<PAGE>   1

     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1999

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

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

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

                          SILVERSTREAM SOFTWARE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                           -------------------------

<TABLE>
<S>                                <C>                                <C>
             DELAWARE                             7372                            04-3318325
 (STATE OR OTHER JURISDICTION OF      (PRIMARY STANDARD INDUSTRIAL             (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)      CLASSIFICATION CODE NUMBER)           IDENTIFICATION NUMBER)
</TABLE>

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

                        ONE BURLINGTON WOODS, SUITE 200
                        BURLINGTON, MASSACHUSETTS 01803
                                 (781) 238-5400
    (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                  OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                           -------------------------

                                DAVID A. LITWACK
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                          SILVERSTREAM SOFTWARE, INC.
                        ONE BURLINGTON WOODS, SUITE 200
                              BURLINGTON, MA 01803
                                 (781) 238-5400
               (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
               NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
                           -------------------------

                                   COPIES TO:

<TABLE>
<S>                                                 <C>
               MARK G. BORDEN, ESQ.                                JOHN A. MELTAUS, ESQ.
                JOHN H. CHORY, ESQ.                           TESTA, HURWITZ & THIBEAULT, LLP
                 HALE AND DORR LLP                                    125 HIGH STREET
                  60 STATE STREET                               BOSTON, MASSACHUSETTS 02110
            BOSTON, MASSACHUSETTS 02109                          TELEPHONE: (617) 248-7000
             TELEPHONE: (617) 526-6000                           TELECOPY: (617) 248-7100
             TELECOPY: (617) 526-5000
</TABLE>

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

    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  As soon as
practicable after the effective date hereof.

    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,
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 MAXIMUM
                   TITLE OF EACH CLASS OF                       AGGREGATE OFFERING          AMOUNT OF
                SECURITIES TO BE REGISTERED                          PRICE(1)          REGISTRATION FEE(2)
------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                     <C>
Common Stock, $.001 par value per share.....................       $40,250,000              $11,189.50
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
    as amended.

(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
    maximum aggregate offering price.
                           -------------------------

    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>   2

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 we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)

Issued                   , 1999

                                                Shares
[LOGO][LOGO]

                                  COMMON STOCK
                            ------------------------
SILVERSTREAM SOFTWARE, INC. IS OFFERING                SHARES OF COMMON STOCK.
THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$          AND $     PER SHARE.

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

WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "SSSW."

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

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.

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

                           PRICE $            A SHARE
                            ------------------------

<TABLE>
<CAPTION>
                                                                UNDERWRITING
                                          PRICE TO             DISCOUNTS AND            PROCEEDS TO
                                           PUBLIC               COMMISSIONS             SILVERSTREAM
                                          --------             -------------            ------------
<S>                                <C>                     <C>                     <C>
Per Share........................            $                       $                       $
Total............................            $                       $                       $
</TABLE>

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

SilverStream has granted the underwriters the right to purchase up to an
additional                shares of common stock to cover over-allotments.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on             , 1999.

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

MORGAN STANLEY DEAN WITTER
                       BANCBOSTON ROBERTSON STEPHENS
                                     SG COWEN
            , 1999
<PAGE>   3

[Narrative description of graphic material omitted in electronically filed
document:
The following text is at the top of the page and spans the front cover foldout:
SILVERSTREAM: ENABLING POWERFUL BUSINESS APPLICATIONS FOR THE WEB.
The following text appears on the inside front cover foldout:
Organizations around the world are focusing on how the Web will impact their
businesses, and are starting to develop A NEW GENERATION OF WEB-BASED
APPLICATIONS that allow them to take advantage of the power of the Web.
Previously a company's Web site would simply involve publishing static marketing
documents. However, it was not long before the world realized that the Web could
be used for FAR MORE POWERFUL APPLICATIONS SUCH AS E-COMMERCE, CUSTOMER SERVICE
AND SUPPLY CHAIN MANAGEMENT.
    Web-based applications are transforming the way we do business. These
    applications have the following characteristics:
    - They use the Web to reach a much broader audience, bringing businesses
      closer to their customers, partners, suppliers and employees.
    - They integrate data from existing applications, including relational
      databases, enterprise resource planning systems, legacy mainframe systems,
      document management systems and external data sources.
    Application servers are the platforms that allow organizations to build this
    new generation of applications. Furthermore, the Web architecture offers
    significant cost benefits over traditional computing architectures because
    it avoids the need to install and maintain software on the user's remote
    computer. Instead, a Web browser or 'thin client' is used to run the
    application. As a result, many organizations are integrating future
    application development to a Web architecture based on application servers.
The inside front cover contains a graphic that consists of a large disk entitled
"Web." On the left side of the large disk are several groups of human figures
labeled "customers," "suppliers," "employees," "consumers" and "partners." On
the right side of the disk are several three-dimensional cylinders under the
heading "Data Sources." The cylinders are labeled "Lotus Notes," "SAP," "DB/2,"
"Oracle" and "PeopleSoft."
In the center of the large disk are two smaller disks, stacked one on top of the
other. The bottom disk is entitled "Customer-Written Applications" and includes
several icons labeled "E-commerce," "Transaction Processing," "Decision
Support," "Demand & Supply Chain Management," "Customer Support" and "Enterprise
Portals."
The top disk is entitled "SilverStream Application Server" and contains a
detailed graphic outlining the fundamental components of the SilverStream
Application Server architecture:
    1. At the bottom is a horizontal three-dimensional rectangle entitled
       "Enterprise Deployment Services," which rectangle includes four boxes
       entitled "Scalability," "Reliability," "Security" and "Manageability."
    2. On top of the rectangle are three vertical three-dimensional rectangles:
       a. The vertical rectangle on the left is entitled "Presentation Layer,"
          and includes two boxes entitled "HTML" and "Java"
       b. The vertical rectangle in the middle is entitled "Business Logic
          Layer," and includes three boxes entitled "Distributed Objects,"
          "Transactions" and "Content Management"
       c. The vertical rectangle on the right is entitled "Data Access Layer,"
          and includes two boxes entitled "Data Access Objects" and "Enterprise
          Data Connectors"
    3. Above the three rectangles and connected to each by thin lines is a
       horizontal three-dimensional rectangle entitled "Development Tools."
    4. To the left of the rectangle entitled "Presentation Layer" are two
       computer icons under the title "Users." There is a two-way arrow between
       the rectangle and the icons.
    5. To the right of the rectangle entitled "Data Access Layer" are three
       three-dimensional cylinders under the title "Data." There is a two-way
       arrow between the rectangle and the cylinders.]
The following text appears below the graphic:
The SilverStream Application Server is a comprehensive platform that allows
developers to:
    - Increase productivity using powerful integrated development tools that
      shorten time-to-market
    - Access and integrate data and applications from multiple diverse sources
    - Incorporate custom business logic by building reusable business objects
    - Create the presentation layer using Java or HTML as the user interface
    - Develop sophisticated applications with high transaction processing
      capabilities
    - Deploy applications that scale to handle high volumes of users and
      transactions with high reliability
    - Secure applications and data from unwanted access
    - Integrate and manage rich content required for applications such as
      product catalogs
<PAGE>   4

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
PROSPECTUS SUMMARY....................     3
RISK FACTORS..........................     5
SPECIAL NOTE REGARDING FORWARD-LOOKING
  STATEMENTS..........................    14
USE OF PROCEEDS.......................    15
DIVIDEND POLICY.......................    15
CAPITALIZATION........................    16
DILUTION..............................    17
SELECTED CONSOLIDATED FINANCIAL
  DATA................................    18
MANAGEMENT'S DISCUSSION AND ANALYSIS
  OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS.......................    19
BUSINESS..............................    29
</TABLE>

<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
MANAGEMENT............................    42
CERTAIN TRANSACTIONS..................    47
PRINCIPAL STOCKHOLDERS................    49
DESCRIPTION OF CAPITAL STOCK..........    51
SHARES ELIGIBLE FOR FUTURE SALE.......    54
UNDERWRITERS..........................    56
LEGAL MATTERS.........................    58
EXPERTS...............................    58
WHERE YOU CAN FIND MORE INFORMATION...    58
INDEX TO CONSOLIDATED FINANCIAL
  STATEMENTS..........................   F-1
</TABLE>

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

     We are a Delaware corporation. Our principal executive offices are located
at One Burlington Woods, Suite 200, Burlington, Massachusetts 01803 and our
telephone number is (781) 238-5400. Our World Wide Web site address is
www.silverstream.com. The information in the Web site is not incorporated by
reference into this prospectus.

     SilverStream(R) is our registered trademark and SilverStream Application
Server and the SilverStream logo are our trademarks. This prospectus also
contains trademarks and trade names of other companies.

     You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.

     UNTIL                , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT BUY, SELL OR TRADE THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

     Except as set forth in the Consolidated Financial Statements and Notes
thereto or as otherwise indicated, all information in this prospectus:

     - assumes no exercise of the underwriters' over-allotment option;

     - reflects the conversion of all outstanding shares of our convertible
       preferred stock into shares of common stock;

     - reflects the filing, as of the closing of the offering, of our amended
       and restated certificate of incorporation and the adoption of our amended
       and restated by-laws implementing certain provisions described below
       under "Description of Capital Stock -- Delaware Law and Certain Charter
       and By-Law Provisions; Anti-Takeover Effects;" and

     - reflects a        -for-1 stock split of our common stock to be effected
       prior to the offering.

                                        2
<PAGE>   5

                               PROSPECTUS SUMMARY

     You should read the following summary together with the more detailed
information regarding SilverStream and the common stock being sold in this
offering and our Consolidated Financial Statements and Notes thereto appearing
elsewhere in this prospectus.

                          SILVERSTREAM SOFTWARE, INC.

     SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. The advantages of Web-based technology are driving the creation of a
new generation of business-transforming software applications. These powerful
Web-based applications link a broad universe of customers, vendors, employees
and partners with multiple, diverse data sources. Using our products and
services, organizations can rapidly develop scalable, reliable and secure Web
applications in diverse areas such as e-commerce, employee self-service, supply
chain management, customer service and work flow management.

     Organizations are using Web applications to conduct "e-business," which
encompasses business-to-business, business-to-employee and business-to-consumer
transactions. These organizations recognize that if they are able to offer
easy-to-access, compelling, real-time applications as a means of transacting
business and interacting with business partners and customers, they can create
closer and more enduring business relationships, new efficiencies and
significant competitive and strategic advantages. To date, organizations have
been required to use many different development tools, programming languages and
technologies, often from different vendors, and have had to rely on custom
programming and complex integration activities to develop their Web
applications. These applications have often been difficult and expensive to
create, deploy and manage. In order to compete in this dynamic e-business
environment, organizations need scalable, reliable and secure solutions that
shorten the time-to-market for powerful new Web applications.

     SilverStream's products and services are designed to help our customers
meet the new challenges posed by Web-based technology and applications. Our
products consist of an application server, an integrated set of development
tools and enterprise data connectors. Our products reduce the complexity of
developing Web applications and enable customers to extend the reach of these
applications, access multiple information sources and simplify administration.
We also offer comprehensive consulting, education and technical support services
to help ensure the successful development and implementation of Web applications
by our customers.

     We market our products and services globally through our direct sales force
and a network of independent software vendors, value-added resellers and
consulting and training partners. To date, we have licensed the SilverStream
Application Server to over 500 customers in a wide variety of industries,
including communication, financial services, government, manufacturing, oil and
gas, pharmaceutical, technology and transportation. Our customers include ARCO,
Bankers Trust, Enron, Federal Express, Hewlett-Packard, Johnson & Johnson, MCI
WorldCom, NASA, Pfizer, Raytheon, Samsung, SBC Communications, Siemens,
StorageTek, The Chicago Stock Exchange, The United States Army, UPS and The Walt
Disney Company.

                                        3
<PAGE>   6

                                  THE OFFERING

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

                      SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                       PERIOD FROM
                                       MAY 8, 1996          YEARS ENDED           THREE MONTHS ENDED
                                      (INCEPTION) TO        DECEMBER 31,               MARCH 31,
                                       DECEMBER 31,    ----------------------   -----------------------
                                           1996          1997         1998         1998         1999
                                      --------------   ---------   ----------   ----------   ----------
                                               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                   <C>              <C>         <C>          <C>          <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
  Software license..................    $      --      $     249   $    5,983   $      579   $    2,607
  Services..........................           --             --          825          104          867
                                        ---------      ---------   ----------   ----------   ----------
Total revenue.......................           --            249        6,808          683        3,474
Cost of revenue:
  Software license..................           --             90          695          118          254
  Services..........................           --            282        1,414          252        1,330
                                        ---------      ---------   ----------   ----------   ----------
Total cost of revenue...............           --            372        2,109          370        1,584
                                        ---------      ---------   ----------   ----------   ----------
Gross profit (loss).................           --           (123)       4,699          313        1,890
Total operating expenses............        1,005          8,437       18,059        4,077        6,237
                                        ---------      ---------   ----------   ----------   ----------
Loss from operations................       (1,005)        (8,560)     (13,360)      (3,764)      (4,347)
Net loss............................    $    (952)     $  (8,335)  $  (12,885)  $   (3,722)  $   (4,307)
                                        =========      =========   ==========   ==========   ==========
Basic and diluted net loss per
  share.............................    $    (.45)     $   (1.71)  $    (2.52)  $     (.73)  $     (.83)
Weighted-average common shares used
  in computing basic and diluted net
  loss per share....................    2,103,535      4,882,996    5,122,480    5,106,947    5,215,648
Pro forma basic and diluted net loss
  per share.........................                                                         $     (.34)
Weighted-average common shares used
  in computing pro forma basic and
  diluted net loss per share........                                                         12,759,943
</TABLE>

     Shares used in computing pro forma basic and diluted net loss per share
above include the 8,659,208 shares of common stock issuable upon conversion of
our outstanding preferred stock upon the closing of this offering.

     The pro forma as adjusted column in the consolidated balance sheet data
below gives effect to the conversion of our outstanding preferred stock into
common stock upon the closing of this offering and the sale of the
shares of common stock in this offering at an assumed initial public offering
price of $     , after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us. See "Use of Proceeds"
and "Capitalization."

<TABLE>
<CAPTION>
                                                                      AS OF
                                                                  MARCH 31, 1999
                                                              ----------------------
                                                                          PRO FORMA
                                                              ACTUAL     AS ADJUSTED
                                                              -------    -----------
<S>                                                           <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................  $12,448        $
Working capital.............................................   12,994
Total assets................................................   20,764
Long-term debt, less current portion........................      250
Redeemable convertible preferred stock......................   11,638        --
Total stockholders' equity..................................    3,075
</TABLE>

                                        4
<PAGE>   7

                                  RISK FACTORS

     You should consider carefully the risks described below before you decide
to buy our common stock. The risks and uncertainties described below are not the
only ones facing us. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In such case,
the trading price of our common stock could fall, and you may lose all or part
of the money you paid to buy our common stock.

RISKS RELATED TO OUR BUSINESS

  OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS

     SilverStream was founded in May 1996 and has a limited operating history.
We began shipping our first products, the SilverStream Application Server 1.0
and related software development tools, in November 1997. Our limited operating
history makes an evaluation of our future prospects very difficult. The revenue
and income potential of our business and market are unproven. We will encounter
risks and difficulties frequently encountered by early-stage companies in new
and rapidly evolving markets. These risks include our:

     - Limited number of customers that have implemented and are using our
       products;

     - Substantial dependence on our SilverStream Application Server;

     - Need to enhance our SilverStream Application Server and introduce new
       products;

     - Need to expand our sales and professional services organizations;

     - Need to build strategic partnerships and relationships;

     - Need to compete in a highly competitive market;

     - Need to manage rapidly expanding operations; and

     - Need to attract and retain key personnel.

If we do not successfully address these risks, our business would be seriously
harmed.

  THE MARKET FOR OUR PRODUCTS IS EMERGING AND OUR BUSINESS WILL SUFFER IF IT
  DOES NOT DEVELOP
  AS WE EXPECT

     The market for Web application server software has only recently begun to
develop, is rapidly evolving and will likely have an increasing number of
competitors. We cannot be certain that a viable market for our products will
emerge or be sustainable. If the application server market fails to develop, or
develops more slowly than expected, our business and operating results would be
seriously harmed.

  OUR SUCCESS DEPENDS ON WIDESPREAD MARKET ACCEPTANCE OF OUR APPLICATION SERVER

     We expect to continue to derive substantially all of our revenue from our
SilverStream Application Server and related products and services. Failure to
achieve broad market acceptance of the SilverStream Application Server, or a
decline in the price of, or demand for, our Application Server would seriously
harm our business and operating results. We cannot predict the level of market
acceptance that will be achieved or maintained by our products and services.

  OUR BUSINESS WILL SUFFER IF WE DO NOT SUCCESSFULLY INTRODUCE ENHANCEMENTS TO
OUR APPLICATION SERVER

     Our future financial performance will depend significantly on revenue from
future enhancements to the SilverStream Application Server that we are currently
developing and plan to develop. There are significant risks inherent in product
development, enhancement and introduction. We are currently developing Version
3.0 of our Application Server, which we expect will include functionality that
we do not currently have, including improvements to the programming environment
as well as support for

                                        5
<PAGE>   8

computing standards, such as Enterprise JavaBeans and Java2, and third-party
development tools. Version 3.0 will require significant additional development
and we cannot predict the time required to complete development and testing or
the date of commercial release. Any delay or difficulties in completing such
development would seriously harm our business and operating results. In
addition, we cannot be certain that enhanced versions of the SilverStream
Application Server will meet customer performance needs or expectations when
shipped or that new versions will be free of significant software defects or
bugs.

  WE HAVE INCURRED LOSSES AND WE EXPECT FUTURE LOSSES

     Our failure to significantly increase our revenue would seriously harm our
business and operating results. We have experienced operating losses in each
quarterly and annual period since inception and we expect to incur significant
losses in the future. We incurred net losses of $952,000 for the period ended
December 31, 1996, $8.3 million for the year ended December 31, 1997, $12.9
million for the year ended December 31, 1998 and $4.3 million for the quarter
ended March 31, 1999. As of March 31, 1999, we had an accumulated deficit of
$26.5 million. We expect to significantly increase our research and development,
sales and marketing and general and administrative expenses in future periods.
As a result, we will need to significantly increase our quarterly revenue to
achieve and maintain profitability. We may not be able to sustain our recent
revenue growth rates or achieve sufficient revenue for profitability. In fact,
we may not have any future revenue growth, and our revenue could decline.

  OUR QUARTERLY OPERATING RESULTS ARE VOLATILE, AND IF WE FAIL TO MEET THE
  EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE MARKET PRICE OF OUR
  COMMON STOCK MAY DECREASE SIGNIFICANTLY

     Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results will
likely fall below the expectations of securities analysts or investors in some
future quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our common stock.

