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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1999
COMMISSION FILE NUMBER: 0-25265
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
ALLAIRE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 41-1830792
(State or other jurisdiction (IRS employer
of Incorporation) identification number)
ONE ALEWIFE CENTER
CAMBRIDGE, MASSACHUSETTS 02140
(Address of principal executive offices) Zip Code
Telephone No.: (617) 761-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X] No [ ]
The aggregate market value of Common Stock held by non-affiliates of the
registrant at March 20, 1999 was $1,663,728,330 based upon the last reported
sales price of the Common Stock as reported by Nasdaq National Market on such
date.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding at March 20, 1999 was 26,916,775.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Pages 20-48 of the registrant's Annual Report to Shareholders for its fiscal
year ended December 31, 1999 are incorporated by reference into Part II of
this Annual Report on Form 10-K
(2) Portions of the registrant's Proxy Statement related to the registrant's
2000 Annual Meeting of Shareholders, to be held on May 17, 2000, are
incorporated by reference into Part III of this Annual Report on Form 10-K
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PART I
ITEM 1. BUSINESS
ALLAIRE
We develop, market and support Internet software products for companies
building their businesses on the Web. The products in the Allaire Business
Platform enable customers to rapidly build, deploy, and manage sophisticated
e-business Web sites that provide dynamic content, personalized interaction, and
secure business transactions. Based on open Internet technologies, our platform
provides a robust, secure, scalable foundation for building online applications
that support online commerce, strengthen customer and partner relationships,
publish and personalize content, and automate key business processes. Companies
as varied as Williams-Sonoma, Kaiser Permanente and autobytel.com have all used
the Allaire Business Platform to build and manage large-scale, content-rich,
transaction-oriented Web sites and applications.
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. This public infrastructure enables companies to market and
sell their products and services to customers through e-business applications as
well as forge closer ties with their partners and suppliers. 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 and has in turn
energized the entire business world. A growing number of companies are building
Web applications that perform a combination of marketing, sales and operational
functions. 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 competitors by developing
increasingly sophisticated capabilities for attracting and retaining customers.
Online businesses are looking for innovative technology solutions that enable
them to deliver products and information targeted to their customers' interests
and that enable them to provide a higher level of customer service. More
broadly, this heightened competition is raising the importance of technology in
increasing business efficiency. Companies are increasingly looking to Internet
technology to help them manage their supplier and distributor networks more
effectively -- by automating inter- and intra-company business processes and
integrating diverse systems where key information is managed and where key
business transactions reside.
Combined, these factors have created demand for comprehensive software
platforms that can enable businesses to execute on their key Internet business
initiatives quickly and reliably. Such a platform includes application servers
that provide the basic infrastructure for hosting Web applications and
integrating them with existing enterprise applications; packaged solutions that
provide advanced services for content management, commerce, and personalization;
standards-based middleware for integrating the systems of different businesses
across the Internet; as well as productive tools that enable both developers and
business users to participate in the construction, maintenance and management of
online businesses.
WEB APPLICATION SERVERS
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
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also enables hosted applications to access a company's servers and other
internal systems. Application servers are central to the Web as a computing
platform, much as the operating system 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,
business-to-business integration tools, Web management products and packaged
e-business applications.
PACKAGED E-BUSINESS APPLICATIONS
Packaged e-business applications enable companies to rapidly deploy
Internet applications by providing pre-built functionality based on best
practices in online commerce, content management, and personalization. Using
these packages, companies can dynamically deliver information and transactional
capabilities to a broad group of users, including customers, vendors and
employees. 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 applications to address a wide range of
strategic business needs, with the greatest activity occurring in the following
areas:
- Online commerce -- the marketing and sale of products or services online
- Customer service -- the use of Internet applications to increase customer
satisfaction and drive downstream revenue
- Content management -- the facilitation of communication and
decision-making through improved information management
- Business process automation -- the use of Web technology to further
automate core business tasks
Many of the applications in these four key Internet disciplines were not
practical or feasible using mainframe, desktop or client-server technologies.
