ALLAIRE CORP, S-1, 1999-09-03

ALLAIRE CORP
S-1, 1999-09-03
PREPACKAGED SOFTWARE

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1999

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

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

ALLAIRE CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7372 41-1830792
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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

ONE ALEWIFE CENTER
CAMBRIDGE, MASSACHUSETTS 02140
(617) 761-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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

DAVID J. ORFAO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALLAIRE CORPORATION
ONE ALEWIFE CENTER
CAMBRIDGE, MASSACHUSETTS 02140
(617) 761-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

COPIES TO:

<TABLE>
<S> <C>
ROBERT L. BIRNBAUM, ESQ. WILLIAM J. SCHNOOR, JR., ESQ.
WILLIAM R. KOLB, ESQ. BRIAN D. GOLDSTEIN, ESQ.
RICHARD G. COSTELLO, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
FOLEY, HOAG & ELIOT LLP 125 High Street
One Post Office Square Boston, Massachusetts 02110
Boston, Massachusetts 02109 (617) 248-7000
(617) 832-1000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

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

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED
AMOUNT MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS OF TO BE REGISTERED PRICE PER SHARE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED (1) (2) OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,587,500 $48.75 $126,140,625 $35,067
</TABLE>

(1) Includes 337,500 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any. See "Underwriting."

(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
2,250,000 Shares

[Stylized Logo of Allaire Corporation]

Common Stock

We are selling 1,000,000 shares of common stock and the selling stockholders
are selling 1,250,000 shares of common stock.

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

Our common stock is listed on the Nasdaq National Market under the symbol
"ALLR." On September 2, 1999, the last reported sale price for the common stock
on the Nasdaq National Market was $49.00 per share.

The underwriters have an option to purchase a maximum of 337,500 additional
shares to cover over-allotments of shares.

Investing in our common stock involves risks. See "Risk Factors" on page 6.

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

Delivery of the shares will be made on or about .

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

Credit Suisse First Boston

BancBoston Robertson Stephens

Dain Rauscher Wessels
a division of Dain Rauscher Incorporated

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

The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY....................... 3
RISK FACTORS............................. 6
USE OF PROCEEDS.......................... 17
PRICE RANGE OF COMMON STOCK.............. 17
DIVIDEND POLICY.......................... 17
CAPITALIZATION........................... 18
DILUTION................................. 19
SELECTED CONSOLIDATED
FINANCIAL DATA......................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................. 22
BUSINESS................................. 34

MANAGEMENT............................... 48
CERTAIN TRANSACTIONS..................... 56
PRINCIPAL AND SELLING STOCKHOLDERS....... 59
DESCRIPTION OF CAPITAL STOCK............. 61
UNDERWRITING............................. 66
NOTICE TO CANADIAN RESIDENTS............. 68
LEGAL MATTERS............................ 69
EXPERTS.................................. 69
WHERE YOU CAN FIND MORE INFORMATION...... 69
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS............................. F-1
</TABLE>

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
AS OF THE DATE OF THIS DOCUMENT.
--------------

"ColdFusion", "HomeSite" and "Bright Tiger" are federally registered
trademarks of Allaire. We have applied for federal registration of the
trademarks "Allaire" and "Allaire Spectra". The Allaire, ColdFusion, HomeSite
and JRun logos are trademarks of Allaire. Other trademarks or service marks
appearing in this prospectus are the property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY. UNLESS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.

ALLAIRE

We develop, market and support Web application servers and related software
products that enable the development and deployment of sophisticated e-business
Web sites and applications. Our products interoperate with emerging Web
application technologies as well as key enterprise information systems
technologies, and include features and tools that increase the productivity of
Web developers. With the introduction of our new Allaire Spectra product later
this year, we will provide both a Web application server and advanced content
management, commerce and personalization capabilities in a packaged e-business
application. Our products are designed to enable businesses such as
Williams-Sonoma, Kaiser Permanente and autobytel.com to build and manage
large-scale, content-rich, transaction-oriented Web sites and applications.

A Web application server is a software program that hosts Web applications
and enables access to these applications through Web browsers, client hardware
devices and other applications. A Web application server also enables hosted
applications to access a company's servers and other internal systems. The Web
application server is the software technology that is central to the Web as a
computing platform, much as the operating system is central software technology
to desktop computing. According to Forrester Research, the market for Web
application servers will triple from $692 million in 1999 to $2.1 billion in
2002. We believe that the central technology role of Web application servers
places leading Web application server vendors in a strong position to sell
related software products. This additional software includes development tools,
management products and packaged e-business applications.

Our customers include:

AT&T
autobytel.com
Bank of America
Bell Atlantic
Boeing
Booz, Allen & Hamilton
Carlson Companies
Caterpillar
Cheap Tickets
GTE
Hewlett-Packard
J.P. Morgan
Kaiser Permanente

Lockheed Martin
Merrill Lynch
Motorola
Nortel
Sprint
Toys 'R' Us
Travelers Insurance Company
United Parcel Service
UUNet Technologies
Viacom
Visa International
Williams-Sonoma

3
<PAGE>
Allaire was incorporated in Minnesota on February 1, 1996 as the successor
to a Minnesota limited liability company and was reincorporated in Delaware on
April 25, 1997. Our principal executive offices are located at One Alewife
Center, Cambridge, Massachusetts 02140. Our telephone number at that location is
(617) 761-2000.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by Allaire.............. 1,000,000 shares
Common Stock offered by the selling
stockholders............................... 1,250,000 shares
Common Stock to be outstanding after the
offering................................... 12,784,035 shares
Use of proceeds.............................. For general corporate purposes, including
working capital and potential acquisitions.
We will not receive any proceeds from the
shares sold by the selling stockholders.
Nasdaq National Market symbol................ ALLR
</TABLE>

4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all previously outstanding preferred stock
into common stock, as if the shares had converted immediately upon their
issuance.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- --------------------
1996 1997 1998 1998 1999
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue.................................................... $ 2,358 $ 7,788 $ 21,362 $ 8,905 $ 21,772
Total cost of revenue............................................ 234 2,425 5,994 2,425 4,403
Gross profit..................................................... 2,124 5,363 15,368 6,480 17,369
Total operating expenses......................................... 4,164 17,214 32,520 14,502 23,701
Loss from operations............................................. (2,040) (11,851) (17,152) (8,022) (6,332)
Net loss......................................................... (2,027) (11,536) (17,139) (7,886) (5,529)

Basic and diluted net loss per share............................. $ (1.15) $ (5.35) $ (4.78) $ (2.38) $ (0.53)
Shares used in computing basic and diluted net loss per share.... 1,756 2,158 3,587 3,317 10,449
Unaudited pro forma basic and diluted net loss per share......... $ (2.20) $ (0.51)
Shares used in computing unaudited pro forma basic and diluted
net loss per share............................................. 7,788 10,916
</TABLE>

The as adjusted balance sheet data as of June 30, 1999 gives effect to the
sale of 1,000,000 shares of common stock offered by our company hereby at an
estimated offering price of $49.00 per share, after deducting estimated
underwriting discounts and commissions and offering expenses.

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1999
--------------------- ----------------------
1997 1998 ACTUAL AS ADJUSTED
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 7,190 $ 3,247 $ 19,532 $ 65,582
Working capital (deficit).......................................... 7,383 (9,691) 38,663 84,713
Total assets....................................................... 17,094 12,708 64,300 110,350
Total long-term debt, net of current portion....................... 1,251 1,193 821 821
Total redeemable convertible preferred stock....................... 12,673 12,673 -- --
Total stockholders' equity (deficit)............................... (3,022) (18,882) 42,837 88,887
</TABLE>

All periods have been restated to reflect our mergers with Bright Tiger
Technologies and Live Software, which were accounted for as poolings of
interests.

RECENT DEVELOPMENT

For the month of July 1999, our unaudited consolidated results, including
acquired businesses, reflected revenue of approximately $4.7 million and a net
loss of approximately $400,000. Financial information for July is being
disclosed to comply with pooling of interest requirements. The results for July
are not necessarily indicative of our operating results for our third fiscal
quarter of 1999 or any other future period.

5
<PAGE>
RISK FACTORS

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
YOU PURCHASE ANY COMMON STOCK.

WE HAVE SUBSTANTIAL NET LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.

Since we began operations, we have incurred substantial net losses in every
fiscal period. We cannot be certain when we will become profitable, if at all.
Failure to achieve profitability within the time frame expected by investors may
adversely affect the market price of our common stock. At June 30, 1999, we had
an accumulated deficit of $36.7 million. We have generated relatively small
amounts of revenue until recent fiscal quarters, while increasing expenditures
in all areas, particularly in sales and marketing and research and development,
in order to execute our business plan. Although we have experienced revenue
growth in recent periods, the growth has been off of a small base, and it is
unlikely that the recent rate of growth is sustainable.

DISAPPOINTING QUARTERLY REVENUE AND OPERATING RESULTS COULD CAUSE THE PRICE OF
OUR COMMON STOCK TO FALL.

Our quarterly revenue and operating results are difficult to predict and may
fluctuate significantly from quarter to quarter. If our quarterly revenue or
operating results fall below the expectations of investors or public market
analysts, the price of our common stock could fall substantially.

Our quarterly revenue may fluctuate for several reasons, including the
following:

- the market for Web application servers and packaged e-business
applications is in an early stage of development and it is therefore
difficult to accurately predict customer demand; and

- the sales cycle for our products and services varies substantially from
customer to customer and, if our average sales price continues to increase
as we expect, we expect the sales cycle to lengthen. As a result, we have
difficulty determining whether and when we will receive license revenue
from a particular customer.

In addition, because our revenue from training and consulting services is
largely correlated with our license revenue, a decline in license revenue could
also cause a decline in our services revenue in the same quarter or in
subsequent quarters. Other factors, many of which are outside our control, could
also cause variations in our quarterly revenue and operating results.

Most of our expenses, such as employee compensation and rent, are relatively
fixed. Moreover, our expense levels are based, in part, on our expectations
regarding future revenue increases. As a result, any shortfall in revenue in
relation to our expectations could cause significant changes in our operating
results from quarter to quarter and could result in quarterly losses.

6
<PAGE>
OUR LIMITED OPERATING HISTORY MAKES THE EVALUATION OF OUR BUSINESS AND PROSPECTS
DIFFICULT.

We recorded our first revenue upon delivery of ColdFusion 1.5 to customers
in February 1996. Accordingly, we have only a limited operating history on which
you can base your evaluation of our business and prospects. In addition, our
prospects must be considered in light of the risks and uncertainties encountered
by companies in an early stage of development in new and rapidly evolving
markets, particularly those markets which depend on the Internet.

THE DEVELOPMENT OF A MARKET FOR OUR PRODUCTS IS UNCERTAIN.

If the market for Web application servers and packaged e-business
applications does not grow at a significant rate, our business, operating
results and financial condition will be materially adversely affected. Web
technology has been used widely for only a short time, and the market for Web
application servers and packaged e-business applications is new and rapidly
evolving. As is typical for new and rapidly evolving industries, demand for
recently introduced products is highly uncertain.

OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO MARKET AND SELL ALLAIRE SPECTRA
SUCCESSFULLY.

We expect that our future financial performance will depend in part on sales
of Allaire Spectra. We announced the release of the beta test version of Allaire
Spectra on July 21, 1999 and we plan to begin commercial shipments by the end of
1999. Market acceptance of Allaire Spectra will depend on the market for
packaged e-business applications and customer demand for the specific
functionality of Allaire Spectra. We cannot assure you that either will occur.
In addition, we cannot assure you that Allaire Spectra will meet the performance
needs or expectations of our customers when shipped or that it will be free of
significant software defects or bugs. If Allaire Spectra does not meet customer
needs or expectations, for whatever reason, our reputation could be damaged, or
we could be required to upgrade or enhance the product, which could be costly
and time consuming.

OUR BUSINESS WILL BE ADVERSELY AFFECTED IF THE INTERNET DOES NOT BECOME A VIABLE
AND SUBSTANTIAL COMMERCIAL MEDIUM.

Our future success will depend upon the widespread adoption of the Internet
as a primary medium for commerce and other business applications. If the
Internet does not become a viable and substantial commercial medium, our
business, operating results and financial condition will be materially adversely
affected. The Internet has experienced, and is expected to continue to
experience, significant user and traffic growth. This growth has, at times,
caused user frustration with slow access and download times. The Internet
infrastructure may not be able to support the demands placed on it by continued
growth. Moreover, critical issues concerning the commercial use of the Internet,
such as security, reliability, cost, accessibility and quality of service,
remain unresolved and may negatively affect the growth of Internet use or the
attractiveness of commerce and business communication on the Internet. In
addition, the Internet could lose its viability due to delays in the development
or adoption of new standards and protocols to handle increased activity. As
commercial use of the Internet increases, federal, state and foreign agencies
could adopt

7
<PAGE>
regulations covering issues such as user privacy, content and taxation of
products and services. If enacted, government regulations could limit the market
for our products and services.

REGULATIONS OR CONSUMER CONCERNS REGARDING PRIVACY ON THE INTERNET COULD LIMIT
MARKET ACCEPTANCE OF ALLAIRE SPECTRA.

The personalization features of Allaire Spectra will allow our customers to
develop and maintain Web user profiles to tailor content to specific users.
Profile development involves both data supplied by the user and data derived
from the user's Web site behavior. Privacy concerns may cause users to resist
providing personal data or to avoid Web sites that track user behavior. In
addition, legislative or regulatory requirements may heighten consumer concerns
if businesses must notify Web site users that user profile data may be used to
direct product promotion and advertising to users. Other countries and political
entities, such as the European Economic Community, have adopted such legislation
or regulatory requirements. The United States may do so in the future. If
privacy legislation is enacted or consumer privacy concerns limit the market
acceptance of personalization software, our business, financial condition and
operating results could be harmed.

Allaire Spectra uses cookies to track demographic information and user
preferences. A cookie is information keyed to a specific user that is stored on
a computer's hard drive, typically without the user's knowledge. Cookies are
generally removable by the user, although removal could affect the content
available on a particular site. A number of governmental bodies and commentators
in the United States and abroad have urged passage of laws limiting or
abolishing the use of cookies. If such laws are passed or if users begin to
delete or refuse cookies as a common practice, market demand for Allaire Spectra
could be reduced.

WE COMPETE WITH MICROSOFT WHILE SIMULTANEOUSLY SUPPORTING MICROSOFT
TECHNOLOGIES.

We currently compete with Microsoft in the market for Web application
servers and related software products while simultaneously maintaining a working
relationship with Microsoft. Microsoft has a longer operating history, a larger
installed base of customers and substantially greater financial, distribution,
marketing and technical resources than our company. As a result, we may not be
able to compete effectively with Microsoft now or in the future, and our
business, operating results and financial condition may be materially adversely
affected.

We expect that Microsoft's commitment to and presence in the Web application
server and related software products market will substantially increase
competitive pressure in the market. We believe that Microsoft will continue to
incorporate Web application server technology into its operating system software
and certain of its server software offerings, possibly at no additional cost to
its users.

We believe that we must maintain a working relationship with Microsoft to
achieve success. Most of our customers use Microsoft-based operating platforms,
so it is critical to our success that our products be closely integrated with
Microsoft technologies. Notwithstanding our historical and current support of
the Microsoft platform, Microsoft may in the future promote technologies and
standards more directly competitive with or not compatible with our technology.

8
<PAGE>
WE OPERATE IN HIGHLY COMPETITIVE MARKETS AND MAY NOT BE ABLE TO COMPETE
EFFECTIVELY.

The Web application server and packaged e-business applications market is
intensely competitive and rapidly changing. Many of our current and potential
competitors have longer operating histories and substantially greater financial,
technical, marketing, distribution and other resources than we do and therefore
may be able to respond more quickly than we can to new or changing
opportunities, technologies, standards or customer requirements. In the portion
of the market with the highest product prices, we compete with large Web and
database platform companies that offer a variety of software products. We also
compete with a number of medium-sized and start-up companies that have
introduced or that are developing Web application servers and packaged
e-business applications. In the middle range of the market where product prices
are significantly lower, we compete primarily against Microsoft. We expect that
additional competitors will enter the market with competing products as the size
and visibility of the market opportunity increases. Increased competition could
result in pricing pressures, reduced margins or the failure of our products to
achieve or maintain market acceptance.

If, in the future, a competitor chooses to bundle a competing Web
application server or packaged e-business application with other products, the
demand for our products might be substantially reduced. In addition, new
technologies will likely increase the competitive pressures that we face. The
development of competing technologies by market participants or the emergence of
new industry standards may adversely affect our competitive position. As a
result of these and other factors, we may not be able to compete effectively
with current or future competitors, which would have a material adverse effect
on our business, operating results and financial condition.

OUR FAILURE TO EFFECTIVELY INTEGRATE THE BUSINESSES OF BRIGHT TIGER AND LIVE
SOFTWARE MAY ADVERSELY AFFECT OUR BUSINESS.

On April 12, 1999, we merged with Bright Tiger Technologies, and on June 25,
1999, we merged with Live Software. A failure to effectively integrate either of
these businesses could have a material adverse effect on our business, operating
results and financial condition. There can be no assurance that we will be able
to develop, market and sell the Bright Tiger and Live Software products
successfully. In addition, there can be no assurance that we will be able to
retain personnel from these companies.

IF WE ACQUIRE OTHER BUSINESSES, WE WILL BE SUBJECT TO RISKS THAT COULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND OPERATING RESULTS.

From time to time, we may pursue additional acquisitions to obtain
complementary products, services and technologies. An acquisition may not
produce the revenue, earnings or business synergies that we anticipated, and an
acquired product, service or technology might not perform as we expected. In
pursuing any acquisition, our management could spend a significant amount of
time and effort in identifying and completing the acquisition. If we complete an
acquisition, we would probably have to devote a significant amount of management
resources to integrate the acquired business with our existing business.

To pay for an acquisition, we might use our stock or cash. Alternatively, we
might borrow money from a bank or other lender. If we use our stock, our
stockholders would experience dilution of their ownership interests. If we use
cash or debt financing, our financial liquidity will be reduced.

9
<PAGE>
OUR FAILURE TO EXPAND OUR SALES FORCE AND DISTRIBUTION CHANNELS WOULD ADVERSELY
AFFECT OUR REVENUE GROWTH AND FINANCIAL CONDITION.

To increase our revenue, we must increase the size of our sales force and
the number of our indirect channel partners, including original equipment
manufacturers, value-added resellers and systems integrators. A failure to do so
could have a material adverse effect on our business, operating results and
financial condition. There is intense competition for sales personnel in our
business, and there can be no assurance that we will be successful in
attracting, integrating, motivating and retaining new sales personnel. Our
existing or future channel partners may choose to devote greater resources to
marketing and supporting the products of other companies. In addition, we will
need to resolve potential conflicts among our sales force and channel partners.

WE DEPEND ON A SMALL NUMBER OF DISTRIBUTORS FOR A SIGNIFICANT PORTION OF OUR
REVENUE.

We derive a substantial portion of our revenue from a small number of
distributors. For the six months ended June 30, 1999, revenue from our indirect
distribution channel accounted for 49% of our total revenue, and one
distributor, Ingram Micro, accounted for 37% of our total revenue. For the year
ended December 31, 1998, revenue from our indirect distribution channel
accounted for 44% of our total revenue and Ingram Micro accounted for 28% of our
total revenue. The loss of, or a reduction in orders from, Ingram Micro or any
other significant distributor could have a material adverse effect on our
business, operating results and financial condition.

WE MAY EXPERIENCE LOST OR DELAYED SALES AS OUR SALES CYCLE LENGTHENS.

A longer sales cycle reduces our ability to forecast revenue levels and may
result in lost sales. Any delay or loss in sales of our products could have a
material adverse effect on our business, operating results and financial
condition, and could cause our operating results to vary significantly from
quarter to quarter. As we increase our sales and marketing focus on larger sales
to businesses and other large organizations, we expect that increased executive-
level involvement of information technology officers and other senior managers
of our customers will be required. Potential large sales may be delayed, or lost
altogether, because we will have to provide a more comprehensive education to
prospective customers regarding the use and benefits of our products. Our
customers' purchase decisions may be subject to delays over which we may have
little or no control, including budgeting constraints, internal purchase
approval review procedures and the inclusion or exclusion of our products on
customers' approved standards lists.

THE MARKET FOR OUR PRODUCTS IS RAPIDLY CHANGING, AND THE FAILURE OF OUR PRODUCTS
TO CONTINUE TO SATISFY THE WEB DEVELOPER COMMUNITY WOULD ADVERSELY AFFECT OUR
OPERATING RESULTS.

If our products do not continue to satisfy the Web developer community or
otherwise fail to sustain sufficient market acceptance, our business, operating
results and financial condition would be materially adversely affected. We
believe that a significant contributing factor to our initial growth has been
our ability to create and maintain strong relationships with the community of
Web developers that initially adopted our products. This community of early
adopters demands rapid improvements in the performance, features and reliability
of our products, as well as a high level of customer service. Due in part to the
emerging nature of the Web application server and packaged e-business
applications market and the substantial resources available to many market
participants, we believe there is a time-limited opportunity to achieve product
adoption.

10
<PAGE>
OUR EFFORTS TO DEVELOP BRAND AWARENESS MAY BE UNSUCCESSFUL, WHICH COULD LIMIT
OUR ABILITY TO ACQUIRE NEW CUSTOMERS AND GENERATE ONGOING REVENUE GROWTH.

We believe that developing and maintaining awareness of the "Allaire,"
"ColdFusion", "HomeSite," "JRun" and "Allaire Spectra" brand names is critical
to achieving widespread acceptance of our products. If we fail to promote and
maintain our brands or incur significant related expenses, our business,
operating results and financial condition could be materially adversely
affected. To promote our brands, we may find it necessary to increase our
marketing budget or otherwise increase our financial commitment to creating and
maintaining brand awareness among potential customers. Although we have obtained
a United States registration of the trademark "ColdFusion," we are aware of
other companies, including competitors, that use the word "Fusion" in their
marks alone or in combination with other words, and we do not expect to be able
to prevent third party uses of the word "Fusion" for competing goods and
services. For example, NetObjects markets its principal products for designing,
building and updating Web sites under the names "NetObjects Fusion" and
"NetObjects Team Fusion." Competitors that use marks that are similar to our
brand names may cause confusion among actual and potential customers, which
could prevent us from achieving significant brand recognition.

TO BE COMPETITIVE, WE MUST CONTINUE TO ENHANCE OUR EXISTING PRODUCTS AND DEVELOP
NEW PRODUCTS.

To be competitive, we must develop and introduce product enhancements and
new products which increase our customers' ability to develop and deploy Web
applications. In the past, we have been forced to delay introduction of several
new products. If we fail to develop and introduce new products and enhancements
successfully and on a timely basis, it could have a material adverse effect on
our business, operating results and financial condition.

IF WE ARE UNABLE TO CONTINUE LICENSING TECHNOLOGY FOR OUR PRODUCTS FROM THIRD
PARTIES, OUR PRODUCT DEVELOPMENT EFFORTS COULD BE DELAYED.

We license technology that is incorporated into our products from third
parties. The loss of access to this technology could result in delays in our
development and introduction of new products or enhancements until equivalent or
replacement technology could be accessed, if available, or developed internally,
if feasible. These delays could have a material adverse effect on our business,
operating results and financial condition. In light of the rapidly evolving
nature of Web technology and our strategy to pursue industry partnerships, we
believe that we will increasingly need to rely on technology from third party
vendors, such as Microsoft, which may also be competitors. There can be no
assurance that technology from others will continue to be available to us on
commercially reasonable terms, if at all.

OUR FAILURE TO PROPERLY MANAGE OUR GROWTH COULD STRAIN OUR RESOURCES AND
ADVERSELY AFFECT OUR BUSINESS.

Our failure to manage our rapid growth could have a material adverse effect
on the quality of our products, our ability to retain key personnel and our
business, operating results and financial condition. Our revenue increased 144%
for the six months ended June 30, 1999 from the same period in 1998. The number
of our employees increased from 95 at January 1, 1998 to 222 at June 30, 1999.
To manage future growth effectively we must maintain and

11
<PAGE>
enhance our financial and accounting systems and controls, integrate new
personnel and manage expanded operations.

IF WE LOSE THE SERVICES OF JOSEPH ALLAIRE OR DAVID ORFAO, OUR BUSINESS WOULD
SUFFER.

Our future success depends to a significant degree on the skills, experience
and efforts of Joseph J. Allaire, our founder, Chairman of the Board, Chief
Technology Officer and Executive Vice President, and David J. Orfao, our
President and Chief Executive Officer. The loss of the services of Mr. Allaire
or Mr. Orfao could have a material adverse effect on our business, operating
results and financial condition. We also depend on the ability of our executive
officers and other members of senior management to work effectively as a team.
We do not have employment agreements with any of our executive officers, and we
do not have any key person life insurance other than for Mr. Allaire and Mr.
Orfao.

WE MAY BE UNABLE TO HIRE AND RETAIN THE SKILLED PERSONNEL WE NEED TO SUCCEED.

Qualified personnel are in great demand throughout the software industry.
Our success depends in large part upon our ability to attract, train, motivate
and retain highly skilled employees, particularly sales and marketing personnel,
software engineers and other senior personnel. Our failure to attract and retain
the highly trained technical personnel that are integral to our direct sales,
product development, service and support teams may limit the rate at which we
can generate sales and develop new products or product enhancements. This could
have a material adverse effect on our business, operating results and financial
condition.

OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY.

Our success depends to a significant degree upon the protection of our
software and other proprietary technology. The unauthorized reproduction or
other misappropriation of our proprietary technology could enable third parties
to benefit from our technology without paying us for it. This could have a
material adverse effect on our business, operating results and financial
condition.

Although we have taken steps to protect our proprietary technology, they may
be inadequate. Existing trade secret, copyright and trademark laws offer only
limited protection. In addition, we rely in part on "shrinkwrap" and "clickwrap"
licenses that are not signed by the end user and, therefore, may be
unenforceable under the laws of certain jurisdictions. Moreover, the laws of
other countries in which we market our products may afford little or no
effective protection of our intellectual property.

If we resort to legal proceedings to enforce our intellectual property
rights, the proceedings could be burdensome and expensive and could involve a
high degree of risk.

CLAIMS BY OTHER COMPANIES THAT WE INFRINGE THEIR COPYRIGHTS OR PATENTS COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION.

If any of our products violate third party proprietary rights, we may be
required to reengineer our products or seek to obtain licenses from third
parties to continue to offer our products. Any efforts to reengineer our
products or obtain licenses on commercially reasonable terms may not be
successful, and, in any case, would substantially increase our costs and have a
material adverse effect on our business, operating results and financial

12
<PAGE>
condition. We do not conduct comprehensive patent searches to determine whether
the technology used in our products infringes patents held by third parties. In
addition, product development is inherently uncertain in a rapidly evolving
technological environment in which there may be numerous patent applications
pending, many of which are confidential when filed, with regard to similar
technologies.

Although we are generally indemnified against claims that third party
technology that we license infringes the proprietary rights of others, this
indemnification is not always available for all types of intellectual property
rights (for example, patents may be excluded) and in some cases the scope of
such indemnification is limited. Even if we receive broad indemnification, third
party indemnitors are not always well-capitalized and may not be able to
indemnify us in the event of infringement, resulting in substantial exposure to
us. There can be no assurance that infringement or invalidity claims arising
from the incorporation of third party technology in our products, and claims for
indemnification from our customers resulting from these claims, will not be
asserted or prosecuted against us. These claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources in
addition to potential product redevelopment costs and delays, all of which could
materially adversely affect our business, operating results and financial
condition.

In addition, any claim of infringement could cause us to incur substantial
costs defending against the claim, even if the claim is invalid, and could
distract our management from our business. A party making a claim also could
secure a judgment that requires us to pay substantial damages. A judgment could
also include an injunction or other court order that could prevent us from
selling our products. Any of these events could have a material adverse effect
on our business, operating results and financial condition.

OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS FAIL TO PERFORM
PROPERLY.

Software products as complex as ours may contain undetected errors or
"bugs," which result in product failures or security breaches or otherwise fail
to perform in accordance with customer expectations. Errors in certain of our
products have been detected after the release of the product. The occurrence of
errors could result in loss of or delay in revenue, loss of market share,
failure to achieve market acceptance, diversion of development resources, injury
to our reputation, or damage to our efforts to build brand awareness, any of
which could have a material adverse effect on our business, operating results
and financial condition.

