929   | )       |   |   |        |       
|                                |                         |                |         |        |              |   |          |         |   |   |                |        |  |              |         |        |        |  
|                                | Other intangible assets |                |         | 58,451 |              |   |          | (28,416 | ) |   |                | 30,035 |  |              |         | 56,472 |        |   |          | (13,338 | ) |   |         | 43,134 | 
|Goodwill                        |                         |                | 367,035 |        |              |   | (181,571 | )       |   |   | 185,464        |        |  |              | 367,562 |        |        |   | (181,571 | )       |   |   | 185,991 |       
|                                |                         |                |         |        |              |   |          |         |   |   |                |        |  |              |         |        |        |  
|                                |                         | $              | 425,486 |        |              | $ | (209,987 | )       |   | $ | 215,499        |        |  | $            | 424,034 |        |        | $ | (194,909 | )       |   | $ | 229,125 |       
|                                |                         |                |         |        |              |   |          |         |   |   |                |        |  |              |         |        |        |  





|                                           |  |              |         |   |      |   |         | 
|------------------------------------------ |  | ------------ | ------- | - | ---- | - | ------- | 
|                                           |  | December 31, |        
|                                           |  |              |        
|                                           |  | 2004         |         |   | 2003 |  
|                                           |  |              |         |   |      |  
|Beginning balance                          |  | $            | 185,991 |   |      | $ | 70,564  | 
|Goodwill recorded in business combinations |  |              | 215     |   |      |   | 115,313 | 
|Subsequent goodwill adjustments            |  |              | (742    | ) |      |   | 114     | 
|                                           |  |              |         |   |      |  
|Ending balance                             |  | $            | 185,464 |   |      | $ | 185,991 | 
|                                           |  |              |         |   |      |  

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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                    
|-- | -------------------
|7. | Accrued Liabilities



|                          |  |              |        |  |      |   |        | 
|------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                          |  | December 31, |       
|                          |  |              |       
|                          |  | 2004         |        |  | 2003 |  
|                          |  |              |        |  |      |  
|Accrued compensation      |  | $            | 11,694 |  |      | $ | 13,939 | 
|Professional services     |  |              | 1,996  |  |      |   | 736    | 
|Accrued acquisition costs |  |              | 152    |  |      |   | 1,416  | 
|Deferred rent             |  |              | 4,056  |  |      |   | 2,508  | 
|Sales and income taxes    |  |              | 2,545  |  |      |   | 2,189  | 
|Other                     |  |              | 3,340  |  |      |   | 4,129  | 
|                          |  |              |        |  |      |  
|                          |  | $            | 23,783 |  |      | $ | 24,917 | 
|                          |  |              |        |  |      |  



|   |                                    
|-- | -----------------------------------
|8. | Restructuring and Excess Facilities





| |                     
| | --------------------
| | Workforce Reductions









| |                  
| | -----------------
| | Excess Facilities



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|                                                |  |                           |     |  |            |   |        |       |  |   |        |  
|----------------------------------------------- |  | ------------------------- | --- |  | ---------- | - | ------ | ----- |  | - | ------ | -
|                                                |  | Years Ending December 31, |    
|                                                |  |                           |    
|                                                |  | Work Force                |     |  | Excess     |   |        |      
|                                                |  | Reduction                 |     |  | Facilities |   |        | Total | 
|                                                |  |                           |     |  |            |   |        |       | 
|2005                                            |  | $                         | 656 |  |            | $ | 8,375  |       |  | $ | 9,031  |  
|2006                                            |  |                           |    |  |            |   | 7,495  |       |  |   | 7,495  |  
|2007                                            |  |                           |    |  |            |   | 5,875  |       |  |   | 5,875  |  
|2008                                            |  |                           |    |  |            |   | 1,612  |       |  |   | 1,612  |  
|2009                                            |  |                           |    |  |            |   | 1,196  |       |  |   | 1,196  |  
|Thereafter                                      |  |                           |    |  |            |   | 956    |       |  |   | 956    |  
|                                                |  |                           |     |  |            |   |        |       | 
|                                                |  |                           | 656 |  |            |   | 25,509 |       |  |   | 26,165 |  
|Present value discount of future lease payments |  |                           |    |  |            |   | (483   | )     |  |   | (483   | )
|                                                |  |                           |     |  |            |   |        |       | 
|                                                |  | $                         | 656 |  |            | $ | 25,026 |       |  | $ | 25,682 |  
|                                                |  |                           |     |  |            |   |        |       | 