However, the Internet's open standards and the low cost of deploying Web
applications open up a wide vista of new opportunities for companies to innovate
and achieve significant competitive advantage.
To make the full range of Web application deployments economically
feasible, a Web application platform must be flexible, highly functional, and
affordably priced. Similarly, successful Web applications must be based on
standards that are specific to the Web, as these enable their portability and
broad reach. Standard Web protocols such as HTTP, HTML and XML form the core of
Web application technology. These protocols evolved independently from
mainframe, desktop or client-server technologies, which form the backbone of
most established companies' computer systems. Thus, to be successful, Web-based
applications must be able to integrate with a company's existing hardware and
software systems where key applications and data reside, including databases,
directories, messaging servers and transaction monitors.
To date, few Web application server products have achieved broad market
acceptance. Widespread 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 helping to ensure widespread customer awareness and availability of new
products through the vendor's distribution channel.
As competition among companies conducting online commerce increases,
businesses 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%
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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 contributors. These
include enterprise systems programmers, database developers and application
programmers as well as a variety of non-traditional contributors such as Web and
multimedia designers, business managers, and business users. 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 Internet software and services that enable
organizations to build their businesses on the Web. The products in the Allaire
Business Platform offer companies the following benefits:
- A comprehensive software platform that enables customers to rapidly
build, deploy and manage Web applications in each of the four key
Internet business disciplines -- online commerce, customer service,
content management and business process automation. The Allaire Business
Platform consists of enterprise-class, competitively-priced Web
application servers, packaged e-business applications and visual tools
and is complemented by high-quality consulting, training, and support
offerings that support the full life cycle of design, development,
testing, and deployment.
- Support for the latest Web standards, such as HTML, XML and Java, and
integration with a large number of enterprise information systems
technologies. The products in our platform are not constrained by a need
to support or promote a particular legacy technology or a particular
operating system.
- Widespread industry adoption among corporations, independent developers,
consultants, and software vendors. The Allaire Alliance partner program
includes over 1000 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
services.
- Features and technologies designed to reduce time to market. Allaire
Spectra speeds development by providing packaged functionality based on
industry best practices, and our platform includes visual tools that
simplify development and administration tasks for technical and business
users alike. In addition, innovative technologies such as ColdFusion
Markup Language (CFML), JavaServer Pages (JSP), Web Distributed Data
eXchange (WDDX), and a large number of third-party components all enhance
developer productivity.
ALLAIRE STRATEGY
Our goal is to be the leading e-business platform provider for businesses
building and deploying 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 Internet software market.
Maximize Product Adoption. We have established significant market presence
for our 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
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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 that complement our Internet business
platform. We believe that our leadership position in the Web application server
market gives us a competitive advantage over vendors that have sold fewer
products. We believe 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 designed our products to be
open by supporting development for key Web application platforms and
technologies, as well as integration with key enterprise and client-server
standards. We have helped to introduce innovative technologies for Web
application development and deployment, such as CFML, WDDX and JSP, 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 align
our products with additional Internet standards as they emerge. This will enable
our customers to preserve their investments in existing computer systems without
compromising Web application 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.
Expand Sales Through the OEM Channel. We intend to increase the dollar
amount of sales to companies that embed our technology in their products. By
providing low-cost, flexible, and productive software, we believe we can attract
a large number of customers that need Web application server technology in their
products but do not wish to develop and maintain it themselves.
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. An Enterprise edition
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running on Linux (an open source version of Unix) is expected to be released
during the second quarter of 2000. ColdFusion Server has won the following
awards:
- 1999 Best of 1999 Award from PC Magazine;
- 1999 Editors' Choice Award from PC Magazine;
- 1999 Jolt Product Excellence Award from Software Development Magazine;
- 1999 Well-Connected Award from Network Computing;
- 1999 Reader's Choice Award from the Visual Basic Programmer's Journal;
and
- "Best of Show Award" at the 1998 Fall Internet World.