WE COULD INCUR SUBSTANTIAL COSTS AS A RESULT OF PRODUCT LIABILITY CLAIMS
RELATING TO OUR CUSTOMERS' CRITICAL BUSINESS OPERATIONS.

Many of the Web applications developed and deployed with our products are
critical to the operations of our customers' businesses. Any failure in a
customer's Web application could result in a claim for substantial damages
against us, regardless of our responsibility for the failure. Although we
maintain general liability insurance, including coverage for errors and
omissions, there can be no assurance that our existing coverage will continue to
be available on reasonable terms or will be available in amounts sufficient to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim.

13
<PAGE>
WE MAY BE AFFECTED BY UNEXPECTED YEAR 2000 PROBLEMS.

Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This "Year 2000" problem could result
in miscalculations, data corruption, system failures or disruptions of
operations. We are subject to potential Year 2000 problems affecting our
products, our internal systems and the systems of our vendors and distributors,
any of which could have a material adverse effect on our business, operating
results and financial condition.

Because ColdFusion and JRun do not involve data storage, the ability of a
Web application built with ColdFusion or JRun to comply with Year 2000
requirements is largely dependent on whether the database underlying the
application is Year 2000 compliant. Therefore, there can be no assurance that
Web applications developed using our products will comply with Year 2000
requirements. For example, if ColdFusion or JRun is connected to a database that
is not Year 2000 compliant, the information received by the application may be
incorrect.

Some of our customers and potential customers have implemented policies that
prohibit or discourage changing their internal computer systems until after
January 1, 2000. Our revenue may suffer if potential customers delay the
purchase of our products until after January 1, 2000. Purchasing decisions may
be delayed as potential customers halt development of their internal computer
systems or use their information technology budgets to address Year 2000 issues.
If our potential customers delay purchasing or implementing our products in
preparation for the Year 2000 problem, our business could be seriously harmed.

In addition, there can be no assurance that Year 2000 errors or defects will
not be discovered in our internal software systems and, if such errors or
defects are discovered, there can be no assurance that the costs of making such
systems Year 2000 compliant will not be material.

Year 2000 errors or defects in the internal systems maintained by our
vendors or distributors could require us to incur significant unanticipated
expenses to remedy any problems or replace affected vendors and could reduce our
revenue from our indirect distribution channel.

ANTI-TAKEOVER PROVISIONS OF OUR CHARTER AND DELAWARE LAW COULD PREVENT OR DELAY
A CHANGE OF CONTROL OF OUR COMPANY.

Our corporate documents and Delaware law contain provisions that might
enable our management to resist a takeover of our company. These provisions
might discourage, delay or prevent a change in the control of our company or a
change in our management. These provisions could also discourage proxy contests
and make it more difficult for you and other stockholders to elect directors and
take other corporate actions. The existence of these provisions could limit the
price that investors might be willing to pay in the future for shares of common
stock.

14
<PAGE>
THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE AND YOU
MIGHT NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE PUBLIC OFFERING PRICE.

The price of our common stock has been and may continue to be volatile. The
price of our common stock may fluctuate significantly in response to a number of
events and factors relating to our company, our competitors and the market for
our products, such as:

- quarterly variations in our operating results;

- announcements of new technological innovations or new products by us or
our competitors;

- changes in financial estimates and recommendations by securities analysts;
and

- news relating to trends in our markets.

In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that often has been unrelated to the operating performance of these companies.
These broad market and industry fluctuations may adversely affect the market
price of our common stock, regardless of our operating performance.

Recently, when the market price of a stock has been volatile, holders of
that stock have often instituted securities class action litigation against the
company that issued the stock. If any of our stockholders brought such a lawsuit
against us, we could incur substantial costs defending the lawsuit. The lawsuit
could also divert the time and attention of our management.

WE MAY INVEST OR SPEND OUR PROCEEDS FROM THIS OFFERING IN WAYS WITH WHICH YOU
MAY NOT AGREE.

We have not identified specific uses for our proceeds from this offering,
and we will have broad discretion in how we use them. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions on how to use our proceeds. We will not receive any proceeds
from the sale of shares by the selling stockholders.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT.

If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution, in that the price you pay will be
substantially greater than the net tangible book value per share of the shares
you acquire. This dilution is due in large part to the fact that earlier
investors in Allaire paid substantially less than the public offering price when
they purchased their shares of common stock. You will experience additional
dilution upon the exercise of outstanding options or warrants to purchase common
stock.

15
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance, and are identified by terms such as "may," "will,"
"should," "expects," "plans," "intends," "anticipates," "believes," "potential"
or "continue" or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined under "Risk Factors." These factors may cause our actual results
to differ materially from any forward-looking statement made in this prospectus.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform the statements to actual results.

16
<PAGE>
USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 1,000,000 shares of
common stock we are offering, after deducting the estimated underwriting
discounts and commissions and our estimated offering expenses and assuming a
public offering price of $49.00 per share, will be approximately $46.1 million,
or approximately $53.0 million if the underwriters exercise their over-allotment
option in full. We will not receive any proceeds from the sale of shares by the
selling stockholders.

We intend to use our net proceeds for general corporate purposes, including
working capital, product development and expansion of our domestic and
international sales and marketing capabilities. We also may use a portion of the
proceeds to acquire or invest in complementary businesses or products or to
obtain the right to use complementary technologies. We have no specific
understandings, commitments or agreements with respect to any such acquisition
or investment. Pending such uses, we will invest our proceeds in short-term,
interest-bearing, investment-grade securities, certificates of deposit or direct
or guaranteed obligations of the United States.

PRICE RANGE OF COMMON STOCK

Our common stock is quoted in the Nasdaq Stock Market's National Market
under the symbol "ALLR". The following table sets forth for the periods
indicated the high and low sales prices per share of the common stock as
reported on the Nasdaq Stock Market's National Market since January 22, 1999,
the date on which the common stock commenced trading.

<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ------------------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
March 31, 1999 (from January 22, 1999)......................................... $ 71.25 $ 34.00
June 30, 1999.................................................................. $ 78.25 $ 39.875
September 30, 1999 (through September 2, 1999)................................. $ 76.3125 $ 42.125
</TABLE>

The last reported sale price of the common stock on the Nasdaq Stock
Market's National Market on September 2, 1999 was $49.00 per share. The number
of stockholders of record on July 31, 1999 was 177.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to fund the expansion and growth of
our business. Payment of future dividends, if any, will be at the discretion of
our board of directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs and
plans for expansion.

17
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of Allaire as of June 30,
1999:

- on an actual basis; and

- as adjusted to reflect our sale of 1,000,000 shares of common stock
offered hereby at an assumed public offering price of $49.00 per share,
after deducting estimated underwriting discounts and commissions and
estimated offering expenses.

This information should be read in conjunction with our financial statements
and notes thereto appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS, EXCEPT
SHARE
AND PER SHARE DATA)
<S> <C> <C>
Capital lease obligations, net of current portion.......................... $ 21 $ 21
Notes payable, net of current portion...................................... 800 800
----------- -----------
Total long term debt....................................................... 821 821
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, none
issued or outstanding actual and as adjusted......................... -- --
Common stock, $.01 par value; 35,000,000 shares authorized, 11,772,411
shares issued and 11,755,801 shares outstanding actual; 12,772,411
shares issued and 12,755,801 shares outstanding as adjusted.......... 118 128
Additional paid-in capital............................................. 80,239 126,279
Accumulated deficit.................................................... (36,699) (36,699)
Deferred compensation.................................................. (811) (811)
Stock subscriptions receivable......................................... (10) (10)
----------- -----------
Total stockholders' equity................................................. 42,837 88,887
----------- -----------
Total capitalization....................................................... $ 43,658 $ 89,708
----------- -----------
----------- -----------
</TABLE>

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<PAGE>
DILUTION

Our pro forma net tangible book value at June 30, 1999 was $42,767,000 or
$3.64 per share of our common stock. Pro forma net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of common stock outstanding. After giving effect to our
sale of 1,000,000 shares of common stock offered hereby at an assumed public
offering price of $49.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses, our pro forma net
tangible book value as of June 30, 1999 would have been $88,817,000, or $6.96
per share. This represents an immediate increase in pro forma net tangible book
value of $3.32 per share to existing stockholders and an immediate dilution of
$42.04 per share to new investors purchasing shares of common stock in the
offering. The following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Assumed offering price per share............................................ $ 49.00

Pro forma net tangible book value per share at June 30, 1999.............. $ 3.64

Increase attributable to the offering..................................... 3.32
---------

Pro forma net tangible book value per share after the offering.............. 6.96
---------

Net tangible book value dilution per share to new investors in the
offering.................................................................. $ 42.04
---------
---------
</TABLE>

19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction
with our financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," appearing elsewhere
in this prospectus. The statement of operations data for the years ended
December 31, 1996, 1997 and 1998, and the balance sheet data as of December 31,
1997 and 1998, are derived from, and are qualified by reference to, audited
financial statements included elsewhere in this prospectus. The statement of
operations data for the period from our inception (May 5, 1995) through December
31, 1995 and the balance sheet data as of December 31, 1995 and 1996 are derived
from audited financial statements that do not appear in this prospectus. The
statement of operations data for the six months ended June 30, 1998 and 1999,
and the balance sheet data as of June 30, 1999, are derived from unaudited
financial statements appearing elsewhere in this prospectus. The unaudited
financial statements have been prepared on the same basis as the audited
financial statements and, in the opinion of our management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The historical results
are not necessarily indicative of the operating results to be expected in the
future. All periods have been restated to reflect our mergers with Bright Tiger
Technologies and Live Software, which were accounted for as poolings of
interests.

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 5, 1995) YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------------------- --------------------
1995 1996 1997 1998 1998 1999
------------- --------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software license fees............................ $ -- $ 2,358 $ 7,133 $ 17,966 $ 7,827 $ 17,724
Services......................................... -- -- 655 3,396 1,078 4,048
------ --------- ---------- ---------- --------- ---------
Total revenue.................................. -- 2,358 7,788 21,362 8,905 21,772
------ --------- ---------- ---------- --------- ---------
Cost of revenue:
Software license fees............................ -- 234 973 1,937 823 1,103
Services......................................... -- -- 1,452 4,057 1,602 3,300
------ --------- ---------- ---------- --------- ---------
Total cost of revenue.......................... -- 234 2,425 5,994 2,425 4,403
------ --------- ---------- ---------- --------- ---------
Gross profit....................................... -- 2,124 5,363 15,368 6,480 17,369
------ --------- ---------- ---------- --------- ---------
Operating expenses:
Research and development......................... 65 1,109 4,984 8,027 3,602 5,364
Sales and marketing.............................. 49 1,618 8,820 19,135 8,552 12,461
General and administrative....................... 74 1,437 3,410 4,946 2,162 3,043
Stock-based compensation......................... -- -- -- 412 186 133
Merger costs..................................... -- -- -- -- -- 2,700
------ --------- ---------- ---------- --------- ---------
Total operating expenses....................... 188 4,164 17,214 32,520 14,502 23,701
------ --------- ---------- ---------- --------- ---------
Loss from operations............................... (188) (2,040) (11,851) (17,152) (8,022) (6,332)
Interest income, net............................... -- 13 315 13 136 803
------ --------- ---------- ---------- --------- ---------
Net loss........................................... $ (188) $ (2,027) $ (11,536) $ (17,139) $ (7,886) $ (5,529)
------ --------- ---------- ---------- --------- ---------
------ --------- ---------- ---------- --------- ---------
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999
--------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 17 $ 595 $ 7,190 $ 3,247 $ 19,532
Working capital (deficit).................................. (231) 242 7,383 (9,691) 38,663
Total assets............................................... 119 2,160 17,094 12,708 64,300
Total long-term debt, net of current portion............... -- 50 1,251 1,193 821
Total redeemable convertible preferred stock............... -- 2,800 12,673 12,673 --
Total stockholders' equity (deficit)....................... (181) (1,747) (3,022) (18,882) 42,837
</TABLE>

RECENT DEVELOPMENT

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED
FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

Our revenue is derived principally from license fees for software products
and, to a lesser extent, fees for a range of services complementing these
products, primarily training, consulting and technical support. Software license
fees include sales of licenses for the then-current version of our products,
product upgrades and subscriptions. Subscriptions entitle the customer to all
new releases for a specific product during the subscription period, generally 12
months.

Revenue from sales of licenses to use our software products and product
upgrades is recognized upon delivery to customers, provided no significant
post-delivery obligations or uncertainties remain and collection of the related
receivable is probable. Revenue under arrangements where multiple products or
services are sold together under one contract is allocated to each element based
on their relative fair values, with these fair values being determined using the
price charged when that element is sold separately. For agreements with
specified upgrade rights, the revenue related to such upgrade rights is deferred
until the specified upgrade is delivered. We provide most of our distributors
with rights of return. An allowance for estimated future returns is recorded at
the time revenue is recognized based on our historical experience. Revenue from
subscription sales is recognized ratably over the term of the subscription
period. Services revenue is recognized as services are rendered or ratably over
the term of the service agreement.

In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
97-2, Software Revenue Recognition, which provides guidance on the timing and
amount of revenue recognition when licensing, selling, leasing or otherwise
marketing computer software and related services. We adopted SoP 97-2 for all
transactions entered into after December 31, 1997. Subsequently, in March 1998,
the Financial Accounting Standards Board approved SoP 98-4, Deferral of the
Effective Date of a Provision of SoP 97-2, Software Revenue Recognition. SoP
98-4 provides for the one-year deferral of certain provisions of SoP 97-2
pertaining to its requirements for what constitutes vendor specific objective
evidence of the fair value of multiple elements included in an arrangement. In
December 1998, the FASB issued SoP 98-9, Modification of SoP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions, which retained the
limitations of SoP 97-2 on what constitutes vendor specific objective evidence
of fair value. SoP 98-9 is effective for transactions entered into in fiscal
years beginning after March 15, 1999. Based upon our interpretation of SoP 97-2,
98-4 and 98-9, we believe that our current revenue recognition policies and
practices are consistent with the provisions of the new guidance. Adoption of
SoP 97-2 and SoP 98-4 did not have a material impact on our

22
<PAGE>
financial condition or results of operation. Adoption of SoP 98-9 is not
expected to have a material impact on our financial condition or results of
operations.

In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed, costs associated with the development of computer software are
expensed prior to the establishment of technological feasibility and capitalized
thereafter when material. No software development costs have been capitalized
because costs eligible for capitalization have not been material to our
financial condition or results of operations.

We generate our software license revenue through direct sales of licenses to
end users and through our indirect distribution channel. Direct revenue is
generated by our direct sales force and via our Web site. The indirect
distribution channel includes distributors, direct and original equipment
manufacturer resellers, system integrators and Allaire Alliance members. During
the second half of 1997, we established relationships with our primary
distribution partners in North America, Europe and Asia Pacific. Revenue
generated by the indirect distribution channel accounted for 13%, 28%, 44% and
49% of total revenue for 1996, 1997, 1998 and for the six months ended June 30,
1999, respectively. We anticipate that revenue derived from the indirect
distribution channel will continue to represent a significant percentage of
total revenue. We primarily derive our international revenue through our
indirect distribution channel. International revenue outside of North America
accounted for 17%, 19%, 13% and 11% of total revenue for 1996, 1997, 1998 and
for the six months ended June 30, 1999, respectively.

In April 1999, we completed a merger with Bright Tiger Technologies by
issuing 288,583 shares of our common stock for all of the issued and outstanding
equity securities of Bright Tiger. Bright Tiger provides software designed to
enhance the performance, availability and manageability of large-scale Internet
sites and Web applications. We had previously licensed technology from Bright
Tiger that was incorporated in certain ColdFusion products. In June 1999, we
completed a merger with Live Software by issuing 528,376 shares of our common
stock for all of the issued and outstanding equity securities of Live Software.
Live Software develops, markets and supports server-side Java development and
deployment technology. Live Software's principal product, JRun, is a leading
server-side Java development and deployment engine. We recorded merger related
costs of $2.7 million in the quarter ended June 30, 1999 primarily related to
professional fees, facility closings, severance packages and related costs
associated with these acquisitions. We accounted for these acquisitions as
poolings of interests.

We have experienced substantial net losses in each fiscal period since our
inception and, as of June 30, 1999, had an accumulated deficit of $36.7 million.
These net losses and accumulated deficit resulted primarily from the significant
costs incurred in the development of our products and in the preliminary
establishment of our infrastructure. We expect to increase our expenditures in
all areas in order to execute our business plan, particularly in research and
development and sales and marketing. The planned increase in sales and marketing
expense will primarily result from the hiring of additional sales force
personnel to focus on major account sales, and marketing programs to increase
brand awareness.

Our limited operating history and the undeveloped nature of the market for
Web development products make predicting future revenue difficult. Our expense
levels are based, in part, on our expectations regarding future revenue
increases, and to a large extent such

23
<PAGE>
expenses are fixed, particularly in the short term. There can be no assurance
that our expectations regarding future revenue are accurate. Moreover, we may be
unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall of revenue in relation
to our expectations would likely cause significant declines in our quarterly
operating results.

We are also increasing our sales and marketing efforts focused on larger
purchases by larger customers. Such transactions are generally more complex and
may increase the length of our average sales cycle. We anticipate that an
increasing portion of our revenue could be derived from large orders, in which
case timing of receipt and fulfillment of any such orders could cause
fluctuations in our operating results, particularly on a quarterly basis.

Due to the foregoing factors, our operating results are difficult to
forecast. We believe that period-to-period comparisons of our historical
operating results are not meaningful and should not be relied upon as an
indication of future performance. Also, our operating results may fall below our
expectations or the expectations of securities analysts or investors in some
future quarter. In such event, the market price of our common stock would likely
be materially adversely affected.

24
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
total revenue of certain line items included in our statement of operations.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30, 1999,
---------------------------- -----------------
1996 1997 1998 1998 1999
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue:
Software license fees................................ 100.0% 91.6% 84.1% 87.9% 81.4%
Services............................................. 0.0 8.4 15.9 12.1 18.6
------- -------- ------- ------- -------
Total revenue...................................... 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software license fees................................ 9.9 12.5 9.1 9.2 5.1
Services............................................. 0.0 18.6 19.0 18.0 15.1
------- -------- ------- ------- -------
Total cost of revenue.............................. 9.9 31.1 28.1 27.2 20.2
------- -------- ------- ------- -------
Gross profit........................................... 90.1 68.9 71.9 72.8 79.8
------- -------- ------- ------- -------
Operating expenses:
Research and development............................. 47.0 64.0 37.6 40.5 24.7
Sales and marketing.................................. 68.6 113.2 89.6 96.0 57.2
General and administrative........................... 61.0 43.8 23.1 24.3 14.0
Stock-based compensation............................. 0.0 0.0 1.9 2.1 0.6
Merger costs......................................... 0.0 0.0 0.0 0.0 12.4
------- -------- ------- ------- -------
Total operating expenses........................... 176.6 221.0 152.2 162.9 108.9
------- -------- ------- ------- -------
Loss from operations................................... (86.5) (152.1) (80.3) (90.1) (29.1)
------- -------- ------- ------- -------
Interest income, net................................... 0.5 4.0 0.1 1.5 3.7
------- -------- ------- ------- -------
Net loss............................................... (86.0)% (148.1)% (80.2)% (88.6)% (25.4)%
------- -------- ------- ------- -------
------- -------- ------- ------- -------
</TABLE>

SIX MONTHS ENDED JUNE 30, 1998 AND 1999

REVENUE

Total revenue increased 144% from $8.9 million for the six months ended June
30, 1998 to $21.8 million for the six months ended June 30, 1999.

SOFTWARE LICENSE FEES. Revenue from software license fees increased 126%
from $7.8 million for the six months ended June 30, 1998 to $17.7 million for
the six months ended June 30, 1999. This increase was primarily due to an
increase in the number of licenses sold to use our ColdFusion and JRun products.
Increases in product prices associated with the release of new versions of our
products during the fourth quarter of 1998 also contributed to the growth in
revenue.

SERVICES. Revenue from services increased 276% from $1.1 million for the
six months ended June 30, 1998 to $4.0 million for the six months ended June 30,
1999. The increase was primarily attributable to growth in training revenue
resulting from an increase in our installed customer base.

25
<PAGE>
COST OF REVENUE

COST OF SOFTWARE LICENSE FEES. The cost of software license fees includes
costs of product media duplication, manuals, packaging materials, licensed
technology, and fees paid to third-party vendors and agents for order
fulfillment. Cost of software license fees increased 34% from $823,000 for the
six months ended June 30, 1998 to $1.1 million for the six months ended June 30,
1999. The increase in absolute dollars was due to higher unit sales volume. The
improvement in software license fees gross margins from 89% for the six months
ended June 30, 1998 to 94% for the six months ended June 30, 1999 was primarily
attributable to economies of scale achieved with our higher sales volume.

COST OF SERVICES. Cost of services consists primarily of personnel costs.
Cost of services increased 106% from $1.6 million for the six months ended June
30, 1998 to $3.3 million for the six months ended June 30, 1999. The increase in
absolute dollars resulted primarily from the hiring of additional employees and
the use of contract trainers to support increased customer demand for training
classes and technical support. Services gross margin improved from (49)% for the
six months ended June 30, 1998 to 18% for the six months ended June 30, 1999.
The improvement in services gross margins was primarily attributable to the
substantial growth in training revenue.

Overall gross margins are primarily affected by the mix of products
licensed, sales through direct versus indirect distribution channels, software
license fees revenue versus services revenue, and international versus domestic
revenue. We typically realize higher gross margins on direct sales relative to
indirect distribution channel sales and higher gross margins on software license
fees relative to services revenue. As services revenue or revenue derived
through indirect distribution channels increases as a percentage of total
revenue, our gross margins may be adversely affected.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of employee salaries, fees for outside consultants and related costs
associated with the development of new products, the enhancement and
localization of existing products, quality assurance and testing. Research and
development expenses increased 49% from $3.6 million for the six months ended
June 30, 1998 to $5.4 million for the six months ended June 30, 1999. The
increase primarily resulted from salaries associated with newly hired
development personnel and product development consulting costs. We anticipate
that research and development expenses will continue to increase in absolute
dollars.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
employee salaries, commissions, and costs associated with marketing programs
such as trade shows, seminars, advertising and new product launch activities.
Sales and marketing expenses increased 46% from $8.6 million for the six months
ended June 30, 1998 to $12.5 million for the six months ended June 30, 1999. The
increase was primarily attributable to costs associated with additional direct
sales, pre-sales support and marketing personnel, and an increase in marketing
programs, including promotions and advertising. We anticipate that sales and
marketing expenses will continue to increase in absolute dollars as we continue
to expand our marketing programs and sales force to support our brand awareness,
product launches, international expansion and increased focus on major account
sales.

26
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of employee salaries and other personnel related costs for executive
and financial personnel, as well as legal, accounting and insurance costs.
General and administrative expenses increased 41% from $2.2 million for the six
months ended June 30, 1998 to $3.0 million for the six months ended June 30,
1999. The increase was primarily attributable to salaries associated with newly
hired personnel and related costs required to manage our growth and facilities
expansion. We expect that our general and administrative expenses will increase
in absolute dollars as we continue to expand our staffing to support expanded
operations and facilities, and incur expenses relating to our responsibilities
as a public company.

STOCK-BASED COMPENSATION. The amount that the estimated fair market value
of our common stock exceeds the exercise price of stock options on the date of
grant is recorded as deferred compensation and amortized to stock-based
compensation expense as the options vest. We recognized $186,000 for the six
months ended June 30, 1998 compared to $133,000 for the six months ended June
30, 1999. The decrease was primarily attributable to the grant of a fully vested
option with an exercise price substantially below fair market value during the
six months ended June 30, 1998.

MERGER COSTS. The merger costs of $2.7 million for the six months ended
June 30, 1999 relate to the mergers with Bright Tiger and Live Software. The
costs include professional fees, facility closings, severance packages and
related costs associated with these mergers.

INTEREST INCOME, NET. Interest income, net of interest expense, increased
from $136,000 for the six months ended June 30, 1998 to $803,000 for the six
months ended June 30, 1999. The increase was due to interest income earned from
the investment of the net cash proceeds from our initial public offering in
January 1999.

PROVISION FOR INCOME TAXES. We have incurred significant operating losses
for all periods from inception through June 30, 1999. We have recorded a
valuation allowance for the full amount of our net deferred tax assets as the
future realization of the tax benefit is not sufficiently assured.

27
<PAGE>
YEARS ENDED DECEMBER 31, 1997 AND 1998

REVENUE

Total revenue increased 174% from $7.8 million for 1997 to $21.4 million for
1998.

SOFTWARE LICENSE FEES. Revenue from software license fees increased 152%
from $7.1 million for 1997 to $18.0 million for 1998. The increase was primarily
due to an increase in the number of licenses sold to use our software products
including HomeSite, which we began selling in March 1997, and ColdFusion Studio,
which was released in November 1997. The growth in unit sales was also
attributable to the establishment of relationships with key domestic and
international distribution partners during the second half of 1997. To a lesser
degree, the increase in revenue from software license fees resulted from an
increase in product price associated with the release of new versions of our
products during the second half of 1997 and the fourth quarter of 1998.

SERVICES. Revenue from services increased 418% from $655,000 for 1997 to
$3.4 million for 1998. The increase was primarily attributable to growth in
training revenue resulting from an increase in our installed customer base.

COST OF REVENUE

COST OF SOFTWARE LICENSE FEES. Cost of software license fees increased 99%
from $973,000 for 1997 to $1.9 million for 1998. The increase in absolute
dollars was due to higher unit sales volume. The improvement in software license
fees gross margins from 86% for 1997 to 89% for 1998 was primarily attributable
to economies of scale achieved with higher sales volume in 1998.

COST OF SERVICES. Cost of services increased 179% from $1.5 million for
1997 to $4.1 million for 1998. The increase in absolute dollars resulted
primarily from the hiring of additional employees and the use of contract
trainers to support increased customer demand for training classes and technical
support. The improvement in services gross margins from (122)% for 1997 to (19)%
for 1998 was primarily attributable to the substantial growth in services
revenue.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses increased 61%
from $5.0 million for 1997 to $8.0 million for 1998. The increase primarily
resulted from salaries associated with newly hired development personnel and
product development consulting costs.

SALES AND MARKETING. Sales and marketing expenses increased 117% from $8.8
million for 1997 to $19.1 million for 1998. The increase was primarily
attributable to costs associated with additional direct sales, pre-sales support
and marketing personnel, and, to a lesser extent, an increase in marketing
programs, including trade shows, seminars and product launch activities.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
45% from $3.4 million for 1997 to $4.9 million for 1998. The increase was
primarily attributable to salaries associated with newly hired personnel and
related costs required to manage our growth and facilities expansion. In
addition, we incurred a charge of $400,000 in the fourth quarter of 1998 for
costs relating to exiting a facilities lease.

27
<PAGE>
STOCK-BASED COMPENSATION. The amount that the estimated fair market value
of our common stock exceeds the exercise price of stock options on the date of
grant is recorded as deferred compensation and amortized to stock-based
compensation expense as the options vest. We recognized zero and $412,000 of
stock based compensation for 1997 and 1998, respectively.

INTEREST INCOME, NET. Interest income, net of interest expense, decreased
from $315,000 for 1997 to $13,000 for 1998. The decrease was primarily due to an
increase in interest expense attributable to our capital lease and notes payable
obligations.

YEARS ENDED DECEMBER 31, 1996 AND 1997

REVENUE

Our total revenue increased 230% from $2.4 million for 1996 to $7.8 million
for 1997.

SOFTWARE LICENSE FEES. Revenue from software license fees increased 203%
from $2.4 million for 1996 to $7.1 million for 1997. The increase was primarily
due to an increase in the number of licenses sold to use our software products
including HomeSite, which we began selling in March 1997. The growth in unit
sales was also attributable to the establishment of relationships with key
domestic and international distribution partners during the second half of 1997.
To a lesser degree, the increase in revenue from software license fees
resulted from an increase in product price associated with the release of new
versions of our products during the second half of 1997 and the introduction of
subscription sales in the fourth quarter of 1996.

SERVICES. Prior to 1997, we provided minimal technical support to our
customers and recognized no revenue from such services during 1996. During 1997,
we introduced training and fee-based technical support to our customers.