     Our quarterly operating results may vary depending on a number of factors,
including:

     - Demand for our SilverStream Application Server and related products and
       services;

     - Our ability to help our customers achieve success in their initial use of
       our products;

     - Actions taken by our competitors, including new product introductions and
       enhancements;

     - Our success in, and continued penetration of, international markets and
       the economic conditions of these markets;

     - Delays or reductions in spending for, or the implementation of,
       application server software by our potential customers as companies
       attempt to stabilize their computer systems in order to reduce the risk
       of computer system problems associated with the Year 2000;

     - Our ability to develop, introduce and market new products and
       enhancements to our existing products on a timely basis;

     - Deferral of customer orders in anticipation of product enhancements or
       new products;

     - Our ability to expand our sales and marketing operations, including
       hiring additional sales personnel, and to expand indirect sales channels;

     - Our ability to expand our service operations, including hiring additional
       services personnel, and to attract additional third-party service
       providers; and

     - The mix of software license and services revenue.

     In addition, we anticipate that the size of customer orders may increase as
we focus on larger business accounts. As a result, a delay in recognizing
revenue, even from just one account, could have a significant negative impact on
our operating results. In the past, a significant portion of our sales have been
                                        6
<PAGE>   9

recognized near the end of a quarter. As a result, a delay in anticipated sales
past the end of a particular quarter could negatively impact our operating
results.

     Although we have limited historical financial data, we believe that our
quarterly operating results may experience seasonal fluctuations. For instance,
quarterly results may fluctuate based on our clients' calendar year budgeting
cycles, slow summer purchasing patterns in Europe and our compensation policies
that tend to compensate sales personnel, typically in the latter half of the
year, for achieving annual quotas.

  WE DEPEND ON INCREASED BUSINESS FROM OUR CURRENT AND NEW CUSTOMERS

     If we fail to grow our customer base or generate repeat and expanded
business from our current and new customers, our business and operating results
would be seriously harmed. Most of our customers initially make a limited
purchase of our products and services for pilot programs. Many of these
customers may not choose to purchase additional licenses to expand their use of
our products. Many of these customers have not yet developed or deployed initial
applications based on our products. If these customers do not successfully
develop and deploy such initial applications, they may not choose to purchase
deployment licenses or additional development licenses. Our business model
depends on the expanded use of our products within our customers' organizations.

     In addition, as we introduce new versions of our products or new products,
our current customers may not require the functionality of our new products and
may not ultimately license these products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our software license revenue would negatively impact our future services
revenue. In addition, if customers elect not to renew their maintenance
agreements, our services revenue could be significantly adversely affected.

  WE HAVE A LONG SALES CYCLE THAT DEPENDS UPON FACTORS OUTSIDE OUR CONTROL

     A customer's decision to purchase our products typically involves a
significant decision by the prospective customer's senior information technology
managers, as the customer applications to be built and deployed using our
products are generally critical to the customer's business. In addition, we
generally need to educate potential customers on the use and benefits of an
application server and on the performance features of the SilverStream
Application Server. As a result, our products have a long sales cycle which can
take over six months. We face difficulty predicting the quarter in which sales
to expected customers may occur. The sale of our products is also subject to
delays from the lengthy budgeting, approval and competitive evaluation processes
that typically accompany significant information technology purchasing
decisions. For example, customers frequently begin by evaluating our products on
a limited basis and devote time and resources to testing our products before
they decide whether or not to purchase a license for deployment. Customers may
also defer orders as a result of anticipated releases of new products or
enhancements by us or our competitors.

  FAILURE TO DEVELOP AND EXPAND OUR SALES, MARKETING AND DISTRIBUTION
  CAPABILITIES WOULD HARM OUR BUSINESS

     We need to expand our sales and marketing operations in order to increase
market awareness of our products, market the SilverStream Application Server to
a greater number of organizations and generate increased revenue. However,
competition for qualified sales personnel is intense and we may not be able to
hire enough qualified individuals in the future. Our products and services
require a sophisticated sales effort targeted at senior information technology
management of our prospective customers. New hires require extensive training
and typically require at least six months to achieve full productivity. We have
limited experience managing a large, expanding and geographically dispersed
direct sales force. In addition, we have limited experience marketing our
products broadly to a large number of potential customers.

     We have a limited number of third-party distribution agreements and we may
not be able to increase the number of our distribution relationships or maintain
our existing relationships. Our current agreements
                                        7
<PAGE>   10

with our distribution partners do not prevent these companies from selling
products of other companies, including products that may compete with our
products, and do not generally require these partners to purchase minimum
quantities of our products. These distributors could give higher priority to the
products of other companies or to their own products, than they give to our
products. As a result, the loss of, or a significant reduction in sales volume
to our current or future distribution partners could seriously harm our revenue
and operating results, and a significant increase in sales through these
channels could also negatively impact our gross margins. In addition, sales
through these channels generally have a lower price than direct sales.

  FAILURE TO EXPAND OUR SERVICES OFFERINGS WOULD HARM OUR BUSINESS

     We believe that growth in our product sales depends on our ability to
provide our customers with comprehensive services, including application
engineering, implementation, training and support, and to educate third-party
resellers, instructors and consultants on how to provide similar services. As a
result, we plan to increase the number of our services personnel to meet these
needs. However, competition for qualified service personnel is intense and we
may not be able to attract, train or retain the number of highly qualified
service personnel that our business needs.

     We expect our services revenue to increase in dollar amount as we continue
to provide consulting, education and technical support services that complement
our products and as our installed base of customers grows. To date, our cost of
services revenue has been significantly higher than our services revenue, and we
expect to continue to incur losses from our services business in the future. If
our services business becomes profitable, an increase in services revenue in
absolute dollars could negatively impact our total gross margin because margins
on revenue derived from services are generally lower than margins on revenue
derived from software licenses.

  OUR MARKETS ARE HIGHLY COMPETITIVE AND WE MAY NOT CONTINUE TO COMPETE
SUCCESSFULLY

     Our markets are new, rapidly evolving and highly competitive, and we expect
this competition to persist and intensify in the future. Our failure to maintain
and enhance our competitive position could seriously harm our business and
operating results. We encounter current or potential competition from a number
of sources, including:

     - Vendors of application server products and services;

     - Internally developed applications; and

     - Companies that market business application software.

     Our Application Server competes with application server products from other
vendors, including: IBM's WebSphere and Domino server solutions; Sun
Microsystems' NetDynamics and Netscape Application Server; Microsoft's Internet
Information Server, Active Server pages, Transaction Server and COM technology;
BEA Systems' Weblogic and Oracle's Application Server. In addition, we compete
with various methods of application distribution and management, including the
web browser, and with application server vendors and others that have introduced
software distribution capabilities into their products.

     Potential competitors may bundle their products or incorporate an
application server component into existing products in a manner that discourages
users from purchasing our products. Furthermore, new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements than we can.

     Some of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. Many of
these companies have more extensive customer bases, broader customer
relationships and broader industry alliances that they could leverage, including
relationships with many of our current and potential customers. These companies
also have significantly

                                        8
<PAGE>   11

more established customer support and professional services organizations. In
addition, these companies may adopt aggressive pricing policies or may bundle
their competitive products with broader product offerings.

  OUR BUSINESS IS INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS

     To be successful, we believe we must expand our international operations.
Therefore, we expect to commit significant resources to expand our international
sales and marketing activities. We are increasingly subject to a number of risks
associated with international business activities. These risks generally
include:

     - Expenses associated with customizing products for foreign countries;

     - Currency exchange rate fluctuations;

     - Seasonal fluctuations in purchasing patterns;

     - Unexpected changes in regulatory requirements;

     - Tariffs, export controls and other trade barriers;

     - Longer accounts receivable payment cycles and difficulties in collecting
       accounts receivable;

     - Difficulties in managing and staffing international operations;

     - Potentially adverse tax consequences, including restrictions on the
       repatriation of earnings; and

     - The risks related to the recent global economic turbulence and adverse
       economic circumstances in Asia.

  WE DEPEND ON CONTINUED USE OF THE INTERNET AND GROWTH OF ELECTRONIC BUSINESS

     Rapid growth in the use of and interest in the Internet has occurred only
recently. As a result, acceptance and use may not continue to develop at
historical rates, and a sufficiently broad base of consumers and enterprises may
not adopt, and continue to use, the Internet and other online services as a
medium of commerce. Risks include potentially inadequate development of the
necessary network infrastructure or delayed development of enabling technologies
and performance improvements. Demand and market acceptance for recently
introduced services and products available over the Internet are subject to a
high level of uncertainty, and there exist few proven services and products. Our
success will depend, in large part, upon third parties maintaining the Internet
infrastructure required to provide a reliable network backbone with the speed,
data capacity, security and hardware necessary for reliable Internet access and
services. Further, the use of our products for corporate or enterprise intranets
and extranets is subject to similar risks and uncertainties.

  WE MUST RESPOND TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS

     The markets for our products and services are marked by rapid technological
change, frequent new product introductions and enhancements, uncertain product
life cycles, changes in customer demands and evolving industry standards. New
products based on new technologies or new industry standards can quickly render
existing products obsolete and unmarketable. Any delays in our ability to
develop and release enhanced or new products could seriously harm our business
and operating results. Our technology is complex, and new products and product
enhancements can require long development and testing periods. Our failure to
conform to prevailing standards could have a negative effect on our business and
operating results.

  WE MUST MANAGE OUR GROWTH AND EXPANSION

     We have expanded our operations rapidly since inception. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. To be successful, we will need to
implement

                                        9
<PAGE>   12

additional management information systems, improve our operating,
administrative, financial and accounting systems, procedures and controls, train
new employees and maintain close coordination among our executive, engineering,
professional services, accounting, finance, marketing, sales and operations
organizations. In addition, our growth has resulted, and any future growth will
result, in increased responsibilities for management personnel.

     In addition, our principal executive office lease is due to expire in July
2000. We may move our headquarters to new office space or expand into additional
office space. We cannot be certain that office space will be available on
reasonable terms. We would likely experience significant costs, and we could
experience a disruption in the development or marketing of our products, in
connection with an expansion or move.

  FAILURE TO RETAIN AND ATTRACT KEY PERSONNEL WOULD HARM OUR BUSINESS

     Our success depends largely on the skills, experience and performance of
the members of our senior management and other key personnel, including our
Chairman, David Skok, and our President and Chief Executive Officer, David
Litwack. We may not be successful in attracting, assimilating or retaining
qualified personnel in the future. None of our senior management or other key
personnel is bound by an employment agreement. If we lose one or more of the
members of our senior management or other key employees, our business and
operating results could be seriously harmed. In addition, our future success
will depend largely on our ability to continue attracting, training, motivating
and retaining highly skilled personnel. Like other software companies in the
Boston, Massachusetts area, we face intense competition for qualified personnel
including software engineering, service and support, and sales and marketing
personnel.

  WE RELY ON THIRD-PARTY SOFTWARE AND TECHNOLOGY

     Our products integrate third-party text search, object middleware,
compiler, encryption, transaction processing and monitoring, Java virtual
machine and database technology and products. There are inherent limitations in
the use and capabilities of much of the technology that we license from third
parties. Our business would be seriously harmed if the providers from whom we
license software and technology ceased to deliver and support reliable products,
enhance their current products in a timely fashion or respond to emerging
industry standards. In addition, the third-party software may not continue to be
available to us on commercially reasonable terms or at all. For example, we
license certain components of our products from limited or sole source
suppliers, including encryption technology which we license from RSA Data
Security. Many of these licenses are subject to periodic renewal. The loss of,
or inability to maintain or obtain this software for any reason could result in
significant shipment delays or reductions. Furthermore, we might be forced to
limit the features available in our current or future product offerings. Either
alternative could seriously harm our business and operating results.

     Almost all of our products are written in Java and require a Java virtual
machine made available by Sun Microsystems in order to operate. 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 the future, our customers may also require the
ability to deploy our products on platforms for which technically acceptable
Java implementations either do not exist or are not available on commercially
reasonable terms.

  SOFTWARE DEFECTS WOULD HARM OUR BUSINESS

     Complex software products like ours can contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. We have in the past discovered software errors in our new releases and
new products after their introduction and expect that this will continue. We
could experience delays in release, lost revenue and customer frustration during
the period required to correct any such errors. Despite internal testing and
testing by current and potential customers, our current and

                                       10
<PAGE>   13

future products may contain serious defects, including Year 2000 errors. Defects
or errors in current or future products, including the planned SilverStream
Application Server Version 3.0, could result in lost revenue or a delay in
market acceptance, which would seriously harm our business and operating
results.

     As many of our customers use our products for business-critical
applications, errors, defects or other performance problems could result in
financial or other damage to our customers and could significantly impair their
operations. Our customers could seek damages for losses related to any of these
issues. A product liability claim brought against us, even if not successful,
would likely be time consuming and costly to defend and could adversely affect
our marketing efforts.

  YEAR 2000 ISSUES COULD ADVERSELY AFFECT OUR BUSINESS

     We are in the process of assessing any Year 2000 issues with the computer,
communications and software systems that we use to deliver our products and to
manage our internal operations. We have not finalized our assessment or
formulated a final plan or budget to remedy our Year 2000 issues. If our systems
do not operate properly with respect to date calculations involving the Year
2000 and subsequent dates, we could incur unanticipated expenses to remedy any
problems, which could seriously harm our business. We may also experience
reduced sales of our products as current or potential customers reduce their
budgets for enterprise software and Internet products due to increased
expenditures on their own Year 2000 compliance efforts.

     The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information technology
systems nevertheless could be substantially impaired or cease to operate due to
Year 2000 problems. Additionally, we rely on information technology supplied by
third parties, and our other business partners, including third-party
distributors and consultants, also are heavily dependent on information
technology systems and on their own and third-party vendor systems. Year 2000
problems experienced by us or any of these third parties could materially
adversely affect our business. Prior versions of our products may contain
technology from third parties that is not Year 2000 compliant. Additionally, the
Internet could face serious disruptions arising from the Year 2000 problem.

     Many of our customers and potential customers have implemented policies
that prohibit or strongly discourage making changes or additions to their
internal computer systems until after January 1, 2000. We will experience fewer
sales if potential customers delay the purchase and implementation of our
products until after January 1, 2000. Purchasing decisions may be delayed as
potential customers stabilize their internal computer systems or divert 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 would be seriously harmed.

     Given the pervasive nature of the Year 2000 problem, we cannot guarantee
that disruptions in other industries and market segments will not adversely
affect our business. Moreover, our costs related to Year 2000 compliance, which
thus far have not been material, could ultimately be significant. In the event
that we experience disruptions as a result of the Year 2000 problem, our
business could be seriously harmed. Our efforts to address Year 2000 issues are
described in more detail in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance."

  PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED

     We rely on a combination of contractual provisions, confidentiality
procedures, and patent, trademark, trade secret and copyright laws to protect
the proprietary aspects of our technology. These legal protections afford only
limited protection. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use our proprietary information. Litigation may be necessary to enforce our
intellectual property rights, to protect our trade secrets and to determine the
validity and scope of the proprietary rights of others. Any litigation could
result in substantial costs and diversion of resources with no assurance of
success and could seriously harm our business and operating

                                       11
<PAGE>   14

results. In addition, we sell our products internationally, and the laws of many
countries do not protect our proprietary rights as well as the laws of the
United States.

     We obtain a major portion of our software license revenue from licensing
our products under standardized "shrink wrap" agreements that our customers do
not sign. If any of these agreements were deemed unenforceable, those customers
may seek to use and copy our technology without appropriate limitations.

     We have no patents, and none may be issued from our existing patent
applications. Our future patents, if any, may be successfully challenged or may
not provide us with any competitive advantages.

  WE MAY BE FOUND TO INFRINGE PROPRIETARY RIGHTS OF OTHERS

     Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our products. As a result, we may be found to infringe on the
proprietary rights of others. Furthermore, companies in the software market and
the Internet market are increasingly bringing suits alleging infringement of
their proprietary rights, particularly patent rights. We have been subject to
such claims in the past. Any litigation or claims, whether or not valid, could
result in substantial costs and diversion of resources with no assurance of
success. Intellectual property litigation or claims could force us to do one or
more of the following:

     - Cease selling, incorporating or using products or services that
       incorporate the challenged intellectual property;

     - Obtain a license from the holder of the infringed intellectual property
       right, which license may not be available on reasonable terms; and

     - Redesign products or services.

     In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our business and
operating results would be significantly harmed.

  OUR BUSINESS COULD BE AFFECTED AS A RESULT OF ANY FUTURE ACQUISITIONS

     In order to remain competitive, we may find it necessary to acquire
additional businesses, products or technologies. If we identify an appropriate
acquisition candidate, we may not be able to negotiate the terms of the
acquisition successfully, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Further, completing a potential acquisition and integrating an acquired business
will cause significant diversions of management time and resources. If we
consummate one or more significant acquisitions in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with one or more significant acquisitions in
which the consideration included cash, we could be required to use a substantial
portion of our available cash, including proceeds from this offering, to
consummate any acquisition. Acquisition financing may not be available on
favorable terms, or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would seriously harm our operating results.

RISKS RELATED TO THIS OFFERING

  WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS

     We expect the net proceeds from this offering, together with cash generated
from operations will be sufficient to meet our working capital and capital
expenditure needs for at least the next 12 months. After that, we may need to
raise additional funds and we cannot be certain that we will be able to obtain
additional financing on favorable terms, if at all. Further, if we issue
additional equity securities, stockholders may experience additional dilution or
the new equity securities may have rights, preferences or privileges senior to
those of existing holders of common stock. If we cannot raise funds on
acceptable terms, if and when needed, we may not be able to develop or enhance
our products and services, take

                                       12
<PAGE>   15

advantage of future opportunities, grow our business or respond to competitive
pressures or unanticipated requirements, which could seriously harm our
business.

  OUR STOCK PRICE MAY BE VOLATILE

     Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. This price may vary from the market price of the common stock
after this offering. You may be unable to sell your shares of common stock at or
above the initial public offering price. The market price of the common stock
may fluctuate significantly in response to the following factors, some of which
are beyond our control:

     - Variations in our quarterly operating results;

     - Changes in securities analysts' estimates of our financial performance;

     - Changes in market valuations of similar companies;

     - Announcements by us or our competitors of new or enhanced products or
       significant contracts, acquisitions or strategic partnerships;

     - Additions or departures of key personnel;

     - Future sales of our common stock or other securities; and

     - Fluctuations in stock market price and volume, which are particularly
       common among securities of software and Internet-based companies.

  WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY

     In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.