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 JSP. Java Servlets are Web application components written
in the Java programming language, a language developed by Sun Microsystems. JSP
is a Web application scripting model used to create dynamic Web pages and
applications. Java addresses the needs of more advanced, object-oriented systems
programmers. JRun has won numerous industry awards, including the 1999 Java
Developer's Journal Editor's Choice award for "Most Innovative Java Product of
the Year" and the 1998 WebTechniques' Best Java Tool award. JRun runs on any
software platform that supports Java.
JRun 3.0, which we expect to release in 2000, will incorporate additional
Java services into JRun, including Enterprise JavaBeans, Java Messaging Service,
and the Java Transaction API. These new capabilities will be based on the Ejipt
product we acquired as part of Valto Systems. By expanding the range of services
provided by JRun, we will increase the size and complexity of Web applications
that can be developed using this product. This will in turn increase the number
of projects and developers that can take advantage of our Internet business
platform.
ALLAIRE SPECTRA
Allaire Spectra 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 provides
systems administrators, Web developers and business users and managers with the
necessary pre-built software components and visual tools to rapidly deploy and
manage large-scale publishing efforts, e-commerce sites, enterprise portals, and
intranets. Applications built with Allaire Spectra run on the ColdFusion
application server. Allaire Spectra was released in December 1999. Allaire
Spectra was ranked among the top 3 commerce platforms by a leading independent
research firm in October 1999.
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.
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PRODUCT
(SUGGESTED LIST PRICE
AS OF MARCH 1, 2000) DESCRIPTION TYPICAL APPLICATIONS TARGET USERS
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ColdFusion Server Professional Licensed for four Business intranets and Large enterprises
($1,295) processors and allows an extranets
unlimited number of Large systems
concurrent users Field office extranets integrators
Features include open Single server New Web-based businesses
state repository and applications
shared server security using a relational Internet service
database providers
Access to any ODBC and
OLE-DB data source
ColdFusion Server Enterprise Licensed for eight High-volume, business- Large enterprises
($4,995) processors and allows an critical commerce and
unlimited number of applications Large systems
sites concurrent users integrators
Enterprise intranet
Includes all applications New Web-based businesses
Professional features,
plus features required Enterprise applications Internet service
for large scale requiring native providers
applications, including database
clustering, load drivers or CORBA
balancing and automatic
failover and CORBA
support IBM DB2,
Informix, Oracle and
Sybase native database
drivers
ColdFusion Studio ($495) An integrated Business systems (human Web application
development environment resources, financial, developers
with a number of visual customer support)
tools for creating Web Enterprise and
applications Electronic commerce client-server
(stores, business-to- programmers
Includes the business)
award-winning HomeSite HTML and desktop
HTML design Tool Dynamic content database developers
publishing (document
Features include (management, dynamic Development team
interactive debugging, news and personalized managers
remote development information)
capabilities and
one-step deployment Collaboration
(discussion, project,
Team development support and workflow management)
Allaire Spectra ($15,000) Licensed per server and Corporate intranets Large enterprises
allows an unlimited
number of users Enterprise portals Large systems
integrators
Requires a ColdFusion Internet portals
Enterprise license for
each server Online commerce sites Internet service
providers
Includes all of the core B2B extranet sites
Spectra services, Webtop New Web-based businesses
productivity tools, and
administration console
JRun Pro ($595) Supports any number of Corporate Internet, Java developers
processors and allows an intranet, and extranet
unlimited number of sites that utilize Java Large enterprises
concurrent users as their primary
development architecture Large systems
Features full support integrators
for Java Servlets and Enterprise Web
JSPs applications requiring New Web-based businesses
connectivity to CORBA,
Licensed per processor Enterprise Java Beans Software publishers
and other distributed
environments
JRun Pro Unlimited ($1,995) Includes all Pro High-volume, business- Large enterprises
features, plus the critical commerce sites
ability to use any and applications Large systems
number of concurrent utilizing a large number integrators
Java Virtual Machines of processors and/ or
Java Virtual Machines New Web-based businesses
Licensed per machine
Internet service
providers
Software publishers
HomeSite (Electronic HTML page design and Web High-quality static Web site developers
Version $89; Packaged Version $99) site development tool corporate Web sites
Web development team
Features an intuitive
graphical interface
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TECHNOLOGY
We develop, market and support Web application servers, packaged
applications, visual tools and related software products that enable the
development and deployment of sophisticated e-business Web sites and
applications. Our products support emerging Web application technologies as well
as integrate with key enterprise information systems. They include features and
tools that increase the productivity of Web developers and ensure the
scalability and reliability of the applications they deploy.