COST OF REVENUE

COST OF SOFTWARE LICENSE FEES. Cost of software license fees increased 316%
from $234,000 for 1996 to $973,000 for 1997. The increase in absolute dollars
was due to higher unit sales volume. The decrease in software license fee gross
margins from 90% for 1996 to 86% for 1997 was primarily attributable to an
increase in licensed technology costs and fees paid to third-party agents for
order fulfillment.

COST OF SERVICES. We recognized no revenue from services during 1996. The
cost of services incurred during 1997 related to the establishment of our
training organization and the hiring of additional technical support personnel.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses increased 349%
from $1.1 million for 1996 to $5.0 million for 1997. The increase primarily
resulted from salaries associated with newly hired development personnel and
product development consulting costs.

SALES AND MARKETING. Sales and marketing expenses increased 445% from $1.6
million for 1996 to $8.8 million for 1997. The increase was primarily
attributable to costs associated with additional direct sales, pre-sales support
and marketing personnel, and, to a lesser extent, an

28
<PAGE>
increase in marketing programs, including trade shows, seminars and product
launch and brand awareness activities.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
137% from $1.4 million for 1996 to $3.4 million for 1997. The increase was
primarily due to employee salaries associated with the hiring of executive and
financial personnel to help manage our growth. We also settled a wrongful
termination action with a former employee and agreed to pay the plaintiff a
one-time cash settlement of $285,000.

INTEREST INCOME, NET. Interest income, net of interest expense, increased
from $13,000 for 1996 to $315,000 for 1997. The increase was primarily
attributable to interest earned on cash received from financing activities
during 1997, partially offset by interest expense attributable to our capital
lease obligations.

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth a summary of our unaudited quarterly
operating results for each of the ten quarters in the period ended June 30,
1999. This information has been derived from unaudited interim financial
statements that, in the opinion of management, have been prepared on a basis
consistent with the financial statements contained elsewhere in this prospectus
and include all adjustments, consisting of only normal recurring adjustments,
necessary for fair statement of such information when read in conjunction with
our financial statements and notes thereto. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
DEC. DEC.
MAR. 31, JUNE 30, SEPT. 30, 31, MAR. 31, JUNE 30, SEPT. 30, 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- ------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Software license fees............ $ 1,144 $ 1,305 $ 1,889 $2,795 $ 3,599 $ 4,228 $ 4,345 $5,794
Services......................... 94 118 144 299 493 585 1,158 1,160
-------- -------- --------- ------- -------- -------- --------- -------
Total revenue.................. 1,238 1,423 2,033 3,094 4,092 4,813 5,503 6,954
-------- -------- --------- ------- -------- -------- --------- -------
Cost of revenue:
Software license fees............ 157 186 198 432 421 402 447 667
Services......................... 146 302 396 608 699 903 1,240 1,215
-------- -------- --------- ------- -------- -------- --------- -------
Total cost of revenue.......... 303 488 594 1,040 1,120 1,305 1,687 1,882
-------- -------- --------- ------- -------- -------- --------- -------
Gross profit....................... 935 935 1,439 2,054 2,972 3,508 3,816 5,072
-------- -------- --------- ------- -------- -------- --------- -------
Operating expenses:
Research and development......... 641 1,084 1,580 1,679 1,796 1,806 2,148 2,277
Sales and marketing.............. 1,074 1,390 2,486 3,870 4,110 4,442 5,351 5,232
General and administrative....... 436 623 1,117 1,234 1,061 1,101 1,159 1,625
Stock-based compensation......... 0 0 0 0 161 25 34 192
Merger costs..................... 0 0 0 0 0 0 0 0
-------- -------- --------- ------- -------- -------- --------- -------
Total operating expenses....... 2,151 3,097 5,183 6,783 7,128 7,374 8,692 9,326
-------- -------- --------- ------- -------- -------- --------- -------
Loss from operations............... (1,216) (2,162) (3,744) (4,729 ) (4,156) (3,866) (4,876) (4,254)
Interest income (expense), net..... 19 76 116 104 91 45 (35) (88)
-------- -------- --------- ------- -------- -------- --------- -------
Net loss........................... $(1,197) $(2,086) $(3,628) $(4,625) $(4,065) $(3,821) $(4,911) $(4,342)
-------- -------- --------- ------- -------- -------- --------- -------
-------- -------- --------- ------- -------- -------- --------- -------
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Software license fees............ 92.4% 91.7% 92.9% 90.3% 88.0% 87.8% 79.0% 83.3%
Services......................... 7.6 8.3 7.1 9.7 12.0 12.2 21.0 16.7
-------- -------- --------- ------- -------- -------- --------- -------
Total revenue.................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- --------- ------- -------- -------- --------- -------

MAR. 31, JUNE 30,
1999 1999
-------- --------
<S> <C> <C>

STATEMENT OF OPERATIONS DATA:
Revenue:
Software license fees............ $ 6,963 $10,761
Services......................... 1,734 2,314
-------- --------
Total revenue.................. 8,697 13,075
-------- --------
Cost of revenue:
Software license fees............ 456 647
Services......................... 1,506 1,794
-------- --------
Total cost of revenue.......... 1,962 2,441
-------- --------
Gross profit....................... 6,735 10,634
-------- --------
Operating expenses:
Research and development......... 2,467 2,897
Sales and marketing.............. 5,666 6,795
General and administrative....... 1,437 1,606
Stock-based compensation......... 67 66
Merger costs..................... 0 2,700
-------- --------
Total operating expenses....... 9,637 14,064
-------- --------
Loss from operations............... (2,902) (3,430)
Interest income (expense), net..... 286 517
-------- --------
Net loss........................... $(2,616) $(2,913)
-------- --------
-------- --------
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Software license fees............ 80.1% 82.3%
Services......................... 19.9 17.7
-------- --------
Total revenue.................. 100.0 100.0
-------- --------
</TABLE>

29
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
DEC. DEC.
MAR. 31, JUNE 30, SEPT. 30, 31, MAR. 31, JUNE 30, SEPT. 30, 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- ------- -------- -------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of revenue:
Software license fees............ 12.7 13.1 9.7 14.0 10.3 8.3 8.1 9.6
Services......................... 11.8 21.2 19.5 19.6 17.1 18.8 22.6 17.5
-------- -------- --------- ------- -------- -------- --------- -------
Total cost of revenue.......... 24.5 34.3 29.2 33.6 27.4 27.1 30.7 27.1
-------- -------- --------- ------- -------- -------- --------- -------
Gross profit....................... 75.5 65.7 70.8 66.4 72.6 72.9 69.3 72.9
-------- -------- --------- ------- -------- -------- --------- -------
Operating expenses:
Research and development......... 51.7 76.1 77.7 54.3 43.9 37.5 39.0 32.7
Sales and marketing.............. 86.8 97.7 122.3 125.1 100.4 92.3 97.2 75.2
General and administrative....... 35.2 43.8 54.9 39.9 25.9 22.9 21.1 23.4
Stock-based compensation......... 0.0 0.0 0.0 0.0 3.9 0.5 0.6 2.8
Merger costs..................... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- --------- ------- -------- -------- --------- -------
Total operating expenses....... 173.7 217.6 254.9 219.3 174.1 153.2 157.9 134.1
-------- -------- --------- ------- -------- -------- --------- -------
Loss from operations............... (98.2) (151.9) (184.1) (152.9 ) (101.5) (80.3) (88.6) (61.2)
Interest income (expense), net..... 1.5 5.3 5.7 3.4 2.2 0.9 (0.6) (1.3)
-------- -------- --------- ------- -------- -------- --------- -------
Net loss........................... (96.7)% (146.6)% (178.4)% (149.5 )% (99.3)% (79.4)% (89.2)% (62.5)%
-------- -------- --------- ------- -------- -------- --------- -------
-------- -------- --------- ------- -------- -------- --------- -------

MAR. 31, JUNE 30,
1999 1999
-------- --------

<S> <C> <C>
Cost of revenue:
Software license fees............ 5.3 5.0
Services......................... 17.3 13.7
-------- --------
Total cost of revenue.......... 22.6 18.7
-------- --------
Gross profit....................... 77.4 81.3
-------- --------
Operating expenses:
Research and development......... 28.4 22.2
Sales and marketing.............. 65.1 52.0
General and administrative....... 16.5 12.3
Stock-based compensation......... 0.8 0.5
Merger costs..................... 0.0 20.5
-------- --------
Total operating expenses....... 110.8 107.5
-------- --------
Loss from operations............... (33.4) (26.2)
Interest income (expense), net..... 3.3 3.9
-------- --------
Net loss........................... (30.1)% (22.3)%
-------- --------
-------- --------
</TABLE>

Our total revenue has increased each consecutive quarter during the ten
fiscal quarters ending June 30, 1999, as a result of market acceptance of our
products and diversification of our sales channels, including expansion of our
direct sales force and relationships with domestic and international
distributors. Services revenue has generally increased along with increases in
our installed customer base. Cost of revenue from software license fees has
fluctuated as a percentage of revenue from software license fees primarily due
to growth in the indirect distribution channel, use of licensed technology and
economies of scale gained from increased license volume. Cost of services
revenue increased quarter to quarter in absolute dollars primarily due to
increases in personnel and related costs for customer support and training.

Operating expenses increased in each quarter, reflecting increased spending
on developing, selling, marketing and supporting our products, as well as
building our market presence. Research and development costs have increased as a
result of higher personnel and consulting costs associated with enhancing
existing products and developing new products. Sales and marketing expenses
increased as a result of hiring additional sales and marketing personnel and an
increase in marketing program costs. General and administrative expenses
increased throughout 1997 primarily due to the hiring of our executive and
financial staff and support personnel, increased use of outside services during
the second half of 1997 and a legal settlement. The increase during the fourth
quarter of 1998 was related to costs associated with exiting a facilities lease.
Merger costs incurred during the second quarter of 1999 were related to our two
acquisitions, each of which was recorded as a pooling of interests.

Our operating results have varied on a quarterly basis during our short
operating history and are expected to fluctuate significantly in the future. A
variety of factors, many of which are outside of our control, may affect our
quarterly operating results. These factors include:

- the evolution of the market for Web application servers and packaged
e-business applications;

- market acceptance of our products;

30
<PAGE>
- our success and timing in developing and introducing new products and
enhancements to existing products;

- market acceptance of products developed by competitors;

- changes in our pricing policies or the pricing policies of our
competitors;

- an increase in the length of our sales cycle;

- changes in customer buying patterns;

- customer order deferrals in anticipation of our new products and product
enhancements or our competitors' products and product enhancements;

- market entry by new competitors;

- development and performance of our distribution channels;

- general economic conditions; and

- economic conditions specific to Internet-related industries.

LIQUIDITY AND CAPITAL RESOURCES

In January 1999, we sold 2,875,000 shares of our common stock through an
initial public offering. Net proceeds from the offering were $52.3 million after
deducting underwriting discounts, commissions and offering expenses. Prior to
our initial public offering, we funded our operations primarily through net cash
proceeds from private placements of preferred stock. At June 30, 1999, we had
cash, cash equivalents and short-term investments of $53.5 million, up from $3.7
million at December 31, 1998.

Cash used for operating activities for 1998 was $9.2 million, primarily due
to a net loss of $17.1 million, partially offset by increases in accrued
expenses and deferred revenue. Cash used for operating activities for the six
months ended June 30, 1999 was $228,000, primarily relating to a net loss of
$5.5 million, offset by increases in accrued expenses and deferred revenue.

Cash provided by investing activities for 1998 was $1.5 million, primarily
relating to a decrease in short-term investments, partially offset by property
and equipment purchases. Cash used for investing activities for the six months
ended June 30, 1999 was $34.9 million, primarily relating to an increase in
purchases of short-term investments.

Cash provided by financing activities for 1998 was $3.8 million, primarily
due to the issuance of notes payable and promissory notes, the exercise of
common stock options and the issuance of preferred stock. Cash provided by
financing activities for the six months ended June 30, 1999 was $51.4 million,
primarily due to common stock issuances.

As of June 30, 1999, our primary commitments consisted of obligations
related to operating leases, $1.3 million of notes payable under equipment lines
and $332,000 of capital lease obligations.

In April 1999, we completed a merger with Bright Tiger by issuing 288,583
shares of our common stock for all of the issued and outstanding equity
securities of Bright Tiger. In connection with the merger, we assumed and paid
off Bright Tiger debt obligations totaling $2.6 million. In June 1999, we
completed a merger with Live Software by issuing approximately 528,376 shares of
our common stock for all of the issued and outstanding equity securities of Live
Software.

We expect to experience significant growth in our operating expenses for the
foreseeable future in order to execute our business plan, particularly research
and development and sales

31
<PAGE>
and marketing expenses. As a result, we anticipate that such operating expenses,
as well as planned capital expenditures, will constitute a material use of our
cash resources. In addition, we may utilize cash resources to fund acquisitions
or investments in complementary businesses, technologies or product lines. We
believe that the net proceeds from this offering together with our current cash,
cash equivalents and short-term investments will be sufficient to meet our
anticipated cash requirements for working capital and capital expenditures for
the foreseeable future.

RECENT DEVELOPMENTS

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. The use of software and computer systems that are not Year
2000 compliant could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. As a result, many companies' software and computer systems may need
to be upgraded or replaced in order to comply with Year 2000 requirements.
Because ColdFusion and JRun do not involve data storage, the ability of a Web
application built with ColdFusion or JRun to comply with Year 2000 requirements
is largely dependent on whether the database underlying the application is Year
2000 compliant. If ColdFusion or JRun is connected to a database that is not
Year 2000 compliant, the information received by the application may be
incorrect. Although we believe that the current releases of our products are
Year 2000 compliant, there can be no assurance that Web applications developed
using our products will comply with Year 2000 requirements.

Some of our customers and potential customers have implemented policies that
prohibit or discourage changing their internal computer systems until after
January 1, 2000. Our revenue may suffer if potential customers delay the
purchase of our products until after January 1, 2000. Purchasing decisions may
be delayed as potential customers halt development of their internal computer
systems or use their information technology budgets to address Year 2000 issues.
If potential customers delay purchasing or implementing our products in
preparation for the Year 2000 problem, our business could be seriously harmed.
Year 2000 complications may disrupt the operation, viability or commercial
acceptance of the Internet, which could have a material adverse impact on our
business, operating results and financial condition.

With respect to our primary internal software systems, we have received
either written confirmations from our software vendors that the software it
installed is Year 2000 compliant or is in the process of installing available
software upgrades to achieve Year 2000 compliance. Based on the foregoing, we
currently have no reason to believe that our internal software systems will not
be Year 2000 compliant by September 30, 1999. To date, we have not incurred
significant incremental costs in order to comply with Year 2000 requirements and
do

32
<PAGE>
not believe we will incur significant incremental costs in the foreseeable
future. However, there can be no assurance that Year 2000 errors or defects will
not be discovered in our internal software systems and, if such errors or
defects are discovered, there can be no assurance that the costs of making such
systems Year 2000 compliant will not have a material adverse effect on our
business, operating results and financial condition.

We rely on third party vendors which may not be Year 2000 compliant for
certain equipment and services. In addition, many of our distributors are
dependent on commercially available operating systems, which may be impacted by
Year 2000 complications. To date, we have not conducted a Year 2000 review of
our vendors or distributors. If systems maintained by our vendors or
distributors fail to operate properly with regard to the Year 2000 and
thereafter, we could incur significant, unanticipated expenses to remedy any
problems or replace affected vendors, which could reduce our revenue from our
indirect distribution channel and could have a material adverse effect on our
business, operating results and financial condition.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. We do not expect
SFAS No. 133 to have a material effect on our financial condition or results of
operations.

In February 1998, the AcSEC issued SoP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SoP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. We adopted SOP
98-1, January 1, 1999, and we do not expect our adoption of SOP 98-1 to have a
material effect on our financial condition or results of operations.

In April 1998, the AcSEC issued SoP 98-5, Reporting on the Costs of Start-Up
Activities. Start-up activities are defined broadly as those one-time activities
relating to opening a new facility, introducing a new product or service,
conducting business in a new territory, conducting business with a new class of
customer, commencing some new operation or organizing a new entity. Under SoP
98-5, the cost of start-up activities should be expensed as incurred. SoP 98-5
is effective for our fiscal 1999 financial statements and we do not expect our
adoption of SoP 98-5 to have a material effect on our financial condition or
results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 1999, we were exposed to market risks which primarily include
changes in U.S. interest rates. We maintain a significant portion of our cash,
cash equivalents and short-term investments in financial instruments with
purchased maturities of 12 months or less. We do not hold derivative financial
instruments or equity securities in our investment portfolio. Our cash
equivalents and short-term investments consist of high quality corporate and
government debt. These financial instruments are subject to interest rate risk
and will decline in value if interest rates increase. Due to the short duration
of these financial instruments, an immediate increase in interest rates would
not have a material effect on our financial condition or results of operations.

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BUSINESS

ALLAIRE

INDUSTRY OVERVIEW

GROWTH OF THE INTERNET

The Internet has experienced dramatic growth, both in terms of the number of
users and as a means of conducting business transactions, and is expected to
continue to grow rapidly. International Data Corporation estimates that the
number of Internet users will increase from 196 million in 1999 to 502 million
in 2003. The emergence of the Internet has enabled new online business models
and spurred the development and deployment of Web applications to facilitate
business interactions that were not practical to address with traditional
computing systems. The Internet has created a public infrastructure that enables
companies to market and sell their products and services to customers through
e-business applications. International Data Corporation estimates that the
volume of commerce over the Internet will increase from approximately $111
billion in 1999 to approximately $1.3 trillion by 2003.

As the number of companies conducting business online has increased, the
Internet has become a highly competitive business environment. A growing number
of companies are building Web applications that perform a combination of
marketing, sales and operational functions. At the same time, the Internet
promotes competition in markets and makes it easy for customers to locate and
transact business with competitive vendors. As a result, companies are seeking
to differentiate themselves from their competitors by developing increasingly
sophisticated capabilities for conducting business transactions online and
managing product marketing content. This content is increasingly delivered to
Web users in a form that is targeted to their personal interests and defined by
their past interactions with the site. The increasing use and sophistication of
Web applications has created a corresponding need for Web application servers
required to host them. It also has increased demand for packaged e-business
applications with advanced content management, commerce and personalization
capabilities.

WEB APPLICATION SERVERS

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technology that is central to the desktop computing platform. According to
Forrester Research, the market for Web application servers will triple from $692
million in 1999 to $2.1 billion in 2002. We believe that the central technology
role of Web application servers places leading Web application server vendors in
a strong position to sell related software products. This additional software
includes development tools, management products and packaged e-business
applications.

PACKAGED E-BUSINESS APPLICATIONS

Packaged e-business applications enable companies to dynamically deliver
information and transactional capabilities to a broad group of users, including
customers, vendors and employees. By offering dynamic content and the ability to
execute business transactions over the Internet, e-business applications can
provide each user with customized information while reducing the cost of each
business transaction. These capabilities differentiate e-business applications
from mainframe, desktop and client-server applications. More companies are
seeking to gain a competitive advantage by deploying applications with
sophisticated content management, commerce and personalization capabilities. An
International Data Corporation report estimates that the market for e-business
applications will grow from $1.7 billion in 1999 to $13.2 billion in 2003.

INDUSTRY CHALLENGES

Companies are deploying Web application servers and packaged e-business
applications to address a broad range of business needs. Applications range from
corporate e-business Web sites with millions of visitors per day to intranet
applications designed to share information among a small number of co-workers.
The Web's open standards and the low cost of deploying Web applications promote
the creation of a greater variety of applications than would be practical using
mainframe, desktop or client-server technologies. A Web application server must
be both highly functional and affordably priced to make this wide range of Web
application deployments economically feasible.

Successful Web application servers and Web applications must not only be
based on standards that are specific to the Web but also must be open and easily
integrated with older computer technologies. Standard Web protocols such as
HTTP, HTML and XML, form the core of Web application technology. These protocols
evolved independently, rather than from mainframe, desktop or client-server
technologies. To be successful, Web-based applications must be able to integrate
with a company's existing hardware and software systems, such as databases,
directories, messaging servers and transaction monitors. At the same time, Web
application servers should not be built around older computer platform
standards, which many large platform vendors have attempted to do by extending
mainframe, desktop or client-server technologies to the Web.
To date, few Web application server products have achieved broad market
acceptance. Broad and sustained acceptance of a product promotes market entry by
technology vendors and service providers offering complementary products and
professional services to customers. Broad customer and developer support
enhances a vendor's ability to launch new products and product versions by
improving the quality of pre-release customer testing, by enhancing the vendor's
ability to secure reference customers prior to a new product's release, and by

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helping to ensure widespread customer awareness and availability of new products
through the vendor's distribution channel.

As competition among companies conducting business online increases, those
companies are becoming increasingly focused on speeding the development and
deployment process. Cutter Information Corporation estimates that 72% of Web
application development projects have a schedule of six months or less, and 14%
have a schedule of less than a month. As a consequence, Web application servers
and packaged e-business applications must contain features, such as visual
tools, templates and wizards, which promote productive development and simplify
deployment. The graphical, content-rich and data-intensive nature of e-business
applications requires the involvement of a variety of programmers. These
programmers include enterprise systems specialists, database developers and
application programmers as well as a variety of non-traditional contributors
such as Web page designers, multi-media designers and video producers. To ensure
productive Web application development and deployment, the Web application
server must provide appropriate tools to each set of participants, while
preserving the integrity of the application and coordinating the efforts of
geographically-dispersed, multi-disciplinary teams.

THE ALLAIRE SOLUTION

We are a leading provider of Web application servers and related software
products that enable organizations to move their businesses to the Web. Our
ColdFusion, JRun and HomeSite products and related services offer companies the
following benefits:

- An enterprise class, competitively-priced Web application server, which
acts as the platform for the rapid development and deployment of scalable
e-business applications. To date, over 35,000 copies of our ColdFusion Web
application server have been licensed.

- Open, extensible application server technology based on Web standards,
such as HTML, XML and Java, that enables integration of a large number of
enterprise information systems technologies. Unlike many other vendors, we
offer Web application servers and other products that are not constrained
by a need to support or promote a particular legacy technology.

- Web-specific technology innovations designed to speed Web application
development and deployment, such as ColdFusion Markup Language, JavaServer
Pages and Web Distributed Data eXchange, and a large number of additional
product features that increase the speed of Web application development.

- A broad and growing group of developers, technology partners, direct and
indirect distributors, systems integrators and other professionals that
support and extend the use and functionality of our products through
complementary products and high-quality design, implementation, training
and support services.

The introduction of our Allaire Spectra product later this year will provide
companies with advanced content management, commerce and personalization
capabilities in a packaged e-business application deployed on our ColdFusion Web
application server.

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ALLAIRE STRATEGY

Our goal is to be the leading provider of Web application servers and
packaged e-business applications for the development and deployment of
sophisticated e-business Web sites and applications. Key elements of our
strategy to attain this goal are:

MAKE ENTERPRISE CLASS PRODUCTS THAT ARE EASY TO USE AND AFFORDABLE. We
believe that we have become a leader in the Web application server market by
providing enterprise class products that have high performance, scalability and
security, but that are much easier to use and cost significantly less than
products available from most other vendors. Because our products are easier to
use and cost less than other products, they can be adopted by a larger number of
businesses to develop and deploy a wider variety of applications. We intend to
continue to sell easy-to-use, high-quality products at affordable prices to
capture a significant portion of the Web application server market.

MAXIMIZE PRODUCT ADOPTION. We have established significant market presence
for our Web application products by making components of our technology freely
and widely available. Non-commercial versions of our ColdFusion, JRun and
HomeSite products are available for free electronic distribution and are also
distributed by original equipment manufacturers. By promoting access to our
technology, we seek to associate the Allaire brand with high-quality,
highly-productive Web application products, and to encourage users to progress
from free versions to commercial products.

LEVERAGE LEADERSHIP POSITION IN WEB APPLICATION SERVER MARKET. We intend to
continue to introduce new products, such as Allaire Spectra, that complement our
Web application server products. We believe that, as a leader in the Web
application server market, we have a competitive advantage over vendors that
have sold fewer products. We believe that the broad customer base and developer
support of our Web application servers enhance our ability to introduce
complementary products.

CONTINUE TO SUPPORT OPEN WEB STANDARDS. We architected our products to be
open by supporting development for key Web application platforms and
technologies, as well as key enterprise and client-server standards. We have
helped to introduce innovative technologies for Web application development and
deployment, such as CFML, WDDX and JavaServer Pages, that are used by large
numbers of Web developers. We intend to continue to develop innovative Web
technologies to meet changing customer requirements and to enable our customers
to preserve their investments in existing computer systems without compromising
Web application server functionality or performance.

EXPAND CHANNEL DISTRIBUTION. To maximize the effectiveness of our sales and
marketing resources, we intend to continue to expand the depth and breadth of
our channel distribution. We believe that increasing the dollar amount of the
sales opportunities handled by our indirect channel distribution will increase
the strength and motivation of our channel while allowing our direct sales force
to focus on increasingly larger sales to Fortune 1000 companies and other major
organizations.

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ENHANCE CO-SELLING RELATIONSHIPS WITH SYSTEMS INTEGRATORS. We intend to
continue to develop our relationships with systems integrators and other Web
consultants that implement e-business applications using our Web application
products. By providing significant opportunities to these firms to generate
consulting revenue, we believe that they will promote our products over those
sold by competing vendors that seek to keep implementation and consulting
services revenue for themselves. The substantial resources of systems
integrators and Web consultants help ensure the successful development and
deployment of our customers' e-business applications.

WIN ENTERPRISE STANDARDS DECISIONS. As companies invest in Web application
servers and related software products, their purchasing decisions more often
require approval of a vendor's technology as a company-wide standard. We intend
to expand the support and coverage of these accounts within our direct sales
force, and to continue to present the business advantages of adopting our
technology as a company-wide standard.

PRODUCTS

Our products enable companies and other organizations to develop and deploy
sophisticated e-business applications. The discussion and chart below describe
our products.

COLDFUSION

COLDFUSION SERVER. ColdFusion Server is an open, scalable and secure Web
application server. Web applications built with ColdFusion range from simple,
database-driven pages to large-scale, content-rich, transaction-oriented Web
sites. ColdFusion Server is available in two editions, Professional and
Enterprise, running on Windows NT. The Enterprise edition also runs on Sun
Solaris and HP-UX. ColdFusion Server has won the following awards:

- 1999 PC Magazine's Editors' Choice Award;

- 1998 Codie Award for software excellence from the Software Publishers
Association;

- "Best of Show Award" at the 1998 Fall Internet World;

- CNET's builder.com 1998 Product Award; and

- Network World Blue Ribbon Award.

COLDFUSION STUDIO. ColdFusion Studio is the integrated development
environment for ColdFusion Server. Based on HomeSite, ColdFusion Studio allows
developers to preserve development skills as well as individual projects as they
move from developing static Web pages and sites to interactive Web sites and Web
applications. ColdFusion Studio runs on Microsoft Windows NT, Windows 95 and
Windows 98.

JRUN

JRun provides companies with a system for deploying Web applications based
on Java Servlets and JavaServer Pages. Java Servlets are Web application
components written in the Java programming language, a language developed by Sun
Microsystems. JavaServer Pages is a Web application scripting language that
allows developers to create dynamic Web pages and applications that are
independent of hardware and server environments. JRun allows developers to
deploy server-side Java to leading Web servers, including Microsoft's IIS,
Netscape's Enterprise Server and Apache. Java addresses the needs of more
advanced, object-oriented system programmers. By adding Java technologies to our
product line, JRun expands the number of projects and developers that can take
advantage of our Web application platform. JRun runs on any software platform
that supports Java. JRun won the 1998

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WebTechniques' Best Java Tool award and was a finalist for the 1998 JavaWorld's
Best Servlet Tool award.

HOMESITE

HomeSite is a leading HTML design tool, which is principally used for the
creation of Web pages. HomeSite runs on Microsoft Windows NT, Windows 95 and
Windows 98. HomeSite has won a large number of industry awards as a leading HTML
design tool.

ALLAIRE SPECTRA

Allaire Spectra, which we expect to release later this year, is a packaged
e-business application for building and managing large-scale Web sites and
applications that require advanced content management, commerce and
personalization capabilities. Allaire Spectra will provide systems
administrators, Web developers and users with the necessary pre-built software
components and visual tools to deploy and manage large-scale Internet portals,
e-commerce sites and corporate-wide Web systems. Applications built with Allaire
Spectra will run on the ColdFusion application server. Allaire Spectra was
announced on July 21, 1999 and is currently in product testing. In August 1999,
the pre-release version of Allaire Spectra won the InternetWorld Australia Best
of Show award.