  OUR STOCK PRICE COULD BE AFFECTED BY SHARES BECOMING AVAILABLE FOR SALE

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

  PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, SUBSTANTIAL DILUTION

     We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire common stock at prices significantly below the initial public offering
price. To the extent these outstanding options are ultimately exercised, there
will be further dilution to investors in this offering. See "Dilution."

  WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS

     Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. For more information regarding these provisions, see "Description
of Capital Stock -- Delaware Law and Certain Charter and By-Law Provisions;
Anti-Takeover Effects."

                                       13
<PAGE>   16

  OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL
SILVERSTREAM

     Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
     % of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This could have the effect of delaying or preventing a change of
control of SilverStream. See "Principal Stockholders."

  WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING

     We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend the
proceeds, and stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the proceeds from this offering,
in our operations or external investments, to yield a favorable return.

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will" and "would" or similar
words. You should read statements that contain these words carefully because
they discuss our future expectations, contain projections of our future results
of operations or of our financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, results of operations and financial position.

                                       14
<PAGE>   17

                                USE OF PROCEEDS

     We estimate that our net proceeds from the sale of the          shares of
common stock will be approximately $          , assuming an initial public
offering price of $     per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us. If the
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $          .

     The principal purposes of this offering are to establish a public market
for our common stock, to increase our visibility in the marketplace, to
facilitate future access to public capital markets, to provide liquidity to
existing stockholders and to obtain additional working capital.

     We expect to use the net proceeds for working capital, capital expenditures
and general corporate purposes. Although we may use a portion of the net
proceeds to acquire businesses, products or technologies that are complementary
to our business, we have no specific acquisitions planned. Pending these uses,
we plan to invest the net proceeds in short-term, investment grade,
interest-bearing securities.

                                DIVIDEND POLICY

     We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, for use in
the operation of our business. Our existing equipment line of credit and term
loans prohibit the payment of dividends without the consent of the lender.

                                       15
<PAGE>   18

                                 CAPITALIZATION

     The following table sets forth our capitalization as of March 31, 1999. The
pro forma information gives effect to the conversion of all of our outstanding
preferred stock into common stock upon the closing of this offering and assumes
the filing of an amended and restated certificate of incorporation after the
closing of this offering authorizing 2,000,000 shares of preferred stock and
100,000,000 shares of common stock. The pro forma as adjusted information gives
effect to the foregoing as well as the issuance and sale of the
shares of common stock in this offering at an assumed initial public offering
price of $     per share, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by us. The outstanding
share information excludes: (1) 1,043,642 shares of common stock issuable on
exercise of outstanding options as of March 31, 1999 with a weighted average
exercise price of $1.76 per share, (2) 532,319 shares of common stock reserved
for future issuance under our stock plans as of March 31, 1999 and (3) an
additional 1,844,281 shares of common stock reserved for issuance under our
stock plans after March 31, 1999.

<TABLE>
<CAPTION>
                                                                          AS OF MARCH 31, 1999
                                                            ------------------------------------------------
                                                                                                PRO FORMA
                                                               ACTUAL         PRO FORMA        AS ADJUSTED
                                                            ------------      ---------        -----------
                                                            (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                         <C>             <C>              <C>
Long-term debt, less current portion......................    $    250         $    250          $    250
Redeemable convertible preferred stock, $.001 par value;
  5,283,050 shares authorized; 5,183,988 shares issued and
  outstanding, actual; no shares authorized, issued and
  outstanding, pro forma and pro forma as adjusted........      11,638               --                --
Stockholders' equity:
Convertible preferred stock, $.001 par value; 3,600,000
  shares authorized; 3,235,746 shares issued and
  outstanding, actual; no shares authorized, issued and
  outstanding, pro forma and pro forma as adjusted........      29,319               --                --
Preferred stock, $.001 par value; no shares authorized,
  issued and outstanding, actual; 2,000,000 shares
  authorized, pro forma and pro forma as adjusted; no
  shares issued and outstanding, pro forma and pro forma
  as adjusted.............................................          --               --                --
Common stock, $.001 par value; 21,000,000 shares
  authorized, 5,220,258 shares issued and outstanding,
  actual; 100,000,000 shares authorized, pro forma and pro
  forma as adjusted; 13,639,992 shares issued and
  outstanding, pro forma;                shares issued and
  outstanding, pro forma as adjusted......................           5               13
Additional paid-in capital................................         373           41,322
Accumulated deficit.......................................     (26,479)         (26,479)
Other comprehensive loss..................................         (41)             (41)
Notes receivable from stockholders........................        (104)            (104)
                                                              --------         --------          --------
          Total stockholders' equity......................       3,073           14,711
                                                              --------         --------          --------
          Total capitalization............................    $ 14,961         $ 14,961          $
                                                              ========         ========          ========
</TABLE>

                                       16
<PAGE>   19

                                    DILUTION

     SilverStream's pro forma net tangible book value as of March 31, 1999,
after giving effect to the conversion of all outstanding shares of convertible
preferred stock into common stock upon the closing of this offering, was
approximately $14.7 million, or $1.08 per share of common stock. Pro forma net
tangible book value per share represents our tangible net worth (tangible assets
less total liabilities) divided by the 13,639,992 shares of common stock
outstanding after giving effect to the conversion of all outstanding shares of
convertible preferred stock into common stock. After giving effect to the
issuance and sale of the                shares of common stock in this offering
(at an assumed initial public offering price of $          per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us), SilverStream's pro forma net tangible book
value as of March 31, 1999 would have been $          , or $     per share. This
represents an immediate increase in pro forma net tangible book value to
existing stockholders of $     per share and an immediate dilution to new
investors of $     per share. The following table illustrates this per share
dilution:

<TABLE>
<S>                                                           <C>      <C>
Assumed initial public offering price per share.............           $
  Pro forma net tangible book value per share as of March
     31, 1999...............................................  $1.08
  Increase in pro forma net tangible book value per share
     attributable to new investors..........................
                                                              -----
Pro forma net tangible book value per share after this
  offering..................................................
                                                                       ----
Dilution per share to new investors.........................           $
                                                                       ====
</TABLE>

     The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of convertible preferred stock into common
stock upon the closing of this offering, as of March 31, 1999, the difference
between the number of shares of common stock purchased from SilverStream, the
total consideration paid to SilverStream, and the average price per share paid
by existing stockholders and by new investors (at an assumed initial public
offering price of $     per share, before deduction of estimated underwriting
discounts and commissions and estimated offering expenses payable by us):

<TABLE>
<CAPTION>
                                          SHARES PURCHASED        TOTAL CONSIDERATION       AVERAGE
                                        ---------------------    ----------------------    PRICE PER
                                          NUMBER      PERCENT      AMOUNT       PERCENT      SHARE
                                        ----------    -------    -----------    -------    ---------
<S>                                     <C>           <C>        <C>            <C>        <C>
Existing stockholders.................  13,639,992          %    $41,336,000          %      $3.03
New investors.........................
                                        ----------     -----     -----------    ------
          Total.......................                 100.0%    $               100.0%
                                        ==========     =====     ===========    ======
</TABLE>

     The table above assumes no exercise of stock options outstanding at March
31, 1999. As of March 31, 1999, there were options outstanding to purchase
1,043,642 shares of common stock with a weighted average exercise price of $1.76
per share and 532,319 shares reserved for future grant or award under
SilverStream's stock plans. To the extent any of these options are exercised,
there will be further dilution to new investors. To the extent all of such
outstanding options had been exercised as of March 31, 1999, pro forma net
tangible book value per share after this offering would be $          and total
dilution per share to new investors would be $     . After March 31, 1999, we
increased the number of shares reserved for issuance under our stock plans by an
additional 1,844,281 shares of common stock.

     If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to                shares, or
     % of the total number of shares of common stock outstanding after this
offering.

                                       17
<PAGE>   20

                      SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data should be read in
conjunction with our Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the period ended December 31, 1996 and the years ended
December 31, 1997 and 1998 and the consolidated balance sheet data as of
December 31, 1997 and 1998 are derived from our Consolidated Financial
Statements that have been audited by Ernst & Young LLP, independent auditors,
and are included elsewhere in this prospectus. The consolidated balance sheet
data as of December 31, 1996 are derived from our audited consolidated financial
statements not included in this prospectus. The consolidated financial data as
of March 31, 1998 and 1999 and for the three-month periods ended March 31, 1998
and 1999 are derived from our unaudited Consolidated Financial Statements
included elsewhere in this prospectus and include all adjustments, consisting
only of normal, recurring adjustments, that SilverStream considers necessary for
a fair presentation of our consolidated financial position and our consolidated
results of operations for those periods. Operating results for the three-month
period ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1999.

<TABLE>
<CAPTION>
                                                           PERIOD FROM
                                                           MAY 8, 1996          YEARS ENDED           THREE MONTHS ENDED
                                                          (INCEPTION) TO        DECEMBER 31,               MARCH 31,
                                                           DECEMBER 31,    ----------------------   -----------------------
                                                               1996          1997         1998         1998         1999
                                                          --------------   ---------   ----------   ----------   ----------
                                                                   (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                       <C>              <C>         <C>          <C>          <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
  Software license......................................    $      --      $     249   $    5,983   $      579   $    2,607
  Services..............................................           --             --          825          104          867
                                                            ---------      ---------   ----------   ----------   ----------
        Total revenue...................................           --            249        6,808          683        3,474
Cost of revenue:
  Software license......................................           --             90          695          118          254
  Services..............................................           --            282        1,414          252        1,330
                                                            ---------      ---------   ----------   ----------   ----------
        Total cost of revenue...........................           --            372        2,109          370        1,584
                                                            ---------      ---------   ----------   ----------   ----------
Gross profit (loss).....................................           --           (123)       4,699          313        1,890
Operating expenses:
  Sales and marketing...................................           35          3,854       10,848        2,305        4,037
  Research and development..............................          850          2,622        5,070        1,240        1,503
  General and administrative............................          120          1,961        2,141          532          697
                                                            ---------      ---------   ----------   ----------   ----------
        Total operating expenses........................        1,005          8,437       18,059        4,077        6,237
                                                            ---------      ---------   ----------   ----------   ----------
Loss from operations....................................       (1,005)        (8,560)     (13,360)      (3,764)      (4,347)
Other income, net.......................................           53            225          475           42           40
                                                            ---------      ---------   ----------   ----------   ----------
Net loss................................................    $    (952)     $  (8,335)  $  (12,885)  $   (3,722)  $   (4,307)
                                                            =========      =========   ==========   ==========   ==========
Basic and diluted net loss per share....................    $    (.45)     $   (1.71)  $    (2.52)  $     (.73)  $     (.83)
                                                            =========      =========   ==========   ==========   ==========
Weighted-average common shares used in computing basic
  and diluted net loss per share........................    2,103,535      4,882,996    5,122,480    5,106,947    5,215,648
                                                            =========      =========   ==========   ==========   ==========
Pro forma basic and diluted net loss per share..........                                                         $     (.34)
                                                                                                                 ==========
Weighted-average common shares used in computing pro
  forma basic and diluted net loss per share............                                                         12,759,943
                                                                                                                 ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                   AS OF DECEMBER 31,          AS OF MARCH 31,
                                                              ----------------------------    ------------------
                                                               1996      1997       1998       1998       1999
                                                              ------    -------    -------    -------    -------
                                                                                (IN THOUSANDS)
<S>                                                           <C>       <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................  $2,734    $16,649    $ 1,220    $ 9,638    $12,448
Working capital.............................................   2,591     16,349      5,119     14,783     12,994
Total assets................................................   3,056     18,974     10,245     18,151     20,764
Long-term debt, less current portion........................     189        295        325        836        250
Redeemable convertible preferred stock......................   3,658     11,638     11,638     11,638     11,638
Total stockholders' equity (deficit)........................    (947)     5,944     (5,048)     3,947      3,075
</TABLE>

                                       18
<PAGE>   21

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

     The following discussion should be read together with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in such
forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."

OVERVIEW

     SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. From our incorporation in May 1996 through December 1997, we were
considered a development stage enterprise and our activities were primarily
focused on raising capital, conducting research and development, and
establishing markets and distribution channels for our products. In November
1997, we began commercial shipment of the initial version of our Application
Server. Today, we have licensed the SilverStream Application Server to more than
500 customers around the world.

     We derive our revenue from the sale of software product licenses and from
professional consulting, education and technical support services. We recognize
our software license revenue in accordance with Statement of Position 97-2,
"Software Revenue Recognition." Statement of Position 97-2 generally requires
revenues earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements. We
generally recognize revenue allocated to software licenses upon delivery of the
software products, provided that we have no remaining significant obligations
with regard to implementation, the license fee is fixed or determinable and
collection of the fee is probable. Our customers often contract for maintenance
which provides them with new releases of software and various technical support
and services for a period of typically one year. We recognize maintenance
revenue ratably over this 12-month period. We license our software to
independent software vendors who pay us a prepayment at the beginning of their
contract. We recognize this revenue ratably over the period of the contract,
typically one year. Revenue derived from arrangements with resellers of our
products is not recognized until the software is sold to the end-user. We
recognize revenue from the sale of technical support services ratably over the
maintenance term and revenue from the sale of consulting and education services
as the services are performed.

     We record cash receipts from customers and billed amounts due from
customers in excess of recognized revenue as deferred revenue. The timing and
amount of cash receipts from customers can vary significantly depending on
specific contract terms and can therefore have a significant impact on the
amount of deferred revenue in any given period.

     Our cost of software license revenue includes royalties due to third
parties for technology included in our products, the cost of manuals and product
documentation, media used to deliver our products and shipping and fulfillment
costs. Our cost of services revenue includes salaries and related expenses for
our consulting, education and technical support services organizations, costs of
third parties contracted to provide consulting services to customers and an
allocation of our facilities, communications and depreciation expenses.

     Our operating expenses are classified into three general categories: sales
and marketing, research and development and general and administrative. Sales
and marketing expenses consist primarily of salaries and other related costs for
sales and marketing personnel, sales commissions, travel, public relations and
marketing materials and tradeshows. Research and development expenses consist
primarily of personnel costs to support product development. General and
administrative expenses consist primarily of salaries and other related costs
for operations and finance employees, legal and accounting services and certain
facilities-related expenses.

                                       19
<PAGE>   22

     Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and professional services departments, and to establish an
administrative organization. As a result, we have incurred net losses in each
fiscal quarter since inception and had an accumulated deficit of $22.2 million
as of December 31, 1998 and $26.5 million as of March 31, 1999. We anticipate
that our operating expenses will increase substantially in future quarters as we
increase sales and marketing operations, expand distribution channels, increase
research and development, broaden professional services, expand facilities and
support, and improve operational and financial systems. Accordingly, we expect
to incur additional losses for the foreseeable future. In addition, our limited
operating history makes it difficult for us to predict future operating results
and, accordingly, there can be no assurance that we will achieve or sustain
revenue growth or profitability.

RESULTS OF OPERATIONS

     The following table presents selected consolidated financial data for the
periods indicated as a percentage of total revenue. Data for the period from
inception through December 31, 1996 is not presented because we had no revenue
during that period.

<TABLE>
<CAPTION>
                                                        YEARS ENDED          THREE MONTHS ENDED
                                                        DECEMBER 31,             MARCH 31,
                                                    --------------------    --------------------
                                                      1997        1998        1998        1999
                                                    --------    --------    --------    --------
<S>                                                 <C>         <C>         <C>         <C>
Revenue:
  Software license................................     100.0%       87.9%       84.8%       75.0%
  Services........................................       0.0        12.1        15.2        25.0
                                                    --------    --------    --------    --------
          Total revenue...........................     100.0       100.0       100.0       100.0
                                                    --------    --------    --------    --------
Cost of revenue:
  Software license................................      36.2        10.2        17.3         7.3
  Services........................................     113.4        20.8        36.9        38.3
                                                    --------    --------    --------    --------
          Total cost of revenue...................     149.6        31.0        54.2        45.6
                                                    --------    --------    --------    --------
Gross profit (loss)...............................     (49.6)       69.0        45.8        54.4
Operating expenses:
  Sales and marketing.............................   1,550.7       159.4       337.7       116.2
  Research and development........................   1,055.1        74.5       181.6        43.3
  General and administrative......................     789.1        31.5        77.9        20.0
                                                    --------    --------    --------    --------
          Total operating expenses................   3,394.9       265.3       597.2       179.5
                                                    --------    --------    --------    --------
Loss from operations..............................  (3,444.5)     (196.2)     (551.4)     (125.1)
Other income, net.................................      90.7         7.0         6.2         1.1
                                                    --------    --------    --------    --------
Net loss..........................................  (3,353.8)%    (189.3)%    (545.3)%    (124.0)%
                                                    ========    ========    ========    ========
</TABLE>

QUARTERS ENDED MARCH 31, 1998 AND 1999

  REVENUE

     Total revenue increased by approximately $2.8 million from $683,000 in the
quarter ended March 31, 1998 to $3.5 million in the quarter ended March 31,
1999. This increase was attributable to an increase in our customer base
resulting in substantial growth in software license and services revenue.
Revenue from international sales increased by approximately $976,000 from
$124,000 in the quarter ended March 31, 1998 to $1.1 million in the quarter
ended March 31, 1999 primarily due to increased selling and related activities
in Germany, Belgium, The Netherlands, Singapore, Hong Kong and Taiwan.

     Software License.  Software license revenue increased by approximately $2.0
million from $579,000 in the quarter ended March 31, 1998 to $2.6 million in the
quarter ended March 31, 1999. This increase is

                                       20
<PAGE>   23

attributable to increased unit sales of our products following the release of
Version 2.0 in October 1998 and higher prices realized for our products in 1999
as compared to 1998.

     Services.  Services revenue increased by approximately $763,000 from
$104,000 in the quarter ended March 31, 1998 to $867,000 in the quarter ended
March 31, 1999. This increase is attributable to increases in the number of our
customers and support contracts as well as the creation and expansion of our
professional consulting organization and the provision of a wider range of
services to customers.

     We believe that growth in our software license sales depends on our ability
to provide our customers with support, education, and consulting services and
educate third-party consulting partners on how to use our products. As a result,
we intend to expand our services organizations in 1999 and we believe that
services revenue will continue to increase as a percentage of total revenue. We
expect that revenue from professional consulting services will increase in the
future to the extent that additional customers license our products and as we
expand both our capacity for the delivery of these services as well as the scope
of our services offerings. We expect that services revenue from support
agreements will increase in the future as a result of new and existing license
agreements.

  COST OF REVENUE

     Software License.  Cost of software license revenue increased by
approximately $136,000 from $118,000 in the quarter ended March 31, 1998 to
$254,000 in the quarter ended March 31, 1999. This increase is attributable to
third-party royalties, packaging costs for shipments to new customers and
shipments of product updates to existing customers. We expect software license
costs to increase in the future due to additional customers licensing our
products and the licensing of additional third-party technology that we may
choose to embed in our product offerings.