Open Integration
At the core of our Web application technology are the ColdFusion and JRun
application servers. Both are built on an open architecture and can be deployed
on Windows 98/NT, Sun Solaris and HP-UX. JRun can also be deployed on AIX, IRIX,
or any other operating system that has a Java virtual machine. 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. Future versions of our Web
application server products will provide tighter integration between the Java
and ColdFusion environments.
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. The 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. ColdFusion automatically balances
load among servers deployed in a cluster, so that performance is 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.
ColdFusion 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 each other'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 the 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.
JRun includes a similar set of features for supporting high-volume Web
sites, including Java's native multithreaded architecture which maximizes the
scalability of multiprocessor machines. JRun also includes a sophisticated
administration application that allows users to easily maintain their deployed
JRun applications. In addition, JRun 3.0, which we plan to release in 2000, will
incorporate load balancing technology similar to that currently available in
ColdFusion, enabling greater scalability and reliability, as well as addition
security features.
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Multi-Language Development
Our Internet business platform 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, XML, and Wireless Markup Language (WML).
As a result of our merger with Live Software and our acquisition of Valto
Systems, we acquired JRun and Ejipt, two server-side Java development and
deployment environments. JRun provides developers with a system for deploying
Web applications based on Java Servlets and JSP -- a standards-based model for
deploying Java on Web application servers. Ejipt is a product for deploying
applications based on more Java models, including Enterprise JavaBeans, the Java
Transaction API, and the Java Messaging Service. These products are currently
being merged to provide a complete environment for the construction, deployment,
and management of enterprise-scale server-side Java applications. Java addresses
the needs of more advanced, object-oriented system programmers. By integrating
the key Java technologies into our platform, we have further expanded the range
of projects and developers that can use our products as well as reinforced our
support for open Internet standards.
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, Allaire Spectra
includes Web-based productivity tools 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.
In addition to these development tools, we have announced plans to release
a new product for Web systems management, code-named "Harvest." Harvest will
provide an array of advanced management features designed to lower the cost of
ownership of and increase the reliability of Internet business systems,
including deployment and replication as well as real-time monitoring and
control.
Packaged e-Business Applications
Allaire Spectra consists 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 allows
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 repository. This technology helps 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 include:
- 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 for logging, measuring and reporting on
user activities; and
- Syndication -- a set of XML-based capabilities for extending Web business
to Internet partners or site affiliates.
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The final core technology in Allaire Spectra is a Web-based user interface
and productivity tool, which provides business users and managers with a simple
user interface for managing content, workflow, and business rules as well as
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. 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, over 7,000 users have downloaded a software development kit for using
WDDX, and several major software programming languages now support it, including
Java, ASP, JavaScript, PHP and Python. 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.
We have also announced plans to develop a new Web business-to-business
(B2B) integration server, code-named "Tron," which will incorporate and extend
XML technologies such as WDDX. By automating the way businesses communicate with
each other using a common set of open XML technologies and supporting emerging
industry standards, Tron will enable new business models based on application
syndication and Web-based business system integration.
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 $12.9 million
in 1999. We intend to continue to devote substantial resources toward research
and development. As of December 31, 1999, we had 74 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 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 53%
in 1999. As of December 31, 1999, we had 94 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 servers and packaged applications 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. We have
distributors in North America, Europe and Asia Pacific, including Ingram Micro
and Mitsubishi. As of December 31, 1999, we had over 500 corporate and catalog
resellers, original equipment manufacturers and value-added resellers.
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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 1999, we held over 100 seminars in over 35 cities and conducted over 10
seminars over the Web. 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.
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.
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 14% in 1999.