<TABLE>
<CAPTION>
PRODUCT
(SUGGESTED LIST PRICE) DESCRIPTION TYPICAL APPLICATIONS TARGET USERS
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>

ColdFusion Server Licensed for four Business intranets and Large enterprises
Professional ($1,295) processors and allows an extranets Large systems integrators
unlimited number of Field office extranets New Web-based businesses
concurrent users Single server applications Internet service providers
Features include open state using a relational database
repository and shared
server security
Access to any ODBC and
OLE-DB data source

ColdFusion Server Licensed for eight High-volume, Large enterprises
Enterprise ($3,495) processors and allows an business-critical commerce Large systems integrators
unlimited number of sites and applications New Web-based businesses
concurrent users Enterprise intranet Internet service providers
Includes all Professional applications
features, plus features Enterprise applications
required for large scale requiring native database
applications, including drivers or CORBA
clustering, load balancing
and automatic failover and
CORBA support
IBM DB2, Informix, Oracle
and Sybase native database
drivers

ColdFusion Studio ($395) An integrated development Business systems (human Web application developers
environment with a number resources, financial, Enterprise and
of visual tools for customer support) client-server programmers
creating Web applications Electronic commerce HTML and desktop database
Includes the award-winning (stores, developers
HomeSite HTML design tool business-to-business) Development team managers
Features include Dynamic content publishing
interactive debugging, (document management,
remote development dynamic news and
capabilities and one-step personalized information)
deployment Collaboration (discussion,
Team development support project and workflow
management)
</TABLE>

39
<PAGE>
<TABLE>
<CAPTION>
PRODUCT
(SUGGESTED LIST PRICE) DESCRIPTION TYPICAL APPLICATIONS TARGET USERS
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>

JRun Pro ($595) Supports any number of Corporate Internet, Java developers
processors and allows an intranet, and extranet Large enterprises
unlimited number of sites that utilize Java as Large systems integrators
concurrent users their primary development New Web-based businesses
Features full support for architecture
Java Servlets and Enterprise Web applications
JavaServer Pages requiring connectivity to
Licensed per processor CORBA, Enterprise Java
Beans and other distributed
environments

JRun Pro Unlimited ($1,995) Includes all Pro features, High-volume, Large enterprises
plus the ability to use any business-critical commerce Large systems integrators
number of concurrent Java sites and applications New Web-based businesses
Virtual Machines utilizing a large number of Internet service providers
Licensed per machine processors and/or Java
Virtual Machines

HomeSite (Electronic HTML page design and Web High-quality static Web site developers
Version $89; Packaged site development tool corporate Web sites Web development team
Version $99) Features an intuitive managers
graphical interface
</TABLE>

TECHNOLOGY

OPEN INTEGRATION

At the core of our Web application technology is the ColdFusion Web
application server. Our application server technology is built on an open
architecture, which can be deployed on Windows 98/NT, Sun Solaris or HP-UX. This
openness ensures that a customer can switch core operating system platforms and
maintain the same core application server technology. Our open architecture
supports native, high-performance connectivity into major enterprise databases,
such as Oracle, Sybase, SQL Server, Informix and IBM DB2. Our application server
technology supports major distributed computing standards, including DCOM,
CORBA, Java and Enterprise Java Beans. This support enables existing legacy
corporate applications infrastructure to be extended into Internet-based
systems. Additionally, all major Internet protocols and key enterprise
information systems, including messaging servers, directory servers, file
servers and other network technology, are supported.

SCALABLE, SECURE DEPLOYMENT

To successfully support high-volume sites and transaction-intensive
applications, a Web application platform requires high performance, availability
and scalability from a Web application server. Our application server technology
provides a high degree of cross-platform performance and fault-tolerance from
individual servers and multiple server clusters. ColdFusion application server
runs as a 32-bit multi-threaded system service, which permits applications to
experience an increase in processing performance as processors are added to the
server. Clusters of multiple servers significantly enhance an application's
availability and scalability. Using technology that we acquired in connection
with our merger with Bright Tiger, we have enhanced our load balancing and
failover technologies. ColdFusion automatically balances load among servers
deployed in a cluster, so that performance is

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optimized. ColdFusion permits a cluster deployment to store client state
information in a shared repository, so it will not be lost when a server fails.
If any machine in the cluster fails or is heavily loaded, ColdFusion
automatically transfers its responsibilities to one of the remaining servers.
Because ColdFusion clusters use a software-based system for load balancing and
failover there is no single point of failure.

Our application server technology also provides a set of features for
securely deploying applications. Principal among these is the ability of
ColdFusion to restrict access to specific resources needed to run an
application, including directories, files, databases and components. Therefore,
multiple applications on the same server cannot access another application's
resources. Other security features include authentication and encryption for
e-business Web applications. The application server security technology also
provides a set of tools for authenticating end users, and tracking their
interaction with a Web system. This technology forms a foundation for
personalized customer experiences and rich business intelligence. Additionally,
this security technology meets the needs of hosting and application server
provider companies, which require robust security to host multiple, outsourced
corporate Web sites and business applications on a shared infrastructure. We
license portions of this security technology from a third party.

MULTI-LANGUAGE DEVELOPMENT

Our application server technology supports multiple programming language
technologies and models. At the core of ColdFusion is the ColdFusion Markup
Language, or CFML, which provides developers with a highly-productive, tag-based
scripting model that tightly integrates with Web-based programming languages
such as HTML and XML.

As a result of our merger with Live Software, we acquired JRun, a
server-side Java programming environment. JRun provides developers with a system
for deploying Web applications based on Java Servlets and JavaServer Pages--a
standards-based model for deploying Java on Web application servers. Java
addresses the needs of more advanced, object-oriented system programmers. By
integrating Java technologies such as Java Servlets and JavaServer Pages into
our technology, we have expanded the range of projects and developers that can
use our products.

PRODUCTIVE DEVELOPMENT AND MANAGEMENT

In addition to our innovative approaches to Web-based programming languages,
we offer a wide range of visual development tools. We believe that company-wide
adoption of the Web requires rich productivity tools for system administrators,
developers, designers, and business users and managers. Our visual tools include
HomeSite, an HTML design tool, and ColdFusion Studio, our ColdFusion rapid
application development tool.

Additionally, our Allaire Spectra product will include a Web-based
productivity tool for business users and managers to assist them in managing
content, controlling business workflow and using decision support tools to
analyze their Web-based sales and marketing activities.

PACKAGED E-BUSINESS APPLICATIONS

Allaire Spectra will consist of three core components: the ContentObject
API, the core solution services and a Web-based productivity tool. The
ContentObject API is an XML-based object programming system and content
repository. It will allow companies to model their Web business technology and
data using an object-based programming model, implemented in ColdFusion, and to
store their Web information in an XML-based content

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repository. This technology will help companies build an extensible and reusable
information management solution and syndicating content and applications across
the Internet.

The six core solution services of Allaire Spectra will be:

- Content management--a system for managing content infrastructure;

- Workflow and process automation--a set of services for building custom
workflow templates and process automation;

- Role-based security--an open authentication framework to assign users and
groups to activities and processes;

- Personalization--a three-tier model that supports user profiling,
rules-based dynamic targeting and the integration of third party
personalization engines;

- Business intelligence--a model of logging, measuring and reporting user
activities; and

- Syndication--a set of XML-based capabilities for extending Web business to
Internet partners or site affiliates.

The final core technology in Allaire Spectra will be a Web-based user
interface and productivity tool, which will provide business users and managers
with a simple user interface for managing content, workflow, business rules and
decision support and analysis tools.

INTERNET MIDDLEWARE AND XML

In addition to our tools, application servers and packaged e-business
applications, we have developed a core technology aimed at supporting
business-to-business commerce and application syndication. The Web Distributed
Data eXchange, or WDDX, was developed to support the integration of business
systems across the Internet. WDDX was released in late 1998 as an open source
technology, freely available from a separate Web site, www.wddx.org. Since its
release, more than 10,000 developers have downloaded a software development kit
for using WDDX. Several major software programming languages now support WDDX,
including Perl, Java, ASP, JavaScript, PHP and Python.

WDDX provides a module for each language that will automatically serialize
or translate the native data structures into an abstract representation in XML.
This technology is designed to simplify the integration of business systems over
the Internet. We intend to foster broad adoption of the technology, and have
incorporated it directly into our own platforms, including extensive use within
Allaire Spectra for enabling business-to-business commerce applications.

RESEARCH AND DEVELOPMENT

We devote a substantial portion of our resources to developing new products
and product features, extending and improving our products and technology, and
strengthening our technological expertise. Our research and development
expenditures were $5.0 million in 1997, $8.0 million in 1998 and $5.4 million in
the six months ended June 30, 1999. We intend to continue to devote substantial
resources toward research and development. As of June 30, 1999, we had 65
employees engaged in research and development activities. We must hire
additional skilled software engineers to continue to increase our research and
development efforts. Our business, operating results and financial condition
could be adversely affected if we are not able to hire and retain the required
number of engineers.

SALES, MARKETING AND DISTRIBUTION

We market and sell our products and services to businesses using a
combination of direct and indirect distribution channels, including a corporate
sales force, domestic and

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international distribution, electronic commerce and sales through business
partners. The percentage of our total revenue generated through our indirect
distribution channel was 28% in 1997, 44% in 1998 and 49% in the six months
ended June 30, 1999. As of June 30, 1999, we had 79 sales and marketing
employees worldwide.

CORPORATE SALES FORCE. Our corporate account sales force focuses on sales
to institutional customers worldwide. Corporate account sales can be filled
either directly by our sales force or through our indirect channel partners. The
corporate account sales force is comprised of field representatives and
telesales representatives. The field representatives market and sell to
corporate, government and higher education institutional customers primarily
interested in application server products for e-business applications. The
telesales representatives qualify, develop and pursue leads generated from
inquiries on our Web site, from seminars and from downloads of our products. We
intend to add a significant number of additional field representatives over the
next 12 months.

INDIRECT DISTRIBUTION. We have a number of domestic and international
distributors and resellers that market and sell our products. As of June 30,
1999, we had 21 distributors in North America, Europe and Asia Pacific,
including Ingram Micro and Mitsubishi. In addition, as of June 30, 1999, we had
over 500 corporate and catalog resellers, original equipment manufacturers and
value-added resellers. None of our distribution partners have exclusive
distribution rights.

ELECTRONIC COMMERCE. Our Web site allows visitors to download, evaluate and
purchase our products. A number of third-party electronic commerce sites,
including Beyond.com, Intraware.com, JapanMarket.com and RealStore.com,
distribute commercial copies of our products for delivery by direct download.
Electronic distribution provides us with a low-cost, globally accessible,
24-hour sales channel.

ALLAIRE ALLIANCE. We believe that establishing a large community of active
users of our products and technology is critical to our success. To further the
development of this community, we have established the Allaire Alliance program.
Allaire Alliance members include Web developers, application vendors and systems
integrators. Allaire Alliance members also include the distributors, corporate
and catalog resellers, original equipment manufacturers and value-added
resellers referenced above. We typically enter into written agreements with
Allaire Alliance members. These agreements typically do not provide for firm
financial commitments from the member, but are intended to establish the basis
upon which the parties will work together to achieve mutually beneficial
objectives.

PRODUCT MARKETING PROGRAMS. We engage in a broad range of product marketing
activities, including sponsoring seminars for potential customers, providing
product information through our Web site and promoting special events. During
1998, we held 108 seminars in 46 cities, and during the six months ended June
30, 1999, we held 52 seminars in 33 cities. Our product marketing programs are
aimed at informing customers of the capabilities and benefits of our products
and services and stimulating demand across all market segments. Certain programs
are designed to encourage independent software developers to develop products
and applications that are compatible with our products and technology.

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BRANDING STRATEGY. We continue to develop market awareness of the "Allaire"
brand. Our branding strategy includes participating in trade shows and
conferences, promoting special events and advertising our products and services
in print and electronic media.

CUSTOMERS

Our products are marketed and distributed to a diverse group of customers,
ranging from small, independent consultants and Internet presence providers to
Fortune 1000 businesses and other large organizations. Many of our customers are
global organizations that use our products to create Web sites and Web
applications with electronic commerce, content management and personalization
capabilities for Internet, intranet and extranet use. End user customers from
which we recognized in excess of $25,000 in revenue during 1999 include the
following:

AT&T
Bank of America
Bell Atlantic
Boeing
Booz, Allen & Hamilton
Carlson Companies
Caterpillar
Cheap Tickets
GTE
Hewlett-Packard
Kaiser Permanente

Lockheed Martin
Merrill Lynch
Nortel
Toys 'R' Us
Travelers Insurance Company
UUNet Technologies
Viacom
Visa International

Revenue from customers outside North America, primarily Asia and Europe, as
a percentage of our total revenue, was 19% in 1997, 13% in 1998 and 11% in the
six months ended June 30, 1999. Sales to Ingram Micro accounted for 28% of our
total revenue in 1998 and 37% in the six months ended June 30, 1999. No single
customer accounted for 10% or more of our total revenue in 1997.

SUPPORT AND PROFESSIONAL SERVICES

We offer a broad range of support and training services to our customers. We
believe that providing a high level of customer service and technical support is
necessary to achieve rapid product implementation which, in turn, is essential
to customer satisfaction and continued license sales and revenue growth. Our
customers have a broad choice of support options depending on the level of
service desired. We maintain a technical support hotline staffed by engineers
from 8:00 a.m. to 8:00 p.m., Eastern time, Monday through Friday, from our
corporate office in Cambridge, Massachusetts. Internationally, distribution
partners provide telephone support to customers with technical assistance from
us. Our support staff also responds to e-mail inquiries. We track support
requests through a series of customer databases, including current status
reports and historical customer interaction logs. We use customer feedback as a
source of ideas for product improvements and enhancements.

We also provide training and consulting to assist our customers in the
development and deployment of e-business applications using our products. As of
June 30, 1999, we had 31 technical support engineers and professional service
employees.

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COMPETITION

The Web application products market is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
activities of market participants. Primary competitors in the high end of the
market include large Web and database platform companies that offer a variety of
software products, such as IBM, Oracle and Sun Microsystems. In addition, we
compete against a number of companies that offer Web application servers, such
as BEA Systems, Bluestone and SilverStream Software. These companies generally
sell their products at significantly higher prices than our products. In the
middle range of the market, where product prices are generally lower, we compete
primarily against Microsoft. Our Allaire Spectra product will experience
competition from a number of companies that have introduced or are developing
e-business applications that focus on the high-end e-business market, such as
Vignette and BroadVision.

We believe that additional competitors may enter the market with competing
products as the size and visibility of the market opportunity increases.
Increased competition could result in pricing pressures, reduced margins or the
failure of our products to achieve or maintain market acceptance, any of which
could have a material adverse effect on our business, operating results and
financial condition. Many of our current and potential competitors have longer
operating histories and substantially greater financial, technical, marketing
and other resources than we do. Therefore, they may be able to respond more
quickly to new or changing opportunities, technologies, standards or customer
requirements. Many of these competitors also have broader and more established
distribution channels that may be used to deliver competing products directly to
customers through bundling or other means. If competitors were to bundle
competing products with their products, the demand for our products might be
substantially reduced and the our ability to distribute our products
successfully would be substantially diminished.

Competitive factors in the Web application products market include:

- the quality and reliability of software;

- cost per user;

- application server scalability, availability and performance;

- productivity features for creating, editing and adapting content;

- ease of use and interactive user features; and

- compatibility with the user's existing network components and software
systems.

To expand our customer base, we must continue to innovate and improve the
performance of our products. We anticipate that consolidation will continue in
the Web application products market and related markets such as computer
software, media and communications. Consequently, competitors may be acquired
by, receive investments from or enter into other commercial relationships with,
larger, well-established and well-financed companies.

INTELLECTUAL PROPERTY

Our success and competitiveness are dependent to a significant degree on the
protection of our proprietary technology. We rely primarily on a combination of
copyrights, trademarks,

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licenses, trade secret laws and restrictions on disclosure to protect our
intellectual property and trade secrets. We also enter into confidentiality
agreements with our employees and consultants, and generally control access to
and distribution of our documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
attain and use our intellectual property or trade secrets without authorization.
In addition, we rely in part on "shrinkwrap" and "clickwrap" licenses that are
not signed by the end user and, therefore, may be unenforceable under the laws
of some jurisdictions. Moreover, the laws of other countries in which we market
our products may afford us little or no effective protection of our intellectual
property. There can be no assurance that the precautions taken by us will
prevent misappropriation or infringement of our technology. In addition, there
can be no assurance that others will not independently develop substantially
equivalent intellectual property. Our failure to protect our intellectual
property in a meaningful manner could have a material adverse effect on our
business, operating results and financial condition.

In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States, and
effective patent, copyright, trademark and trade secret protection may not be
available in such jurisdictions. We license some of our proprietary rights to
third parties, and there can be no assurance that such licensees will not fail
to abide by compliance and quality control guidelines with respect to such
proprietary rights or take actions that would materially adversely affect our
business, operating results and financial condition.

Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. This litigation, whether successful
or unsuccessful, could result in substantial costs and diversion of management
and technical resources, either of which could have a material adverse effect on
our business, operating results and financial condition.

We attempt to avoid infringing known proprietary rights of third parties in
our product development efforts. However, we have not conducted and do not
conduct comprehensive patent searches to determine whether the technology used
in our products infringes patents held by third parties. In addition, product
development is inherently uncertain in a rapidly evolving technological
environment in which there may be numerous patent applications pending, many of
them which are confidential when filed, with regard to similar technologies. If
we were to discover that one or more of our products violated third party
proprietary rights, there can be no assurance that we would be able to obtain
licenses to continue offering such products without substantial reengineering or
that any effort to undertake such reengineering would be successful, or that any
licenses would be available on commercially reasonable terms.

We pursue the registration of some of our trademarks and service marks in
the United States and in some other countries, although we have not secured
registration of all of our marks. We have registered United States trademarks
for "HomeSite", "Cold Fusion" and a related design for "Bright Tiger". A
significant portion of our marks contain the word "Fusion", such as ColdFusion.
We are aware of other companies that use "Fusion" in their marks alone or in
combination with other words, and we do not expect to be able to prevent third
party uses of the word "Fusion" for competing goods and services. For example,

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NetObjects markets its principal products for designing, building and updating
Web sites under the names "NetObjects Fusion" and "NetObjects Team Fusion."

We currently license technology from third parties that we incorporate into
our products. Examples include licenses for the following:

- visual editing technology from Microsoft;

- security technology from Netegrity; and

- full-text indexing and searching technology from Verity.

In light of the rapidly evolving nature of the Web platform and our strategy
to pursue industry partnerships to ensure our support of and by the emerging
platform, we will increasingly need to rely on technology that we license from
other vendors which is integrated with internally developed software and used in
our products to perform key functions.

EMPLOYEES

As of June 30, 1999, we had 222 employees, 190 of whom were based at our
headquarters in Cambridge, Massachusetts. None of our employees is subject to a
collective bargaining agreement. We believe that our employee relations are
good.

FACILITIES

Our headquarters is located in Cambridge, Massachusetts. Our lease, which
covers approximately 54,000 square feet of office space, expires in March 2003.
We also lease office space in other cities for our sales and development
personnel. We believe that these existing facilities are adequate to meet our
current foreseeable requirements or that suitable additional or substitute space
will be available on commercially reasonable terms.

LEGAL PROCEEDINGS

From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, including
claims of alleged infringement of third party trademarks and other intellectual
property rights by us and our licensees. Such claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources. We are not aware of any legal proceedings or claims that we believe
will have, individually or in the aggregate, a material adverse effect on our
business, financial condition or results of operations.

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<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors, and their ages and positions, are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -----------------------------------------------------------
<S> <C> <C>
David J. Orfao..................... 40 President, Chief Executive Officer and Director
Joseph J. Allaire.................. 29 Chairman of the Board of Directors, Chief Technology
Officer and Executive Vice President, Products
David A. Gerth..................... 47 Vice President, Finance and Operations, Chief Financial
Officer and Treasurer
Amy E. Lewis....................... 41 Vice President, Worldwide Sales
Stephen F. Clark................... 33 Vice President, Marketing
Jack P. Lull....................... 40 Vice President, Engineering and Development
Maria Morrissey.................... 41 Vice President, Worldwide Services and Support
Jonathan A. Flint.................. 48 Director
John J. Gannon..................... 45 Director
Thomas A. Herring.................. 48 Director
Mitchell Kapor..................... 48 Director
</TABLE>

DAVID J. ORFAO has served as our President and Chief Executive Officer and
as a director since February 1997. From November 1995 until December 1996, Mr.
Orfao served as Senior Vice President, Worldwide Sales, Marketing and Service
for SQA, Inc. From August 1993 until October 1995, he served as Senior Vice
President, Worldwide Sales, Support and Channel Marketing for Claris
Corporation. Prior to that, Mr. Orfao held a series of sales and operational
positions of increasing responsibility at Frame Technology Corporation since
1988.

JOSEPH J. ALLAIRE founded our company in May 1995 and served as Chairman of
the board of directors, Chief Executive Officer and President from inception to
January 1997. Since January 1997, Mr. Allaire has continued to serve as Chairman
of the board of directors, as well as Chief Technology Officer and Executive
Vice President, Products. From September 1993 to June 1995, Mr. Allaire
performed software engineering services for several private companies.

DAVID A. GERTH has served as our Vice President, Finance and Operations,
Chief Financial Officer and Treasurer since April 1997. From November 1995 to
April 1997, Mr. Gerth served as Chief Financial Officer for Visibility Software,
Inc., a software company. From July 1995 to November 1995, he served as Chief
Financial Officer for Computron Software, Inc., a software company. From April
1994 to July 1995, Mr. Gerth served as Director of Finance for Powersoft
Corporation. Prior to that, Mr. Gerth served in a number of financial roles of
increasing responsibility for Computervision Corporation since 1981.

AMY E. LEWIS has served as our Vice President, Worldwide Sales since April
1997. From June 1995 to March 1997, Ms. Lewis served as Director, North America
Field Sales for Claris Corporation. Prior to that, Ms. Lewis served as Manager,
North America Channel Sales for Apple Computer since April 1994. From February
1987 to December 1993, she was Director of Sales for Farallon Communications,
Inc., a networking hardware and software company.

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<PAGE>
STEPHEN F. CLARK has served as our Vice President, Marketing since September
1998. From January 1996 through September 1998, Mr. Clark held a number of
marketing positions of increasing responsibility at Sybase Corporation, a
computer software company, including Vice President, Tools and Application
Servers and Vice President and General Manager, Design Tools. From June 1993 to
December 1995, Mr. Clark was a Product Marketing Manager for Powersoft.

JACK P. LULL has served as our Vice President, Engineering and Development
since December 1996. From January 1996 to August 1996, Mr. Lull served as
Director of Development for Integrated Industrial Information, Inc., a computer
consulting company. From January 1993 to December 1995, Mr. Lull served as
Director of Development for Powersoft.

MARIA MORRISSEY has served as our Vice President, Worldwide Services and
Support since September 1996. From February 1996 to July 1996, Ms. Morrissey
served as Vice President, Product Development for Computer Channel, Inc., an
education software company. From December 1992 to January 1996, she served as
Director, Professional Services for Powersoft. Ms. Morrissey has announced that
she will resign from our company, effective as of October 1, 1999.

JONATHAN A. FLINT has served as a director since June 1996. Since May 1995,
Mr. Flint has been a founder and a General Partner of Polaris Venture Partners,
a management company affiliated with the Polaris entities. Prior to that, Mr.
Flint was a General Partner of certain funds managed by Burr, Egan, Deleage &
Co., a venture capital firm and the lead venture investor in Powersoft, a
leading provider of application development tools. Mr. Flint served as a
director of Powersoft from 1991 to 1995.

JOHN J. GANNON has served as a director since December 1996. Since June
1998, Mr. Gannon has served as a General Partner and Chief Financial Officer of
Polaris Venture Partners, a management company affiliated with the Polaris
entities. From June 1996 to April 1998, Mr. Gannon served as the Chief Financial
Officer for Firefly Network, Inc., an Internet software company. From October
1992 to June 1996, Mr. Gannon worked for Powersoft, where he held several
positions including Chief Financial Officer and Vice President of Finance and
Administration.

THOMAS A. HERRING has served as a director since June 1997. In October 1998,
Mr. Herring joined Polaris Venture Partners, a management company affiliated
with the Polaris entities, as a Venture Partner. From December 1997 until
October 1998, Mr. Herring served as Senior Vice President of Compuware
Corporation, which acquired Nu-Mega Technologies, Inc. in December 1997. From
May 1996 to December 1997, Mr. Herring was the President and Chief Executive
Officer of Nu-Mega Technologies. From July 1995 to June 1996, Mr. Herring was
Vice President of Corporate Marketing for Sybase. Prior to that, he was Vice
President, Worldwide Marketing and Business Development for Powersoft since June
1990. Mr. Herring also serves as a director of PSW Technologies, Inc.

MITCHELL KAPOR has served as a director since March 1997. Mr. Kapor
co-founded the Electronic Frontier Foundation, a nonprofit Internet
organization, in 1990, and served as its Chairman from 1993 to 1995 and as a
director from 1995 to 1996. Mr. Kapor designed Lotus 1-2-3, and founded Lotus
Development Corporation in 1982 and served as its President and

49
<PAGE>
Chief Executive Officer from 1982 to 1986. Mr. Kapor also serves as a director
of RealNetworks, Inc.

Our executive officers are appointed by and serve at the discretion of the
board of directors. There are no family relationships among any of our executive
officers or directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The board of directors has a Compensation Committee, which sets objectives
and policies for our compensation programs for executives and key employees.
Such objectives and policies include, but are not limited to, attracting and
retaining superior talent, rewarding individual performance and achieving our
financial goals. The Compensation Committee also administers our 1997 Stock
Incentive Plan, 1998 Stock Incentive Plan and 1998 Employee Stock Purchase Plan
and approves the compensation of all officers and key employees. The
Compensation Committee currently consists of Mr. Flint and Mr. Gannon.

The board of directors also has an Audit Committee, which reviews the scope
and results of the audit and other services provided by the independent
auditors. The Audit Committee currently consists of Mr. Flint and Mr. Gannon.

DIRECTOR COMPENSATION

We reimburse our directors for expenses incurred in attending meetings of
the board of directors. We generally do not pay our directors any separate fees
for serving as directors. On December 31, 1996, we granted to Mr. Gannon an
option to purchase 25,000 shares of common stock at an exercise price of $.50
per share. On March 21, 1997, we granted to Mr. Kapor an option to purchase
35,000 shares of common stock at an exercise price of $.50 per share. On June
18, 1997, we granted to Mr. Herring an option to purchase 25,000 shares of
common stock at an exercise price of $.50 per share. These options become
exercisable for shares of common stock not subject to repurchase by Allaire
according to the following schedule:

- 25% of the option shares one year from the grant date; and

- 1/36 of the remaining shares on the first of each month thereafter for 36
months.

These options have maximum terms of 10 years measured from the grant date,
subject to earlier termination following the cessation of the respective
director's service.

EXECUTIVE COMPENSATION

The following table sets forth the total compensation paid or accrued for
1998 for our named executive officers, including our Chief Executive Officer and
the four other most highly compensated executive officers who were employed at
December 31, 1998. For Mr. Orfao, the number of securities underlying options
excludes 50,000 shares of common stock underlying a below-market option granted
in 1998 in lieu of a cash bonus for services rendered in 1997. Ms. Lewis' bonus
of $84,533 represents commissions earned.