     Services.  Cost of services revenue increased by approximately $1.1 million
from $252,000 in the quarter ended March 31, 1998 to $1.3 million in the quarter
ended March 31, 1999. This increase in cost of services revenue is primarily due
to the creation and rapid expansion of our consulting services organization in
late 1998 and, to a lesser extent, an increase in the number of our education
and technical support personnel. To date, our services costs have been higher
than our services revenue, and we expect that trend to continue for the next
several quarters as we continue to expand all of our services organizations. We
expect services costs to increase in the future to the extent that we continue
to generate new customers and associated software license and services revenue.
Services costs as a percentage of services revenue can be expected to vary
significantly from period to period depending on the mix of services we provide,
whether such services are provided by us or third-party contractors, and overall
utilization rates.

  OPERATING EXPENSES

     Sales and Marketing.  Sales and marketing expenses increased by
approximately $1.7 million from $2.3 million in the quarter ended March 31, 1998
to $4.0 million in the quarter ended March 31, 1999. The increase in sales and
marketing expenses is attributable to increases in sales commissions, the number
of sales and marketing employees in North America, the number of our
international offices and marketing program spending. We believe these expenses
will increase significantly in future periods as we expect to continue to expand
our sales and marketing efforts. We also anticipate that sales and marketing
expenses may fluctuate as a percentage of a total revenue from period to period
as new sales personnel are hired and begin to achieve productivity.

     Research and Development.  Research and development expenses increased by
approximately $263,000 from $1.2 million in the quarter ended March 31, 1998 to
$1.5 million in the quarter ended March 31, 1999. The increase in research and
development expenses is primarily attributable to increases in the number of
research and development personnel to support the Company's product development
activities. We believe that continued investment in research and development is
critical to attaining our strategic objectives, and, as a result, we expect
research and development expenses to increase significantly in future periods.
To date, all software development costs have been expensed in the period
incurred.
                                       21
<PAGE>   24

     General and Administrative.  General and administrative expenses increased
by approximately $165,000 from $532,000 in the quarter ended March 31, 1998 to
$697,000 in the quarter ended March 31, 1999. This increase is attributable to a
growing number of administrative employees, increased facility costs, increased
professional fees and an increase in the bad debt reserve as our revenue and
accounts receivable grew. We believe general and administrative expenses will
increase, as we expect to add personnel to support our expanding operations,
incur additional costs related to the growth of our business, and assume the
responsibilities of a public company.

  OTHER INCOME, NET

     Other income, net decreased from $42,000 in the quarter ended March 31,
1998 to $40,000 in the quarter ended March 31, 1999. This decrease is
attributable to increases in interest expense during the quarter ended March 31,
1999 over the same period in the previous year. This interest expense results
from capital equipment loans used to purchase computer equipment.

YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

  REVENUE

     Total revenue increased by approximately $6.6 million from $249,000 in 1997
to $6.8 million in 1998 due to the release of our initial products in November
1997 and the ensuing increase in our customer base. Revenue from international
sales increased by approximately $1.7 million from $67,000 in 1997 to $1.8
million in 1998. We had no revenue during the period from inception until
December 31, 1996.

     Software License.  Software license revenue increased by approximately $5.7
million from $249,000 in 1997 to $6.0 million in 1998. We first began shipping
our products in November 1997. The increase in software license revenue was due
primarily to an increase in the number of customers resulting from a full year
of selling in 1998 and the release of Version 2.0 of our products in October
1998.

     Services.  We had no services revenue in 1997 and services revenue of
$825,000 in 1998. Services revenue in 1998 resulted primarily from education and
support services delivered to an increasing customer base and, to a lesser
extent, from the sale of professional consulting services.

  COST OF REVENUE

     Software License.  Cost of software license revenue increased by
approximately $605,000 from $90,000 in 1997 to $695,000 in 1998. The increase is
attributable to increases in software license revenue and the royalties we pay
on third-party software incorporated into Version 2.0 of our products which
began shipping in October 1998.

     Services.  Cost of services revenue increased by approximately $1.1 million
from $282,000 in 1997 to $1.4 million in 1998. The increase was primarily due to
the creation of our professional consulting services organization, the planned
hiring of additional consultants in 1998 and the increase in the number of
software license customers, who generally require our professional services.

  OPERATING EXPENSES

     Sales and Marketing.  Sales and marketing expenses in 1996 amounted to
$35,000 and increased by approximately $7.0 million from $3.9 million in 1997 to
$10.8 million in 1998. The increase in these periods was due to increases in
sales and marketing personnel and marketing program expenditures. During 1998,
we expanded international sales and marketing operations in Germany, Belgium,
The Netherlands, Hong Kong, Singapore and Taiwan and we increased the number of
personnel and offices in North America.

     Research and Development.  Research and development expenses in 1996
amounted to $850,000 and increased by approximately $2.4 million from $2.6
million in 1997 to $5.1 million in 1998. The increase in these periods was
primarily due to the hiring of more engineering personnel.

                                       22
<PAGE>   25

     General and Administrative.  General and administrative expenses in 1996
amounted to $120,000 and increased by approximately $180,000 from $2.0 million
in 1997 to $2.1 million in 1998. The increase in these periods was due to the
hiring of more personnel, increases in facility costs, professional fees and our
bad debt reserve as our revenue and accounts receivable grew.

  OTHER INCOME, NET

     Other income, net in 1996 amounted to $53,000 and increased by
approximately $250,000 from $225,000 in 1997 to $475,000 in 1998. The increase
was due primarily to an increase in interest income earned from cash balances on
hand in 1998 compared to 1997. Proceeds from the private sale of equity
securities in 1997 and 1998 caused cash and short-term investment balances in
1998 to be higher than those in 1997.

                                       23
<PAGE>   26

QUARTERLY RESULTS

     The following table presents our unaudited quarterly operating results for
each of the six quarters ended March 31, 1999 both in absolute dollars and as a
percentage of our total revenue for each quarter. This information has been
derived from our unaudited consolidated financial statements. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements contained in this prospectus and
include all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of such information. You should
read this information in conjunction with our Consolidated Financial Statements
and Notes thereto appearing elsewhere in this prospectus. You should not draw
any conclusions about our future results from the results of operations for any
quarter.

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                  ---------------------------------------------------------------------
                                  DEC. 31,    MARCH 31,   JUNE 30,    SEPT. 30,   DEC. 31,    MARCH 31,
                                    1997        1998        1998        1998        1998        1999
                                  ---------   ---------   ---------   ---------   ---------   ---------
                                                   (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                               <C>         <C>         <C>         <C>         <C>         <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Revenue:
  Software license..............   $   249     $   579     $   948     $ 1,916     $ 2,539     $ 2,607
  Services......................        --         104         113         115         494         867
                                   -------     -------     -------     -------     -------     -------
          Total revenue.........       249         683       1,061       2,031       3,033       3,474
Cost of revenue:
  Software license..............        90         118          84         138         355         254
  Services......................       282         252         267         361         534       1,330
                                   -------     -------     -------     -------     -------     -------
          Total cost of
            revenue.............       372         370         351         499         889       1,584
                                   -------     -------     -------     -------     -------     -------
Gross profit (loss).............      (123)        313         710       1,532       2,144       1,890
Operating expenses:
  Sales and marketing...........     1,283       2,305       2,148       2,678       3,716       4,037
  Research and development......       647       1,240       1,190       1,336       1,304       1,503
  General and administrative....     1,123         532         462         489         659         697
                                   -------     -------     -------     -------     -------     -------
          Total operating
            expenses............     3,053       4,077       3,800       4,503       5,679       6,237
                                   -------     -------     -------     -------     -------     -------
Loss from operations............    (3,176)     (3,764)     (3,090)     (2,971)     (3,535)     (4,347)
Other income, net...............       216          42         210         200          23          40
                                   -------     -------     -------     -------     -------     -------
Net loss........................   $(2,960)    $(3,722)    $(2,880)    $(2,771)    $(3,512)    $(4,307)
                                   =======     =======     =======     =======     =======     =======
AS A PERCENTAGE OF TOTAL
  REVENUE:
Revenue:
  Software license..............       100%         85%         89%         94%         84%         75%
  Services......................        --          15          11           6          16          25
                                   -------     -------     -------     -------     -------     -------
          Total revenue.........       100         100         100         100         100         100
Cost of revenue:
  Software license..............        36          17           8           7          11           8
  Services......................       113          37          25          18          18          38
                                   -------     -------     -------     -------     -------     -------
          Total cost of
            revenue.............       149          54          33          25          29          46
                                   -------     -------     -------     -------     -------     -------
Gross profit (loss).............       (49)         46          67          75          71          54
Operating expenses:
  Sales and marketing...........       516         337         203         132         123         116
  Research and development......       260         182         112          65          43          43
  General and administrative....       451          78          43          24          22          20
                                   -------     -------     -------     -------     -------     -------
          Total operating
            expenses............     1,227         597         358         221         188         179
                                   -------     -------     -------     -------     -------     -------
Loss from operations............    (1,276)       (551)       (291)       (146)       (117)       (125)
Other income, net...............        87           6          20          10           1           1
                                   -------     -------     -------     -------     -------     -------
Net loss........................    (1,189)%      (545)%      (271)%      (136)%      (116)%      (124)%
                                   =======     =======     =======     =======     =======     =======
</TABLE>

                                       24
<PAGE>   27

     Our total revenue has increased in each quarter following the commercial
release of our products in November 1997. The increase in each quarter is due to
the increase in the number of our customers resulting from increased market
awareness and acceptance of our software, expansion of our sales organization
and increased services revenue reflecting the growth in the installed base of
product licenses. Growth in software license revenue accelerated in the last two
quarters of 1998 as we increased our direct sales force in North America and
expanded direct European operations in Germany, Belgium and The Netherlands.
Services revenue increased in the fourth quarter of 1998 and the first quarter
of 1999 following the release of Version 2.0 of our Application Server and the
expansion of our professional consulting services organization and our services
offerings.

     Cost of software license revenue has increased in conjunction with our
increases in software license revenue. Software license costs were higher in the
quarter ended March 31, 1998 due to the increased number of releases following
the release of Version 1.0 of our Application Server in November 1997 and in the
quarter ended December 31, 1998 following the release of Version 2.0 in October
1998.

     Cost of services revenue has increased as we have increased the size of our
support, education and professional consulting organizations. Cost of services
revenue increased during the quarters ended December 31, 1998 and March 31, 1999
due to increased usage of third-party consultants as well as salaries and
related costs for increased professional services personnel following the
release of Version 2.0.

     Operating expenses have generally increased in absolute dollars each
quarter as we have increased staffing in sales and marketing, product
development and general and administrative functions. Sales and marketing
expenses increased in the quarters ended September 30, 1998 and December 31,
1998 due to an increase in the number of direct sales staff in North America and
the expansion of sales operations in Germany, Belgium and The Netherlands. Sales
and marketing expenses further increased in the quarter ended December 31, 1998
with the expansion of sales operations in Hong Kong, Singapore and Taiwan. Sales
and marketing expenses increased in the quarter ended March 31, 1999 due to
increases in salaries, the number of direct sales personnel and sales
commissions and incentives paid in the quarter. Research and development
expenses increased in the quarter ended March 31, 1999 due to an increase in
personnel and the creation of a performance and tuning laboratory which resulted
in increased depreciation and equipment lease costs.

     As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Accordingly, we base our expenses in part
on future revenue projections. Most of these expenses are fixed in the short
term, and we may not be able to quickly reduce spending if revenue is lower than
we have projected. Our ability to forecast accurately our quarterly revenue is
limited due to the long sales and deployment cycle of our software products,
which makes it difficult to predict the quarter in which license sales will
occur, and the early nature of the market for application servers. If our
revenue does not meet projections, our business, operating results and financial
condition could be materially adversely affected and net losses in a given
quarter would be even greater than expected.

     We plan to increase our operating expenses to expand sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services, expand our facilities and
support and improve operational and financial systems. If our revenue does not
increase along with these expenses, our business, operating results and
financial condition could be materially adversely affected and net losses in a
given quarter would be even greater than expected.

     Although we have a limited operating history, we believe that quarterly
operating results may experience seasonal fluctuations. For instance, quarterly
results may fluctuate based on customer calendar year budgeting cycles, and slow
summer purchasing patterns in Europe.

NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS

     As of December 31, 1998, we had net operating losses and research and
development carryforwards of approximately $22.3 million and $350,000,
respectively. The net operating loss and credit carryforwards will expire at
various dates, beginning 2012, if not utilized. Under the provisions of the
Internal Revenue Code, certain substantial changes in our ownership may limit
the amount of net operating loss carry-forwards that could be utilized annually
in the future to offset taxable income. A valuation allowance has

                                       25
<PAGE>   28

been established in our financial statements to reflect the uncertainty of
future taxable income required to utilize available tax loss carryforwards and
other deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have funded our operations primarily through the
private sale of our equity securities, resulting in net proceeds of
approximately $41.0 million. We have also funded our operations through
equipment financings. As of December 31, 1998, we had $4.5 million in cash, cash
equivalents and marketable securities, and $5.1 million in working capital. As
of March 31, 1999, we had $12.7 million in cash, cash equivalents and marketable
securities, and $13.0 million in working capital. We have three term loans for
amounts borrowed to finance equipment. These term loans are from the same bank
and bear interest at the bank's prime rate plus 0.5%. At March 31, 1999, we had
a total of $636,000 outstanding under these term loans. We also have a $750,000
equipment line of credit with a bank that bears interest at the bank's prime
rate plus 0.5%. At March 31, 1999, nothing was outstanding under this line of
credit. Borrowings under these term loans and the line of credit is secured by
substantially all of our tangible assets.

     Net cash used in operating activities was $8.0 million in 1997, $13.0
million in 1998 and $3.7 million in the quarter ended March 31, 1999. Net cash
flows from operating activities in each period reflect increasing net losses
and, to a lesser extent, accounts receivable offset in part by increases in
accounts payable, accrued expenses and deferred revenue.

     Net cash used in investing activities was $1.6 million in 1997 and $4.3
million in 1998, while investing activities provided $2.7 million in the quarter
ended March 31, 1999. Cash used in investing activities reflects purchases of
property and equipment in each period, purchases of short-term investments in
1998, and proceeds from the sale of short-term investments in the quarter ended
March 31, 1999.

     Net cash provided by financing activities was $23.4 million in 1997, $1.9
million in 1998 and $12.3 million in the quarter ended March 31, 1999. Cash
provided by financing activities includes proceeds from the issuance of
preferred and common stock, offset by the payments on long-term debt in each
period, as well as proceeds from equipment financings in 1997 and 1998.

     Capital expenditures were $1.6 million in 1997, $1.0 million in 1998 and
$410,000 in the quarter ended March 31, 1999. Our capital expenditures consisted
of purchases of operating resources to manage our operations, including computer
hardware and software, office furniture and equipment and leasehold
improvements. We expect that our capital expenditures will continue to increase
in the future. Since inception, we have generally funded capital expenditures
either through the use of working capital or with equipment bank loans.

     We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. 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 of, or investments in,
complementary businesses, technologies or product lines. We believe that the net
proceeds from the sale of the common stock in this offering, together with funds
generated from operations, will be sufficient to meet our working capital
requirements for at least the next 12 months. Thereafter, we may find it
necessary to obtain additional equity or debt financing. In the event additional
financing is required, we may not be able to raise it on acceptable terms or at
all.

YEAR 2000 COMPLIANCE

     The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.

     The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information and
non-information technology systems nevertheless could be substantially impaired
or cease to operate due to Year 2000 problems. Additionally, we rely on
information technology supplied by third parties, and our participating
resellers also are heavily dependent on information technology systems
                                       26
<PAGE>   29

and on their own third-party vendor systems. Year 2000 problems experienced by
us or any of these third parties could materially adversely affect our business.

     We have conducted a review of the Year 2000 state of readiness for the
current version of our products. This review included assessment, implementation
(including remediation, upgrading and replacement of certain product versions),
validation and testing. We have not yet, however, completed contingency
planning. We continue to respond to customer questions about prior versions of
our products on a case-by-case basis. Based on our review, we believe the
current versions of our products are Year 2000 compliant, when configured and
used in accordance with the related documentation and provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or with our products are also Year 2000 compliant.

     We have defined Year 2000 compliant as the ability to:

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

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

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

     - Store and provide output of date information in ways that are unambiguous
       as to century if the date elements in interfaces and data storage specify
       the century; and

     - Recognize year 2000 as a leap year.

     We have tested software obtained from third parties that is incorporated
into our products, and are seeking assurances from our vendors that licensed
software is Year 2000 compliant. Despite testing by us and by current and
potential clients, and assurances from developers of products incorporated into
our products, our products may contain undetected errors or defects associated
with Year 2000 date functions. Known or unknown errors or defects in our
products could result in delay or loss of revenue, diversion of development
resources, damage to our reputation, increased service and warranty costs, or
liability to our customers, any of which could materially adversely affect our
business, operating results, or financial condition. Some commentators have
predicted significant litigation regarding Year 2000 compliance issues. Because
of the unprecedented nature of such litigation, it is uncertain whether or to
what extent we may be affected by it.

     We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology. We have also initiated an assessment of our
non-information technology systems. We expect to complete testing of our
information and non-information technology systems in 1999. To the extent that
we are not able to test the technology provided by third-party vendors, we are
seeking assurances from these vendors that their systems are Year 2000
compliant. We are not currently aware of any material operational issues or
costs associated with preparing our internal information technology and
non-information technology systems for the Year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal information technology and non-
information technology systems.

     We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for
purchases of our products and services, or delay those purchases. As a result,
our business, results of operations or financial condition could be materially
adversely affected.

     We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. We may experience

                                       27
<PAGE>   30

material problems and costs with Year 2000 compliance that could adversely
affect our business, results of operations and financial condition.

     We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
material. Finally, we are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failure interruptions.

CONVERSION TO EURO

     Certain of the common member countries of the European Union have agreed to
adopt the Euro as their legal currency. We have established plans and begun
developing the necessary modifications for the technical adaptation of our
internal information technology and other systems to accommodate Euro-
denominated transactions. We expect to be able to process Euro-denominated
transactions on a timely basis. We are also assessing the business implications
of the conversion to the Euro, including long-term competitive implications and
the effect of market risk with respect to financial instruments. We do not
believe the Euro will have a significant effect on our business, financial
position, cash flows or results of operations. We will continue to assess the
impact of Euro conversion issues as the applicable accounting, tax, legal and
regulatory guidance evolves.

MARKET RISK

     SilverStream does not currently use derivative financial instruments. We
generally place our marketable security investments in high credit quality
instruments, primarily U.S. Government and Federal Agency obligations,
tax-exempt municipal obligations and corporate obligations with contractual
maturities of ten years or less. We do not expect any material loss from our
marketable security investments and therefore believe that our potential
interest rate exposure is not material.