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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                            |  |            |        |                |             |               |             |               |  |   |        |   |  |   |         |  
|------------------------------------------- |  | ---------- | ------ | -------------- | ----------- | ------------- | ----------- | ------------- |  | - | ------ | - |  | - | ------- | -
|                                            |  |            |        |                |             | Write-Down of |             |               | 
|                                            |  |            |        | Non-Cancelable |             |               | Leasehold   |               |  |  
|                                            |  |            |        | Lease          |             |               | Improvement |               |  |  
|                                            |  | Work Force |        |                | Commitments |               |             | and Operating |  |   |       
|                                            |  | Cost       |        |                | and Other   |               |             | Equipment     |  |   | Total  |  
|                                            |  |            |        |                |             |               |             |               |  |   |        |  
|Balance at January 1, 2002                  |  | $          |       |                |             | $             | 15,877      |               |  | $ |       |   |  | $ | 15,877  |  
|Restructuring and excess facilities charges |  |            | 8,110  |                |             |               | 28,768      |               |  |   | 1,206  |   |  |   | 38,084  |  
|Deferred rent reclassifications             |  |            |       |                |             |               | 752         |               |  |   |       |   |  |   | 752     |  
|Non-cash charges                            |  |            | (1,575 | )              |             |               |            |               |  |   | (1,206 | ) |  |   | (2,781  | )
|Cash payments                               |  |            | (5,493 | )              |             |               | (7,709      | )             |  |   |       |   |  |   | (13,202 | )
|                                            |  |            |        |                |             |               |             |               |  |   |        |  
|Balance at December 31, 2002                |  |            | 1,042  |                |             |               | 37,688      |               |  |   |       |   |  |   | 38,730  |  
|Restructuring and excess facilities charges |  |            | 5,748  |                |             |               | 13,065      |               |  |   |       |   |  |   | 18,813  |  
|Accrual recorded with iManage acquisition   |  |            | 2,622  |                |             |               | 3,128       |               |  |   |       |   |  |   | 5,750   |  
|Deferred rent reclassifications             |  |            |       |                |             |               | 759         |               |  |   |       |   |  |   | 759     |  
|Cash payments                               |  |            | (6,761 | )              |             |               | (11,172     | )             |  |   |       |   |  |   | (17,933 | )
|                                            |  |            |        |                |             |               |             |               |  |   |        |  
|Balance at December 31, 2003                |  |            | 2,651  |                |             |               | 43,468      |               |  |   |       |   |  |   | 46,119  |  
|Restructuring and excess facilities charges |  |            | 1,654  |                |             |               | 8,128       |               |  |   |       |   |  |   | 9,782   |  
|Cash payments and others                    |  |            | (3,649 | )              |             |               | (26,570     | )             |  |   |       |   |  |   | (30,219 | )
|                                            |  |            |        |                |             |               |             |               |  |   |        |  
|Balance at December 31, 2004                |  | $          | 656    |                |             | $             | 25,026      |               |  | $ |       |   |  | $ | 25,682  |  
|                                            |  |            |        |                |             |               |             |               |  |   |        |  



|   |                
|-- | ---------------
|9. | Bank Borrowings







|    |           
|--- | ----------
|10. | Guarantees

Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others an Interpretation of FASB Statements No. 5, 57 and
107 and Rescission of FASB Interpretation No. 34.


65



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                              
|--- | -----------------------------
|11. | Commitments and Contingencies





|           |  |                           |        |        |            |   |        |          |  |   |        | 
|---------- |  | ------------------------- | ------ | ------ | ---------- | - | ------ | -------- |  | - | ------ | 
|           |  | Years Ending December 31, |       
|           |  |                           |       
|           |  |                           |        | Future |           
|           |  | Occupied                  |        |        | Excess     |   |        | Lease    | 
|           |  | Facilities                |        |        | Facilities |   |        | Payments | 
|           |  |                           |        |        |            |   |        |          | 
|2005       |  | $                         | 9,251  |        |            | $ | 7,815  |          |  | $ | 17,066 | 
|2006       |  |                           | 8,349  |        |            |   | 7,332  |          |  |   | 15,681 | 
|2007       |  |                           | 4,932  |        |            |   | 5,498  |          |  |   | 10,430 | 
|2008       |  |                           | 736    |        |            |   | 1,991  |          |  |   | 2,727  | 
|2009       |  |                           | 691    |        |            |   | 1,258  |          |  |   | 1,949  | 
|Thereafter |  |                           | 5,091  |        |            |   | 1,049  |          |  |   | 6,140  | 
|           |  |                           |        |        |            |   |        |          | 
|           |  | $                         | 29,050 |        |            | $ | 24,943 |          |  | $ | 53,993 | 
|           |  |                           |        |        |            |   |        |          | 

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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












67



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##### Table of Contents



INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                     
|--- | --------------------
|12. | Stockholders Equity



| |                
| | ---------------
| | Preferred Stock





| |             
| | ------------
| | Common Stock





| |                    
| | -------------------
| | Reverse Stock Split





| |                         
| | ------------------------
| | Stock Repurchase Program







| |                            
| | ---------------------------
| | Employee Stock Option Plans