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<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
--------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
- ---------------------------------------------------------- ---------- --------- -------------------------
<S> <C> <C> <C>
David J. Orfao............................................ $ 167,355 $ 58,800 0
President, Chief Executive Officer and Director
Joseph J. Allaire......................................... $ 162,124 $ 59,963 0
Chairman of the Board of Directors, Chief Technology
Officer and Executive Vice President, Products
Amy E. Lewis.............................................. $ 114,636 $ 84,533 0
Vice President, Worldwide Sales
David A. Gerth............................................ $ 151,159 $ 30,329 0
Vice President, Finance and Operations Chief Financial
Officer and Treasurer
Jack P. Lull.............................................. $ 133,033 $ 26,400 0
Vice President, Engineering and Development
</TABLE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth grants of stock options to each of the named
executive officers during 1998. No stock appreciation rights were granted during
1998. The amounts reported as the potential realizable values for Mr. Orfao's
option grant represent hypothetical values that may be realized upon exercise of
the options immediately prior to the expiration of their term, assuming the
specified compound rates of appreciation, 5% and 10%, compounded annually over
the term of the option. These numbers are calculated based on rules promulgated
by the Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and common stock holdings are dependent on the timing of such exercise
and the future performance of the common stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the individuals.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE POTENTIAL REALIZABLE
UNDERLYING GRANTED TO OR BASE VALUE AT ASSUMED
OPTIONS EMPLOYEES IN PRICE EXPIRATION ANNUAL RATES OF
GRANTED FISCAL YEAR PER SHARE DATE STOCK PRICE
----------- ----------------- ----------- ----------- APPRECIATION FOR
OPTION TERM
----------------------
5%
----------
10%
----------
<S> <C> <C> <C> <C> <C> <C>
David J. Orfao...................... 50,000 9.0% $ 0.01 1/15/08 $ 243,834 $ 388,561
Joseph J. Allaire................... 0 -- -- -- -- --
Amy E. Lewis........................ 0 -- -- -- -- --
David A. Gerth...................... 0 -- -- -- -- --
Jack P. Lull........................ 0 -- -- -- -- --
</TABLE>

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<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following table sets forth certain information regarding stock options
exercised by named executive officers in 1998, and exercisable and unexercisable
stock options held as of December 31, 1998 by each of the named executive
officers. Certain of the shares acquired on exercise remained subject to our
right to repurchase as of December 31, 1998. Although the options listed as
unexercisable were in fact exercisable at December 31, 1998, the shares of
common stock issuable upon exercise of these options would be subject to our
right to repurchase at the option exercise price. Such right of repurchase
expires according to the original option vesting schedule. The value of
unexercised in-the-money options has been calculated by determining the
difference between the exercise price per share payable upon exercise of such
options and our initial public offering price of $20.00 per share.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END AT FISCAL YEAR-END
ACQUIRED VALUE -------------------------- --------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Orfao............... 305,000 $ 787,000 -- 255,000 -- $ 4,972,500
Joseph J. Allaire............ -- -- -- -- -- --
Amy E. Lewis................. 105,000 $ 262,500 -- -- -- --
David A. Gerth............... 105,000 $ 262,500 -- -- -- --
Jack P. Lull................. -- -- 129,375 100,625 $ 2,522,813 $ 1,962,188
</TABLE>

SEVERANCE ARRANGEMENT; CHANGE IN CONTROL ARRANGEMENTS

Mr. Orfao is entitled to continue to receive his base salary and benefits
for 12 months in the event he is involuntarily terminated for reasons other than
cause. Additionally, Mr. Orfao is entitled to accelerated vesting of his
unvested options to purchase common stock in the event there is a change in
control, as defined in Mr. Orfao's option agreement, of our company and

- he is terminated without cause within six months of the change in control;

- he is not offered a position with the successor comparable to his current
position after the change in control; or

- he is removed from a comparable position within six months of the change
in control.

The 1997 plan and the underlying option agreements provide for the
accelerated vesting of all unvested options and other rights granted under the
the plan in the event there is a merger or consolidation involving our company,
unless appropriate provision shall be made for outstanding options and other
rights by the substitution of options, stock appreciation rights and appropriate
voting common stock of the corporation surviving any such merger or
consolidation (or the parent of the surviving corporation).

BENEFIT PLANS

1997 STOCK INCENTIVE PLAN

In 1997, the board of directors adopted and our stockholders approved the
1997 Stock Incentive Plan. A total of 1,726,000 shares of common stock for
issuance under the 1997 plan. The 1997 plan authorizes the grant of options to
purchase common stock intended to qualify

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<PAGE>
as incentive stock options, as defined in Section 422 of the Internal Revenue
Code of 1986, as amended, and the grant of options that do not so qualify. The
exercise price of incentive options granted under the 1997 plan must be at least
equal to the fair market value of the common stock on the date of grant. The
exercise price of incentive options granted to an optionee who owns stock
possessing more than 10% of the voting power of our outstanding capital stock
must be at least equal to 110% of the fair market value of the common stock on
the date of grant, and such optionee must exercise his or her option within five
years from the date of the grant of such option. The exercise price of
nonqualified options granted under the 1997 plan must be at least equal to 50%
of the fair market value of the common stock on the date of grant.

The 1997 plan provides that, upon a merger or consolidation of our company,
all outstanding plan options and other awards must be substituted for with
similar options or awards of the corporation surviving any such merger or
consolidation, or such options or awards shall become immediately exercisable in
full. The 1997 plan also provides for awards of stock appreciation rights,
performance shares, restricted stock and other stock-based awards.

The 1997 plan is administered by the Compensation Committee. The
Compensation Committee selects the individuals to whom options will be granted
and determines the option exercise price and other terms of each award, subject
to the provisions of the 1997 plan. Under the 1997 plan, we may grant incentive
stock options to our key employees, and to key employees of our affiliates, as
this term is defined in the Internal Revenue Code, including our officers and
directors, and officers and directors of our affiliates, who are also employees.
Under our 1997 plan, we may grant nonqualified options to:

- officers;

- directors;

- employees; and

- other individuals providing services, whether or not they are our
employees.

1998 STOCK INCENTIVE PLAN

The board of directors adopted and our stockholders approved the 1998 Stock
Incentive Plan. We have reserved a total of 1,900,000 shares of common stock for
issuance under the 1998 plan. The 1998 plan authorizes the grant of incentive
options and nonqualified options. The exercise price of incentive options
granted under the 1998 plan must be at least equal to the fair market value of
our common stock on the date of grant. The exercise price of incentive options
granted to an optionee who owns stock possessing more than 10% of the voting
power of our outstanding capital stock must be at least equal to 110% of the
fair market value of the common stock on the date of grant, and such optionee
must exercise his or her option within five years from the date of the grant of
such option. There are no limits on the exercise price of nonqualified options
granted under the 1998 plan. The 1998 plan provides that, upon a change in
control, all outstanding plan options and other awards may be substituted for
similar options or awards of the corporation surviving any such change in
control, may become immediately exercisable in full or may be terminated as of
the effective date of such change in control, provided that the holders of such
options or awards have the right to exercise such options or awards to the
extent the same are then exercisable. The 1998

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<PAGE>
plan also provides for awards of stock appreciation rights, performance shares,
restricted stock and other stock-based awards.

The 1998 plan is administered by the Compensation Committee. The
Compensation Committee selects the individuals to whom options will be granted
and determines the option exercise price and other terms of each award, subject
to the provisions of the 1998 plan. Incentive options may be granted under the
1998 plan to our key employees and our affiliates within the meaning of the
Internal Revenue Code, including our officers and directors and officers and
directors of our affiliates who are also employees. Under the 1998 plan we may
grant nonqualified options to our directors, officers and employees and other
individuals providing services to our company.

1998 EMPLOYEE STOCK PURCHASE PLAN

The board of directors adopted and our stockholders approved the 1998
Employee Stock Purchase Plan. The stock purchase plan authorizes the issuance of
up to 300,000 shares of common stock to participating employees. The stock
purchase plan is administered by the Compensation Committee.

Under the terms of the stock purchase plan, all of our employees, other than
seasonal employees, who have completed three months of employment and whose
customary employment is more than 20 hours per week and more than five months in
the calendar year, are eligible to participate in the stock purchase plan.
Employees who own stock, and/or hold outstanding options to purchase stock,
representing 5% or more of the total combined voting power or value of all
classes of our stock are not eligible to participate in the stock purchase plan.

The right to purchase common stock under the stock purchase plan is made
available through a series of offerings. The first offering period under the
stock purchase plan commenced on July 1, 1999. On the first day of an offering
period, we will grant to each
eligible employee who has elected in writing to participate in the stock
purchase plan an option to purchase shares of common stock. The employee is
required to authorize an amount, between 1% and 10% of the employee's
compensation, to be deducted from the employee's pay during the offering period.
On the last day of the offering period, the employee will be deemed to have
exercised the option, at the option exercise price, to the extent of accumulated
payroll deductions. Under the terms of the stock purchase plan, the option
exercise price is an amount equal to 85% of the fair market value of one share
of common stock on either the first or last day of the offering period,
whichever is lower.

No employee may be granted an option that would permit the employee's rights
to purchase common stock to accrue at a rate in excess of $25,000 of the fair
market value of the common stock, determined as of the date the option is
granted, in any calendar year.

401(k) PLAN

We maintain a 401(k) plan, qualified under Section 401(k) of the Internal
Revenue Code. All of our employees who are at least 21 years of age are eligible
to make salary reduction contributions pursuant to this plan. A participant may
contribute a maximum of 15% of his or her pre-tax salary, commissions and
bonuses through payroll deductions of up to the statutorily prescribed annual
limit of $10,000 in 1998 to this plan. The percentage elected by

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<PAGE>
more highly compensated participants may be required to be lower. We may also
make discretionary profit-sharing contributions on behalf of participants who
are at least 21 years of age and who either have completed at least 500 hours of
service during the fiscal year or are employed by our company on the last day of
the fiscal year. Any profit-sharing contribution is allocated to eligible
participants as a percentage of their total compensation, up to the statutorily
prescribed maximum of $160,000 in 1998. While a participant's contribution
amount is always 100% vested, the amount attributable to profit sharing
contributions is not fully vested until the participant has three full years of
service with our company. We determine the level of the discretionary
contributions on an annual basis. Through December 31, 1998, we made no
profit-sharing contributions to the 401(k) plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee takes recommendations concerning salaries and
incentive compensation for our employees and consultants and administers and
grants stock options pursuant to our stock option plans. None of our executive
officers have served as a director or member of the compensation committee, or
other committee serving an equivalent function, of any other entity, whose
executive officers serve or have served as our director or on our Compensation
Committee.

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<PAGE>
CERTAIN TRANSACTIONS

ORGANIZATION OF OUR COMPANY

In connection with our company's formation, we issued 2,040,000 shares of
common stock to founder Joseph J. Allaire for cash consideration of $51,000, and
40,000 shares to Jeremy D. Allaire, the brother of Joseph J. Allaire, for cash
consideration of $1,000.

SALES OF STOCK

Beginning in June 1996, we issued an aggregate of 514,306 shares of our
Series B Redeemable Convertible Preferred Stock to private investors for
aggregate consideration of $2,324,664. We issued 364,684 shares of Series B
Preferred Stock to Polaris Venture Partners Limited Partnership for $1,648,372,
and 22,484 shares of Series B Preferred Stock to Polaris Venture Partners
Founders' Fund Limited Partnership for $101,628. The Polaris entities own
beneficially more than 5% of the outstanding shares of our common stock. In
addition, Jonathan A. Flint, John Gannon and Thomas Herring, who serve on our
board of directors, are affiliated with the Polaris entities. Each share of
Series B Preferred Stock automatically converted into two shares of common stock
upon the closing of our initial public offering.

Beginning in June 1996, we issued an aggregate of 169,200 shares of our
Series C Redeemable Convertible Preferred Stock to private investors for
aggregate consideration of $999,972. We issued 79,687 shares of Series C
Preferred Stock for $470,950 to Polaris Venture Partners L.P. and 4,913 shares
of Series C Preferred Stock for $29,036 to Polaris Founders' Fund. We also
issued 84,600 shares of Series C Preferred Stock in April 1997 for $499,986 to
Mitchell Kapor, who serves on our board of directors. Each share of Series C
Preferred Stock automatically converted into two shares of common stock upon the
closing of our initial public offering.

In May and June 1997, we issued an aggregate of 2,336,909 shares of our
Series D Redeemable Convertible Preferred Stock to private investors for
aggregate consideration of $9,347,636. In this transaction, we issued 57,894
shares of Series D Preferred Stock for $231,576 to Mitchell Kapor, 413,910
shares of Series D Preferred Stock for $1,655,640 to Polaris Venture Partners
L.P., 23,590 shares of Series D Preferred Stock for $94,360 to Polaris Founders'
Fund, and 1,000,000 shares of Series D Preferred Stock for $4,000,000 to
BancBoston Ventures Inc. BancBoston Ventures owns beneficially more than 5% of
the outstanding shares of our common stock. Each share of Series D Preferred
Stock automatically converted into one share of common stock upon the closing of
our initial public offering. Two months prior to the issuance of the Series D
Preferred Stock, Polaris Venture Partners L.P. lent our company $238,412 under a
promissory note at an interest rate of 10%, and Polaris Founders' Fund lent our
company $13,588 under a promissory note at an interest rate of 10%. These notes
were cancelled in connection with the issuance of Series D Preferred Stock to
the Polaris entities.

In January 1999, we issued and sold 3,500 shares of common stock to Jonathan
A. Flint and 10,500 shares of common stock to BancBoston Ventures at a purchase
price of $20.00 per share in our initial public offering.

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<PAGE>
ISSUANCE OF WARRANTS

In connection with the issuance of the notes to the Polaris entities, in
March 1997 we issued a warrant to Polaris Venture Partners L.P. to purchase
5,960 shares of common stock at an exercise price of $4.00 per share, and a
warrant to Polaris Founders' Fund to purchase 340 shares of common stock at an
exercise price of $4.00 per share. Both warrants are currently exercisable in
whole or in part, at any time or from time to time, until March 7, 2002, and
both contain certain protections against dilution resulting from stock splits,
stock dividends and similar events.

STOCK RESTRICTION AGREEMENT

In May 1997, we entered into an amended and restated stock restriction
agreement with the Polaris entities, BancBoston Ventures, certain other
stockholders and Joseph J. Allaire. Under this agreement, our company and
certain of our stockholders had a right of participation in and a right of first
refusal with respect to some sales of shares of common stock by Mr. Allaire. The
agreement also granted our company the right to purchase a number of Mr.
Allaire's shares, at a price of $2.26 per share, in the event he ceased to be
affiliated with our company. In addition, the parties agreed to fix the number
of our directors at seven and to elect particular individuals to the board of
directors. This agreement automatically terminated upon the closing of our
initial public offering. This termination eliminated our right and the right of
the other stockholders to purchase any of Mr. Allaire's shares of common stock.

WORKING CAPITAL LINE OF CREDIT

In December 1998, the Polaris entities provided our company with a
commitment to provide a working capital line of credit in the event that we had
not completed our initial public offering or obtained other financing in excess
of $3.0 million by February 28, 1999. The line of credit would have allowed our
company to borrow up to $3.0 million and would have borne interest at a mutually
agreed upon rate between 5% and 20%. The line of credit commitment expired upon
the closing of our initial public offering.

ALIVE.COM, INC.

We are a party to certain agreements with Alive.com, inc., which was
formerly known as Yesler Software, Inc. Initially capitalized in July 1998,
Alive.com was created to develop, market and sell a commercial software
application, originally conceived by developers at our company, and designed for
use by individuals to create multimedia web-based presentations. The principal
stockholders of Alive.com are Allaire, Weld, Brown LLC and the Polaris entities.

We acquired our ownership interest in Alive.com under a Contribution and
Restricted Stock Purchase Agreement dated July 14, 1998, between Allaire and
Alive.com. Under this agreement, we acquired 907,591 shares of Alive.com common
stock, representing on that date approximately 34% of the outstanding shares of
capital stock of Alive.com. The stock that we acquired is subject to vesting
requirements, a right of repurchase by Alive.com and some transfer restrictions.
In exchange for the shares of Alive.com common stock, we assigned our rights to
the Alive.com software source code to Alive.com, agreed to provide Alive.com
with technical, sales and marketing support and agreed not to compete with
Alive.com.

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<PAGE>
Also in connection with our acquisition of the Alive.com common stock, we
entered into an original equipment manufacturer agreement with Alive.com,
whereby we granted Alive.com the right to obtain, at a 95% discount, some of our
commercial software products for distribution together with the Alive.com
software as a single commercial unit. In addition, we entered into a voting
agreement with Weld Brown and the Polaris entities under which we have the right
to designate one member of Alive.com's four-person board of directors. Our
designee to the Alive.com board is Joseph J. Allaire. Alive.com also granted our
company registration, information and certain other rights under an investor
rights agreement among our company, Alive.com, Weld Brown and the Polaris
entities.

In August 1998, we transferred 76,903 shares of our Alive.com common stock
to three of our employees, including 38,451 shares to Maria Morrissey, Vice
President, Worldwide Services and Support. The fair value of the shares
transferred was not material at the time of transfer. As of March 18, 1999, we
owned approximately a 16% equity interest in Alive.com on a fully diluted basis.

On the date we entered into this agreement with Alive.com, the Polaris
entities purchased preferred stock of Alive.com representing approximately 33%
of the outstanding shares of capital stock of Alive.com for $750,000. Jonathan
A. Flint and Thomas Herring, who serve on our board of directors, are directors
of Alive.com. See Note 5 of Notes to Consolidated Financial Statements.

We believe that all transactions set forth above were made on terms no less
favorable than would have been obtained from unaffiliated third parties.

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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our common stock as of July 31, 1999 and as adjusted to reflect the
sale by our company and the selling stockholders of the shares of common stock
offered by this prospectus by:

- each person we know to be the beneficial owner of more than 5% of our
common stock;

- each named executive officer;

- each of our directors;

- all executive officers and directors as a group; and

- each selling stockholder.

Unless otherwise noted below, the address of each person listed on the table
is c/o Allaire Corporation, One Alewife Center, Cambridge, MA 02140.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The following are deemed to be beneficially
owned and outstanding for purposes of calculating the number of shares and the
percentage beneficially owned by that person or entity:

- shares of common stock issuable pursuant to options which may be exercised
within 60 days after July 31, 1999 and not subject to our right of
repurchase; and

- shares of common stock issuable pursuant to warrants which may be
exercised within 60 days after July 31, 1999.

However, these shares are not deemed to be beneficially owned and
outstanding for purposes of computing the percentage beneficially owned by any
other person or entity.

Except as otherwise indicated, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite the
stockholder's name. For purposes of calculating the percentage beneficially
owned, the number of shares deemed outstanding includes:

- the 11,784,035 shares of common stock outstanding as of July 31, 1999; and

- the presently exercisable options and presently exercisable warrants held
by that person.

The following individuals have options that will vest after September 29,
1999: David J. Orfao--options to purchase 191,250 shares of common stock; Jack
P. Lull--options to purchase 60,608 shares of common stock; and John J.
Gannon--options to purchase 5,068 shares of common stock. These shares are not
deemed to be beneficially owned and outstanding for purposes of calculating the
number of shares and the percentage beneficially owned by those persons.

59
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY SHARES TO SHARES BENEFICIALLY
OWNED BE OWNED
PRIOR TO OFFERING OFFERED AFTER OFFERING
----------------------- ----------- ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- -------------------------------------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS, DIRECTORS AND
NAMED EXECUTIVE OFFICERS:
Joseph J. Allaire..................... 2,005,000 17.0% 200,000 1,805,000 14.1%
Entities affiliated with Polaris...... 1,390,836 11.8% 450,000 940,836 7.4%
Venture Management Co., LLC(1) 1000
Winter Street, Suite 3350 Waltham,
MA 02154
Jonathan A. Flint (2)................. 1,390,836 11.8% 450,000 940,836 7.4%
1000 Winter Street, Suite 3350
Waltham, MA 02154
BancBoston Ventures Inc............... 1,000,000 8.5% 300,000 700,000 5.5%
175 Federal Street
Boston, MA 02110
David J. Orfao........................ 369,250 3.1% 100,000 269,250 2.1%
Amy E. Lewis.......................... 105,500 * -- 105,500 *
David A. Gerth........................ 105,500 * -- 105,500 *
Jack P. Lull (3)...................... 171,946 1.4% 27,554 144,392 1.1%
John J. Gannon........................ 20,802 * 5,000 15,802 *
1000 Winter Street, Suite 3350
Waltham, MA 02154
Thomas A. Herring..................... 25,500 * 5,000 20,500 *
1000 Winter Street, Suite 3350
Waltham, MA 02154
Mitchell Kapor........................ 216,675 1.8% -- 216,675 1.7%
One Broadway
Cambridge, MA 02142
All executive officers and directors
as a group (11 persons)............. 4,511,218 37.5% 787,554 3,723,664 29.1%
OTHER SELLING STOCKHOLDERS: 162,446
</TABLE>

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

* Represents beneficial ownership of less than 1%.

(1) Polaris Venture Management Co., LLC manages Polaris Venture Partners L.P.
and Polaris Founders' Fund. Mr. Flint, a director of Allaire, is a General
Partner of Polaris Venture Management Co., LLC and has shared voting and
investment power with respect to the shares held by the Polaris entities.
However, Mr. Flint disclaims his beneficial ownership of all such shares,
except to the extent of his pecuniary interest therein. Shares listed as
owned beneficially by Polaris Venture Management Co., LLC include shares
owned beneficially by Jonathan A. Flint.

(2) Includes shares owned beneficially by Polaris Venture Management Co., LLC.
See note 1.

(3) Includes 2,554 shares beneficially owned by Mr. Lull's wife.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 35,000,000 shares of common stock,
with a par value of $.01 per share, and 5,000,000 shares of preferred stock,
with a par value of $.01 per share. Of the 5,000,000 shares of authorized
preferred stock, 5,000,000 are undesignated and available for issuance.

COMMON STOCK

As of July 31, 1999, there were 11,784,035 shares of common stock
outstanding and held of record by 177 stockholders.

Holders of common stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders. The holders
of common stock are entitled to receive such lawful dividends as may be declared
by the board of directors. However, such dividends are subject to preferences
that may be applicable to the holders of any outstanding shares of preferred
stock. In the event of a liquidation, dissolution or winding up of our affairs,
whether voluntary or involuntary, the holders of common stock will be entitled
to receive pro rata all of the remaining assets available for distribution to
our stockholders. Any such pro rata distribution would be subject to the rights
of the holders of any outstanding shares of preferred stock. The common stock
has no preemptive, redemption, conversion or subscription rights. All
outstanding shares of common stock are fully paid and non-assessable.

PREFERRED STOCK

The board of directors is authorized, subject to any limitations prescribed
by Delaware law, to provide for the issuance of preferred stock in one or more
series. The board of directors is also authorized, subject to the limitations
prescribed by Delaware law, to establish the number of shares to be included in
each series and to fix the voting powers, preferences, qualifications and
special or relative rights or privileges of each series. The board of directors
is authorized to issue preferred stock with voting, conversion and other rights
and preferences that could adversely affect the voting power or other rights of
the holders of common stock.

We have no current plans to issue any preferred stock. However, the issuance
of preferred stock or of rights to purchase preferred stock could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of our
outstanding voting stock.

WARRANTS

As of July 31, 1999, there were two warrants outstanding to purchase an
aggregate of 35,398 shares of our common stock at an exercise price of $2.26 per
share. The warrants are currently exercisable in whole or in part, at any time
or from time to time, until January 22, 2004. The warrants contain certain
protections against dilution resulting from stock splits, stock dividends and
similar events. The warrants may be exercised for cash or pursuant to certain
cashless exercise provisions.

As of July 31, 1999, there were also four warrants outstanding to purchase
an aggregate of 14,899 shares of our common stock. Two warrants are to purchase
an aggregate of 8,599 shares of common stock at an exercise price of $2.03 per
share, and are currently exercisable

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<PAGE>
in whole or in part, at any time or from time to time, until December 31, 2001.
The other two warrants are to purchase an aggregate of 6,300 shares of common
stock at an exercise price of $4.00 per share. The other two warrants are
currently exercisable in whole or in part, at any time or from time to time,
until March 7, 2002, and contain certain protections against dilution resulting
from stock splits, stock dividends and similar events.

REGISTRATION RIGHTS

EARLY INVESTORS

As of the date of our initial public offering, we had entered into a
registration rights agreement with the holders of an aggregate of 3,848,941
shares of common stock and the holders of warrants exercisable for an aggregate
of 50,297 shares of common stock. Under this agreement, the registration rights
holders are entitled to certain rights with respect to the registration of such
shares under the Securities Act.

If we propose to register any of our securities under the Securities Act,
either for our own account or for the account of other security holders, the
registration rights holders are entitled to notice of such registration. The
registration rights holders are also entitled to include their shares of common
stock in such registration. However, in the event of a registration through an
underwritten public offering of common stock, the underwriters shall have the
right, subject to certain conditions, to limit the number of shares included in
such registration.

The holders of more than 50% of the then-outstanding shares of common stock
held by all of the registration rights holders are entitled to request that we
file a registration statement under the Securities Act covering the sale of some
or all of the shares held by the requesting holder or holders. However, no such
request may be made within 120 days of our filing of a registration statement in
which such requesting stockholders were permitted to include their shares. Upon
the receipt of such a request, we are required to use commercially reasonable
efforts to effect such registration. We are not required to effect more than two
such demand registrations.

Once we have qualified to use Form S-3 to register securities under the
Securities Act, the registration rights holders have the right to request that
we file a registration statement on Form S-3 or any successor thereto for a
public offering of all or any portion of their shares, provided that the
reasonably anticipated aggregate price to the public of such offering would
exceed $1,000,000. We are not be required to effect a registration in this
manner more than once in any 12-month period.

In general, we are responsible for all fees, costs and expenses of such
registrations, other than insurance costs and fees and disbursements of counsel
to the selling stockholders. We have agreed to indemnify the registration rights
holders against, and provide contribution with respect to, certain liabilities
relating to any registration in which any shares of registration rights holders
are sold under the Securities Act.

MERGER WITH BRIGHT TIGER TECHNOLOGIES

We have filed a registration statement on Form S-1 covering shares of our
common stock issued in connection with our merger with Bright Tiger
Technologies. We are responsible for all fees, costs and expenses incurred in
filing this registration statement. We have agreed to

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<PAGE>
indemnify and hold harmless the holders of these shares of our common stock with
respect to certain liabilities arising out of the filing of the registration
statement.

MERGER WITH LIVE SOFTWARE

We have also agreed to file, on or before January 31, 2000, a registration
statement on Form S-3 covering shares of our common stock issued in connection
with our merger with Live Software. In general, we will be responsible for all
fees, costs and expenses incurred in filing this registration statement. We have
also agreed to indemnify and hold harmless the holders of these shares of our
common stock with respect to certain liabilities arising out of the filing of
the registration statement.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND AMENDED AND RESTATED BY-LAWS AND DELAWARE LAW

Our Amended and Restated Certificate of Incorporation, our Amended and
Restated By-Laws and Delaware Law contain certain provisions that could be
deemed to have anti-takeover effects. These provisions could discourage, delay
or prevent a change in control of our company or an acquisition of our company
at a price which many stockholders may find attractive. The existence of these
provisions could limit the price that investors might be willing to pay in the
future for shares of common stock.

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS

The By-Laws provide that, except as otherwise provided by law or the
Certificate of Incorporation, newly created directorships resulting from an
increase in the authorized number of directors or vacancies on the board of
directors may be filled only by:

- the board of directors, provided that a quorum is then in office and
present;

- by a majority of the directors then in office, if less than a quorum is
then in office; or

- by the sole remaining director.

These provisions prevent a stockholder from enlarging the board of directors
and filling the new directorships with such stockholder's own nominees without
the approval of our board of directors.

These provisions of the By-Laws may have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of our company, or of attempting to change the
composition or policies of the board of directors, even though such attempts
might be beneficial to our company or our stockholders.

The Certificate of Incorporation and the By-Laws provide that, unless
otherwise prescribed by law or the Certificate of Incorporation, only a majority
of the board of directors, the Chairman of the Board or the President is able to
call a special meeting of stockholders. The Certificate of Incorporation and the
By-Laws also provide that, unless otherwise prescribed by law or the Certificate
of Incorporation, stockholder action may be taken only at a duly called and
convened annual or special meeting of stockholders and may not be taken by
written consent. These provisions, taken together, prevent stockholders from
forcing consideration by the stockholders of stockholder proposals over the
opposition of the board of directors, except at an annual meeting.

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<PAGE>
The By-Laws also establish an advance notice procedure for stockholders to
make nominations of candidates for election as director, or to bring other
business before an annual meeting of our stockholders. Under the notice
procedure, we must receive notice of stockholder nominations or proposals to be
made at an annual or special meeting in lieu of an annual meeting not less than
60 days nor more than 90 days prior to the scheduled date of the meeting.
However, if less than 70 days notice or prior public disclosure of the date of
the meeting is given, then notice must be received not later than the 10th day
following the earlier of the day such notice was mailed or the day such public
disclosure was made. Notice of stockholder nominations or proposals to be made
at a special meeting, other than a special meeting in lieu of an annual meeting,
must be given not later than the 10th day following the earlier of the day such
notice was mailed or the day such public disclosure was made. These notices must
contain certain prescribed information.