     Internationally, SilverStream invoices customers primarily in local
currency. We are exposed to foreign exchange rate fluctuations from when
customers are invoiced in local currency until collection occurs. We do not
currently enter into foreign currency hedge transactions. Through March 31,
1999, foreign currency fluctuations have not had a material impact on our
financial position or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

     In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance for accounting for costs of software products developed or
purchased for internal use, including when costs should be capitalized. The
adoption of this standard did not have a material effect on our financial
condition or results of operations.

     In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. The adoption of
this standard did not have a material effect on our financial condition or
results of operations.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including 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, 1999.
We are presently analyzing the impact, if any, that the adoption of SFAS No. 133
will have on our financial condition or results of operations.

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<PAGE>   31

                                    BUSINESS

OVERVIEW

     SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. The advantages of Web-based technology are driving the creation of a
new generation of business-transforming software applications. These powerful
Web-based applications link a broad universe of customers, vendors, employees
and partners with multiple, diverse data sources. Our products and services help
our customers to rapidly develop Web applications that are scalable, reliable
and secure. Using our products and services, organizations can create and deploy
robust Web applications in diverse areas such as e-commerce, employee
self-service, supply chain management, customer service and work flow
management.

     Our products consist of an application server, an integrated set of
development tools and enterprise data connectors. The SilverStream Application
Server tightly integrates data sources, business logic and presentation of
content to the user. Using our Application Server, our customers can seamlessly
access information and data from diverse sources. Our customers can design their
applications to include the rules that govern the way the application operates,
the business logic, that are consistent with their business policies. Our
products allow the business logic to be maintained centrally and therefore
easily changed and instantly implemented. The SilverStream Application Server
maintains the presentation, or look and feel, of the application centrally and
presents content to the user locally, without the need to install application
software on the user's remote computer. Our development tools shorten the time
to market by simplifying the development process required to build complex Web
applications. We also offer comprehensive application engineering,
implementation, training and support services to help ensure the successful
development and implementation of Web applications by our customers.

     We market our products and services globally through our direct sales force
and a network of independent software vendors, value-added resellers and
consulting and training partners. To date, we have licensed the SilverStream
Application Server to over 500 customers in a wide variety of industries,
including communication, financial services, government, manufacturing, oil and
gas, pharmaceutical, technology and transportation. Our customers include ARCO,
Bankers Trust, Enron, Federal Express, Hewlett-Packard, Johnson & Johnson, MCI
WorldCom, NASA, Pfizer, Raytheon, Samsung, SBC Communications, Siemens,
StorageTek, The Chicago Stock Exchange, The United States Army, UPS and The Walt
Disney Company.

INDUSTRY BACKGROUND

     During the last 40 years, computer-based business applications have evolved
through three fundamental architectures: mainframe, client/server, and, now,
Web-based computing. The introduction of each of these architectures has created
opportunities to develop new applications for businesses. Business application
computing began with the mainframe, which enabled centralized control of these
applications, but gave limited access to users. The development of personal
computers and the widespread adoption of local area networks provided the
foundation for client/server computing, which gave more users greater access to
information and applications, but sacrificed centralized control.

     Web-based computing combines the benefits of prior computing architectures
with far greater accessibility for networked, mobile and remote users. Today,
organizations are extending their enterprises by using the Internet to connect
their customers, vendors, employees and partners. To link their constituencies
across these extended enterprises, organizations are creating Web applications
that enable the dynamic delivery of information and transactional capabilities.
The increasing use of Web-based computing by organizations reflects the ability
of these powerful Web applications to fundamentally transform the way these
organizations operate. Application servers enable organizations to create,
deploy and manage these Web applications. Forrester Research, an independent
research firm, estimates that the market for application server software will
grow from $412 million in 1998 to $2.2 billion by 2002.

     Organizations often employ Web applications to conduct "e-business," which
refers to business-to-business, business-to-employee and business-to-consumer
transactions and communications conducted through the use of Internet
technology. These organizations recognize that if they are able to offer
easy-to-

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<PAGE>   32

access, compelling, real-time applications as a means of transacting business,
they can create closer and more enduring business relationships, new
efficiencies and significant competitive and strategic advantages. As a result
of these benefits, the e-business market is large and growing rapidly. Forrester
Research estimates that Internet-based business-to-business trade, the subset of
e-business that encompasses the trade of goods and services in which the final
order is placed over the Internet, will grow from $43 billion in 1998 to over $1
trillion in 2003.

     In order to compete in this dynamic e-business environment, organizations
need comprehensive, integrated solutions that enable the creation of powerful
Web-based applications, shorten the time-to-market for initial deployment and
allow rapid updates and changes. To capitalize on the new opportunities afforded
by Web applications, organizations must overcome several challenges:

<TABLE>
<S>                                           <C>                                                   <C>
--------------------------------------------------------------------------------------------------------
CHALLENGE                                     CUSTOMER NEED
--------------------------------------------------------------------------------------------------------
  Data stored in multiple diverse data        - Ability to aggregate and manipulate data from
     sources                                    multiple diverse sources
                                              - Ability to present seamless, easy-to-use interface
                                                to data
  Heterogeneous, incompatible legacy          - Standards-based, open Web development environment
  software applications and computer          - Interoperability of Web applications among legacy
  platforms                                     applications and platforms
                                              - Preservation of investment in legacy resources
  Availability of business-critical Web       - Rapid response time for users
  applications                                - Secure, controlled access
                                              - Reliable performance and up time
  Accessibility by unknown and unpredictable  - Scalability
  user community                              - Compatibility with various popular user interfaces
  Ability to manage and update Web            - Centralized business logic
  applications                                - Centralized command and control functionality
  Time to market in an environment with       - Integrated, powerful and easy-to-use development
  limited information technology resources      environment
                                              - Rapid development, deployment and modification of
                                                Web applications
--------------------------------------------------------------------------------------------------------
</TABLE>

     To meet these challenges, organizations have been required to use multiple
development tools, programming languages and applications from different
vendors. As a result, organizations have typically had to rely on custom
programming and complex integration activities to develop their Web
applications, which have often been difficult and expensive to create, deploy
and manage.

THE SILVERSTREAM SOLUTION

     SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. Organizations use our products for such diverse Web applications as e-

                                       30
<PAGE>   33

commerce, employee self-service, supply chain management, customer service and
workflow management. Our products and services provide the following benefits:

     Enable Creation and Deployment of Business-Focused Web
Applications.  Business-focused Web applications enable the dynamic delivery of
information and transactional capabilities to a broad group of users. Our
products provide a scalable, reliable, secure and manageable platform for Web
applications that addresses the unpredictable traffic volumes and patterns and
other challenges faced by Web applications. By addressing performance,
connectivity and security issues, our products allow customers to focus their
resources on the business elements of their Web applications such as reaching
new customers, developing new businesses, providing superior customer service,
shortening supply cycles and improving the flow of information.

     Extend Reach of Applications and Simplify Administration.  The SilverStream
Application Server allows organizations to leverage the advantages of thin
client computing, which eliminates the need for application software to be
installed on the user's computer. Our Application Server allows users to access
Web applications through common, easy-to-use Web browsers and other graphical
interfaces. The central location of Web applications permits organizations to
rapidly modify and deploy applications, enabling organizations to respond
quickly to evolving business requirements. These benefits allow organizations to
extend Web applications to a broader audience and assist these organizations in
reducing their administrative and maintenance costs.

     Enable Creation of Applications that Access Multiple Information
Sources.  The existence of diverse systems, information and data sources often
results in stand-alone applications that are unable to interact with one
another. SilverStream's products allow Web applications to access information
and data seamlessly from various sources, such as relational databases, host
applications, enterprise resource planning systems and document management
systems. By using our products, customers can focus on the design and
functionality of strategic Web applications to create comprehensive solutions
while preserving their investments in legacy systems.

     Reduce the Complexity of Developing Web Applications.  SilverStream's
integrated set of development tools provide a common development environment and
a consistent look and feel that span multiple, diverse technologies, such as
Hyper-Text Markup Language (HTML), Java and reusable software objects. We
provide a consistent development interface that is familiar to application
developers and we offer powerful development functionality. Our products and
related consulting, education and support services enhance the productivity of
Web application developers, allowing our customers to leverage the existing
capabilities of their development staff in an environment where skilled Web
application developers are in short supply.

STRATEGY

     Our objective is to enhance our position as a leading global provider of
application server software and related products and services. To achieve this
goal, we are pursuing the following strategies:

     Capture Emerging Market Opportunity.  The market for Web-based application
servers is relatively new. We believe that it is important to reach customers at
an early stage of their adoption of Web technology. We intend to expand our
customer base by seeding a large number of accounts with our products and
offering a range of services to help ensure that initial implementations are
successful. We plan to leverage these initial successes by selling additional
application servers as customers expand their initial deployments and develop
new Web applications.

     Extend Technology Leadership.  We intend to enhance our leadership position
by increasing the performance, functionality and ease of use of our Application
Server and by integrating new technologies into our products. We will continue
to devote substantial resources to the enhancement of our application server
software. The next release of our Application Server, Version 3.0, is expected
to include improvements to the programming environment as well as support for
computing standards such as Enterprise JavaBeans (EJB) and Java2, and
third-party development tools such as Inprise's JBuilder and Symantec's Visual
Cafe. We intend to leverage our core technology by developing and selling
additional complementary products. In early 1999, we introduced our Enterprise
Data Connectors, which facilitate connections to popular business applications
such as SAP, Lotus Notes and PeopleSoft.

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<PAGE>   34

     Maintain Commitment to Open Standards and Interoperability.  We plan to
continue to support open standards in our Application Server to facilitate
interoperability with major databases, operating systems, network protocols and
hardware platforms. Our Application Server currently supports standards for
programming languages such as HTML and Java, as well as standards for
communication protocols, security mechanisms, and directory and relational
database access. By supporting open standards, we are able to market our
products to a broad range of customers who can then choose among the hardware,
software and networking technologies that best serve their needs without
sacrificing performance, functionality or flexibility.

     Leverage Professional Services Capabilities.  As Web-based technologies
have become increasingly important to our customers, there has been increased
demand for comprehensive service offerings. By offering our clients a full range
of professional services on a global basis, we promote the rapid success of
customer projects, creating significant opportunities to sell additional
software licenses to our customers. We intend to increase the size of our
service organization worldwide. In addition, we intend to augment our service
offerings by developing and strengthening our strategic relationships with
systems integrators, training partners and consultants.

     Expand Worldwide Sales Efforts.  To expand our sales to both new and
existing customers, we plan to continue to pursue a multi-channel distribution
strategy that includes both our direct sales force and relationships with
independent software vendors, value-added resellers and consulting and training
partners. We currently have ten offices throughout North America and plan to
continue to expand our North American sales staff. We also plan to continue
expansion of our international presence by establishing additional overseas
offices, adding direct sales personnel and increasing our indirect sales and
services channels. We currently have four sales offices in Europe and three in
Asia. Our international sales accounted for approximately 27% and 32% of our
total revenue in 1998 and the first quarter of 1999, respectively.

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<PAGE>   35

PRODUCTS AND SERVICES

  PRODUCTS

     Our product offerings are summarized below:

<TABLE>
<S>                     <C>                                                  <C>                    <C>
--------------------------------------------------------------------------------------------------------
PRODUCT                 DESCRIPTION                                          SHIPMENT DATES
--------------------------------------------------------------------------------------------------------
  Application Server    Application server for the creation, deployment and  Version 2.5 shipped in
                          management of Web applications.                      May 1999. First
                                                                               version shipped in
                          Available for Windows NT, Solaris or HP-UX           November 1997.
                          operating systems.
                          Licensed on a per processor basis for unlimited
                          users with no per seat or per connection charges.
  Single Developer      A complete development and testing environment for   Version 2.5 shipped in
  Pack                    creating Web applications integrated with the        May 1999. First
  Group Developer Pack    SilverStream Application Server.                     version shipped in
  (5 or 10 Developers)                                                         November 1997.
                        The Single Developer Pack is for standalone
                          development on a single Windows NT machine.
                        The Group Developer Packs are for teams of up to 5
                          or 10 developers to work both independently on
                          their own computers and as a group. Includes 5 or
                          10 Single Developer Packs and a 5- or 10-user
                          SilverStream Application Server for group testing
                          on Windows NT, Solaris or HP-UX operating
                          systems.
                        Each of the Developer Packs is priced and sold
                          separately.
  Enterprise Data       Products that provide connections to SAP, Lotus      First shipped in April
  Connectors              Notes and PeopleSoft applications.                   1999.
                        Each Enterprise Data Connector is priced and sold
                          separately.
--------------------------------------------------------------------------------------------------------
</TABLE>

  SERVICES

     As part of our ongoing commitment to provide a complete solution for our
customers, we offer comprehensive consulting, education and technical support
services that complement our product offerings. As of May 31, 1999, our services
organization comprised 50 professionals.

     To complement our service organization, we train and promote a broad
network of SilverStream partners, ranging from international consulting firms to
local consultants that offer consulting, education and technical support
services. Our customers are encouraged to engage consultants, instructors and
developers whose proficiency with our products has been certified by us and who
have been designated Certified SilverStream Developers or Certified SilverStream
Field Application Engineers.

     Consulting Services.  We provide application engineering and implementation
services to assist our customers in developing and implementing Web applications
using our products. Consulting services include advisory, prototyping, design,
test and configuration, deployment and tuning services, and technical account
management services. We generally provide our consulting services on a time and
materials basis.

                                       33
<PAGE>   36

     Education Services.  We offer our customers and partners introductory and
advanced training in the use of our software products. Our employees as well as
Certified SilverStream Trainers offer our training classes around the world. We
price these services by course.

     Technical Support Services.  We believe that a high level of technical
support services is critical to our customers' success and an important
competitive advantage. We offer technical support to our customers, ranging from
dedicated on-site support personnel, to telephone support from our Burlington
and Belgium offices during normal business hours, to 24-hour on-line support
available through our Website. The pricing of our technical support services
varies according to the level of support required.

PRODUCT ARCHITECTURE

     The SilverStream Application Server is a tightly integrated platform that
incorporates components and features required to create, deploy and manage
highly scalable and sophisticated Web applications. The fundamental components
of the architecture are shown below:
[Narrative description of graphic material omitted in electronically filed
document]
This is a detailed graphic outlining the fundamental components of the
SilverStream Application Server architecture:
1. At the bottom is a horizontal three-dimensional rectangle entitled
   "Enterprise Deployment Services," which rectangle includes four boxes
   entitled "Scalability," "Reliability," "Security" and "Manageability."
2. On top of the rectangle are three vertical three-dimensional rectangles:
    a. The vertical rectangle on the left is entitled "Presentation Layer," and
       includes two boxes entitled "HTML" and "Java"
    b. The vertical rectangle in the middle is entitled "Business Logic Layer,"
       and includes three boxes entitled "Distributed Objects," "Transactions"
       and "Content Management"
    c. The vertical rectangle on the right is entitled "Data Access Layer," and
       includes two boxes entitled "Data Access Objects" and "Enterprise Data
       Connectors"
3. Above the three rectangles and connected to each by thin lines is a
   horizontal three-dimensional rectangle entitled "Development Tools."
4. To the left of the rectangle entitled "Presentation Layer" are two computer
   icons under the title "Users." There is a two-way arrow between the rectangle
   and the icons.
5. To the right of the rectangle entitled "Data Access Layer" are three
   three-dimensional cylinders under the title "Data." There is a two-way arrow
   between the rectangle and the cylinders.]

  PRESENTATION LAYER

     Presentation refers to the user interface layer of an application. This is
where the user interacts with the application by entering data, using menus and
hyperlinks, and viewing dynamically generated pages containing data and rich
content. Our products allow developers to support both HTML and Java graphical
user interfaces. HTML has the advantage of quickly running in any Web browser.
Java has the advantage of providing a much richer interactive user interface
that is similar to that of a Microsoft Windows application, but requires an
initial download of some software. Typically, our customers choose to mix both
technologies in a single application, using HTML for Internet users and Java for
intranet users who interact heavily with the application.

          HTML.  The SilverStream Application Server incorporates a powerful
     engine for generating dynamic HTML pages that contain data and rich
     content. Developers can design their HTML pages either by writing industry
     standard Java Servlets, or using a graphical page designer which generates
     Servlets automatically.

          Java.  The SilverStream Application Server enables the secure
     development, downloading and running of graphic Java applications. Java
     applications are stored centrally in the SilverStream Application Server
     and are downloaded on demand to browsers on remote user computers via the
     Web. Our Application Server also provides a Java application runtime called
     JRunner which allows the same Java applications to run without a browser,
     behaving more like a full Windows application. JRunner also provides for
     the download of applications on demand, providing the feel of a

                                       34
<PAGE>   37

     client/server application, but without requiring the application to be
     installed or maintained on each remote computer.

  BUSINESS LOGIC LAYER

     Business logic is the set of rules that a Web-based application follows,
based on the customer's business policies. For example, in a supply-chain Web
application, business logic defines how items such as discounts, freight and
state tax are calculated, how products are re-ordered and how a customer's
credit limit is checked. In a Web-based application, it is usually desirable to
separate the business logic from the user interface. This makes it easier to
change the business logic and maintain the application.

          Distributed Objects and Transactions.  The SilverStream Application
     Server provides a complete set of tools that allows developers to create
     re-usable business objects that encapsulate their business logic. We also
     provide powerful capabilities for managing transactions involving multiple
     tables. In our next version of the SilverStream Application Server, Version
     3.0, we intend to provide support for the industry standard Enterprise
     JavaBeans version 1.1. This is intended to allow customers to distribute
     objects across the network and control transactions across objects.

          Content Management.  In addition to its primary focus on structured
     data, our Application Server also provides a set of features to manage rich
     content such as product catalogs, news articles, financial research,
     documents, Adobe Acrobat PDF files, graphics, and photographs. These
     features include full text retrieval, file upload/download, version control
     and a powerful HTML Edit Control written in Java. These features allow
     developers to create Web applications such as e-commerce sites and
     corporate portals that combine rich content with transactions.

  DATA ACCESS LAYER

     The data access layer provides connectivity to multiple disparate data
sources. The SilverStream Application Server provides high performance drivers,
using industry standard Java Database Connectivity (JDBC), for relational
databases, including Oracle, DB/2, Sybase, Microsoft SQL Server, Informix and
others. For non-relational data sources, our Application Server provides an
architecture known as data source objects. Customers, partners and consultants
can write data source objects to connect to a wide range of data sources. To
simplify the creation of data source objects, we offer our Enterprise Data
Connectors that allow customers to easily create data source objects for SAP,
Lotus Notes and PeopleSoft. Our partners offer a wide range of additional
enterprise data connectors for data sources such as CICS, MQ Series, Tuxedo, Top
End and Encina.