Employee Stock Purchase Plan




68



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Prior Stock Option Plans




1999 Equity Incentive Plan








69



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##### Table of Contents



INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


2000 Stock Incentive Plan






2003 Acquisition Plan




Stock Option Exchange Program




70



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Plan Activity




|                                                                                                              |  |                          |        |          |          |   |       |        |          |  |          |   |  |          |       |  |          |  |        |   |  |   |       | 
|------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | -------- | -------- | - | ----- | ------ | -------- |  | -------- | - |  | -------- | ----- |  | -------- |  | ------ | - |  | - | ----- | 
|                                                                                                              |  | Years Ended December 31, |       
|                                                                                                              |  |                          |       
|                                                                                                              |  | 2004                     |        |          | 2003     |   |       | 2002   |         
|                                                                                                              |  |                          |        |          |          |   |       |        |         
|                                                                                                              |  |                          |        | Weighted |          |   |       |        | Weighted |  |          |   |  | Weighted |      
|                                                                                                              |  | Number                   |        |          | Average  |   |       | Number |          |  | Average  |   |  | Number   |       |  | Average  | 
|                                                                                                              |  | of                       |        |          | Exercise |   |       | of     |          |  | Exercise |   |  | of       |       |  | Exercise | 
|                                                                                                              |  | Shares                   |        |          | Price    |   |       | Shares |          |  | Price    |   |  | Shares   |       |  | Price    | 
|                                                                                                              |  |                          |        |          |          |   |       |        |          |  |          |   |  |          |       |  |          | 
|Outstanding, beginning of period                                                                              |  |                          | 9,925  |          |          | $ | 25.83 |        |          |  | 6,467    |   |  | $        | 44.80 |  |          |  | 7,338  |   |  | $ | 57.84 | 
|Granted                                                                                                       |  |                          | 3,819  |          |          | $ | 10.12 |        |          |  | 2,355    |   |  | $        | 15.51 |  |          |  | 2,255  |   |  | $ | 16.60 | 
|Assumed                                                                                                       |  |                          |       |          |          |   |      |        |          |  | 3,100    |   |  | $        | 6.54  |  |          |  |       |   |  |   |      | 
|Canceled                                                                                                      |  |                          | (2,245 | )        |          | $ | 29.65 |        |          |  | (1,771   | ) |  | $        | 42.18 |  |          |  | (2,900 | ) |  | $ | 58.20 | 
|Exercised                                                                                                     |  |                          | (632   | )        |          | $ | 5.95  |        |          |  | (226     | ) |  | $        | 6.95  |  |          |  | (226   | ) |  | $ | 6.24  | 
|                                                                                                              |  |                          |        |          |          |   |       |        |          |  |          |   |  |          |       |  |          | 
|Outstanding, end of period                                                                                    |  |                          | 10,867 |          |          | $ | 20.58 |        |          |  | 9,925    |   |  | $        | 25.83 |  |          |  | 6,467  |   |  | $ | 44.80 | 
|                                                                                                              |  |                          |        |          |          |   |       |        |          |  |          |   |  |          |       |  |          | 
|Exercisable, end of period                                                                                    |  |                          | 6,117  |          |          |   |       |        |          |  | 5,683    |   |  |          |       |  |          |  | 3,225  |   |  |   |       | 
|                                                                                                              |  |                          |        |          |          |   |       |        |          |  |          |   |  |          |       |  |          | 
|Weighted average fair value of options granted with exercise
    prices equal to fair value at date of grant  |  |                          | 3,819  |          |          | $ | 7.23  |        |          |  | 2,355    |   |  | $        | 6.94  |  |          |  | 2,255  |   |  | $ | 9.81  | 
|Weighted average fair value of options granted with exercise
    prices less than fair value at date of grant |  |                          |       |          |          | $ |      |        |          |  | 500      |   |  | $        | 10.78 |  |          |  |       |   |  | $ |      | 