Sales to Ingram Micro accounted for 28% of our total revenue in 1998 and 37% in
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 consulting, 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
December 31, 1999 we had 40 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. We also compete
against a number of companies that offer Web application servers, such as BEA
Systems, Bluestone and SilverStream Software. In addition, our Allaire Spectra
application competes against packaged e-commerce applications from companies
such as Broadvision, Vignette, and Art Technology Group. 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.
As the size and visibility of the market opportunity increases, we believe
that additional competitors may enter the market with competing products.
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;
- compatibility with the user's existing network components and software
systems; and
- interoperability with emerging Internet standards such as XML, Java, and
HTML.
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, 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
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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 "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, 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 addition, our current JRun product and much of our future product plans
depend on the availability, stability, and performance of the Java programming
language and the associated Java virtual machine as well as on the broad
adoption of Java by our customers. Sun Microsystems controls and maintains the
Java programming language and associated technologies. Java may fall out of
favor among developers, or Sun may not continue to make the Java virtual
machines available at commercially reasonable terms or at all. Furthermore, if
Sun were to make significant changes to the Java language or its Java virtual
machines, or fail to correct defects and limitations in these products, our
ability to continue to improve and ship our products could be impaired.
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.
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EMPLOYEES
As of December 31, 1999, Allaire had 270 employees, 238 of whom were based
at Allaire's headquarters in Cambridge, Massachusetts. None of Allaire's
employees is subject to a collective bargaining agreement. Allaire believes that
its relations with its employees are good.
ITEM 2. PROPERTIES
Allaire's headquarters is located in Cambridge, Massachusetts. The lease,
which covers approximately 54,000 square feet of space in Cambridge, expires in
March 2003. Allaire plans to move its headquarters from the Cambridge location
to Newton, Massachusetts in July 2000 and is seeking to terminate its Cambridge
lease or sublet the space thereafter. The Newton lease, which covers
approximately 270,000 square feet of space, expires in June 2010. Allaire also
leases office space in other cities for its sales and development personnel.
Allaire believes that these facilities are adequate to meet its current
foreseeable requirements or that suitable additional or substitute space will be
available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
From time to time Allaire has been, and expects to continue to be, subject
to legal proceedings and claims in the ordinary course of its business,
including claims of alleged infringement of third party trademarks and other
intellectual property rights by Allaire and its licensees. Such claims, even if
not meritorious, could result in the expenditure of significant financial and
managerial resources. Allaire is not aware of any legal proceedings or claims
that it believes will have, individually or in the aggregate, a material adverse
effect on its business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to page
48 of the Company's 1999 Annual Report to Shareholders.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information required by this Item is incorporated by reference to page
20 of the Company's 1999 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to pages
21-27 of the Company's 1999 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
The information required by this Item is incorporated by reference to pages
28-46 of the Company's 1999 Annual Report to Shareholders and the Report of
Independent Accountants on Financial Statement Schedule dated March 13, 2000 is
contained in this report.
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Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts is contained in this
report.
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is incorporated by reference in
this Annual Report on Form 10-K from the Company's definitive proxy statement
for its 2000 Annual Meeting of Stockholders to be filed pursuant to Regulation
14A (the "Proxy Statement").
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Proxy Statement.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
1. Financial Statements: The financial statements filed as part of this
report are listed on the Index to Financial Statements included in Item
8 and are incorporated herein by reference.
2. Financial Statement Schedule: The financial statement schedule filed as
part of this report is included in Item 8 and is incorporated herein by
reference.