  ENTERPRISE DEPLOYMENT SERVICES

     Enterprise-class Web applications, which consist of connectivity, business
logic and presentation, require the following attributes:

          Scalability.  The SilverStream Application Server utilizes a number of
     techniques such as database connection pooling and thread pooling to
     deliver very high performance and throughput across multiple processors in
     a single server machine. Our Application Server also offers near linear
     scalability using load-balanced clusters of servers. This allows our
     customers to handle increased load simply by adding more machines to the
     cluster.

          Reliability.  SilverStream's advanced failover capabilities are
     designed to ensure that customers' applications remain operational even
     when a server fails. SilverStream's session-level failover feature enables
     users to continue operations uninterrupted with seamless recovery of their
     transactional data even when the server to which they were previously
     connected fails.

          Manageability.  The SilverStream management console provides a full
     interface to monitor server performance, manage clusters, database
     connections, security, and other settings. SilverStream provides a standard
     network management protocol to interoperate with existing enterprise
     systems management software such as Tivoli's TME, Computer Associates'
     Unicenter, or Hewlett-Packard's OpenView. SilverStream's Application Server
     allows an application to be updated without taking the server or cluster
     down.

          Security.  Our product provides a complete set of features for
     encryption, authentication and access control that are required to create
     highly secure applications. In addition to providing its own

                                       35
<PAGE>   38

     directory, our Application Server is also able to interface to directories
     such as Windows NT, NIS+ and those that are standard Lightweight Directory
     Access Protocol (LDAP) compliant.

  INTEGRATED DEVELOPMENT TOOLS

     SilverStream provides a rich set of development tools that are tightly
integrated with the functionality provided by the SilverStream Application
Server. These include several visual designers for HTML pages, Java
applications, business objects and content management. Also included are a
programming editor, context sensitive help, a repository, a debugger and
facilities for integrating with popular source control products. SilverStream's
integrated development tools consist of the following graphical designers:

          Page Designer.  SilverStream development tools allow developers to
     design their HTML pages by writing either industry standard Java Servlets,
     or using SilverStream's Page Designer which creates Servlets graphically.
     SilverStream's Page Designer offers a visual, object-oriented, event-driven
     programming model that makes the development of data-driven dynamic pages
     far easier and faster than coding them manually. Developers drag and drop
     elements onto a page from a tool palette, set properties using a property
     sheet, and then define the behavior of the elements by writing Java code
     that is executed at the server whenever an event is generated (for example,
     when a user clicks a button). Unlike competing alternatives that embed
     scripts inside HTML pages, this technique leverages the existing skills of
     developers who have worked with products such as PowerBuilder or Visual
     Basic.

          Form and View Designers.  SilverStream provides a development
     environment for generating graphic Java applications. The development
     environment is similar to the Page Designer, with a common look and feel.
     The Form Designer allows developers to build graphical forms, typically
     displaying data. The View Designer is frequently used in conjunction with
     the Form Designer to display data in a multi-row presentation.

          Object Designer.  The Object Designer allows developers to create
     business logic written in Java, that will typically reside on the
     application server and may be reused by other applications. These objects
     may use any of the services offered by the SilverStream Application Server,
     including connecting to data sources. They may also be triggered by events
     like the receipt of an e-mail or a request to modify a specific piece of
     data.

CUSTOMERS

     Our customer base spans multiple industry segments. The following is a
representative list of our customers. We do not intend the identification of
these customers to imply that these customers are actively endorsing or
promoting our products.

                                       36
<PAGE>   39

<TABLE>
<S>                     <C>                     <C>
COMMUNICATION           MANUFACTURING           TECHNOLOGY
Ameritech               Fuji Photo              Advanced Micro
MCI WorldCom            Owens Illinois            Devices
Nortel                  Raytheon                Hewlett-Packard
SBC Communications      Samsung                 Siebel Systems
                                                StorageTek
MEDIA                   ENERGY                  TRANSPORTATION
TCI Communications      ARCO                    Federal Express
The Walt Disney         Conoco                  Southwest Airlines
Company                 Enron                   UPS
FINANCIAL SERVICES      GOVERNMENT              OTHER
Bankers Trust           Federal Home Loan Bank  AAA
Bank One                Federal Reserve Bank    Dupont
Citicorp                of  New York            InterContinental Hotels
J.P. Morgan             Internal Revenue        Polaroid
The Chicago Stock       Service                 Red Herring
  Exchange              NASA                    Sears, Roebuck
Transamerica            The United States Army
                        PHARMACEUTICAL
                        Johnson & Johnson
                        Pfizer
</TABLE>

     The following case studies illustrate the challenges faced by
representative customers in deploying business applications and the benefits
derived from developing and deploying these applications using our Application
Server.

  GLOBAL TRAVEL COMPANY

     The travel agency industry has recently undergone changes due to reduced
commissions from airlines, hotels and rental car companies. To remain
competitive, a global travel company needed to be able to create rapidly many
travel product offerings while providing superior service through travel
agencies and via direct, self-service over the Internet. The company's
requirements included the maintenance of customer profiles in a relational
database, as well as access to a diverse set of airline, hotel and other
reservation systems. Travel agent experts needed to be able to perform the
complex transactions required to plan multi-leg trips, including air travel,
hotel, car rental and dinner and theater reservations.

     The travel company selected the SilverStream Application Server and
deployed its Web-based application in two phases. In the first phase, the
company rolled out the application to its affiliated travel agencies.
SilverStream's connectivity features were used to maintain customer profiles and
access travel services. In the second phase, the company used SilverStream's
HTML capability to provide a simpler, browser-based interface to customers via
the Internet. By using the SilverStream Application Server, the company was able
to provide more efficient processing by travel agents and better customer
service, while offering the option of self-service to customers. The
SilverStream Application Server enabled the company to adapt its travel
offerings to meet changing market demands and to serve its customers more
efficiently.

  NATIONAL INSURANCE PROVIDER

     An insurance company provides coverage through a network of thousands of
geographically dispersed independent agents. A claim goes through a complex
process inside the company, during which critical information is available to
agents only on a limited basis by telephone inquiry. The customer wanted to
streamline its claims-handling process by providing its agents direct access to
data and information, including daily claim status, claims adjusters' notes and
monthly account activity. However, the claim and

                                       37
<PAGE>   40

account information was stored in separate relational databases and agents had
widely differing hardware and software packages and platforms.

     The customer used the SilverStream Application Server to build and deploy
an application in approximately five months. Agents now have broad access to
relevant, up-to-date information about individual claims and accounts, including
powerful search capabilities. The insurance company is enhancing the application
to give each agent access to all information and services relevant to such
agent's relationship with the company. By using the SilverStream Application
Server, the customer was able to reduce inefficiencies in its claims-handling
process by allowing its nationwide network of agents to access relevant data and
information easily and securely, regardless of the user's computer and
networking system and without local administration.

  GLOBAL SUPPLIER OF COMPUTER STORAGE DEVICES

     A supplier of computer storage devices provides a constantly changing
selection of thousands of sophisticated technology products. These products are
sold by hundreds of direct employees and thousands of distributors worldwide.
The answers to the distributors' many detailed questions were typically hard to
find or unavailable when needed. As part of a strategic growth initiative, the
customer needed to build a repository of support and marketing information that
could be easily accessed across the globe. The source of this information was
hundreds of sales and service employees, who created information about the
products in a broad variety of ways, ranging from data sheets to video clips.
The customer needed an application that would let employee "content creators"
easily place information in a repository in whatever form they wished and then
have that information easily accessible by distributors worldwide. These
distributors had a variety of abilities and had a diverse set of platforms.

     The solution was to use SilverStream's products to build a content-rich,
intranet/extranet application. Employees can use an intranet application to
create and manage content. Using a thin Java client, that requires no local
administration, employees are able to find and select "documents," annotate
them, associate them with products and attach any kind of file, including
Microsoft Word or PowerPoint files or even video clips. Documents can be
prioritized, versioned and secured to limit access. The intranet application
also provides usage reports and allows for the specification of expiration
dates. Distributors, using a standard browser, can log in and search for desired
topics. Search requests can be extremely complex, using a variety of criteria,
and may return multiple, prioritized answers. The attached files may then be
viewed or downloaded. This new repository efficiently links a community of
information providers and distributors with a database that is expected to grow
beyond a terabyte in the near future.

SALES, MARKETING AND DISTRIBUTION

     We market our products through a worldwide combination of a direct sales
force, partners and distributors. As of May 31, 1999, our sales and marketing
organization consisted of 76 employees, of which:

     - 25 are located in our headquarters in Burlington, Massachusetts,

     - 28 are located in sales offices in North America, and

     - 23 are located in sales offices in the United Kingdom, The Netherlands,
       Belgium, Germany, Hong Kong, Singapore and Taiwan.

     We have four types of partners that either sell, or help us sell, our
products:

     - Value added reseller partners, or VAR partners, resell our products to
       customers;

     - Consulting partners introduce new potential customers to us and provide
       consulting services to our customers;

     - Training partners offer training and educational courses to our
       customers; and

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<PAGE>   41

     - Independent software vendor partners, or ISV partners, use our products
       to create their own software products.

     As of May 31, 1999, we had approximately 190 partners in the United States
and Canada and over 200 partners in the rest of the world.

     Our products are also sold in the Czech Republic, France, Japan,
Scandinavia, South Africa, South America and Spain, through distributors who
sell our products and provide consulting, training and educational courses to
customers in those countries. In Japan, our distributor has translated our
products into Kanji. Our products allow customers to create applications in
different languages.

     We also have marketing relationships with other companies who have products
that work well with our products. Our SilverNet technology partners are
comprised of companies who have created commercial products which complement our
products or who market and sell these complementary products. As of May 31,
1999, we had 62 SilverNet technology partners, including Actuate, IBM,
PeopleSoft, Rational and SAP. We work with SilverNet partners to help make it
easier for customers to use our products with the SilverNet partners' products.

     Our marketing programs are designed to attract potential customers so that
we, or one of our partners, can demonstrate our products directly to potential
customers. We hold many seminars, some with our partners, send out direct mail
and attend trade shows, and provide information about our company and our
products on our Web site. We also conduct public relations activities, including
interviews and demonstrations for industry analysts and product reviewers.

RESEARCH AND DEVELOPMENT

     As of May 31, 1999, we had 45 employees responsible for product
development, quality assurance and documentation. Our research and development
organization is divided into five teams: server, client, application
development, quality assurance and documentation.

     We are very focused on enhancing the scalability, performance and
reliability of our Application Server. Our quality assurance department has a
dedicated performance and tuning laboratory designed to improve the performance
of customers' Web-based applications. This laboratory has the ability to
simulate up to 12,000 simultaneous users communicating with SilverStream
Application Servers running on as many as 32 processors on a dedicated 100
megabits per second network.

     We have made, and will continue to make, a substantial investment in
research and development. Research and development expenses were $2.6 million in
1997, $5.1 million in 1998 and $1.5 million in the first quarter of 1999. All of
our software development costs have been expensed as incurred.

     While we have developed, and expect to continue to develop, most new
products and enhancements to existing products internally, we have licensed
certain software technology from third parties. See "Risk Factors -- Risks
Related to Our Business -- We Rely on Third-Party Software and Technology."

COMPETITION

     The market for application server software products is intensely
competitive, subject to rapid technological change and significantly affected by
new product introductions and other market activities of industry participants.
We expect competition to persist and intensify in the future. Our primary
sources of competition include vendors of application server software and
services, such as BEA Systems, IBM, Microsoft, Oracle and Sun Microsystems, as
well as in-house development efforts by potential customers or partners. In
addition, we compete with numerous other developers of business application
software. We believe that the principal competitive factors in our industry
include product performance and functionality, ease of use, scalability, ability
to integrate external data sources, product and company reputation, customer
support and price. See "Risk Factors -- Risks Related to Our Business -- Our
Markets are Highly Competitive and We May Not Continue to Compete Successfully."

                                       39
<PAGE>   42

PROPRIETARY RIGHTS AND LICENSING

     Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology. We presently have five patent
applications pending in the United States. We cannot predict whether any of
these applications will result in any issued patents or, if patents are issued,
any meaningful protection. We seek to protect our source code for our software,
documentation and other written materials under trade secret and copyright laws.
We license our software pursuant to "shrinkwrap" and, in some cases, signed
license agreements, which impose certain restrictions on the licensee's ability
to utilize the software. Finally, we seek to limit disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our source code. Due to rapid technological change, we
believe that factors such as the technological and creative skills of our
personnel, new product developments and enhancements to existing products are
more important than the various legal protections of our technology to
establishing and maintaining a technology leadership position.

     Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of our
software exists, software piracy can be expected to be a persistent problem. In
addition, the laws of many countries do not protect our proprietary rights to as
great an extent as do the laws of the United States. Litigation may be necessary
in the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement or invalidity. Any such resulting
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition. There can be no assurance that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business,
operating results and financial condition.

     There can be no assurance that third parties will not claim infringement
with respect to our current or future products. We expect that developers of
Web-based application software products will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and as the functionality of products in different segments of the
software industry increasingly overlaps. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
us to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all. A successful infringement claim against us and our failure or inability to
license the infringed rights or develop or license technology with comparable
functionality could have a material adverse effect on our business, financial
condition and operating results. See "Risk Factors -- Risks Related to Our
Business -- Protection of Our Intellectual Property is Limited."

     We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms. If
we cannot maintain licenses to this third-party software, distribution of our
products could be delayed until equivalent software could be developed or
licensed and integrated into our products, which could materially adversely
affect our business, operating results and financial condition.

                                       40
<PAGE>   43

EMPLOYEES

     As of May 31, 1999, we had a total of 195 employees of whom:

     - 45 were in research and development;

     - 76 were in sales and marketing;

     - 50 were in customer service and support; and

     - 24 were in finance and administration.

     Our future success will depend in part on our ability to attract, retain
and motivate highly qualified technical and management personnel, for whom
competition is intense. Our employees are not represented by any collective
bargaining unit. We believe our relations with our employees are good.

PROPERTIES

     Our headquarters are currently located in a leased facility in Burlington,
Massachusetts, consisting of approximately 40,000 square feet under a sublease
that expires in July 2000. We have also leased offices for sales and support
personnel in North America, Europe and Asia. See "Risk Factors -- Risks Related
to Our Business -- We Must Manage Our Growth and Expansion."

LEGAL PROCEEDINGS

     We are not a party to any material legal proceedings.

                                       41
<PAGE>   44

                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The executive officers and directors of SilverStream and their ages and
positions as of May 31, 1999 are as follows:

<TABLE>
<CAPTION>
NAME                                        AGE   POSITION
----                                        ---   --------
<S>                                         <C>   <C>
David R. Skok.............................  43    Chairman of the Board of Directors
David A. Litwack..........................  52    President, Chief Executive Officer and Director
Peter E. Brumme...........................  49    Executive Vice President, Sales and Marketing
Craig A. Dynes............................        Vice President, Chief Financial Officer and
                                            44    Treasurer
Arnold S. Epstein.........................  49    Vice President and Chief Technology Officer
Diane Gordon..............................  40    Vice President, Customer Services
John W. Pearce............................  45    Vice President, International Operations
Kim A. Sheffield..........................  43    Vice President, Research and Development
Timothy Barrows...........................  42    Director
Richard A. D'Amore........................  45    Director
Paul J. Severino..........................  52    Director
</TABLE>

     David R. Skok founded SilverStream and has served as our Chairman of the
Board of Directors since our inception and as our President and Chief Executive
Officer from May 1996 to November 1996. He also served as our Treasurer from May
1996 to June 1999. Before founding SilverStream, Mr. Skok founded Watermark
Software, a document management and imaging company, and served as its President
and Chief Executive Officer from January 1993 until June 1996, following its
acquisition by FileNet. From September 1990 to December 1994, Mr. Skok also
served as Chief Executive Officer of Xionics Document Technologies, Inc., a
document imaging company. Mr. Skok also currently serves as a director of
Xionics.

     David A. Litwack has served as our President and Chief Executive Officer
since May 1997, and as a member of our Board of Directors since November 1996.
Before joining SilverStream, Mr. Litwack served as Executive Vice President of
Sybase Inc., an enterprise software company, from February 1995 to May 1997 and
as President of Powersoft Corporation, a client server development tools
company, from June 1991 to its acquisition by Sybase in February 1995. In
addition, Mr. Litwack is a director of Object Design, Inc.

     Peter E. Brumme has served as our Executive Vice President, Sales and
Marketing since January 1999 and was our Chief Operating Officer from January
1997 to December 1998. Prior to joining SilverStream, Mr. Brumme served as Chief
Operating Officer of Watermark from July 1995 to December 1996 and as Senior
Vice President, Sales and Marketing from April 1993 to June 1995.

     Craig A. Dynes has served as our Vice President and Chief Financial Officer
since July 1997 and as our Treasurer since June 1999. Prior to joining
SilverStream, Mr. Dynes served as Vice President of Finance, Products Group, of
Sybase from October 1996 to June 1997. Mr. Dynes served as Vice President of
Finance and Operations and Chief Financial Officer of Powersoft from August 1995
to October 1996, and as Chief Financial Officer of Watcom, a compiler software
company, from 1992 until July 1995, following its acquisition by Powersoft.

     Arnold S. Epstein has served as our Vice President and Chief Technology
Officer since July 1996. Prior to joining SilverStream, Mr. Epstein served as
Chief Technical Officer of Watermark from March 1993 to June 1996.

     Diane Gordon has served as our Vice President, Customer Services since
January 1999. Prior to joining SilverStream, Ms. Gordon served as Vice President
of Operations of Gartner Learning, an independent research company, from March
1997 to September 1998. From March 1991 to February 1997, Ms. Gordon served as
Director of Professional Services of Progress Software, a software company.

                                       42
<PAGE>   45

     John W. Pearce has served as our Vice President, International Sales since
January 1997. He also served as our Chief Financial Officer from July 1996 to
July 1997. Prior to joining SilverStream, Mr. Pearce served as Vice President,
International Sales and Chief Financial Officer of Watermark from January 1993
to June 1996.

     Kim A. Sheffield has served as our Vice President, Research and Development
since July 1996. Prior to joining SilverStream, Mr. Sheffield served as Vice
President of Research & Development, Powersoft Division of Sybase from February
1995 to June 1996. From 1988 to February 1995, Mr. Sheffield served in various
capacities with Powersoft including as Vice President of Engineering from July
1994 to February 1995.

     Timothy Barrows has served as a director of SilverStream since July 1996.
Mr. Barrows has been a General Partner of Matrix Venture Partners since 1984.