|                     |  |          |                     |  |              |  |      |          |  |          |         |  |  |          |       |  |  |   |        | 
|-------------------- |  | -------- | ------------------- |  | ------------ |  | ---- | -------- |  | -------- | ------- |  |  | -------- | ----- |  |  | - | ------ | 
|Options Outstanding  |  |          |                    
|                     |  |          | Options Exercisable | 
|                     |  | Weighted |                     |  |              |  |      |         
|                     |  | Average  |                     |  | Weighted     |  |      |          |  | Weighted |        
|                     |  | Number   |                     |  | Remaining    |  |      | Average  |  |          | Number  |  |  | Average  |      
|                     |  | of       |                     |  | Contractual  |  |      | Exercise |  |          | of      |  |  | Exercise |      
|Exercise Prices      |  | Options  |                     |  | Life (Years) |  |      | Price    |  |          | Options |  |  | Price    |      
|                     |  |          |                     |  |              |  |      |          |  |          |         |  |  |          |      
|$  0.18 to $    6.37 |  |          | 1,585               |  |              |  | 6.49 |          |  | $        | 4.56    |  |  |          | 1,339 |  |  | $ | 4.53   | 
|$  6.60 to $    8.80 |  |          | 1,526               |  |              |  | 8.58 |          |  | $        | 7.48    |  |  |          | 729   |  |  | $ | 7.21   | 
|$  8.83 to $    8.83 |  |          | 1,647               |  |              |  | 9.47 |          |  | $        | 8.83    |  |  |          | 208   |  |  | $ | 8.83   | 
|$  9.07 to $   11.76 |  |          | 1,374               |  |              |  | 8.72 |          |  | $        | 10.05   |  |  |          | 518   |  |  | $ | 10.34  | 
|$ 11.92 to $   13.72 |  |          | 1,481               |  |              |  | 8.54 |          |  | $        | 13.56   |  |  |          | 536   |  |  | $ | 13.49  | 
|$ 14.00 to $   38.96 |  |          | 1,379               |  |              |  | 7.09 |          |  | $        | 19.75   |  |  |          | 935   |  |  | $ | 20.24  | 
|$ 42.75 to $ 162.50  |  |          | 1,868               |  |              |  | 5.12 |          |  | $        | 68.31   |  |  |          | 1,845 |  |  | $ | 68.40  | 
|$179.32 to $1,116.28 |  |          | 7                   |  |              |  | 4.87 |          |  | $        | 250.02  |  |  |          | 7     |  |  | $ | 250.02 | 
|                     |  |          |                     |  |              |  |      |          |  |          |         |  |  |          |      
|                     |  |          | 10,867              |  |              |  | 7.64 |          |  | $        | 20.58   |  |  |          | 6,117 |  |  | $ | 28.22  | 
|                     |  |          |                     |  |              |  |      |          |  |          |         |  |  |          |      



71



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                         
| | ------------------------
| | Stock-based Compensation



|                                     |  |                          |       |  |      |   |       |      |  |   |       | 
|------------------------------------ |  | ------------------------ | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                     |  | Years Ended December 31, |      
|                                     |  |                          |      
|                                     |  | 2004                     |       |  | 2003 |   |       | 2002 | 
|                                     |  |                          |       |  |      |   |       |      | 
|Cost of support and service revenues |  | $                        | 319   |  |      | $ | 57    |      |  | $ | 118   | 
|Sales and marketing                  |  |                          | 1,708 |  |      |   | 957   |      |  |   | 2,872 | 
|Research and development             |  |                          | 1,049 |  |      |   | 1,157 |      |  |   | 1,632 | 
|General and administrative           |  |                          | 1,906 |  |      |   | 177   |      |  |   | 258   | 
|                                     |  |                          |       |  |      |   |       |      | 
|                                     |  | $                        | 4,982 |  |      | $ | 2,348 |      |  | $ | 4,880 | 
|                                     |  |                          |       |  |      |   |       |      | 









|    |                          
|--- | -------------------------
|13. | Interest Income and Other



|                             |  |                          |       |   |      |   |       |      |  |   |       |  
|---------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                             |  | Years Ended December 31, |      
|                             |  |                          |      
|                             |  | 2004                     |       |   | 2003 |   |       | 2002 | 
|                             |  |                          |       |   |      |   |       |      | 
|Interest income              |  | $                        | 1,962 |   |      | $ | 2,471 |      |  | $ | 4,452 |  
|Interest expense             |  |                          | (43   | ) |      |   | (12   | )    |  |   |      |  
|Foreign currency gain (loss) |  |                          | (73   | ) |      |   | 943   |      |  |   | 1,659 |  
|Other                        |  |                          | (121  | ) |      |   | (1    | )    |  |   | (153  | )
|                             |  |                          |       |   |      |   |       |      | 
|                             |  | $                        | 1,725 |   |      | $ | 3,401 |      |  | $ | 5,958 |  
|                             |  |                          |       |   |      |   |       |      | 



72



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |             
|--- | ------------
|14. | Income Taxes



|              |  |                          |         |   |      |   |         |      |  |   |          |  
|------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|              |  | Years Ended December 31, |        
|              |  |                          |        
|              |  | 2004                     |         |   | 2003 |   |         | 2002 | 
|              |  |                          |         |   |      |   |         |      | 
|United States |  | $                        | (24,021 | ) |      | $ | (48,187 | )    |  | $ | (149,788 | )
|Foreign       |  |                          | 1,340   |   |      |   | 1,727   |      |  |   | 2,249    |  
|              |  |                          |         |   |      |   |         |      | 
|              |  | $                        | (22,681 | ) |      | $ | (46,460 | )    |  | $ | (147,539 | )
|              |  |                          |         |   |      |   |         |      | 