The notice procedure affords the board of directors an opportunity to
consider the qualifications of proposed director nominees or the merit of
stockholder proposals, and, to the extent deemed appropriate by the board of
directors, to inform stockholders about such matters. The notice procedure also
provides a more orderly procedure for conducting annual meetings of
stockholders. The By-Laws do not give the board of directors any power to
approve or disapprove stockholder nominations for the election of directors or
proposals for action. However, the notice procedure may prevent a contest for
the election of directors or the consideration of stockholder proposals. This
could deter a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal if the proper advance
notice procedures are not followed, without regard to whether consideration of
such nominees or proposals might be harmful or beneficial to us or to our
stockholders.

DELAWARE LAW

We are subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder.

Section 203 does not apply if:

- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;

- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or

- on or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.

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<PAGE>
The application of Section 203 may limit the ability of stockholders to
approve a transaction that they may deem to be in their best interests.

Section 203 defines "business combination" to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation to or with the interested stockholder;

- subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;

- any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or

- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person associated with, affiliated with or
controlling or controlled by such entity or person.

LIMITATION OF LIABILITY

The Certificate of Incorporation provides that no director shall be
personally liable to us or to our stockholders for monetary damages for breach
of fiduciary duty as a director, except that the limitation shall not eliminate
or limit liability to the extent that the elimination or limitation of such
liability is not permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended.

The Certificate of Incorporation further provides for the indemnification of
our directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary. A principal effect of these
provisions is to limit or eliminate the potential liability of our directors for
monetary damages arising from breaches of their duty of care, subject to certain
exceptions. These provisions may also shield directors from liability under
federal and state securities laws.

STOCK TRANSFER AGENT

The transfer agent and registrar for the common stock is EquiServe L.P.

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<PAGE>
UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we and the selling stockholders have agreed
to sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, BancBoston Robertson Stephens Inc. and Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, are acting as representatives, have
severally but not jointly agreed to purchase the following respective number of
shares of common stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------------- -----------
<S> <C>
Credit Suisse First Boston Corporation................................
BancBoston Robertson Stephens Inc.....................................
Dain Rauscher Wessels.................................................
-----------
Total...........................................................
-----------
-----------
</TABLE>

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

We and the selling stockholders have granted to the underwriters a 30-day
option to purchase on a pro-rata basis up to 150,000 additional shares of common
stock from us and 187,500 additional outstanding shares from the selling
stockholders at the offering price, less the underwriting discounts and
commissions. The option may be exercised only to cover over-allotments of common
stock.

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

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

<TABLE>
<CAPTION>
TOTAL
------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
---------- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions paid by us......... $ $ $
Expenses payable by us.................................... $ $ $
Underwriting Discounts and Commissions paid by selling
stockholders............................................ $ $ $
</TABLE>

We and the selling stockholders have agreed that we and the selling
stockholders will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, or, in our case, file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to, any additional shares of common stock or securities

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<PAGE>
convertible into or exchangeable or exercisable for any of our common stock, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 90 days after the date of this prospectus,
except under certain circumstances.

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

Credit Suisse First Boston Corporation has purchased approximately $135,000
of our software products and related services since our inception. Credit Suisse
First Boston Corporation obtained such products and services through arms-length
negotiations on terms substantially similar to terms obtained by other of our
customers for similar products and services.

The common stock is listed on the Nasdaq Stock Market's National Market
under the symbol "ALLR."

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making in
accordance with Regulation M under the Securities Exchange Act of 1934.

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

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

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

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

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

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

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<PAGE>
NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

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

REPRESENTATIONS OF PURCHASERS

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent us, the selling stockholders and the
dealer from whom such purchase confirmation is received that (1) such purchaser
is entitled under applicable provincial securities laws to purchase such common
stock without the benefit of a prospectus qualified under such securities laws,
(2) where required by law, that such purchaser is purchasing as principal and
not as agent, and (3) such purchaser has reviewed the text above under "Resale
Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

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

ENFORCEMENT OF LEGAL RIGHTS

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

NOTICE TO BRITISH COLUMBIA RESIDENTS

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

TAXATION AND ELIGIBILITY FOR INVESTMENT

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

68
<PAGE>
LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for our company by Foley, Hoag & Eliot LLP, Boston, Massachusetts. Certain
legal matters will be passed upon for the underwriters by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.

EXPERTS

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

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
covered hereby. This prospectus does not contain all of the information set
forth in the registration statement. For further information with respect to our
company and our common stock, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of the contract or document filed as an
exhibit to the registration statement, and each such statement is qualified in
all respects by reference to such exhibit. Our common stock is traded on the
Nasdaq Stock Market's National Market. Reports and other information concerning
our company may be inspected at the National Association of Securities Dealers,
Inc., 1725 K Street, N.W., Washington, D.C. 20006.

Copies of the registration statement and such reports, proxy statements and
other information filed by our company may be examined without charge at the
public reference facilities maintained by the Securities and Exchange Commission
at the following locations:

<TABLE>
<CAPTION>
MAIN OFFICE REGIONAL OFFICES
- -------------------------------------------------- --------------------------------------------------
<S> <C>
Room 1024 Suite 1400 Suite 1400
Judiciary Plaza 500 West Madison Street
450 Fifth Street, N.W., Chicago, Illinois 60661
Washington, D.C. 20549

7 World Trade Center
Thirteenth Floor
New York, New York 10048
</TABLE>

Copies of all or any portion of the registration statement may be obtained
from the Public Reference Section of the Securities and Exchange Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, or by
calling the Securities and Exchange Commission at 1-800-SEC-0330, at prescribed
rates. The Commission also maintains a Web site at http:// www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants, such as our company, that make electronic filings with
the Securities and Exchange Commission.

69
<PAGE>
ALLAIRE CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Accountants.............................................. F-2
Consolidated Balance Sheet as of December 31, 1997, 1998 and June 30, 1999
(unaudited).................................................................. F-3
Consolidated Statement of Operations for the years ended December 31, 1996,
1997, 1998 and the six months ended June 30, 1998 (unaudited) and 1999
(unaudited).................................................................. F-4
Consolidated Statement of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit) for the years ended December 31, 1996, 1997,
1998 and the six months ended June 30, 1999 (unaudited)...................... F-5
Consolidated Statement of Cash Flows for the years ended December 31, 1996,
1997, 1998 and the six months ended June 30, 1998 (unaudited) and 1999
(unaudited).................................................................. F-6
Notes to Consolidated Financial Statements..................................... F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Allaire Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of redeemable convertible preferred stock
and stockholders' equity (deficit) and of cash flows present fairly, in all
material respects, the financial position of Allaire Corporation and its
subsidiaries at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
Boston, Massachusetts
June 25, 1999

F-2
<PAGE>
ALLAIRE CORPORATION

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................................................... $ 7,190 $ 3,247
Short-term investments.............................................................................. 4,717 496
Accounts receivable, net of allowance for doubtful accounts and sales returns of $487, $502 and $547
at December 31, 1997 and 1998 and June 30, 1999, respectively..................................... 1,432 3,196
Prepaid expenses and other current assets........................................................... 236 1,094
--------- ---------

Total current assets.............................................................................. 13,575 8,033
Property and equipment, net........................................................................... 3,189 4,300
Other assets, net..................................................................................... 330 375
--------- ---------
Total assets.......................................................................................... $ 17,094 $ 12,708
--------- ---------
--------- ---------
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of capital lease obligations........................................................ $ 315 $ 340
Promissory notes.................................................................................... -- 1,500
Current portion of notes payable.................................................................... 123 1,564
Accounts payable.................................................................................... 1,812 3,326
Accrued expenses.................................................................................... 1,419 3,963
Accrued employee compensation and benefits.......................................................... 1,211 2,238
Deferred revenue.................................................................................... 1,312 4,793
--------- ---------
Total current liabilities......................................................................... 6,192 17,724

Capital lease obligations............................................................................. 499 159
Notes payable......................................................................................... 752 1,034
--------- ---------
Total liabilities................................................................................. 7,443 18,917
--------- ---------
Redeemable convertible preferred stock:
Series B, $.01 par value;
Authorized: 514,306 shares at December 31, 1997 and December 31, 1998, none at June 30, 1999
Issued and outstanding: 514,306 shares at December 31, 1997 and December 31, 1998, none at June
30, 1999......................................................................................... 2,325 2,325
Series C, $.01 par value;
Authorized: 169,200 shares at December 31, 1997 and December 31, 1998, none at June 30, 1999
Issued and outstanding: 169,200 shares at December 31, 1997 and December 31, 1998, none at June
30, 1999......................................................................................... 1,000 1,000
Series D, $.01 par value;
Authorized: 2,500,000 shares at December 31, 1997 and December 31, 1998, none at June 30, 1999
Issued and outstanding: 2,336,909 shares at December 31, 1997 and December 31, 1998, none at June
30, 1999......................................................................................... 9,348 9,348
--------- ---------
Total redeemable convertible preferred stock.......................................................... 12,673 12,673
--------- ---------
Stockholders' equity (deficit):
Preferred stock, $.01 par value; Authorized: none at December 31, 1997 and December 31, 1998:
5,000,000 shares at June 30, 1999 -- --
Series A convertible preferred stock, $.01 par value;
Authorized: 200,000 shares at December 31, 1997 and December 31, 1998, none at June 30, 1999
Issued and outstanding: 56,557 shares at December 31, 1997; 88,463 at December 31, 1998, none at
June 30, 1999.................................................................................... 255 751
Common stock, $.01 par value;
Authorized: 10,000,000 shares at December 31, 1997, 35,000,000 at December 31, 1998 and June 30,
1999
Issued and outstanding: 3,680,935 shares at December 31, 1997, 4,859,384 issued and 4,855,967
outstanding at December 31, 1998; 11,772,411 issued and 11,755,801 outstanding at June 30,
1999............................................................................................. 37 49
Additional paid-in capital............................................................................ 10,587 12,364
Accumulated deficit................................................................................... (13,885) (31,170)
Deferred compensation................................................................................. -- (850)
Stock subscriptions receivable........................................................................ (16) (26)
--------- ---------
Total stockholders' equity (deficit)................................................................ (3,022) (18,882)
Commitments and contingencies (Note 14)
--------- ---------
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit).......... $ 17,094 $ 12,708
--------- ---------
--------- ---------

JUNE 30,
1999
-----------
<S> <C>
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents........................................................................... $ 19,532
Short-term investments.............................................................................. 33,971
Accounts receivable, net of allowance for doubtful accounts and sales returns of $487, $502 and $547
at December 31, 1997 and 1998 and June 30, 1999, respectively..................................... 5,055
Prepaid expenses and other current assets........................................................... 747
-----------
Total current assets.............................................................................. 59,305
Property and equipment, net........................................................................... 4,717
Other assets, net..................................................................................... 278
-----------
Total assets.......................................................................................... $ 64,300
-----------
-----------
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of capital lease obligations........................................................ $ 311
Promissory notes.................................................................................... --
Current portion of notes payable.................................................................... 452
Accounts payable.................................................................................... 2,106
Accrued expenses.................................................................................... 6,277
Accrued employee compensation and benefits.......................................................... 3,275
Deferred revenue.................................................................................... 8,221
-----------
Total current liabilities......................................................................... 20,642
Capital lease obligations............................................................................. 21
Notes payable......................................................................................... 800
-----------
Total liabilities................................................................................. 21,463
-----------
Redeemable convertible preferred stock:
Series B, $.01 par value;
Authorized: 514,306 shares at December 31, 1997 and December 31, 1998, none at June 30, 1999
Issued and outstanding: 514,306 shares at December 31, 1997 and December 31, 1998, none at June
30, 1999......................................................................................... --
Series C, $.01 par value;
Authorized: 169,200 shares at December 31, 1997 and December 31, 1998, none at June 30, 1999
Issued and outstanding: 169,200 shares at December 31, 1997 and December 31, 1998, none at June
30, 1999......................................................................................... --
Series D, $.01 par value;
Authorized: 2,500,000 shares at December 31, 1997 and December 31, 1998, none at June 30, 1999
Issued and outstanding: 2,336,909 shares at December 31, 1997 and December 31, 1998, none at June
30, 1999......................................................................................... --
-----------
Total redeemable convertible preferred stock.......................................................... --
-----------
Stockholders' equity (deficit):
Preferred stock, $.01 par value; Authorized: none at December 31, 1997 and December 31, 1998:
5,000,000 shares at June 30, 1999 --
Series A convertible preferred stock, $.01 par value;
Authorized: 200,000 shares at December 31, 1997 and December 31, 1998, none at June 30, 1999
Issued and outstanding: 56,557 shares at December 31, 1997; 88,463 at December 31, 1998, none at
June 30, 1999.................................................................................... --
Common stock, $.01 par value;
Authorized: 10,000,000 shares at December 31, 1997, 35,000,000 at December 31, 1998 and June 30,
1999
Issued and outstanding: 3,680,935 shares at December 31, 1997, 4,859,384 issued and 4,855,967
outstanding at December 31, 1998; 11,772,411 issued and 11,755,801 outstanding at June 30,
1999............................................................................................. 118
Additional paid-in capital............................................................................ 80,239
Accumulated deficit................................................................................... (36,699)
Deferred compensation................................................................................. (811)
Stock subscriptions receivable........................................................................ (10)
-----------
Total stockholders' equity (deficit)................................................................ 42,837
Commitments and contingencies (Note 14)
-----------
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit).......... $ 64,300
-----------
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>
ALLAIRE CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- ---------- ---------- --------- ---------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license fees................................. $ 2,358 $ 7,133 $ 17,966 $ 7,827 $ 17,724
Services.............................................. -- 655 3,396 1,078 4,048
--------- ---------- ---------- --------- ---------
Total revenue................................. 2,358 7,788 21,362 8,905 21,772
--------- ---------- ---------- --------- ---------
Cost of revenue:
Software license fees................................. 234 973 1,937 823 1,103
Services.............................................. -- 1,452 4,057 1,602 3,300
--------- ---------- ---------- --------- ---------
Total cost of revenue......................... 234 2,425 5,994 2,425 4,403
--------- ---------- ---------- --------- ---------
Gross profit.............................................. 2,124 5,363 15,368 6,480 17,369
--------- ---------- ---------- --------- ---------
Operating expenses:
Research and development.............................. 1,109 4,984 8,027 3,602 5,364
Sales and marketing................................... 1,618 8,820 19,135 8,552 12,461
General and administrative............................ 1,437 3,410 4,946 2,162 3,043
Stock-based compensation.............................. -- -- 412 186 133
Merger costs.......................................... -- -- -- -- 2,700
--------- ---------- ---------- --------- ---------
Total operating expenses...................... 4,164 17,214 32,520 14,502 23,701
--------- ---------- ---------- --------- ---------
Loss from operations...................................... (2,040) (11,851) (17,152) (8,022) (6,332)
Interest income, net...................................... 13 315 13 136 803
--------- ---------- ---------- --------- ---------
Net loss.................................................. $ (2,027) $ (11,536) $ (17,139) $ (7,886) $ (5,529)
--------- ---------- ---------- --------- ---------
--------- ---------- ---------- --------- ---------
Basic and diluted net loss per share...................... $ (1.15) $ (5.35) $ (4.78) $ (2.38) $ (0.53)
Shares used in computing basic and diluted net loss per
share................................................... 1,756 2,158 3,587 3,317 10,449
Unaudited pro forma basic and diluted net loss per
share................................................... $ (2.20) $ (0.51)
Shares used in computing unaudited pro forma basic and
diluted net loss per share.............................. 7,788 10,916
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>
ALLAIRE CORPORATION
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE CONVERTIBLE COMMON STOCK
PREFERRED STOCK PREFERRED STOCK ----------------- ADDITIONAL
-------------------- --------------- PAR PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES VALUE CAPITAL
---------- -------- ------- ------ ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.............. -- $ -- -- $ -- 2,200,000 $ 22 $ --
Issuance of common stock in exchange for
stock subscriptions receivable........ 1,800,000 18 27
Stock issued by pooled company.......... 43,070 -- 360
Issuance of Series A convertible
preferred stock upon conversion of
notes payable and accrued interest.... 43,557 177
Issuance of Series B redeemable
convertible preferred stock, net of
issuance costs of $55................. 508,849 2,300
Forgiveness of stock subscriptions
receivable in exchange for
cancellation of shares of common
stock................................. (920,000) (9) (14)
Repurchase and cancellation of shares of
common stock.......................... (80,000) (1) (1)
Issuance of Series C redeemable
convertible preferred stock, net of
issuance costs of $12................. 84,600 500
Exercise of employee stock options...... 2,500 -- 1
Net loss................................
---------- -------- ------- ------ ---------- ----- ----------
Balance, December 31, 1996.............. 593,449 2,800 43,557 177 3,045,570 30 373
Stock issued by pooled companies, net... 635,365 7 10,214
Issuance of Series A convertible
preferred stock in acquisition of
Bradbury Software L.L.C. ............. 13,000 78
Issuance of Series C redeemable
convertible preferred stock........... 84,600 500
Issuance of Series B redeemable
convertible preferred stock........... 5,457 25
Issuance of Series D redeemable
convertible preferred stock, net of
issuance costs of $42................. 2,272,719 9,091
Issuance of Series D redeemable
convertible preferred stock upon
conversion of notes payable and
accrued interest...................... 64,190 257
Repayment of stock subscription
receivable............................
Net loss................................
---------- -------- ------- ------ ---------- ----- ----------
Balance, December 31, 1997.............. 3,020,415 12,673 56,557 255 3,680,935 37 10,587
Stock issued by pooled companies, net... 32,363 1 (13)
Issuance of Series A convertible
preferred stock, net of issuance costs
of $9................................. 31,906 496
Exercise of employee stock options...... 1,146,086 11 530
Repurchase of common stock held in
treasury.............................. (2)
Deferred compensation relating to grants
of stock options...................... 997
Compensation relating to grants of stock
options............................... 265
Dividend paid to shareholder............
Net loss................................
---------- -------- ------- ------ ---------- ----- ----------
Balance, December 31, 1998.............. 3,020,415 12,673 88,463 751 4,859,384 49 12,364
Stock issued by pooled companies
(unaudited)........................... 106,161 1 1,970
Conversion of redeemable convertible
preferred stock and convertible
preferred stock to common stock
(unaudited)........................... (3,020,415) (12,673) (88,463) (751) 3,848,941 38 13,386
Issuance of common stock in initial
public offering, net of issuance costs
of $5,200 (unaudited)................. 2,875,000 29 52,300
Exercise of employee stock options
(unaudited)........................... 82,925 1 139
Repurchase of common stock held in
treasury (unaudited).................. (14)
Deferred compensation relating to grants
of stock options (unaudited).......... 94
Compensation relating to grants of stock
options (unaudited)...................
Repayment of stock subscription
receivable (unaudited)................
Net loss (unaudited)....................
---------- -------- ------- ------ ---------- ----- ----------
Balance, June 30, 1999 (unaudited)...... -- $ -- -- $ -- 11,772,411 $118 $80,239
---------- -------- ------- ------ ---------- ----- ----------
---------- -------- ------- ------ ---------- ----- ----------

TOTAL
STOCK STOCKHOLDERS'
DEFERRED ACCUMULATED SUBSCRIPTIONS EQUITY
COMPENSATION DEFICIT RECEIVABLE (DEFICIT)
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995.............. $ -- $ (203) $ -- $ (181)
Issuance of common stock in exchange for
stock subscriptions receivable........ (45) --
Stock issued by pooled company.......... (10) 350
Issuance of Series A convertible
preferred stock upon conversion of
notes payable and accrued interest.... 177
Issuance of Series B redeemable
convertible preferred stock, net of
issuance costs of $55................. (55) (55)
Forgiveness of stock subscriptions
receivable in exchange for
cancellation of shares of common
stock................................. 23 --
Repurchase and cancellation of shares of
common stock.......................... 2 --
Issuance of Series C redeemable
convertible preferred stock, net of
issuance costs of $12................. (12) (12)
Exercise of employee stock options...... 1
Net loss................................ (2,027) (2,027)
----- ----------- ----- -------------
Balance, December 31, 1996.............. -- (2,307) (20) (1,747)
Stock issued by pooled companies, net... 10,221
Issuance of Series A convertible
preferred stock in acquisition of
Bradbury Software L.L.C. ............. 78
Issuance of Series C redeemable
convertible preferred stock...........
Issuance of Series B redeemable
convertible preferred stock...........
Issuance of Series D redeemable
convertible preferred stock, net of
issuance costs of $42................. (42) (42)
Issuance of Series D redeemable
convertible preferred stock upon
conversion of notes payable and
accrued interest......................
Repayment of stock subscription
receivable............................ 4 4
Net loss................................ (11,536) (11,536)
----- ----------- ----- -------------
Balance, December 31, 1997.............. -- (13,885) (16) (3,022)
Stock issued by pooled companies, net... (10) (22)
Issuance of Series A convertible
preferred stock, net of issuance costs
of $9................................. 496
Exercise of employee stock options...... 541
Repurchase of common stock held in
treasury.............................. (2)
Deferred compensation relating to grants
of stock options...................... (997) --
Compensation relating to grants of stock
options............................... 147 412
Dividend paid to shareholder............ (146) (146)
Net loss................................ (17,139) (17,139)
----- ----------- ----- -------------
Balance, December 31, 1998.............. (850) $(31,170) $(26) $(18,882)
Stock issued by pooled companies
(unaudited)........................... 1,971
Conversion of redeemable convertible
preferred stock and convertible
preferred stock to common stock
(unaudited)........................... 12,673
Issuance of common stock in initial
public offering, net of issuance costs
of $5,200 (unaudited)................. 52,329
Exercise of employee stock options
(unaudited)........................... 140
Repurchase of common stock held in
treasury (unaudited).................. (14)
Deferred compensation relating to grants
of stock options (unaudited).......... (94) --
Compensation relating to grants of stock
options (unaudited)................... 133 133
Repayment of stock subscription
receivable (unaudited)................ 16 16
Net loss (unaudited).................... (5,529) (5,529)
----- ----------- ----- -------------
Balance, June 30, 1999 (unaudited)...... $(811) $(36,699) $(10) $ 42,837
----- ----------- ----- -------------
----- ----------- ----- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>
ALLAIRE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (2,027) $ (11,536) $ (17,139) $ (7,886) $ (5,529)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization................................. 102 875 1,801 813 1,122
Interest converted into shares of preferred stock............. 2 5 -- -- --
Compensation expense relating to issuance of note payable
under severance agreement................................... 90 -- -- -- --
Compensation expense relating to issuance of equity
instruments................................................. -- -- 412 186 133
Changes in assets and liabilities:
Accounts receivable......................................... (577) (815) (1,764) (411) (1,859)
Prepaid expenses and other current assets................... (76) (149) (858) (160) 347
Other assets................................................ (254) (68) (237) (261) (1)
Accounts payable............................................ 475 1,310 1,514 76 (1,220)
Accrued expenses............................................ 387 2,233 3,571 1,064 3,351
Deferred revenue............................................ (103) 1,204 3,481 1,063 3,428
--------- --------- --------- --------- ---------
Total adjustments........................................... 46 4,595 7,920 2,370 5,301
--------- --------- --------- --------- ---------
Net cash used for operating activities...................... (1,981) (6,941) (9,219) (5,516) (228)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of short-term investments............................. -- (8,817) (6,283) (1,570) (33,971)
Sale of short-term investment................................... -- 4,100 10,504 4,699 496
Purchases of property and equipment............................. (660) (2,502) (2,720) (1,286) (1,441)
Payment for acquisition of Bradbury Software L.L.C.............. -- (252) -- -- --
--------- --------- --------- --------- ---------
Net cash (used for) provided by investing activities........ (660) (7,471) 1,501 1,843 (34,916)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from sale leaseback transaction........................ -- 421 -- -- --
Proceeds from issuance of promissory notes...................... -- -- 1,500 -- --
Principal payments on promissory notes.......................... -- -- -- -- (1,500)
Principal payments on capital lease obligations................. -- (165) (315) (155) (167)
Proceeds from issuance of convertible notes payable............. 175 252 -- -- --
Proceeds from issuance of notes payable......................... 155 808 1,891 1,406 --
Principal payments on notes payable............................. (195) (33) (168) -- (1,346)
Proceeds from sale of common stock.............................. 351 10,146 519 538 54,426
Proceeds from sale of redeemable convertible preferred stock,
net of issuance costs......................................... 2,733 9,574 -- -- --
Proceeds from sale of convertible preferred stock, net of
issuance costs................................................ -- -- 496 5 --
Payments to acquire treasury stock.............................. -- -- (2) -- --
Payments received on stock subscriptions receivable............. -- 4 -- -- 16
Payments of dividends to shareholders........................... -- -- (146) -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities................... 3,219 21,007 3,775 1,794 51,429
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents.............. 578 6,595 (3,943) (1,879) 16,285
Cash and cash equivalents, beginning of period.................... 17 595 7,190 7,190 3,247
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period.......................... $ 595 $ 7,190 $ 3,247 $ 5,311 $ 19,532
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest.......................................... $ 5 $ 75 $ 258 $ 69 $ 225
Supplemental disclosure of non-cash investing and financing
activities:
Conversion of notes payable and related accrued interest of $2
into 43,557 shares of Series A convertible preferred stock.... $ 175 $ -- $ -- $ -- $ --
Series A convertible preferred stock issued in acquisition of
Bradbury Software L.L.C....................................... $ -- $ 78 $ -- $ -- $ --
Conversion of note payable and related accrued interest of $5
into 64,190 shares of Series D redeemable convertible
preferred stock............................................... $ -- $ 252 $ -- $ -- $ --
Capital lease obligations....................................... $ -- $ 979 $ -- $ -- $ --
Conversion of redeemable convertible preferred stock to common
stock......................................................... $ -- $ -- $ -- $ -- $ 12,673
Conversion of Series A into common stock........................ $ -- $ -- $ -- $ -- $ 751
Common stock issued for property and equipment.................. $ -- $ 75 $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION

Allaire Corporation develops, markets and supports Web application servers
and related software products that enable the development and deployment of
sophisticated e-business Web sites and applications. Allaire's products
interoperate with emerging Web application technologies as well as key
enterprise information systems technologies, and include features and tools that
increase the productivity of Web developers.

Allaire was incorporated in the state of Minnesota in February 1996 as the
surviving entity of a reorganization of Allaire, L.L.C., a Minnesota limited
liability company originally formed in May 1995. At the time of the
reorganization, the members of Allaire, L.L.C. exchanged their existing
ownership interests for a proportionate number of shares of Allaire's common
stock and substantially all assets and liabilities of Allaire, L.L.C. were
transferred to Allaire at historical cost. In April 1997, Allaire was
reorganized as a Delaware corporation.

The consolidated financial statements include the accounts of Allaire and
its subsidiaries. All significant intercompany transactions have been
eliminated. Certain 1996, 1997 and 1998 amounts have been reclassified to
conform to the 1999 method of presentation.

As described in Note 4, during the quarter ended June 30, 1999, Allaire
completed the acquisitions of Bright Tiger Technologies, Inc. and Live Software,
Inc. The mergers were accounted for as poolings-of-interests. Accordingly, the
accompanying financial statements and notes have been restated for all periods
presented.

Allaire operates in one industry segment and is subject to risks and
uncertainties common to growing technology-based companies, including rapid
technological change, growth and commercial acceptance of the Internet,
dependence on principal products and third party technology, new product
development, new product introductions and other activities of competitors,
dependence on key personnel, reliance on a limited number of distributors,
international expansion, lengthening sales cycle and limited operating history.

UNAUDITED INTERIM FINANCIAL DATA

The interim financial data as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 have been derived from unaudited financial statements of
Allaire. Management believes that Allaire's unaudited financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations for such
periods. Results for the six months ended June 30, 1998 and June 30, 1999 are
not necessarily indicative of results to be expected for the full fiscal year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS

Allaire considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Allaire invests its
excess cash in money market funds, commercial paper and U.S. Treasury
securities, which are subject to minimal credit and

F-7
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
market risk. Short-term investments at December 31, 1997 and 1998 consisted of
U.S. Treasury bills. Allaire's cash equivalents and short-term investments are
classified as available-for-sale and recorded at amortized cost, which
approximates fair value. Gross unrealized and realized gains or loss on sales of
securities as of December 31, 1997 and 1998 and for the years ended December 31,
1996, 1997 and 1998 were not significant.