     Richard A. D'Amore has served as a director of SilverStream since July
1996. Mr. D'Amore has been a General Partner of North Bridge Venture Partners
since 1994. He is a director of Solectron Corporation, Veeco Instruments Inc.
and Xionics.

     Paul J. Severino has served as a director of SilverStream since May 1999.
Mr. Severino has served as the Chairman of NetCentric Corporation, a provider of
Internet protocol telephony applications, since August 1997 and Chief Executive
Officer since February 1998. Prior to that, he served as NetCentric's Acting
Chief Executive Officer from August 1997 to February 1998. He is a founder of
Wellfleet Communications, Inc., a supplier of internetworking communication
products, where he served as Chairman of the Board from October 1986 to October
1994. From October 1994 to October 1996, he served as Chairman of BayNetworks
after its formation from the merger of Wellfleet and Synoptics. Mr. Severino is
also a director of Media 100 Inc. and MTDC (Massachusetts Telecommunications
Development Corporation).

     Each executive officer serves at the discretion of the Board of Directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. There are no family relationships
among any of the directors or executive officers of SilverStream. Each of the
directors serves on the Board of Directors pursuant to the terms of an agreement
that will terminate upon the closing of this offering.

ELECTION OF DIRECTORS

     Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Skok and Barrows will serve in the class whose term expires in 2000;
Messrs. Litwack and D'Amore will serve in the class whose term expires in 2001;
and Mr. Severino will serve in the class whose term expires in 2002. Upon the
expiration of the term of a class of directors, directors in such class will be
elected for three-year terms at the annual meeting of stockholders in the year
in which such term expires. This classification of the Board of Directors may
have the effect of delaying or preventing changes in control or management of
SilverStream.

COMPENSATION OF DIRECTORS

     We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors. We may, in our discretion, grant
stock options and other equity awards to our non-employee directors from time to
time pursuant to our 1997 Stock Incentive Plan. On April 30, 1999, we granted to
Paul J. Severino an option to purchase 25,000 shares of common stock at a per
share exercise price of $8.00 under our 1997 Stock Incentive Plan in connection
with his joining our Board. Mr. Severino's option was fully vested upon grant.

BOARD COMMITTEES

     The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee, which consists of Messrs. Barrows,
D'Amore and Severino, reviews executive
                                       43
<PAGE>   46

salaries, administers our bonus, incentive compensation and stock plans, and
approves the salaries and other benefits of our executive officers. In addition,
the Compensation Committee consults with our management regarding our benefit
plans and compensation policies and practices.

     The Audit Committee, which consists of Messrs. Barrows, D'Amore and
Severino, reviews the professional services provided by our independent
accountants, the independence of such accountants from our management, our
annual financial statements and our system of internal accounting controls. The
Audit Committee also reviews such other matters with respect to our accounting,
auditing and financial reporting practices and procedures as it may find
appropriate or may be brought to its attention.

EXECUTIVE COMPENSATION

     The table below sets forth, for the year ended December 31, 1998, the cash
compensation earned by (1) our Chairman of the Board, (2) our Chief Executive
Officer and (3) each of the four most highly compensated other executive
officers who received annual compensation in excess of $100,000, collectively
referred to below as the Named Executive Officers. In accordance with the rules
of the Securities and Exchange Commission the compensation set forth in the
table below does not include medical, group life or other benefits which are
available to all of our salaried employees, and perquisites and other benefits,
securities or property which do not exceed the lesser of $50,000 or 10% of the
person's salary and bonus shown in the table. In the table below, columns
required by the regulations of the Securities and Exchange Commission have been
omitted where no information was required to be disclosed under those columns.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                               ANNUAL COMPENSATION
                                                              ---------------------
NAME AND PRINCIPAL POSITION                                   SALARY($)    BONUS($)
---------------------------                                   ---------    --------
<S>                                                           <C>          <C>
David R. Skok...............................................  $120,000     $     0
Chairman of the Board of Directors
David A. Litwack............................................   120,000           0
President and Chief Executive Officer
Peter E. Brumme.............................................   125,000      20,000
Executive Vice President, Sales and Marketing
John W. Pearce..............................................   125,000      20,000
Vice President, International Operations
Kim A. Sheffield............................................   120,000      20,000
Vice President, Research and Development
Arnold S. Epstein...........................................   120,000      20,000
Vice President and Chief Technology Officer
</TABLE>

STOCK OPTIONS

     We have not granted any stock options to our Named Executive Officers.

BENEFIT PLANS

     1997 Stock Incentive Plan.  Our 1997 Stock Incentive Plan was originally
adopted in February 1997 and was amended and restated in June 1999. Up to
3,500,000 shares of our common stock, subject to adjustment in the event of
stock splits and other similar events, may be issued pursuant to awards granted
under the 1997 Stock Incentive Plan. The 1997 Stock Incentive Plan provides for
the grant of incentive stock options intended to qualify under Section 422 of
the Internal Revenue Code, nonstatutory stock options, restricted stock awards
and other stock-based awards.

                                       44
<PAGE>   47

     Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the 1997 Stock Incentive
Plan. Under present law, however, incentive stock options may only be granted to
employees. No participant may receive any award for more than 250,000 shares in
any calendar year.

     Optionees receive the right to purchase a specified number of shares of our
common stock at a specified option price, subject to the terms and conditions of
the option grant. We may grant options at an exercise price less than, equal to
or greater than the fair market value of our common stock on the date of grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
may not be granted at an exercise price less than the fair market value of the
common stock on the date of grant, or less than 110% of the fair market value in
the case of incentive stock options granted to optionees holding more than 10%
of the voting power of SilverStream. The 1997 Stock Incentive Plan permits our
Board of Directors to determine how optionees may pay the exercise price of
their options, including by cash, check or in connection with a "cashless
exercise" through a broker, by surrender to us of shares of common stock, by
delivery to us of a promissory note, or by any combination of the permitted
forms of payment.

     As of May 31, 1999, 198 persons would have been eligible to receive awards
under the 1997 Stock Incentive Plan, including eight executive officers and
three non-employee directors. The granting of awards under the 1997 Stock
Incentive Plan is discretionary.

     Our Board of Directors administers the 1997 Stock Incentive Plan. Our Board
of Directors has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the plan and to interpret its
provisions. It may delegate authority under the 1997 Stock Incentive Plan to one
or more committees of the Board of Directors and, in limited circumstances, to
one or more of our executive officers. Our Board of Directors has authorized the
Compensation Committee to administer the 1997 Stock Incentive Plan, including
the granting of options to our executive officers. Subject to any applicable
limitations contained in the 1997 Stock Incentive Plan, our Board of Directors,
our Compensation Committee or any other committee or executive officer to whom
our Board of Directors delegates authority, as the case may be, selects the
recipients of awards and determines:

     - the number of shares of common stock covered by options and the dates
       upon which such options become exercisable;

     - the exercise price of options;

     - the duration of options; and

     - the number of shares of common stock subject to any restricted stock or
       other stock-based awards and the terms and conditions of such awards,
       including the conditions for repurchase, issue price and repurchase
       price.

     In the event of a merger, liquidation or other acquisition event, our Board
of Directors is authorized to provide for outstanding options or other
stock-based awards to be assumed or substituted for by the acquiror. If the
acquiror refuses to assume or substitute for outstanding awards, they will
accelerate and become fully exercisable and free of restrictions, prior to
consummation of the acquisition event.

     No award may be granted under the 1997 Stock Incentive Plan after June
2007, but the vesting and effectiveness of awards previously granted may extend
beyond that date. Our Board of Directors may at any time amend, suspend or
terminate the 1997 Stock Incentive Plan, except that no award granted after an
amendment of the 1997 Stock Incentive Plan and designated as subject to Section
162(m) of the Internal Revenue Code by our Board of Directors shall become
exercisable, realizable or vested, to the extent such amendment was required to
grant such award, unless and until such amendment is approved by our
stockholders.

     1996 Founders Stock Incentive Plan.  Our 1996 Founders Stock Incentive Plan
was adopted in May 1996 and authorized the issuance of up to 3,877,000 shares of
our common stock. From May 1996 to April 1997, an aggregate of 3,775,031 shares
of common stock was issued under the plan pursuant to

                                       45
<PAGE>   48

founders stock restriction agreements. As of May 31, 1999, an aggregate of
145,394 shares of common stock had been repurchased by SilverStream pursuant to
the terms of such agreements. No additional awards may be made under the 1996
Founders Stock Incentive Plan.

     1999 Employee Stock Purchase Plan.  Our 1999 Employee Stock Purchase Plan
was adopted by our Board of Directors in June 1999 and our stockholders will
also be asked to approve adoption of the plan. The 1999 Employee Stock Purchase
Plan authorizes the issuance of up to a total of 300,000 shares of our common
stock to participating employees.

     All of our employees, including directors who are employees, and all
employees of any participating subsidiaries:

     - whose customary employment is more than 20 hours per week for more than
       five months in a calendar year;

     - who have been employed by us for at least three months prior to
       enrolling; and

     - who are employed on the first day of a designated payroll deduction
       offering period

are eligible to participate in the 1999 Employee Stock Purchase Plan. Employees
who would immediately after the grant own five percent or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate. As of May 31, 1999, 151 of our employees would have been
eligible to participate in the 1999 Employee Stock Purchase Plan.

     On the first day of an offering period, we will grant to each eligible
employee who has elected to participate in the 1999 Employee Stock Purchase Plan
an option to purchase shares of common stock as follows: the employee may
authorize an amount (up to 10%, or such lesser amount as shall be determined by
the Board, of such employee's base pay) to be deducted from such employee's base
pay during the offering period. On the last day of the offering period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the 1999
Employee Stock Purchase Plan, the option exercise price is an amount equal to
85% of the closing price per share of the common stock on either the first day
or the last day of the offering period, whichever is lower. The first offering
period under the 1999 Employee Stock Purchase Plan will commence on the date on
which trading of our common stock commences on the Nasdaq National Market, with
the option price on the first day of such offering period equivalent to the
initial public offering price. In no event may an employee purchase in any one
offering period a number of shares which exceeds the number of shares determined
by dividing the product of (1) $2,083 and (2) the number of full months in the
offering period by the closing market price of a share of common stock on the
first business day of the offering period or such other number as may be
determined by the Board prior to the commencement date of the offering period.
The Compensation Committee may, in its discretion, choose an offering period of
12 months or less for each offering and may choose a different offering period
for each offering.

     An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or for
any other reason, is not entitled to exercise any option, and the employee's
accumulated payroll deductions will be refunded. However, upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated payroll
deductions in the participant's account would purchase at the date of death.

     Because participation in the 1999 Employee Stock Purchase Plan is
voluntary, we cannot now determine the number of shares of our common stock to
be purchased by any of our current executive officers, by all of our current
executive officers as a group or by our non-executive employees as a group.

     401(k) Plan.  On January 1, 1998, we adopted an employee savings and
retirement plan qualified under Section 401 of the Internal Revenue Code and
covering all of our employees. Pursuant to the 401(k) plan, employees may elect
to reduce their current compensation by up to the statutorily prescribed annual
limit and have the amount of such reduction contributed to the 401(k) plan. We
may make matching or additional contributions to the 401(k) plan in amounts to
be determined annually by our Board of Directors.

                                       46
<PAGE>   49

                              CERTAIN TRANSACTIONS

PREFERRED STOCK ISSUANCES

     Since our incorporation in May 1996, we have issued and sold shares of
preferred stock to the following persons and entities who are our executive
officers, directors or principal stockholders. For more detail on shares held by
these purchasers, see "Principal Stockholders."

<TABLE>
<CAPTION>
                                                  SERIES A     SERIES B     SERIES C     SERIES D
                                                  PREFERRED    PREFERRED    PREFERRED    PREFERRED
INVESTOR                                            STOCK        STOCK        STOCK        STOCK
--------                                          ---------    ---------    ---------    ---------
<S>                                               <C>          <C>          <C>          <C>
David R. Skok...................................   930,000      159,475       56,948       52,632
David A. Litwack................................   930,000      178,238       38,185       52,632
Peter E. Brumme.................................        --       11,257           --           --
John W. Pearce..................................        --        9,381           --           --
Kim A. Sheffield................................        --        9,381           --           --
Arnold S. Epstein...............................        --       11,257           --           --
Craig A. Dynes..................................        --        9,381           --           --
Matrix IV Management Co., L.P.(1)...............   870,000      375,235      113,896      134,210
North Bridge Venture Partners, L.P.(2)..........   870,000      375,235      113,896      105,263
Funds affiliated with Essex Investment
  Management Co., LLC (3).......................        --           --      455,581      342,105
</TABLE>

------------
(1) Composed of Matrix Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P.
    Matrix IV Management Co., L.P. is the general partner of each of Matrix
    Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P. Timothy Barrows, a
    director of SilverStream, is a general partner of Matrix IV Management Co.,
    L.P.

(2) Richard A. D'Amore, a director of SilverStream, is a general partner of
    North Bridge Venture Management L.P., which is the general partner of North
    Bridge Venture Partners, L.P.

(3) Composed of Essex Performance Fund, L.P., Essex High Technology Fund, L.P.,
    The New Discovery Fund Limited Ltd., Robertson Foundation and Essex Private
    Placement Fund, Limited Partnership.

     Series A Financing.  On July 9, 1996, August 15, 1996 and November 4, 1996
we issued an aggregate of 3,683,050 shares of Series A preferred stock to six
investors, including David R. Skok, David A. Litwack, Matrix and North Bridge.
The per share purchase price for our Series A preferred stock was $1.00.

     Series B Financing.  On June 16, 1997 and September 12, 1997, we issued an
aggregate of 1,500,938 shares of Series B preferred stock to 21 investors,
including David R. Skok, David A. Litwack, Peter E. Brumme, John W. Pearce, Kim
A. Sheffield, Arnold E. Epstein, Craig A. Dynes, Matrix and North Bridge. The
per share purchase price for our Series B preferred stock was $5.33.

     Series C Financing.  On November 6, 1997, December 24, 1997 and March 30,
1998, we issued an aggregate of 1,922,588 shares of Series C preferred stock to
35 investors, including David R. Skok, David A. Litwack, Matrix, North Bridge
and Essex. The per share purchase price for our Series C preferred stock was
$8.78.

     Series D Financing.  On March 1, 1999, April 9, 1999, April 14, 1999 and
May 27, 1999, we issued an aggregate of 1,552,632 shares of Series D preferred
stock to 25 investors, including David R. Skok, David A. Litwack, Matrix, North
Bridge and Essex. The per share purchase price for our Series D preferred stock
was $9.50.

                                       47
<PAGE>   50

COMMON STOCK ISSUANCES

     The following table presents selected information regarding our issuances
of common stock to our executive officers. On May 8, 1996, in connection with
our incorporation, we issued an aggregate of 1,000 shares of common stock to
David R. Skok. We issued the remaining shares of common stock pursuant to
founders stock restriction agreements with each of the executive officers which
give us certain rights to repurchase all or a portion of the shares at their
purchase price in the event that the executive officer ceases to be employed by
us. Each of the shares issued in 1996 had a purchase price of $.001 per share.
Each of the shares issued in 1997 had a purchase price of $.50 per share.

<TABLE>
<CAPTION>
EXECUTIVE OFFICER                                             DATE OF ISSUANCE    NUMBER OF SHARES
-----------------                                             ----------------    ----------------
<S>                                                           <C>                 <C>
David R. Skok...............................................      05/08/96               1,000
                                                                  07/09/96           1,122,000
David A. Litwack............................................      11/04/96           1,123,000
Peter E. Brumme.............................................      11/12/96             564,850
John W. Pearce..............................................      08/16/96             347,600
Kim A. Sheffield............................................      08/16/96             347,600
Arnold S. Epstein...........................................      08/16/96             451,880
Craig A. Dynes..............................................      11/02/97              70,000
</TABLE>

STOCK OPTION GRANTS

     On April 30, 1999, we granted to Craig A. Dynes, our Vice President, Chief
Financial Officer and Treasurer, an option to purchase 10,000 shares of common
stock at a per share exercise price of $8.00 under our 1997 Stock Incentive
Plan. Mr. Dynes' option shall vest 20% on April 30, 2000 and then quarterly for
four years.

     On April 30, 1999, we granted to Diane Gordon, our Vice President, Customer
Services, an option to purchase 5,000 shares of common stock at a per share
exercise price of $8.00 under our 1997 Stock Incentive Plan. Ms. Gordon's option
shall vest 20% on April 30, 2000 and then quarterly for four years.

     On April 30, 1999, we granted to Paul J. Severino an option to purchase
25,000 shares of common stock at a per share exercise price of $8.00 under our
1997 Stock Incentive Plan in connection with his joining our Board. Mr.
Severino's options were fully vested upon grant.

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

     We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested directors on the Board of Directors, and will continue to be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.

                                       48
<PAGE>   51

                             PRINCIPAL STOCKHOLDERS

     The following table sets forth information regarding beneficial ownership
of our common stock as of May 31, 1999, and as adjusted to reflect the sale of
the shares of common stock in this offering, by:

     - each person who owns beneficially more than 5% of the outstanding shares
       of our common stock;

     - each of our directors and the Named Executive Officers; and

     - all of our directors and executive officers as a group.

     Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting or investment power with
respect to shares. Shares of common stock issuable under stock options that are
exercisable within 60 days after May 31, 1999 are deemed outstanding for
computing the percentage ownership of the person holding the options but are not
deemed outstanding for computing the percentage ownership of any other person.
Unless otherwise indicated below, to our knowledge, all persons named in the
table have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law. Unless otherwise indicated, the address of each person owning
more than 5% of the outstanding shares of common stock is c/o SilverStream
Software, Inc., One Burlington Woods, Suite 200, Burlington, Massachusetts
01803.

<TABLE>
<CAPTION>
                                                                                     PERCENTAGE OF
                                                                                         COMMON
                                                                                   STOCK OUTSTANDING
                                                                                  --------------------
                                                             NUMBER OF SHARES      BEFORE      AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER                        BENEFICIALLY OWNED    OFFERING    OFFERING
------------------------------------                        ------------------    --------    --------
<S>                                                         <C>                   <C>         <C>
Matrix IV Management Co., L.P.(1).........................      1,493,341           10.7%
  1000 Winter Street, Suite 4500
  Waltham, MA 02154
North Bridge Venture Partners, L.P........................      1,464,394           10.5
  950 Winter Street, Suite 4600
  Waltham, MA 02154
Funds affiliated with Essex Investment Management Co.,
  LLC(2)..................................................        797,686            5.7
  125 High Street
  Boston, MA 02110-2702
David R. Skok(3)..........................................      2,322,055           16.7
David A. Litwack(4).......................................      2,312,055           16.6
Peter E. Brumme...........................................        576,107            4.1
John W. Pearce............................................        356,981            2.6
Kim A. Sheffield..........................................        356,981            2.6
Arnold S. Epstein.........................................        453,757            3.3
Timothy Barrows(1)........................................      1,493,341           10.7
  c/o Matrix IV Management Co., L.P.
  1000 Winter Street, Suite 4500
  Waltham, MA 02154
Richard A. D'Amore(5).....................................      1,464,394           10.5
  c/o North Bridge Venture Partners, L.P.
  950 Winter Street, Suite 4600
  Waltham, MA 02154
Paul J. Severino(6).......................................         25,000              *           *
All executive officers and directors as a group (11
persons)(7)...............................................      9,440,052           67.8
</TABLE>

------------
 *  Less than 1% of the outstanding common stock.