|         |         |                          |     |     |      |   |       |      |  |   |       |     | 
|-------- | ------- | ------------------------ | --- | --- | ---- | - | ----- | ---- |  | - | ----- | --- | 
|         |         | Years Ended December 31, |    
|         |         |                          |    
|         |         | 2004                     |     |     | 2003 |   |       | 2002 | 
|         |         |                          |     |     |      |   |       |      | 
|Current: |         |                          |     |     |      |   |       |      |  |   |       |    
|         | State   |                          | $   | 107 |      |   | $     | 121  |  |   | $     | 140 | 
|         | Foreign |                          |     | 879 |      |   |       | 950  |  |   |       | 937 | 
|         |         |                          |     |     |      |   |       |      | 
|         |         | $                        | 986 |     |      | $ | 1,071 |      |  | $ | 1,077 |    
|         |         |                          |     |     |      |   |       |      | 



|                                                    |  |                          |        |   |      |   |         |      |  |   |         |  
|--------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                    |  | Years Ended December 31, |       
|                                                    |  |                          |       
|                                                    |  | 2004                     |        |   | 2003 |   |         | 2002 | 
|                                                    |  |                          |        |   |      |   |         |      | 
|Income tax benefit at federal statutory rate of 34% |  | $                        | (7,711 | ) |      | $ | (15,796 | )    |  | $ | (50,163 | )
|State taxes, net of federal benefits                |  |                          | 71     |   |      |   | 80      |      |  |   | 93      |  
|Non-deductible intangible assets                    |  |                          | 184    |   |      |   | 221     |      |  |   | 26,895  |  
|Amortization of stock-based compensation            |  |                          | 1,180  |   |      |   | 741     |      |  |   | 1,627   |  
|In-process research and development                 |  |                          |       |   |      |   | 1,759   |      |  |   |        |  
|Tax credit                                          |  |                          | (128   | ) |      |   | (71     | )    |  |   | (781    | )
|Timing differences not currently benefited          |  |                          | 6,448  |   |      |   | 13,764  |      |  |   | 23,386  |  
|Other                                               |  |                          | 942    |   |      |   | 373     |      |  |   | 20      |  
|                                                    |  |                          |        |   |      |   |         |      | 
|                                                    |  | $                        | 986    |   |      | $ | 1,071   |      |  | $ | 1,077   |  
|                                                    |  |                          |        |   |      |   |         |      | 



73



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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                          |                                             |              |        |          |      |   |        |          |  
|------------------------- | ------------------------------------------- | ------------ | ------ | -------- | ---- | - | ------ | -------- | -
|                          |                                             | December 31, |       
|                          |                                             |              |       
|                          |                                             | 2004         |        |          | 2003 |  
|                          |                                             |              |        |          |      |  
|Deferred tax assets:      |                                             |              |        |          |      |   |        |         
|                          | Net operating loss carryforwards            |              | $      | 90,057   |      |   | $      | 84,998   |  
|                          | Deferred revenues                           |              |        | 1,543    |      |   |        | 1,820    |  
|                          | Restructuring and excess facilities charges |              |        | 9,721    |      |   |        | 16,492   |  
|                          | Accrued liabilities and allowances          |              |        | 4,609    |      |   |        | 5,447    |  
|                          | Tax credit carryforwards                    |              |        | 13,836   |      |   |        | 10,325   |  
|                          | Depreciation and amortization               |              |        | 17,307   |      |   |        | 10,920   |  
|                          | Valuation allowance                         |              |        | (126,485 | )    |   |        | (114,377 | )
|                          |                                             |              |        |          |      |  
|                          |                                             |              | 10,588 |          |      |   | 15,625 |         
|Deferred tax liabilities: |                                             |              |        |          |      |   |        |         
|                          | Non-deductible intangible assets            |              |        | (10,588  | )    |   |        | (15,625  | )
|                          |                                             |              |        |          |      |  
|                          |                                             | $            |       |          |      | $ |       |         
|                          |                                             |              |        |          |      |  









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INTERWOVEN, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                       
|--- | ------------------------------------------------------
|15. | Significant Customer Information and Segment Reporting