3. Exhibits
The following exhibits are filed as part of, or incorporated by reference
into, this Form 10-K
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
3.1 Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.3 to the Company's Registration Statement on Form
S-1 (File No. 333-68639) and incorporated herein by
reference)
3.2 Certificate of Amendment of Amended and Restated Certificate
of Incorporation
3.3 Amended and Restated By-Laws of the Company (filed as
Exhibit 3.5 to the Company's Registration Statement on Form
S-1 (File No. 333-68639) and incorporated herein by
reference)
4.1 Specimen certificate for the Common Stock of Allaire(1)
10.1 1997 Stock Incentive Plan as amended(1)
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EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
10.2 1998 Stock Incentive Plan as amended
10.3 1998 Employee Stock Purchase Plan(1)
10.4 Option Agreement for David J. Orfao(1)
10.5 Form of Incentive Stock Option Agreement for other executive
officers
10.6 Office Lease Agreement between Allaire and One Alewife
Center Realty Trust, dated November 5, 1997(1)
10.7 Lease Agreement between Allaire and CambridgePark Two, L.P.,
dated May 21, 1998(1)
10.8 Loan and Security Agreement between Allaire and Silicon
Valley Bank, dated March 26, 1998(1)
10.9 Negative Pledge Agreement between Allaire and Silicon Valley
Bank, dated March 26, 1998(1)
10.10 Loan Modification Agreement between Allaire and Silicon
Valley Bank, dated August 6, 1998(1)
10.11 Loan Modification Agreement between Allaire and Silicon
Valley Bank, dated December 9, 1998(1)
10.12 Senior Loan and Security Agreement between Allaire and
Phoenix Leasing Incorporated, dated May 1, 1998(1)
10.15 Warrant Agreement between Allaire and Polaris Venture
Partners, L.P., dated March 7, 1997(1)
10.16 Warrant Agreement between Allaire and Polaris Venture
Partners Founders' Fund, L.P., dated March 7, 1997(1)
10.17 Amended and Restated Registration Rights Agreement, dated
May 15, 1997(1)
10.18 Waiver and Amendment No. 1 to Amended and Restated
Registration Rights Agreement, dated December 7, 1998(1)
10.19 Letter of Offer of Employment from Allaire to David J.
Orfao, dated December 23, 1996(1)
10.20 Contribution and Restricted Stock Purchase Agreement between
Allaire and Yesler Software, Inc., dated July 14, 1998(1)
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(1)
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)
10.23 Lease Agreement between Allaire and EOP-Riverside Project,
L.L.C., dated November 23, 1999
10.24 Loan Modification Agreement between Allaire and Silicon
Valley Bank, dated November 30, 1999
11.1 Statement re computation of per share earnings
13.1 Pages 20-48 of the 1999 Annual Report to Shareholders of
Allaire Corporation
21.1 Subsidiaries of Allaire Corporation
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedules
99.1 Report of Independent Accountants on Financial Statement Schedule
- ---------------
(1) Previously filed with the Securities and Exchange Commission as the
identically numbered exhibit to Allaire's Registration Statement on Form S-1
(File No. 333-68639) and incorporated herein by reference
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ALLAIRE CORPORATION
By: /s/ DAVID J ORFAO
------------------------------------
David J. Orfao
President and Chief Executive
Officer
March 30, 2000
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOSEPH J. ALLAIRE Chairman of the Board March 30, 2000
- ------------------------------------
JOSEPH J. ALLAIRE
/s/ DAVID J. ORFAO President, Chief Executive Officer March 30, 2000
- ------------------------------------ and Director (principal executive
DAVID J. ORFAO officer)
/s/ DAVID A. GERTH Vice President, Finance and March 30, 2000
- ------------------------------------ Operations, Treasurer and Chief
DAVID A. GERTH Financial Officer (principal
financial and accounting officer)
/s/ JONATHAN A. FLINT Director March 30, 2000
- ------------------------------------
JONATHAN A. FLINT
/s/ JOHN J. GANNON Director March 30, 2000
- ------------------------------------
JOHN J. GANNON
/s/ THOMAS A HERRING Director March 30, 2000
- ------------------------------------
THOMAS A. HERRING
/s/ RONALD G. WARD Director March 30, 2000
- ------------------------------------
RONALD G. WARD
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SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
(IN THOUSANDS)
Balance at beginning of period.............................. $220 $487 $502
Additions:
Charged to expense........................................ 164 61 233
Charged against other accounts............................ 165 56 63
Deductions:
Write-offs and returns.................................... (62) (102) (97)
---- ---- ----
Balance at end of period.................................... $487 $502 $701
==== ==== ====
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