REVENUE RECOGNITION

Allaire recognizes revenue from software license fees upon delivery to
customers provided no significant post-delivery obligations or uncertainties
remain and collection of the related receivable is probable. Revenue under
arrangements where multiple products or services are sold together under one
contract is allocated to each element based on their relative fair values, with
these fair values being determined using the price charged when that element is
sold separately. For arrangements that include specified upgrade rights, the
fair value of such upgrade rights is deferred until the specified upgrade is
delivered. Allaire provides most of its distributors with certain rights of
return. An allowance for estimated future returns is recorded at the time
revenue is recognized based on Allaire's return policies and historical
experience. Allaire offers subscriptions that entitle customers to all new
releases for a specific product during the term of the subscription agreement.
Revenue from subscription sales is recognized ratably over the term of the
subscription agreement. Training and consulting services revenue is recognized
as services are rendered, and revenue under support agreements is recognized
ratably over the term of the support agreement. Revenue from long-term
consulting and service contracts are recognized over the term of the contract
using the percentage of completion method of accounting, based upon the
proportion of costs incurred to total estimated costs at completion.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of Allaire's financial instruments, which include cash
equivalents, short-term investments, accounts receivable, notes payable and
redeemable convertible preferred stock, approximate their fair values at
December 31, 1998.

CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments which potentially expose Allaire to concentrations of
credit risk consist primarily of trade accounts receivable. To minimize this
risk, ongoing credit evaluations of customers' financial condition are
performed, although collateral generally is not required. One customer accounted
for 22% and 43% of gross accounts receivable at December 31, 1997 and 1998,
respectively. In addition, this same customer accounted for 28% of total revenue
for the year ended December 31, 1998. No single customer accounted for 10% of
total revenue for the years ended December 31, 1996 and 1997. Allaire maintains
reserves for potential credit losses and such losses, in the aggregate,
historically have not exceeded existing reserves.

F-8
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS

Costs incurred in the research and development of Allaire's products are
expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed prior to the
establishment of technological feasibility (as defined by Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed") and capitalized thereafter
when material to Allaire's financial position or results of operations. Allaire
has capitalized no software development costs since costs eligible for
capitalization under SFAS No. 86 have been insignificant.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and depreciated over their
estimated useful lives, generally three to five years, using the straight-line
method. Equipment held under capital leases are stated at the lower of fair
market value of the related asset or the present value of the minimum lease
payments at the inception of the lease and are amortized on a straight-line
basis over the shorter of the life of the related asset or the lease term.
Repair and maintenance costs are expensed as incurred.

ACCOUNTING FOR STOCK-BASED COMPENSATION

Allaire accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees
in fixed amounts and with fixed exercise prices at least equal to the fair
market value of Allaire's common stock at the date of grant. Allaire has adopted
the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
through disclosure only (Note 10). All stock-based awards to non-employees are
accounted for at their fair value in accordance with SFAS No. 123.

INCOME TAXES

Prior to its reorganization as a C Corporation in February 1996 (Note 1),
Allaire was treated as a partnership for federal and state income tax purposes.
Accordingly, no provision for corporate income taxes was recorded during this
period and all losses were passed through to Allaire's members. At the time of
its reorganization, Allaire adopted the liability method of accounting for
income taxes as set forth in SFAS No. 109, "Accounting for Income Taxes."

ADVERTISING EXPENSE

Allaire recognizes advertising expense as incurred. Advertising expense was
$152,000, $842,000 and $1,021,000 for the years ended December 31, 1996, 1997
and 1998, respectively.

F-9
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NET LOSS PER SHARE

Net loss per share is computed under SFAS No. 128, "Earnings Per Share."
Basic net loss per share is computed using the weighted average number of shares
of common stock outstanding, excluding shares of common stock subject to
repurchase. Diluted net loss per share does not differ from basic net loss per
share since potential common shares from conversion of preferred stock, stock
options and warrants and outstanding shares of common stock subject to
repurchase are anti-dilutive for all periods presented. Pro forma basic and
diluted net loss per share have been calculated assuming the conversion of all
outstanding shares of preferred stock into common stock, as if the shares had
converted immediately upon their issuance.

COMPREHENSIVE INCOME

Allaire adopted SFAS No. 130 in 1998. SFAS No. 130 requires that a full set
of general purpose financial statements be expanded to include the reporting of
"comprehensive income". Comprehensive income is comprised of two components, net
income and other comprehensive income. During the years ended December 31, 1996,
1997, 1998 and the six months ended June 30, 1999, Allaire had no items
qualifying as other comprehensive income; accordingly, the adoption of SFAS No.
130 had no impact on Allaire's financial statements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." This statement changes the way
that public business enterprises report segment information, including financial
and descriptive information about their selected segment information. Under SFAS
No. 131, operating segments are defined as revenue-producing components of the
enterprise, which are generally used internally for evaluating segment
performance. SFAS No. 131 is effective for Allaire's fiscal year ending December
31, 1998 and relates to disclosure only.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Allaire does not
expect SFAS No. 133 to have a material affect on its financial position or
results of operations.

F-10
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. Allaire does not expect
SOP 98-1, which is effective for Allaire beginning January 1, 1999, to have a
material affect its financial position or results of operations.

In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for Allaire's fiscal 1999 financial statements and Allaire
does not expect its adoption to have a material affect on its financial position
or results of operations.

3. INITIAL PUBLIC OFFERING

In January 1999, Allaire sold 2,875,000 shares of its common stock through
an initial public offering. Net proceeds from the offering were approximately
$52.3 million after deducting the underwriting discount and offering expenses.
At December 31, 1998, Allaire's prepaid expenses and other current assets
included $639,000 of prepaid offering expenses. At the time of the initial
public offering, all of Allaire's outstanding preferred stock automatically
converted into 3,848,941 shares of common stock.

4. ACQUISITIONS

ACQUISITION OF BRADBURY SOFTWARE L.L.C.

In March 1997, Allaire acquired the business and substantially all of the
assets of Bradbury Software L.L.C. ("Bradbury"), including all rights to
Bradbury's HomeSite software product, in exchange for $252,000 in cash and
13,000 shares of Allaire's Series A convertible preferred stock valued at
$78,000. The Bradbury acquisition was accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated based upon the fair
value of assets acquired and liabilities assumed. The excess of the purchase
price over the fair value of the net assets acquired totaled $315,000. This
amount has been included in other assets and is being amortized using the
straight-line method over a three-year period. Amortization expense relating to
this excess purchase price totaled $88,000 and $105,000 for the years ended
December 31, 1997 and 1998, respectively. The operating results of Bradbury have
been included in the financial statements since the date of the acquisition. Pro
forma presentations have not been included, as the acquisition was not material
to the results of operations of Allaire.

The former owner of Bradbury is entitled to additional cash payments of up
to $165,000, depending on the length of time he remains employed by Allaire.
During the years ended

F-11
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. ACQUISITIONS (CONTINUED)
December 31, 1997 and 1998, a total of $82,000 and $83,000, respectively, was
earned and recorded as compensation expense under this arrangement.

In order to finance the Bradbury acquisition, Allaire issued 10% convertible
notes payable totaling $252,000 and warrants to purchase 6,300 shares of
Allaire's common stock at a price of $4.00 per share to two stockholders (Note
9). All principal and accrued interest of $5,000 on these notes was converted
into 64,190 shares of Series D preferred stock in May 1997.

ACQUISITIONS OF BRIGHT TIGER AND LIVE SOFTWARE

On April 12, 1999, Allaire completed its acquisition of Bright Tiger
Technologies, Inc. ("Bright Tiger"), a Massachusetts company that develops and
markets Web site resource management software. In connection with the
transaction, Allaire issued 288,583 shares of its common stock for all of the
issued and outstanding shares of Bright Tiger. On June 25, 1999, Allaire
completed its acquisition of Live Software, Inc. ("Live Software"), a California
company that develops, markets and supports server-side Java development and
deployment technology. In connection with the transaction, Allaire issued
528,376 shares of its common stock for all the issued and outstanding shares of
Live Software. These mergers were accounted for as poolings of interests.
Accordingly, Allaire's consolidated financial statements have been restated to
include the accounts and operations of Bright Tiger and Live Software for all
periods presented.

Revenues and net income of the combined entities for the three-month period
prior to these mergers are presented in the following table. Prior to these
mergers during the quarter ended March 31, 1999, the companies had intercompany
sales of $40,000. The intercompany sales have been eliminated and certain
amounts in the merged companies' financial statements were reclassified to
conform to Allaire's presentations.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
PRO FORMA RESULTS (UNAUDITED)
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
Revenue:
Allaire.................................................................................... $ 7,836,000
Bright Tiger............................................................................... 168,000
Live Software.............................................................................. 693,000
-------------------
Combined................................................................................... $ 8,697,000
-------------------
-------------------
Net Income (Loss):
Allaire.................................................................................... $ (1,684,000)
Bright Tiger............................................................................... (1,199,000)
Live Software.............................................................................. 267,000
-------------------
Combined................................................................................... $ (2,616,000)
-------------------
-------------------
</TABLE>

The following table represents a reconciliation of net revenues and net loss
previously reported by the combining companies to those presented in the
accompanying consolidated

F-12
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. ACQUISITIONS (CONTINUED)
financial statements. Prior to the merger, during 1998, the companies had
intercompany sales of $140,000. The intercompany sales have been eliminated.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
<S> <C> <C>
1997 1998
-------------- --------------
Revenue:
Allaire......................................................................... $ 7,650,000 $ 20,512,000
Bright Tiger.................................................................... 18,000 352,000
Live Software................................................................... 120,000 498,000
-------------- --------------
Combined........................................................................ $ 7,788,000 $ 21,362,000
-------------- --------------
-------------- --------------
Net Income (Loss):
Allaire......................................................................... $ (7,425,000) $ (10,770,000)
Bright Tiger.................................................................... (4,123,000) (6,342,000)
Live Software................................................................... 12,000 (27,000)
-------------- --------------
Combined........................................................................ $ (11,536,000) $ (17,139,000)
-------------- --------------
-------------- --------------
</TABLE>

5. INVESTMENT IN ALIVE.COM, INC.

In July 1998, Allaire entered into an agreement under which it contributed
certain non-core technology and agreed to provide certain services to Alive.com,
Inc. ("Alive.com" formerly known as Yesler Software, Inc.) in exchange for
907,591 shares of Alive.com's voting common stock, representing approximately
34% of the outstanding capital stock of Alive.com at that time. Subsequently,
Allaire transferred 76,903 shares of Alive.com common stock to three of its
employees. The value of the shares transferred was not material at the date
transferred. Of the shares acquired, an aggregate of 605,060 shares are subject
to repurchase at a price of $0.10 per share under certain circumstances. The
number of shares subject to this repurchase right will be reduced quarterly over
a three-year period. Allaire has no obligation to fund the future operations of
Alive.com and accounts for its investment under the equity method.

F-13
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Furniture and fixtures................................................................ $ 778,000 $ 1,194,000
Furniture and fixtures under capital lease............................................ 127,000 78,000
Equipment............................................................................. 1,517,000 3,382,000
Equipment under capital lease......................................................... 852,000 843,000
Software.............................................................................. 354,000 599,000
Leasehold improvements................................................................ 164,000 401,000
------------ ------------
3,792,000 6,497,000
Less: Accumulated depreciation and amortization....................................... (603,000) (2,197,000)
------------ ------------
$ 3,189,000 $ 4,300,000
------------ ------------
------------ ------------
</TABLE>

Depreciation and amortization expense for the years ended December 31, 1996,
1997 and 1998 was $88,000, $582,000 and $1,607,000, respectively.

CAPITAL LEASE

In December 1996, Allaire entered into an agreement with a leasing company
to establish a line of credit which enabled Allaire to finance up to $1,000,000
in purchases of property and equipment under capital leases (the "Lease Line").
Each borrowing under the Lease Line is payable in equal monthly installments
over a period of 36 months. In connection with this agreement, Allaire issued
warrants to purchase shares of its Series A convertible preferred stock (Note
8). The Lease Line expired in December 1997.

During 1997, Allaire sold and immediately leased back certain equipment
under the Lease Line. The loss on this sale leaseback transaction was recorded
in 1997 and was not material to Allaire's results of operations. Amortization of
property and equipment under capital leases totaled $181,000 and $297,000 for
the years ended December 31, 1997 and 1998, respectively. Accumulated
amortization on property and equipment under capital lease totaled $181,000 at
December 31, 1997 and $478,000 at December 31, 1998. Interest expense relating
to capital lease obligations totaled $38,000 and $51,000 for the years ended
December 31, 1997 and 1998, respectively.

7. LINES OF CREDIT AND PROMISSORY NOTES

WORKING CAPITAL LINE

At December 31, 1998, Allaire was party to a line of credit agreement which
provided for borrowings of up to $2,000,000 for working capital purposes and for
the issuance of letters of credit. Amounts available under the line were
determined based upon eligible accounts receivable. All borrowings and letters
of credit were collateralized by substantially all of Allaire's assets and all
borrowings bore interest at the bank's prime rate (7.75% as of December 31,
1998) plus 1%. As of December 31, 1998, letters of credit totaling $487,000 had

F-14
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. LINES OF CREDIT AND PROMISSORY NOTES (CONTINUED)
been issued against the line and $1,513,000 was available for additional
borrowings. The original terms of the line of credit required the maintenance of
certain minimum financial ratios and conditions; however, these financial
covenants were waived for the period from May 1998 through the termination of
the line of credit. The line of credit terminated upon Allaire's initial public
offering in January 1999.

EQUIPMENT CREDIT LINE

In December 1996, Bright Tiger entered into, and in July 1997 amended and
restated, an equipment loan line agreement with a bank, under which Bright Tiger
may borrow up to $875,000 for purchases of equipment, subject to certain
limitations. In June 1998, Bright Tiger entered into a second agreement with the
bank for an additional equipment loan line of $500,000, subject to the same
limitations. All borrowings under these lines of credit are collateralized by
substantially all of Bright Tiger's assets and bear interest at the bank's prime
rate plus 3/4% (8.50% at December 31, 1998). The terms of the lines of credit
include certain covenants requiring the maintenance of specified financial
ratios and restrictions on Bright Tiger's ability to sell or transfer fixed
assets and to declare or pay dividends to its stockholders. As of December 31,
1998, Bright Tiger was not in compliance with the covenants relating to the
maintenance of certain financial ratios. Accordingly, the outstanding balance
under the lines of credit was immediately callable by the bank and has been
classified as a current liability in its entirety. At December 31, 1998,
$1,145,900 was outstanding under the aforementioned lines of credit. The credit
line was paid in full in April 1999.

EQUIPMENT LOAN LINE

In May 1998, Allaire entered into an equipment loan line agreement (the
"Equipment Loan Line") under which Allaire was able to borrow up to $2,000,000
to finance fixed asset purchases through December 1998. The initial term of each
loan is 36 months from the borrowing date. Monthly payments are equal to 3.155%
of the original amount borrowed, for an effective interest rate of approximately
15%. At the end of term, Allaire may choose to make one additional payment of
15% of the original amount funded or, if no default has occurred, the term may
be extended for an additional 6 months at the original monthly payment rate. The
Equipment Loan Line contains no financial covenants and there are no
cross-default provisions in connection with the equipment and working capital
line described above. All borrowings are collateralized by the purchased assets.
Allaire borrowed $1,406,000 in June 1998 and $214,000 in November 1998 under the
Equipment Loan Line, which was collateralized by previously purchased equipment.
The Equipment Loan Line expired in

F-15
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. LINES OF CREDIT AND PROMISSORY NOTES (CONTINUED)
December 1998. At December 31, 1998, annual cash payments on the borrowings
under the Equipment Loan Line are as follows:

<TABLE>
<S> <C>
1999............................................................ $ 613,000
2000............................................................ 613,000
2001............................................................ 583,000
---------
Total cash payments............................................. 1,809,000
Less--amount representing interest.............................. 357,000
---------
Present value of notes payable.................................. $1,452,000
---------
---------
</TABLE>

OTHER LINES OF CREDIT

In December 1998, Allaire obtained a commitment from existing investors to
provide a $3.0 million working capital line of credit which terminated upon the
closing of Allaire's initial public offering in January 1999.

PROMISSORY NOTES

In November 1998, Bright Tiger issued promissory notes to existing investors
of Bright Tiger in exchange for $1,500,000 in cash proceeds. These notes bear
interest at 8% per year, and the principal and accrued interest of the notes are
payable upon demand by their holders. These notes contain conversion rights
whereby the holders of the notes may apply the unpaid principal and interest
under the notes to the purchase of equity securities of Bright Tiger. The
promissory notes were paid in full in April 1999.

8. PREFERRED STOCK

The holders of the Series A, Series B, Series C and Series D preferred stock
(the "Preferred Stock") are hereinafter referred to collectively as the
"Preferred Stockholders" and the holders of the Series B, Series C and Series D
preferred stock (the "Redeemable Preferred Stock") are hereinafter referred to
collectively as the "Redeemable Preferred Stockholders." The Preferred
Stockholders have the following rights and privileges:

VOTING RIGHTS

The Preferred Stockholders generally vote together with all other classes
and series of stock as a single class on all matters and are entitled to a
number of votes equal to the number of shares of common stock into which each
share of such stock is convertible. With respect to the number of directors,
only the Redeemable Preferred Stockholders, voting as a single class, may vote
on any increase of the maximum number of directors constituting the Board of
Directors to a number in excess of five. With respect to the election of
directors, the Redeemable Preferred Stockholders, voting as a single class, may
elect one director and the common stockholders and Preferred Stockholders,
voting as a single class, may elect two directors. The remaining two directors
shall be elected by a combined vote of both the

F-16
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. PREFERRED STOCK (CONTINUED)
common stockholders and the Series A preferred stockholders, voting as a single
class, and the Redeemable Preferred Stockholders, voting as a single class.

F-17
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. PREFERRED STOCK (CONTINUED)

CONVERSION

Each share of Series A, Series B and Series C preferred stock is
convertible, at the option of the holder, into two shares of common stock,
except for 31,906 shares of Series A preferred stock, each of which converts
into one share of common stock, subject to certain anti-dilution adjustments.
Each share of Series D Preferred Stock is convertible, at the option of the
holder, into one share of common stock, subject to certain anti-dilution
adjustments. The Series A preferred stock will automatically convert into shares
of common stock upon the closing of an underwritten public offering of Allaire's
common stock involving aggregate proceeds to Allaire of at least $2,000,000. The
Series B, Series C and Series D preferred stock will automatically convert into
shares of common stock upon the closing of an underwritten public offering of
Allaire's common stock involving aggregate proceeds to Allaire of at least
$15,000,000 and a per share price of not less than $11.30. All shares of
Preferred Stock automatically converted into 3,848,941 shares of common stock
upon the closing of Allaire's initial public offering in January 1999.

DIVIDEND RIGHTS

The Preferred Stockholders are not entitled to receive any dividends unless
declared by Allaire's board of directors. In the event that dividends are paid
on the common stock, the Preferred Stockholders are entitled to receive
dividends at the same rate and at the same time as the common stockholders, with
each share of preferred stock being treated as equal to the number of shares of
common stock into which each share of such stock is convertible.

LIQUIDATION PREFERENCES

In the event of any liquidation, dissolution or winding up of Allaire, the
Preferred Stockholders are entitled to receive, in preference to the holders of
the common stock, an amount equal to the greater of the original purchase price
per share, respectively, subject to certain anti-dilution adjustments, or such
amount as would have been payable had such shares been converted to common stock
just prior to liquidation. The original purchase price per share of the Series
B, Series C and Series D preferred stock was $4.52, $5.91 and $4.00,
respectively. The original purchase price per share of the Series A preferred
stock was $4.07, except for 656 and 31,250 shares which had an original purchase
price per share of $8.00 and $16.00, respectively. Any assets remaining
following the initial distribution to the Preferred Stockholders shall be
available for distribution ratably among the common stockholders only.

REDEMPTION

At the request of at least 50% of the holders of the Redeemable Preferred
Stock at any time beginning in June 2002, Allaire shall redeem one-third of the
then outstanding shares of each series of Redeemable Preferred Stock.
Subsequently, on the first and third anniversaries of the initial redemption
date, Allaire shall redeem 50% and 100%, respectively, of the

F-17
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. PREFERRED STOCK (CONTINUED)
remaining outstanding shares of each series. Upon redemption, each holder of the
Series B, Series C and Series D preferred stock will be entitled to receive a
cash payment equal to $4.52 per share, $5.91 per share and $4.00 per share,
respectively, plus any declared but unpaid dividends.

CONVERTIBLE NOTES PAYABLE

During 1996, Allaire issued 10% convertible notes payable totaling $175,000
to two of Allaire's stockholders. All principal and accrued interest of $2,000
on these notes was subsequently converted into 43,557 shares of Series A
preferred stock prior to December 31, 1996.

PREFERRED STOCK WARRANTS

Pursuant to the terms of a capital lease line of credit (Note 6), Allaire
issued warrants to purchase 17,699 shares of Series A preferred stock at a price
of $4.52 per share, subject to certain anti-dilution adjustments. These warrants
are fully vested, exercisable at the option of the holder, in whole or in part,
and expire upon the earlier of ten years from the date of grant or five years
from the effective date of an initial public offering of Allaire's common stock.
The value ascribed to these warrants was not significant.

At December 31, 1998, Allaire has reserved 17,699 shares of its Series A
preferred stock for issuance upon exercise of outstanding warrants. These
warrants converted to warrants to purchase 35,398 shares of common stock upon
the closing of Allaire's initial public offering in January 1999.

UNDESIGNATED PREFERRED STOCK

At December 31, 1998, Allaire has authorized the issuance of up to 1,616,494
shares of undesignated preferred stock. Issuances of the undesignated preferred
stock may be made at the discretion of the board of directors (without
stockholder approval) in one or more series and with such designations, rights
and preferences as determined by the Board. As a result, the undesignated
preferred stock may have dividend, liquidation, conversion, redemption, voting
or other rights which may be more expansive than the rights of the holders of
the Preferred Stock and the common stock.

9. COMMON STOCK

TREASURY SHARES

Of the common stock issued, an aggregate of 3,417 shares with a cost of
$2,000 were held by Allaire as treasury shares and were included as a reduction
to additional paid-in capital at December 31, 1998.

F-18
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. COMMON STOCK (CONTINUED)
STOCK RESTRICTION AGREEMENTS

Allaire has executed stock restriction agreements with its founder and
certain of its employees. Under the terms of the founder's stock restriction
agreement, Allaire has the right to repurchase, at a price of $2.26 per share,
any unvested common shares in the event of the founder's voluntary resignation.
All other restriction agreements give Allaire the right to repurchase, for an
amount equal to the original consideration paid, any unvested common shares in
the event of voluntary resignation or termination of employment with Allaire for
cause. Allaire's repurchase rights lapse at various dates through January 31,
2000 or, in the case of the founder, upon the closing of an initial public
offering of Allaire's common stock, which occurred in January 1999. At December
31, 1998, an aggregate of 170,000 and 138,750 shares of Allaire's outstanding
common stock were subject to repurchase under the stock restriction agreements,
at prices of $2.26 and $.025 per share, respectively.

All employees who have been granted options by Allaire under the 1997 Stock
Incentive Plan are eligible to elect immediate exercise of all such options.
However, shares obtained by employees who elect to exercise prior to the
original option vesting schedule are subject to Allaire's right of repurchase,
at the option exercise price, in the event of termination. Allaire's repurchase
rights lapse at the same rate as the shares would have become exercisable under
the original vesting schedule. At December 31, 1998, Allaire had the right to
repurchase 364,895 shares of common stock issued under the 1997 Stock Incentive
Plan.

STOCK SUBSCRIPTIONS RECEIVABLE

Allaire held notes receivable from certain stockholders at December 31, 1998
in consideration for the purchase of Allaire common stock. The notes are due
February 1, 2001 and accrue interest at a rate of 5.61% per annum. These loans
are secured by the underlying common stock and, consequently, are reflected as
an offset to stockholders' equity.

COMMON STOCK WARRANTS

Pursuant to the issuance of convertible notes payable in 1996 (Note 8),
Allaire issued warrants to purchase 8,599 shares of its common stock at a price
of $2.03 per share, subject to certain anti-dilution adjustments. These warrants
are fully vested, exercisable at the option of the holders, in whole or in part,
and expire in December 2001. The value ascribed to these warrants was not
significant.

Pursuant to the issuance of convertible notes payable in 1997 (Note 4),
Allaire issued warrants to purchase 6,300 shares of its common stock at a price
of $4.00 per share, subject to certain anti-dilution adjustments. These warrants
are fully vested, exercisable at the option of the holder, in whole or in part,
and expire in March 2002. The value ascribed to these warrants was not
significant.

F-19
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. COMMON STOCK (CONTINUED)
AUTHORIZED SHARES

On August 10, 1998, Allaire's board of directors approved an increase in the
authorized shares of common stock, $.01 par value, to 35,000,000.

RESERVED SHARES

At December 31, 1998, Allaire had 5,570,052 shares of common stock reserved
for issuance upon the exercise of common stock warrants and options and
conversion of the outstanding preferred stock, including shares issuable upon
the exercise of preferred stock warrants and subsequent conversion into common
stock.

10. STOCK OPTIONS

Certain options issued by Allaire during the year ended December 31, 1996
were non-qualified, non-plan stock options issued to employees, advisors and
consultants of Allaire. All options granted by Allaire during this period of
time were issued at fair market value at the date of grant, vest either
immediately or over a four-year period and expire ten years from the date of
grant.

1996 STOCK INCENTIVE PLAN

The 1996 Plan provides for the granting of incentive and non-qualified stock
options to management, other key employees, consultants and directors of Bright
Tiger. The total number of shares of common stock that may be issued pursuant to
awards granted under the 1996 Plan is 36,538. The exercise price under each
stock option shall be specified by the board of directors at the time of grant.
However, incentive stock options may not be granted at less than fair market
value of Allaire's common stock at the date of grant or for a term in excess of
ten years. For holders of more than 10% of Allaire's total combined voting power
of all classes of stock, incentive stock options may not be granted at less than
110% of the fair market value of Allaire's common stock at the date of grant and
for a term not to exceed five years. At December 31, 1998, there were 14,924
shares available for future grant under the 1996 plan.

1997 STOCK INCENTIVE PLAN

The 1997 Incentive Stock Plan (the "1997 Stock Plan") provides for the
granting of incentive and non-qualified stock options and stock bonus awards to
officers, directors, employees and consultants of Allaire. The maximum number of
common shares that may be issued pursuant to the 1997 Stock Plan, as amended, is
1,726,000.

The exercise price of each stock option issued under the 1997 Stock Plan
shall be specified by the board of directors at the time of grant. However,
incentive stock options may not be granted at less than the fair market value of
Allaire's common stock as determined by

F-20
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCK OPTIONS (CONTINUED)
the board of directors at the date of grant or for a term in excess of ten
years. All options granted under the 1997 Stock Plan through December 31, 1998
vest either immediately or over a four-year period for employees or over the
service period for non-employees and expire ten years from the date of grant.

1998 STOCK INCENTIVE PLAN

The 1998 Incentive Stock Plan (the "1998 Stock Plan") provides for the
issuance of up to 1,900,000 shares of Allaire's common stock to eligible
employees, officers, directors, consultants and advisors of Allaire. Under the
1998 Stock Plan, the board of directors may award incentive and non-qualified
stock options, stock appreciation rights, performance shares and restricted and
unrestricted stock. Incentive stock options may not be granted at less than the
fair market value of Allaire's common stock at the date of grant and for a term
not to exceed ten years. The exercise price under each non-qualified stock
option shall be specified by the Compensation Committee. Grants of stock
appreciation rights, performance shares, restricted stock and unrestricted stock
may be made at the discretion of the Compensation Committee with terms to be
defined therein.

During the years ended December 31, 1996 and 1997 compensation expense
recognized for stock option grants made by Allaire under APB Opinion No. 25 was
not significant. For the year ended December 31, 1998, compensation expense
recognized for stock option grants totaled $412,000. Had compensation cost for
Allaire's option grants been determined based on the fair value at the date of
grant consistent with the method prescribed by SFAS No. 123, Allaire's net loss
and net loss per share would have been increased to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------- -------------- --------------
Net loss:
As reported..................................................... $ (2,027,000) $ (11,536,000) $ (17,139,000)
Pro forma....................................................... $ (2,035,000) $ (11,597,000) $ (17,278,000)
Basic and diluted net loss per share:
As reported..................................................... $ (1.15) $ (5.35) $ (4.78)
Pro forma....................................................... $ (1.16) $ (5.37) $ (4.82)
</TABLE>

Because the determination of the fair value of all options granted after the
closing of Allaire's initial public offering will include an expected volatility
factor, because additional option grants are expected to be made subsequent to
December 31, 1998, and because most options vest over several years, the pro
forma effects of applying the fair value method may be material to reported net
income or loss in future years.