Disclosures about Segments of an
Enterprise and Related Information,






|          |               |                          |         |         |      |   |         |        |  |   |         |        | 
|--------- | ------------- | ------------------------ | ------- | ------- | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|          |               | Years Ended December 31, |        
|          |               |                          |        
|          |               | 2004                     |         |         | 2003 |   |         | 2002   | 
|          |               |                          |         |         |      |   |         |        | 
|Revenues: |               |                          |         |         |      |   |         |        |  |   |         |       
|          | United States |                          | $       | 105,323 |      |   | $       | 71,753 |  |   | $       | 83,304 | 
|          | International |                          |         | 55,065  |      |   |         | 39,759 |  |   |         | 43,528 | 
|          |               |                          |         |         |      |   |         |        | 
|          |               | $                        | 160,388 |         |      | $ | 111,512 |        |  | $ | 126,832 |       
|          |               |                          |         |         |      |   |         |        | 

|                                        |               |              |        |        |      |   |        |        | 
|--------------------------------------- | ------------- | ------------ | ------ | ------ | ---- | - | ------ | ------ | 
|                                        |               | December 31, |       
|                                        |               |              |       
|                                        |               | 2004         |        |        | 2003 |  
|                                        |               |              |        |        |      |  
|Long-lived assets (excluding goodwill): |               |              |        |        |      |   |        |       
|                                        | United States |              | $      | 35,248 |      |   | $      | 49,624 | 
|                                        | International |              |        | 618    |      |   |        | 913    | 
|                                        |               |              |        |        |      |  
|                                        |               | $            | 35,866 |        |      | $ | 50,537 |       
|                                        |               |              |        |        |      |  



|                 |  |                          |         |  |      |   |         |      |  |   |         | 
|---------------- |  | ------------------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                 |  | Years Ended December 31, |        
|                 |  |                          |        
|                 |  | 2004                     |         |  | 2003 |   |         | 2002 | 
|                 |  |                          |         |  |      |   |         |      | 
|License          |  | $                        | 67,341  |  |      | $ | 45,936  |      |  | $ | 57,309  | 
|Customer support |  |                          | 65,219  |  |      |   | 42,406  |      |  |   | 39,768  | 
|Consulting       |  |                          | 23,553  |  |      |   | 19,028  |      |  |   | 24,120  | 
|Training         |  |                          | 4,275   |  |      |   | 4,142   |      |  |   | 5,635   | 
|                 |  |                          |         |  |      |   |         |      | 
|                 |  | $                        | 160,388 |  |      | $ | 111,512 |      |  | $ | 126,832 | 
|                 |  |                          |         |  |      |   |         |      | 

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SIGNATURES






| |                 
| | ----------------
| | INTERWOVEN, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ MARTIN W. BRAUNS

| |                                       
| | --------------------------------------
| |                                       
| | Martin W. Brauns                      
| | President, Chief Executive Officer and
| | Chairman of the Board of Directors    
|
| | Date: March 15, 2005                  



|                                                     |  |                                                                                                             |  |                |  | 
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                            |  | Title                                                                                                       |  | Date          
|                                                     |  |                                                                                                             |  |               
|                                                    
|/s/ MARTIN W. BRAUNSMartin
    W. Brauns             |  | President, Chief Executive Officer and Chairman of the Board of
    Directors (Principal Executive Officer) |  | March 15, 2005
|                                                    
|/s/ JOHN E. CALONICO, JR.John
    E. Calonico, Jr.   |  | Senior Vice President and Chief Financial Officer (Principal
    Financial and Accounting Officer)          |  | March 15, 2005
|                                                    
|/s/ RONALD E.F. CODDRonald
    E.F. Codd             |  | Director                                                                                                    |  | March 15, 2005
|                                                    
|/s/ BOB L. COREYBob
    L. Corey                     |  | Director                                                                                                    |  | March 15, 2005
|                                                    
|/s/ FRANK J. FANZILLI, JR.Frank
    J. Fanzilli, Jr. |  | Director                                                                                                    |  | March 15, 2005
|                                                    
|/s/ THOMAS L. THOMASThomas
    L. Thomas             |  | Director                                                                                                    |  | March 15, 2005
|                                                    
|/s/ ANTHONY ZINGALEAnthony
    Zingale               |  | Director                                                                                                    |  | March 15, 2005

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INTERWOVEN, INC.


EXHIBITS TO FORM 10-K ANNUAL REPORT


For the year ended December 31, 2004


|       |    |               |  |                                                                                                                                                          |  |       |  |          |  |          |       |  |  |  |   | 
|------ | -- | ------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | -------- |  | -------- | ----- |  |  |  | - | 
|       |    |               |  | Incorporated by Reference                                                                                                                               
|       |    |               |  |                                                                                                                                                         
|       |    |               |  |                                                                                                                                                          |  | Filed
|Number |    | Exhibit Title |  | Form                                                                                                                                                     |  | Date  |  | Number   |  | Herewith
|       |    |               |  |                                                                                                                                                          |  |       |  |          |  |         
|       | 2  | .01           |  | Merger Agreement dated August 6, 2003, by and among
    Registrant, iManage, Inc. and Mahogany Acquisition Corporation                                   |  | 8-K   |  | 08/08/03 |  |          | 2.01  |  |  |  |   | 
|       | 3  | .01           |  | Registrants Fourth Amended and Restated Certificate of
    Incorporation                                                                                |  | S-8   |  | 11/19/03 |  |          | 4.08  |  |  |  |   | 
|       | 3  | .02           |  | Registrants Amended and Restated Bylaws                                                                                                                 |  | 10-K  |  | 06/20/01 |  |          | 3.03  |  |  |  |   | 
|       | 4  | .01           |  | Form of Certificate for Registrants common stock                                                                                                        |  | S-1   |  | 09/23/99 |  |          | 4.01  |  |  |  |   | 
|       | 10 | .01           |  | Form of Indemnity Agreement between Registrant and each of its
    directors and executive officers                                                      |  | S-1   |  | 07/27/99 |  |          | 10.01 |  |  |  |   | 
|       | 10 | .02*          |  | 1996 Stock Option Plan and related agreements                                                                                                            |  | S-1   |  | 07/27/99 |  |          | 10.02 |  |  |  |   | 
|       | 10 | .03*          |  | 1998 Stock Option Plan and related agreements                                                                                                            |  | S-1   |  | 07/27/99 |  |          | 10.03 |  |  |  |   | 
|       | 10 | .04*          |  | 1999 Equity Incentive Plan                                                                                                                               |  | S-8   |  | 01/24/01 |  |          | 4.01  |  |  |  |   | 
|       | 10 | .05*          |  | Forms of Option Agreements and Stock Option Exercise Agreements
    related to the 1999 Equity Incentive Plan                                            |  | S-1   |  | 09/03/99 |  |          | 10.04 |  |  |  |   | 
|       | 10 | .06*          |  | 1999 Employee Stock Purchase Plan                                                                                                                        |  | S-8   |  | 01/24/01 |  |          | 4.03  |  |  |  |   | 
|       | 10 | .07*          |  | Forms of Enrollment Form, Subscription Agreement, Notice of
    Withdrawal and Notice of Suspension related to the 1999 Employee
    Stock Purchase Plan |  | S-1   |  | 09/03/99 |  |          | 10.05 |  |  |  |   | 
|       | 10 | .08*          |  | 2000 Stock Incentive Plan                                                                                                                                |  | S-8   |  | 09/26/00 |  |          | 4.01  |  |  |  |   | 
|       | 10 | .09*          |  | Forms of Stock Option Agreement and Stock Option Exercise
    Agreements related to the 2000 Stock Incentive Plan                                        |  | S-8   |  | 06/22/00 |  |          | 4.03  |  |  |  |   | 
|       | 10 | .10*          |  | Forms of Incentive Stock Option Agreement and Nonstatutory Stock
    Option Agreement under iManage, Inc. 1997 Stock Option Plan                         |  | S-8   |  | 11/19/03 |  |          | 4.02  |  |  |  |   | 
|       | 10 | .11*          |  | iManage, Inc. 2000 Non-Officer Stock Option Plan and related
    forms of stock option and option exercise agreements                                    |  | S-8   |  | 11/19/03 |  |          | 4.03  |  |  |  |   | 
|       | 10 | .12*          |  | 2003 Acquisition Plan and related forms of stock option and
    option exercise agreement                                                                |  | S-8   |  | 11/19/03 |  |          | 4.07  |  |  |  |   | 
|       | 10 | .13           |  | Regional Prototype Profit Sharing Plan and Trust/ Account
    Standard Plan Adoption Agreement AA #001                                                   |  | S-1   |  | 07/27/99 |  |          | 10.06 |  |  |  |   | 
|       | 10 | .14*          |  | Description of Director Compensation                                                                                                                     |  |       |  |          |  |          |       |  |  |  | X | 
|       | 10 | .15*          |  | Employment Agreement between Registrant and Martin W. Brauns
    dated February 27, 1998                                                                 |  | S-1   |  | 07/27/99 |  |          | 10.07 |  |  |  |   | 
|       | 10 | .16*          |  | Employment arrangement between Registrant and Martin W. Brauns                                                                                           |  | 10-Q  |  | 08/13/03 |  |          | 10.04 |  |  |  |   | 
|       | 10 | .17*          |  | Compensatory Arrangements with Executive Officers                                                                                                        |  |       |  |          |  |          |       |  |  |  | X | 
|       | 10 | .18*         |  | 2005 Executive Officer Incentive Bonus Plan                                                                                                              |  |       |  |          |  |          |       |  |  |  | X | 
|       | 10 | .19*          |  | Form of Amendment No. 1 to Stock Option Agreement between
    Registrant and each of the officers identified in this exhibit                             |  | 10-Q  |  | 11/13/02 |  |          | 10.01 |  |  |  |   | 