Under SFAS No. 123, the fair value of each employee option grant is
estimated on the date of grant using the Black-Scholes option pricing model to
apply the minimum value method with the following weighted-average assumptions
used for grants made during the

F-21
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCK OPTIONS (CONTINUED)
years ended December 31, 1996, 1997 and 1998: no dividend yield; risk free
interest rates of 5.9%, 6.1% and 5.1%, respectively; no volatility; and an
expected option term of 5 years.

Stock option activity during the years ended December 31, 1996, 1997 and
1998 was as follows:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Outstanding--December 31, 1995.................................................... -- $ --
Granted (weighted average fair value of $.11)................................... 1,135,952 .44
Exercised....................................................................... (2,500) .50
Canceled........................................................................ (7,500) .50
-----------
Outstanding--December 31, 1996.................................................... 1,125,952 .44
Granted (weighted average fair value of $.17)................................... 1,488,409 .57
Exercised....................................................................... (5,380) 1.42
Canceled........................................................................ (221,599) .51
-----------
Outstanding--December 31, 1997.................................................... 2,387,382 .52
Granted (weighted average fair value of $2.95).................................. 573,161 6.94
Exercised....................................................................... (1,147,384) .47
Canceled........................................................................ (124,563) 2.01
-----------
Outstanding--December 31, 1998.................................................... 1,688,596 $ 2.60
-----------
-----------
</TABLE>

As of December 31, 1998, 14,924, 184,867, and 1,681,400 shares were
available for grant under the 1996 Stock Plan, the 1997 Stock Plan and the 1998
Stock Plan, respectively.

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
VESTED AND EXERCISABLE
----------------------------
WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE REMAINING CONTRACTUAL OF EXERCISE
PRICE NUMBER OUTSTANDING LIFE (IN YEARS) SHARES PRICE
- ------------- ------------------- ------------------------- --------- -----------------
<S> <C> <C> <C> <C>
.$25-.50..... 1,145,617 8.0 433,209 $ .45
.75- 1.50... 181,779 9.0 18,831 .75
3.50- 7.00.. 87,119 9.2 17,048 3.94
9.00-15.94.. 274,081 9.7 1,745 15.94
---------- ---------
.$25-15.94... 1,688,596 8.5 470,833 $ .65
---------- ---------
---------- ---------
</TABLE>

DEFERRED COMPENSATION

During 1998, Allaire granted stock options to purchase 477,950 shares of its
common stock with exercise prices ranging from $.01 to $13.60. Allaire recorded
compensation expense and deferred compensation relating to these options
totaling $412,000 and $997,000,

F-22
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCK OPTIONS (CONTINUED)
respectively, representing the difference between the estimated fair market
value of the common stock on the date of grant and the exercise price.
Compensation relating to options which vested immediately upon grant was
expensed in full at the date of grant, while compensation related to options
which vest over time was recorded as a component of stockholders' deficit and is
being amortized over the vesting periods of the related options.

1998 EMPLOYEE STOCK PURCHASE PLAN

The 1998 Employee Stock Purchase Plan (the "Purchase Plan") provides for the
issuance of up to 300,000 shares of Allaire's common stock to eligible
employees. Under the Purchase Plan, Allaire is authorized to make one or more
offerings during which employees may purchase shares of common stock through
payroll deductions made over the term of the offering. The per-share purchase
price at the end of each offering is equal to 85% of the fair market value of
the common stock at the beginning or end of the offering period (as defined by
the Purchase Plan), whichever is lower. Allaire expects that the first offering
period under the Purchase Plan will commence on July 1, 1999.

11. INCOME TAXES

Deferred tax assets are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ------------ -------------
Deferred tax assets:
Net operating loss carryforwards...................................... $ 710,600 $ 5,412,000 $ 11,771,000
Reserves not currently deductible..................................... 98,900 216,000 249,000
Tax credit carryforwards.............................................. 17,000 238,000 689,000
Other................................................................. 29,000 78,000 402,000
---------- ------------ -------------
Total deferred tax assets....................................... 855,500 5,944,000 13,111,000
Deferred tax asset valuation allowance.................................. (855,500) (5,944,000) (13,111,000)
---------- ------------ -------------
$ -- $ -- $ --
---------- ------------ -------------
---------- ------------ -------------
</TABLE>

Realization of total deferred tax assets is contingent upon the generation
of future taxable income. Due to the uncertainty of realization of these tax
benefits, Allaire has provided a valuation allowance for the full amount of its
deferred tax assets.

F-23
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)
Income taxes computed using the federal statutory income tax rate differs
from Allaire's effective tax rate primarily due to the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ------------- -------------
Income tax benefit at U.S. federal statutory tax rate.................. (709,000) $ (4,038,000) $ (5,999,000)
State taxes, net of federal tax impact................................. (125,000) (711,000) (1,054,000)
Permanent differences.................................................. 2,000 14,000 38,000
Tax credit carryforwards............................................... (18,000) (91,000) (195,000)
Other.................................................................. (5,000) (263,000) 43,000
Change in valuation allowance.......................................... 855,000 5,089,000 7,167,000
----------- ------------- -------------
Provision for income taxes............................................. $ -- $ -- $ --
----------- ------------- -------------
----------- ------------- -------------
</TABLE>

At December 31, 1998, Allaire had federal and state net operating losses of
approximately $28.8 million and $27.9 million, respectively, and federal and
state tax credit carryforwards of approximately $409,000 and $336,000,
respectively, available to reduce future taxable income and future tax
liabilities. If not utilized, these carryforwards will expire at various dates
ranging from 2001 to 2018. Under the provisions of the Internal Revenue Code,
certain substantial changes in Allaire's ownership may be limited, or may limit
in the future, the amount of net operating loss and research and development tax
credit carryforwards which could be utilized annually to offset future taxable
income and income tax liability. The amount of any annual limitation is
determined based upon Allaire's value prior to an ownership change.

12. SEGMENT INFORMATION

Operating in one industry segment, Allaire develops, markets and supports
software for a wide range of Web development.

Revenue was distributed geographically as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------ ------------ -------------
North America......................................................... $ 1,953,000 $ 6,289,000 $ 18,659,000
Europe................................................................ 197,000 824,000 1,802,000
Other international................................................... 208,000 675,000 901,000
------------ ------------ -------------
$ 2,358,000 $ 7,788,000 $ 21,362,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

All of Allaire's sales to Europe and other international geographies are
export sales from the United States. Substantially all of Allaire's services
revenue for the years ended December 31, 1996, 1997 and 1998 was generated in
North America. All long-lived assets were located in North America at December
31, 1997 and 1998.

F-24
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. EMPLOYEE SAVINGS PLAN

During 1997, Allaire adopted an employee retirement savings plan under
Section 401(k) of the Internal Revenue Code which covers substantially all
employees. Under the terms of the 401(k) Plan, employees may contribute a
percentage of their salary, up to a maximum of 15%. Allaire did not make any
contributions to the 401(k) Plan on behalf of its employees for the years ended
December 31, 1997 or 1998.

14. COMMITMENTS AND CONTINGENCIES

Allaire leases its facilities and certain office equipment under
noncancelable operating lease agreements. Rent expense under these leases for
the years ended December 31, 1996, 1997 and 1998, totaled $178,000, $515,000 and
$1,420,000, respectively. In addition, Allaire also leases certain fixed assets
under capital leases, which expire at various dates through October 2000.

Future minimum commitments under noncancelable operating and capital leases
at December 31, 1998 are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------- ----------
<S> <C> <C>
1999.................................................................................. 2,729,000 366,000
2000.................................................................................. 2,548,000 163,000
2001.................................................................................. 2,465,000 --
2002.................................................................................. 2,386,000 --
2003.................................................................................. 1,166,000 --
------------- ----------
Total minimum lease payments.......................................................... $ 11,294,000 529,000
-------------
-------------
Less--amount representing interest.................................................... 30,000
----------
Present value of capital lease obligations............................................ $ 499,000
----------
----------
</TABLE>

LETTER OF CREDIT

In connection with a facility lease Allaire is required to maintain, on
behalf of the landlord, an irrevocable letter of credit with a bank over the
term of the lease. As of December 31, 1998, letters of credit totaling $487,000
had been issued against the line of credit (Note 7).

LEGAL PROCEEDINGS

In 1996, a wrongful termination action was brought against Allaire and its
founder by a former employee under which the plaintiff sought severance pay and
the right to 400,000 shares of Allaire's common stock which were canceled upon
termination. Although Allaire continues to deny any liability in this matter,
Allaire determined during 1997 that it was in the best interest of its
shareholders to settle this dispute out of court due to the rising legal costs,
distraction of management and uncertainty present in this litigation. As a
result, Allaire

F-25
<PAGE>
ALLAIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
agreed to pay the plaintiff a cash settlement totaling $285,000 in exchange for
the termination of all legal action against Allaire and its founder. This amount
was fully accrued at the time of the settlement.

In addition to the matter noted above, Allaire is from time to time subject
to legal proceedings and claims which arise in the normal course of its
business. In the opinion of management, the amount of ultimate liability with
respect to these actions will not have a material adverse effect on Allaire's
financial position or results of operations.

F-26
<PAGE>

[EDGAR description for inside back cover]

How ColdFusion Works

[Graphical depiction of how the ColdFusion Web application server processes
requests for information through a series of interconnecting arrows, rectangles
and circles, labeled clockwise from the left side of the diagram: "Web Browser,"
"HTTP Request," "Internet or Intranet," "Web Server," "CF Page," "ColdFusion
Server," "Database Server," "File System," "Email Server," "Distributed
Objects," "Other Enterprise Systems," "Web Page," "Web Server," "Internet or
Intranet," "Web Page" and back to "Web Browser." The sections of the diagram are
labeled, from left to right, "Client," "Network" and "Server." Various locations
on the diagram bear numbers 1-5.]

1. When a user clicks a "submit" button on a form or a hypertext link on a
Web page, the user's Web browser sends a HTTP request to the Web server
via the Internet or an intranet.

2. The Web server passes the request to ColdFusion Server.

3. ColdFusion reads the request from the user and the server interacts with
database servers, file systems and/or other applications to process the
information based on CFML tags (ColdFusion Mark-Up Language).

4. ColdFusion then dynamically generates an HTML Web page, with the requested
information, and returns it to the Web server.

5. The Web server returns the HTML page to the user's Web browser.

Advanced Development Configuration

[Graphical depiction of how ColdFusion Studio and ColdFusion Web application
servers interoperate within a development environment. Three bi-directional
arrows connect a depiction of three computer terminals (each labeled "Studio")
to a rectangle above depicting a ColdFusion Server. This left section of the
diagram is labeled "Develop." An arrow points from this ColdFusion Server to a
second server in the center of the diagram. The second server is connected by a
bi-directional arrow to a computer terminal below it with the word "Testing" on
its screen. This center section of the diagram is labeled "Stage." An arrow
points from the center section's ColdFusion Server to a set of three ColdFusion
Servers on the right side of the diagram, each connected by bi-directional
arrows. This set of three servers is connected by a bi-directional arrow to a
circle labeled "The Internet" below it. This right section of the diagram is
labeled "Deliver."]

<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered. All amounts shown
are estimates except the Securities and Exchange Commission registration fee,
the National Association of Securities Dealers, Inc. filing fee and the Nasdaq
National Market listing fee.

<TABLE>
<CAPTION>
PAYABLE
BY THE
COMPANY
----------
<S> <C>
Securities and Exchange Commission registration fee....................................... $ 35,067
National Association of Securities Dealers, Inc. filing fee............................... 13,114
Nasdaq National Market listing fee........................................................ 17,500
Printing and engraving expenses........................................................... 100,000
Transfer agent fees....................................................................... 5,000
Accounting fees and expenses.............................................................. 75,000
Legal fees and expenses................................................................... 225,000
Blue Sky fees and expenses (including related legal fees)................................. 5,000
Miscellaneous............................................................................. 24,319
----------
Total..................................................................................... $ 500,000
----------
----------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law affords a Delaware
corporation the power to indemnify its present and former directors and officers
under certain conditions. Article Sixth of the Certificate provides that Allaire
shall indemnify each person who at any time is, or shall have been, a director
or officer of Allaire and was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or she is or was a director or officer of Allaire, or is or was serving at the
request of Allaire as a director, officer, trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement incurred in connection with any such action, suit or
proceeding, to the maximum extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended. No amendment to or repeal
of the provisions of Article Sixth of the Certificate shall deprive a director
or officer of the benefit thereof with respect to any act or failure occurring
prior to such amendment or repeal.

Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware
corporation the power to adopt a charter provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
breach of fiduciary duty as directors, provided that such provision may not
eliminate or limit the liability of directors for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) any acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) any payment of a dividend or approval of a stock
purchase that is illegal

II-1
<PAGE>
under Section 174 of the Delaware General Corporation Law or (iv) any
transaction from which the director derived an improper personal benefit.
Article Seventh of the Certificate provides that to the maximum extent permitted
by the Delaware General Corporation Law, no director of Allaire shall be
personally liable to Allaire or to any of its stockholders for monetary damages
arising out of such director's breach of fiduciary duty as a director of
Allaire. No amendment to or repeal of the provisions of Article Seventh shall
apply to or have any effect on the liability or the alleged liability of any
director of Allaire with respect to any act or failure to act of such director
occurring prior to such amendment or repeal. A principal effect of such Article
Seventh is to limit or eliminate the potential liability of Allaire's directors
for monetary damages arising from breaches of their duty of care, unless the
breach involves one of the four exceptions described in (i) through (iv) above.

Section 145 of the Delaware General Corporation Law also affords a Delaware
corporation the power to obtain insurance on behalf of its directors and
officers against liabilities incurred by them in those capacities. Allaire has
procured a directors' and officers' liability and company reimbursement
liability insurance policy that (a) insures directors and officers of Allaire
against losses (above a deductible amount) arising from certain claims made
against them by reason of certain acts done or attempted by such directors or
officers and (b) insures Allaire against losses (above a deductible amount)
arising from any such claims, but only if Allaire is required or permitted to
indemnify such directors or officers for such losses under statutory or common
law or under provisions of its Amended and Restated Certificate of Incorporation
or its By-Laws.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following information is furnished with regard to all securities sold by
Allaire since February 1996 which were not registered under the Securities Act.

(A) ISSUANCES OF COMMON STOCK BY ALLAIRE MINNESOTA.

From February 1996 through January 1997, Allaire Corp., a Minnesota
corporation ("Allaire Minnesota"), issued and sold an aggregate of 2,000,000
shares of its Common Stock for consideration valued at $51,690.

(B) ISSUANCES OF PREFERRED STOCK BY ALLAIRE MINNESOTA.

From June 1996 through March 1997, Allaire Minnesota issued and sold an
aggregate of 56,557 shares of its Series A Convertible Preferred Stock, for
aggregate consideration of $255,165. From June 1996 through March 1997, Allaire
Minnesota also issued and sold an aggregate of 514,306 shares of its Series B
Convertible Preferred Stock, for aggregate consideration of $2,324,664. In
December 1996, Allaire Minnesota issued and sold an aggregate of 84,600 shares
of its Series C Preferred Stock, for aggregate consideration of $499,986.

From June 1996 through April 1997, Allaire Minnesota issued options to
purchase an aggregate of 1,086,800 shares of its Common Stock, and sold 1,250
shares of its Common Stock pursuant to the exercise of such options for
aggregate consideration of $1,250.

II-2
<PAGE>
On April 25, 1997 Allaire Minnesota was reincorporated as a Delaware
corporation through the merger of Allaire Minnesota into Allaire. Pursuant to
the reincorporation merger, each share of Common Stock of Allaire Minnesota was
automatically changed and converted into two shares of Common Stock of Allaire.
Each share of Series A, B and C Convertible Preferred Stock of Allaire Minnesota
was automatically changed and converted into one share of the corresponding
series of Allaire's Convertible Preferred Stock. Each share of Allaire's Series
A, B and C Convertible Preferred Stock issued pursuant to the reincorporation
merger automatically changed and converted into two shares of Allaire's Common
Stock upon the closing of Allaire's initial public offering in January 1999.
Also pursuant to the reincorporation merger, each option to purchase one share
of Common Stock of Allaire Minnesota was automatically converted and changed
into an option to purchase two shares of Allaire's Common Stock.

(D) ISSUANCES OF COMMON STOCK BY ALLAIRE.

From January 1998 through April 22, 1999, Allaire issued and sold 1,438,019
shares of its Common Stock for aggregate consideration of $546,245.

In April 1999, in order to acquire Bright Tiger Technologies Inc., Allaire
issued and sold 288,583 shares of its Common Stock.

In June 1999, in order to acquire Live Software, Inc., Allaire issued and
sold 528,376 shares of its Common Stock.

(E) ISSUANCES OF PREFERRED STOCK BY ALLAIRE

On December 7, 1998, Allaire issued and sold 31,250 shares of Series A
Convertible Preferred Stock for aggregate consideration of $500,000. Each of
these 31,250 shares of Series A Convertible Stock automatically changed and
converted into one share of Allaire's Common Stock upon the closing of Allaire's
initial public offering.

In February 1998, Allaire issued and sold 656 shares of Series A Convertible
Preferred Stock, for aggregate consideration of $5,250. Each of these 656 shares
of Series A Convertible Preferred Stock automatically changed and converted into
one share of Allaire's Common Stock upon the closing of Allaire's initial public
offering. In May and June 1997, Allaire issued and sold 2,336,909 shares of
Series D Convertible Preferred Stock, for aggregate consideration of $9,347,636.
Each share of Series D Convertible Preferred Stock automatically changed and
converted into one share of the Company Common Stock upon the closing of
Allaire's initial public offering.

(F) GRANTS OF ALLAIRE'S STOCK OPTIONS.

From April 1997 through April 22, 1999, Allaire granted options to purchase
an aggregate of 1,911,610 shares of its Common Stock, exercisable at a weighted
average exercise price of $15.17 per share.

The issuances described in this Item 15 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. None of the
foregoing transactions involved a distribution or public offering. No
underwriters were engaged in connection with the foregoing issuances of
securities, and no underwriting discounts or commissions were paid.

II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.

(A) EXHIBITS

<TABLE>
<C> <S>
++1.1 Underwriting Agreement
+3.1 Amended and Restated Certificate of Incorporation of Allaire
+3.2 Amended and Restated By-Laws of Allaire
+4.1 Specimen certificate for the Common Stock of Allaire
++5.1 Opinion of Foley, Hoag & Eliot LLP
+10.1 1997 Stock Incentive Plan as amended
+10.2 1998 Stock Incentive Plan
+10.3 1998 Employee Stock Purchase Plan
+10.4 Option Agreement for David J. Orfao
+10.5 Form of Option Agreement for other executive officers
+10.6 Office Lease Agreement between Allaire and One Alewife Center Realty Trust, dated
November 5, 1997
+10.7 Lease Agreement between Allaire and CambridgePark Two, L.P., dated May 21, 1998
+10.8 Loan and Security Agreement between Allaire and Silicon Valley Bank, dated March
26, 1998
+10.9 Negative Pledge Agreement between Allaire and Silicon Valley Bank, dated March 26,
1998
+10.10 Loan Modification Agreement between Allaire and Silicon Valley Bank, dated August
6, 1998
+10.11 Loan Modification Agreement between Allaire and Silicon Valley Bank, dated December
9, 1998
+10.12 Senior Loan and Security Agreement between Allaire and Phoenix Leasing
Incorporated, dated May 1, 1998
+10.13 Warrant Agreement between Allaire and Comdisco, Inc., dated August 21, 1998
+10.14 Warrant Agreement between Allaire and Gregory Stento, dated August 21, 1998
+10.15 Warrant Agreement between Allaire and Polaris Venture Partners, L.P., dated March
7, 1997
+10.16 Warrant Agreement between Allaire and Polaris Venture Partners Founders' Fund,
L.P., dated March 7, 1997
+10.17 Amended and Restated Registration Rights Agreement, dated May 15, 1997
+10.18 Waiver and Amendment No. 1 to Amended and Restated Registration Rights Agreement,
dated December 7, 1998
+10.19 Letter of Offer of Employment from Allaire to David J. Orfao, dated December 23,
1996
+10.20 Contribution and Restricted Stock Purchase Agreement between Allaire and Yesler
Software, Inc., dated July 14, 1998
+10.21 Working Capital Line of Credit Letter from Polaris Ventures Partners, L.P., and
Polaris Venture Partners Founders' Fund, L.P., dated December 4, 1998
10.22 Agreement and Plan of Merger, dated as of April 2, 1999, by and among Allaire,
Bengal Acquisition Corp. and Bright Tiger Technologies, Inc. (included as Exhibit
2.1 to Allaire's Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 27, 1999 and incorporated herein by reference.)
</TABLE>

II-4
<PAGE>
<TABLE>
<C> <S>
11.1 Statement re computation of unaudited net loss per share and pro forma net loss per
share
21.1 Subsidiaries of Allaire Corporation
23.1 Consent of PricewaterhouseCoopers LLP
++23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
</TABLE>

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

+ Included in Allaire's Registration Statement on Form S-1 (File No. 333-68639)
and incorporated herein by reference.

++ To be filed by amendment.

(B) FINANCIAL STATEMENT SCHEDULES

II--Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes thereto.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum

II-5
<PAGE>
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Massachusetts, on
the 3rd day of September, 1999.

ALLAIRE CORPORATION

BY: /s/ DAVID J. ORFAO
-----------------------------------------
David J. Orfao
PRESIDENT AND CHIEF EXECUTIVE OFFICER

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ ------------------------- -------------------
Chairman of the Board, September 3, 1999
/s/ JOSEPH J. ALLAIRE Chief Technology
- ------------------------------ Officer and Executive
Joseph J. Allaire Vice President,
Products

President, Chief September 3, 1999
/s/ DAVID J. ORFAO Executive Officer and
- ------------------------------ Director (principal
David J. Orfao executive officer)

Vice President, Finance September 3, 1999
and Operations,
/s/ DAVID A. GERTH Treasurer and Chief
- ------------------------------ Financial Officer
David A. Gerth (principal financial
and accounting officer)

/s/ JONATHAN A. FLINT Director September 3, 1999
- ------------------------------
Jonathan A. Flint

/s/ JOHN J. GANNON Director September 3, 1999
- ------------------------------
John J. Gannon

/s/ THOMAS A. HERRING Director September 3, 1999
- ------------------------------
Thomas A. Herring

/s/ MITCHELL KAPOR Director September 3, 1999
- ------------------------------
Mitchell Kapor

II-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Allaire Corporation

Our audits of the consolidated financial statements referred to in our
report dated June 25, 1999 appearing in this Registration Statement also
included an audit of the Financial Statement Schedule listed in Item 16(b) of
this Registration Statement. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP
Boston, Massachusetts
June 25, 1999

II-8
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED ENDED
ALLOWANCE FOR DOUBTFUL ACCOUNTS DECEMBER 31, JUNE 30,
AND SALES RETURNS 1996 1997 1998 1999
- ------------------------------------------------------------- --------------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period............................... $ 10 $ 220 $ 487 $ 502
Additions:
Charged to expense......................................... 165 164 61 34
Charged against other accounts............................. 45 165 56 60
Deductions:
Write-offs and returns..................................... -- (62) (102) (49)
----- --------- --------- -----
Balance at end of period..................................... $ 220 $ 487 $ 502 $ 547
----- --------- --------- -----
----- --------- --------- -----
</TABLE>

II-9
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
++1.1 Underwriting Agreement

+3.1 Amended and Restated Certificate of Incorporation of Allaire

+3.2 Amended and Restated By-Laws of Allaire

+4.1 Specimen certificate for the Common Stock of Allaire

++5.1 Opinion of Foley, Hoag & Eliot LLP

+10.1 1997 Stock Incentive Plan as amended

+10.2 1998 Stock Incentive Plan

+10.3 1998 Employee Stock Purchase Plan

+10.4 Option Agreement for David J. Orfao

+10.5 Form of Option Agreement for other executive officers

+10.6 Office Lease Agreement between Allaire and One Alewife Center Realty Trust, dated November 5, 1997

+10.7 Lease Agreement between Allaire and CambridgePark Two, L.P., dated May 21, 1998

+10.8 Loan and Security Agreement between Allaire and Silicon Valley Bank, dated March 26, 1998

+10.9 Negative Pledge Agreement between Allaire and Silicon Valley Bank, dated March 26, 1998

+10.10 Loan Modification Agreement between Allaire and Silicon Valley Bank, dated August 6, 1998

+10.11 Loan Modification Agreement between Allaire and Silicon Valley Bank, dated December 9, 1998

+10.12 Senior Loan and Security Agreement between Allaire and Phoenix Leasing Incorporated, dated May 1,
1998

+10.13 Warrant Agreement between Allaire and Comdisco, Inc., dated August 21, 1998

+10.14 Warrant Agreement between Allaire and Gregory Stento, dated August 21, 1998

+10.15 Warrant Agreement between Allaire and Polaris Venture Partners, L.P., dated March 7, 1997

+10.16 Warrant Agreement between Allaire and Polaris Venture Partners Founders' Fund, L.P., dated March 7,
1997

+10.17 Amended and Restated Registration Rights Agreement, dated May 15, 1997

+10.18 Waiver and Amendment No. 1 to Amended and Restated Registration Rights Agreement, dated December 7,
1998

+10.19 Letter of Offer of Employment from Allaire to David J. Orfao, dated December 23, 1996

+10.20 Contribution and Restricted Stock Purchase Agreement between Allaire and Yesler Software, Inc., dated
July 14, 1998

+10.21 Working Capital Line of Credit Letter from Polaris Ventures Partners, L.P., and Polaris Venture
Partners Founders' Fund, L.P., dated December 4, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.22 Agreement and Plan of Merger, dated as of April 2, 1999, by and among Allaire, Bengal Acquisition
Corp. and Bright Tiger Technologies, Inc. (included as Exhibit 2.1 to Allaire's Current Report on
Form 8-K filed with the Securities and Exchange Commission on April 27, 1999 and incorporated herein
by reference.)

11.1 Statement re computation of unaudited net loss per share and pro forma net loss per share

21.1 Subsidiaries of Allaire Corporation

23.1 Consent of PricewaterhouseCoopers LLP

++23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
</TABLE>

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

+ Included in Allaire's Registration Statement on Form S-1 (File No. 333-68639)
and incorporated herein by reference.

++ To be filed by amendment.

<PAGE>

ALLAIRE CORPORATION
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF UNAUDITED NET LOSS PER SHARE
AND PRO FORMA NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year ended SIX MONTHS ENDED
December 31, JUNE 30,
1996 1997 1998 1998 1999
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Basic and diluted net loss per share:
Net loss................................... $ (2,027) $(11,536) $(17,139) $(7,886) $(5,529)
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Basic and diluted weighted average
common shares outstanding............... 1,756 2,158 3,587 3,317 10,449
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Basic and diluted net loss per share....... $ (1.15) $ (5.35) $ (4.78) $ (2.38) $ (0.53)
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>

<TABLE>
<CAPTION>
Year ended SIX MONTHS ENDED
December 31, JUNE 30,
1998 1999
-------- -------
<S> <C> <C>
Pro forma basic and diluted net loss per share:
Net loss.......................................... $(17,139) $(5,529)
-------- -------
-------- -------
Pro forma basic and diluted weighted average
shares outstanding

Shares attributable to common stock (1)......... 3,970 10,467

Shares attributable to the assumed conversion of
convertible preferred stock upon closing of the
IPO............................................ 3,818 449
-------- -------

Pro forma basic and diluted weighted average
shares outstanding................................ 7,788 10,916
-------- -------
-------- -------
Pro forma basic and diluted loss per share........ $ (2.20) $ (0.51)
-------- -------
-------- -------
</TABLE>

<PAGE>

EXHIBIT 21.1

SUBSIDIARIES OF ALLAIRE CORPORATION

Name of Subsidiary Jurisdiction of Organization
- ------------------ ----------------------------

Live Software, Inc. Delaware
Bright Tiger Technologies, Inc. Delaware
Allaire S.A. Belgium

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated June 25, 1999, relating to the financial statements and
financial statement schedule of Allaire Corporation, which appear in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 3, 1999