77



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##### Table of Contents



|       |    |               |  |                                                                                                                                                                        |  |       |  |          |  |          |       |   |  |  |   | 
|------ | -- | ------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | -------- |  | -------- | ----- | - |  |  | - | 
|       |    |               |  | Incorporated by Reference                                                                                                                                             
|       |    |               |  |                                                                                                                                                                       
|       |    |               |  |                                                                                                                                                                        |  | Filed
|Number |    | Exhibit Title |  | Form                                                                                                                                                                   |  | Date  |  | Number   |  | Herewith
|       |    |               |  |                                                                                                                                                                        |  |       |  |          |  |         
|       | 10 | .20*          |  | Notice of Grant of Stock Options and Option Agreement and
    related Stock Option Agreement between Registrant and each of
    the officers identified in the exhibit |  | 10-Q  |  | 08/13/03 |  |          | 10.01 |   |  |  |   | 
|       | 10 | .21*          |  | Notice of Grant of Stock Options and Option Agreement and
    related Stock Option Agreement between Martin W. Brauns                                                  |  | 10-Q  |  | 08/13/03 |  |          | 10.02 |   |  |  |   | 
|       | 10 | .22         |  | Preferred Stock Warrant to Purchase Shares of Series E
    Preferred Stock of Registrant                                                                               |  | S-1   |  | 09/03/99 |  |          | 10.25 |   |  |  |   | 
|       | 10 | .23           |  | Ariba Plaza Sublease dated June 28, 2001 between Registrant
    and Ariba, Inc.                                                                                        |  | 10-Q  |  | 08/14/01 |  |          | 10.01 |   |  |  |   | 
|       | 10 | .24           |  | Amended and Restated Ariba Plaza Sublease dated August 6,
    2001 between Registrant and Ariba, Inc.                                                                  |  | 10-Q  |  | 11/14/01 |  |          | 10.01 |   |  |  |   | 
|       | 10 | .25           |  | Amended and Restated First Amendment to Amended and Restated
    Sublease dated May 6, 2001 between Registrant and Ariba,
    Inc.                                     |  | 10-Q  |  | 11/08/04 |  |          | 10.01 |   |  |  |   | 
|       | 10 | .26           |  | Office Lease for 303 East Wacker, Chicago, Illinois between 303
    Wacker Realty LLC and iManage, Inc. dated March, 17, 2003                                          |  | (1)   |  | (1)      |  |          | (1    | ) |  |  |   | 
|       | 10 | .27           |  | First Amendment to Lease dated November 12, 2003 between
    iManage, Inc. and 303 Wacker Realty LLC                                                                   |  |       |  |          |  |          |       |   |  |  | X | 
|       | 10 | .28           |  | Sublease between Hyperion Solutions Corporation and iManage,
    Inc. dated January 17, 2002                                                                           |  | (2)   |  | (2)      |  |          | (2    | ) |  |  |   | 
|       | 10 | .29           |  | Revolving Line of Credit Note dated August 2, 2001, between
    Registrant and Wells Fargo Bank                                                                        |  | 10-Q  |  | 08/14/01 |  |          | 10.02 |   |  |  |   | 
|       | 10 | .30           |  | Amendment to Line of Credit Agreement dated June 1, 2004
    between Registrant and Wells Fargo Bank                                                                   |  | 10-Q  |  | 11/08/04 |  |          | 10.02 |   |  |  |   | 
|       | 21 | .01           |  | Subsidiaries of the Registrant                                                                                                                                         |  |       |  |          |  |          |       |   |  |  | X | 
|       | 23 | .01           |  | Consent of Independent Registered Public Accounting Firm                                                                                                               |  |       |  |          |  |          |       |   |  |  | X | 
|       | 31 | .01           |  | Rule 13a-14(a)/15d-15(a) certification of the Chief
    Executive Officer                                                                                              |  |       |  |          |  |          |       |   |  |  | X | 
|       | 31 | .02           |  | Rule 13a-14(a)/15d-15(a) certification of the Chief
    Financial Officer                                                                                              |  |       |  |          |  |          |       |   |  |  | X | 
|       | 32 | .01           |  | Section 1350 certification of Chief Executive Officer                                                                                                                  |  |       |  |          |  |          |       |   |  |  | X | 
|       | 32 | .02           |  | Section 1350 certification of the Chief Financial Officer                                                                                                              |  |       |  |          |  |          |       |   |  |  | X | 






|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to Exhibit 10.18 of the iManage,
    Inc. Annual Report Form 10-K filed with the Commission on
    March 26, 2003.
|   
|(2) | Incorporated by reference to Exhibit 10.13 of the iManage,
    Inc. Annual Report Form 10-K filed with the Commission on
    March 29, 2002.



| |   |                                                       
| | - | ------------------------------------------------------
| | * | Management contract, compensatory plan or arrangement.



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Confidential treatment has been requested with regard to certain
    portions of this document. Such portions were filed separately
    with the Commission.



| |    |                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------
| |  | Portions of this exhibit have been omitted pursuant to an order
    granting confidential treatment.

78