(1) Composed of 1,418,674 shares held by Matrix Partners IV, L.P. and 74,667
    shares held by Matrix IV Entrepreneurs Fund, L.P. Matrix IV Management Co.,
    L.P. is the general partner of each of Matrix Partners IV, L.P. and Matrix
    IV Entrepreneurs Fund, L.P. Mr. Barrows, a director of SilverStream, is

                                       49
<PAGE>   52

    a general partner of Matrix IV Management Co., L.P. Mr. Barrows disclaims
    beneficial ownership of the shares held by Matrix Partners IV, L.P. and
    Matrix IV Entrepreneurs Fund, L.P. except to the extent of his pecuniary
    interests therein arising from his general partnership interest in Matrix IV
    Management Co., L.P.

(2) Composed of 192,417 shares held by Essex Performance Fund, L.P., 192,417
    shares held by Essex High Technology Fund, L.P., 96,178 shares held by The
    New Discovery Fund Limited Ltd., 32,099 shares held by Robertson Foundation,
    and 284,575 shares held by Essex Private Placement Fund, Limited
    Partnership. Essex Investment Management Co., LLC acts as investment advisor
    to each of the foregoing entities and has voting and investment power with
    respect to such shares.

(3) Includes 1,000,000 shares held by the David R. Skok Irrevocable Trust and
    100,000 shares held by the David R. Skok 1997 Irrevocable Family Trust.

(4) Includes 1,123,000 shares held by the Litwack Irrevocable Trust.

(5) Consists of 1,464,394 shares held by North Bridge Venture Partners, L.P. Mr.
    D'Amore, a director of SilverStream, is a general partner of North Bridge
    Venture Management L.P., which is the general partner of North Bridge
    Venture Partners, L.P. Mr. D'Amore disclaims beneficial ownership of the
    shares held by North Bridge Venture Partners, L.P. except to the extent of
    his pecuniary interests therein arising from his general partnership
    interests in North Bridge Venture Management, L.P.

(6) Consists of 25,000 shares of common stock issuable upon the exercise of
    fully vested stock options.

(7) Includes 25,000 shares of common stock issuable upon the exercise of fully
    vested stock options.

                                       50
<PAGE>   53

                          DESCRIPTION OF CAPITAL STOCK

     After this offering, the authorized capital stock of SilverStream will
consist of 100,000,000 shares of common stock, $.001 par value per share, and
2,000,000 shares of preferred stock, $.001 par value per share. As of May 31,
1999, there were outstanding (1) 5,237,658 shares of common stock held by 66
stockholders of record, (2) 8,659,208 shares of convertible preferred stock
(convertible into 8,659,208 shares of common stock) held by 72 stockholders of
record and (3) options to purchase an aggregate of 1,343,309 shares of common
stock. Based upon the number of shares outstanding as of that date, and giving
effect to the issuance of the shares of common stock offered by the Company in
this offering, there will be      shares of common stock outstanding upon the
closing of this offering.

     The following summary of certain provisions of our securities and various
provisions of our amended and restated certificate of incorporation and our
amended and restated bylaws is not intended to be complete and is qualified by
reference to the provisions of applicable law and to our amended and restated
certificate of incorporation and amended and restated bylaws included as
exhibits to the Registration Statement of which this prospectus is a part. See
"Where You Can Find More Information."

COMMON STOCK

     Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the Board of Directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of SilverStream, the holders of common
stock are entitled to receive ratably the net assets of SilverStream available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by SilverStream in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of common stock are subject to the
rights of the holders of shares of any series of preferred stock which
SilverStream may designate and issue in the future. Certain holders of common
stock have the right to require SilverStream to register their shares of common
stock under the Securities Act in certain circumstances. See "Shares Eligible
for Future Sale."

PREFERRED STOCK

     Under the terms of our amended and restated certificate of incorporation,
the Board of Directors is authorized to issue shares of preferred stock in one
or more series without stockholder approval. The Board has discretion to
determine the rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences of each series of preferred stock.

     The purpose of authorizing the Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of the
outstanding voting stock of SilverStream. The issuance of preferred stock with
voting and conversion rights may adversely affect the voting power of the
holders of common stock. SilverStream has no present plans to issue any shares
of preferred stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS

     SilverStream is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a
                                       51
<PAGE>   54

prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, "interested stockholder" is a person
who, together with affiliates and associates, owns, or within three years did
own, 15% or more of the corporation's voting stock.

     The amended and restated certificate of incorporation and amended and
restated by-laws to be effective on the closing of this offering provide:

     - that the Board of Directors be divided into three classes, as nearly
       equal in size as possible, with staggered three-year terms;

     - that directors may be removed only for cause by the affirmative vote of
       the holders of at least 75% of the shares of our capital stock entitled
       to vote; and

     - that any vacancy on the Board of Directors, however occurring, including
       a vacancy resulting from an enlargement of the Board, may only be filled
       by vote of a majority of the directors then in office.

     The classification of the Board of Directors and the limitations on the
removal of directors and filling of vacancies could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, SilverStream.

     The amended and restated certificate of incorporation and amended and
restated by-laws also provide that, after the closing of this offering:

     - any action required or permitted to be taken by the stockholders at an
       annual meeting or special meeting of stockholders may only be taken if it
       is properly brought before such meeting and may not be taken by written
       action in lieu of a meeting; and

     - special meetings of the stockholders may only be called by the Chairman
       of the Board of Directors, the President, or by the Board of Directors.
       Our amended and restated by-laws provide that, in order for any matter to
       be considered "properly brought" before a meeting, a stockholder must
       comply with requirements regarding advance notice to us. These provisions
       could delay until the next stockholders' meeting stockholder actions
       which are favored by the holders of a majority of our outstanding voting
       securities. These provisions may also discourage another person or entity
       from making a tender offer for our common stock, because such person or
       entity, even if it acquired a majority of our outstanding voting
       securities, would be able to take action as a stockholder (such as
       electing new directors or approving a merger) only at a duly called
       stockholders meeting, and not by written consent.

     Delaware's corporation law provides generally that the affirmative vote of
a majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Our amended and restated certificate of incorporation requires the
affirmative vote of the holders of at least 75% of the shares of our capital
stock entitled to vote to amend or repeal any of the foregoing provisions of our
amended and restated certificate of incorporation. Generally our amended and
restated by-laws may be amended or repealed by a majority vote of the Board of
Directors or the holders of a majority of the shares of our capital stock issued
and outstanding and entitled to vote. To amend our amended and restated by-laws
regarding special meetings of stockholders, written actions of stockholders in
lieu of a meeting, and the election, removal and classification of members of
the Board of Directors requires the affirmative vote of the holders of at least
75% of the shares of our capital stock entitled to vote. The stockholder vote
would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any series preferred stock that might be
outstanding at the time any such amendments are submitted to stockholders.

LIMITATION OF LIABILITY AND INDEMNIFICATION

     Our amended and restated certificate of incorporation provides that our
directors and officers shall be indemnified by us to the fullest extent
authorized by Delaware law. This indemnification would cover all
                                       52
<PAGE>   55

expenses and liabilities reasonably incurred in connection with their services
for or on behalf of us. In addition, our amended and restated certificate of
incorporation provides that our directors will not be personally liable for
monetary damages to us for breaches of their fiduciary duty as directors, unless
they violated their duty of loyalty to us or our stockholders, acted in bad
faith, knowingly or intentionally violated the law, authorized illegal dividends
or redemptions or derived an improper personal benefit from their action as
directors.

TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for the common stock is BankBoston, N.A.

                                       53
<PAGE>   56

                        SHARES ELIGIBLE FOR FUTURE SALE

     Upon completion of this offering, we will have      shares of common stock
outstanding, assuming no exercise of outstanding options. Of these shares, the
     shares to be sold in this offering will be freely tradable without
restriction or further registration under the Securities Act except that any
shares purchased by our affiliates, as that term is defined in Rule 144 under
the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 described below.

SALES OF RESTRICTED SHARES

<TABLE>
<CAPTION>
        DAYS AFTER DATE OF             APPROXIMATE SHARES
         THIS PROSPECTUS            ELIGIBLE FOR FUTURE SALE                 COMMENT
        ------------------          ------------------------                 -------
<S>                                 <C>                         <C>
On effectiveness..................
                                                                Freely tradeable shares sold in
                                                                offering
90 days...........................
                                                                Shares saleable under Rule 144
180 days..........................
                                                                Lock-up released; shares saleable
                                                                under Rule 144, 144(k) or 701
Thereafter........................
                                                                Restricted securities held for
                                                                one year or less
</TABLE>

     In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period,
a number of such shares that does not exceed the greater of (1) one percent of
the then outstanding shares of common stock (approximately      shares
immediately after this offering) or (2) the average weekly trading volume in the
common stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of such sale is filed, provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, our affiliates must comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of common stock which are not
restricted securities.

     Under Rule 144(k), a person who is not an affiliate and has not been an
affiliate for at least three months prior to the sale and who has beneficially
owned shares for at least two years may resell such shares without compliance
with the foregoing requirements. In meeting the one- and two-year holding
periods described above, a holder of shares can include the holding periods of a
prior owner who was not an affiliate. The one- and two-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the shares from the issuer or an
affiliate. Rule 701 provides that currently outstanding shares of common stock
acquired under our employee compensation plans may be resold beginning 90 days
after the date of this prospectus (1) by persons, other than affiliates, subject
only to the manner of sale provisions of Rule 144, and (2) by affiliates under
Rule 144 without compliance with its one-year minimum holding period, subject to
certain limitations.

STOCK OPTIONS

     At May 31, 1999, approximately 195,058 shares of common stock were issuable
pursuant to vested options granted under our 1997 Stock Incentive Plan, all of
which are subject to Lock-up Agreements with the Underwriters.

     We intend to file a registration statement on Form S-8 under the Securities
Act within 180 days after the date of this prospectus, to register up to
3,069,059 shares of common stock issuable under our 1997 Stock Incentive Plan,
including the 1,343,309 shares of common stock subject to outstanding options as
of May 31, 1999. This registration statement is expected to become effective
upon filing.

LOCK-UP AGREEMENTS

     Subject to certain exceptions, we and our executive officers, directors and
other SilverStream securityholders have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated,

                                       54
<PAGE>   57

none of us will, during the period ending 180 days after the date of this
prospectus, (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock (regardless of whether such
shares or any such securities are then owned by such person or are thereafter
acquired), or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the common stock, regardless of whether any such transactions described in
clauses (1) or (2) of this paragraph are to be settled by delivery of such
common stock or such other securities, in cash or otherwise. In addition, for a
period of 180 days from the date of this prospectus, except as required by law,
we have agreed that our Board of Directors will not consent to any offer for
sale, sale or other disposition, or any transaction which is designed or could
be expected, to result in, the disposition by any person, directly or
indirectly, of any shares of common stock without the prior written consent of
Morgan Stanley & Co. Incorporated except that we may, without such consent,
grant options and sell shares pursuant to our stock plans. See "Underwriters."

REGISTRATION RIGHTS

     After this offering, the holders of approximately 10,905,208 shares of
common stock and rights to acquire common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the agreement between us and the holders of such registrable
securities, 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
exercising registration rights, such holders are entitled to notice of such
registration and are entitled to include shares of such common stock therein.
Additionally, such holders are also entitled to certain demand registration
rights pursuant to which they may require us on up to two occasions to file a
registration statement under the Securities Act at our expense with respect to
our shares of common stock, and we are required to use our best efforts to
effect such registration. Further, holders may require us to file an unlimited
number of additional registration statements on Form S-3 at our expense. All of
these registration rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration and our right not to effect a requested
registration within 180 days following an offering of our securities pursuant to
a Form S-1, including the offering made hereby.

                                       55
<PAGE>   58

                                  UNDERWRITERS

     Under the terms and subject to the conditions contained in the underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, BancBoston Robertson Stephens Inc. and SG Cowen Securities
Corporation are acting as representatives, have severally agreed to purchase,
and SilverStream has agreed to sell to the underwriters, the respective number
of shares of common stock set forth opposite the names of the underwriters
below:

<TABLE>
<CAPTION>
                                                               NUMBER
NAME                                                          OF SHARES
----                                                          ---------
<S>                                                           <C>
Morgan Stanley & Co. Incorporated...........................
BancBoston Robertson Stephens Inc. .........................
SG Cowen Securities Corporation.............................
                                                              --------

          Total.............................................
                                                              ========
</TABLE>

     The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered in this offering are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered in this offering, other than those covered by the
over-allotment option described below, if any such shares are taken.

     The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $          a share under the public offering price.
Any underwriters may allow, and such dealers may reallow, a concession not in
excess of $          a share to other underwriters or to certain other dealers.
After the initial offering of the shares of common stock, the offering price and
other selling terms may from time to time be varied by the representatives of
the underwriters.

     SilverStream has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of
               additional shares of common stock at the public offering price
set forth on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of common stock offered in this offering. To the extent such option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of common stock as the number set forth next to such underwriter's name
in the preceding table bears to the total number of shares of common stock set
forth next to the names of all underwriters in the preceding table. If the
underwriter's over-allotment option is exercised in full, the total price to
public would be $          , the total underwriters' discounts and commissions
would be $          , and the total proceeds to us would be $          .

     The following table summarizes the compensation to be paid by SilverStream
to the underwriters:

<TABLE>
<CAPTION>
                                                                          TOTAL
                                                             --------------------------------
                                                                WITHOUT             WITH
                                                PER SHARE    OVER-ALLOTMENT    OVER-ALLOTMENT
                                                ---------    --------------    --------------
<S>                                             <C>          <C>               <C>
Public offering price.........................   $              $                 $
Underwriting discounts and commissions payable
  by SilverStream.............................
</TABLE>

     SilverStream estimates expenses payable by us in connection with this
offering, other than the estimated underwriting discounts and commissions
referred to above, will be approximately $1.0 million.

                                       56
<PAGE>   59

     At our request, the underwriters have reserved for sale, at the initial
public offering price, up to five percent of the shares of common stock offered
in this offering for our directors, officers, employees and related persons. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.

     SilverStream, our directors and executive officers and certain other of our
stockholders and option holders have each agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters,
during the period ending 180 days after the date of this prospectus, he, she or
it will not, subject to limited exceptions, directly or indirectly:

     - offer, pledge, sell, contract to sell, sell any option or contract to
       purchase, purchase any option or contract to sell, grant any option,
       right or warrant to purchase, lend or otherwise transfer or dispose of,
       directly or indirectly, any shares of common stock or any securities
       convertible into or exercisable or exchangeable for common stock (whether
       such shares or any such securities are then owned by such person or are
       thereafter acquired directly from us); or

     - enter into any swap or other arrangement that transfers to another, in
       whole or in part, any of the economic consequences of ownership of common
       stock,

whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.

     The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.

     We have applied to list our common stock on the Nasdaq National Market
under the symbol "SSSW."

     In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.

     We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.

     In March, April and May 1999, we sold shares of our Series D Preferred
Stock in a private placement. In this private placement, a fund managed and
invested in by Morgan Stanley & Co. Incorporated purchased 105,263 shares of
Series D Preferred Stock, which are convertible into 105,263 shares of common
stock, for approximately $1,000,000, or $9.50 per share. The fund purchased
these shares on the same terms as the other investors in the private placement.

PRICING OF THE OFFERING

     Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price for the shares of
common stock will be determined by negotiations between SilverStream and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price will be:

                                       57
<PAGE>   60

     - our record of operations, our current financial position and future
       prospects;

     - the experience of our management;

     - sales, earnings and certain of our other financial and operating
       information in recent periods; and

     - the price-earnings ratios, price-sales ratios, market prices of
       securities and certain financial and operating information of companies
       engaged in activities similar to ours.

The estimated initial public offering price range set forth on the cover page of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.

                                 LEGAL MATTERS

     The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.

                                    EXPERTS

     Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1997 and 1998, and for the
period ended December 31, 1996 and each of the two years in the period ended
December 31, 1998, as set forth in their report. We have included our financial
statements and schedule in this prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.

                      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
we propose to sell in this offering. This prospectus, which is a part of the
registration statement, does not contain all of the information set forth in the
registration statement. For further information about us and the common stock we
propose to sell in this offering, we refer you to the registration statement and
the exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document filed as an exhibit to the registration statement are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the filed exhibit.
The registration statement, including exhibits, may be inspected without charge
at the principal office of the Securities and Exchange Commission in Washington,
D.C. and copies of all or any part of which may be inspected and copied at the
public reference facilities maintained by the Securities and Exchange Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549,
and at the Commission's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. In addition, the Securities and Exchange
Commission maintains a website (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission.

                                       58
<PAGE>   61

                          SILVERSTREAM SOFTWARE, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Operations.......................  F-4
Consolidated Statements of Changes in Redeemable Convertible
  Preferred Stock and Stockholders' Equity (Deficit)........  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   62

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
SilverStream Software, Inc.

     We have audited the accompanying consolidated balance sheets of
SilverStream Software, Inc. (the Company) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' equity (deficit), and cash flows for the
period May 8, 1996 (inception) through December 31, 1996 and the years ended
December 31, 1997 and 1998. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SilverStream
Software, Inc. at December 31, 1997 and 1998, and the consolidated results of
its operations and its cash flows for the period May 8, 1996 (inception) through
December 31, 1996 and the years ended December 31, 1997 and 1998, in conformity
with generally accepted accounting principles.

                                          /s/ ERNST & YOUNG LLP
                                          --------------------------------------

Boston, Massachusetts
March 5, 1999, except for Note 12,
  as to which the date is May 27, 1999

                                       F-2
<PAGE>   63

                          SILVERSTREAM SOFTWARE, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,                           PRO FORMA
                                                            --------------------------     MARCH 31,      MARCH 31,
                                                               1997           1998           1999           1999
                                                            -----------    -----------    -----------    -----------
                                                                                                 (UNAUDITED)
<S>                                                         <C>            <C>            <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents...............................  $16,649,341    $ 1,198,584    $12,448,106    $12,448,106
  Marketable securities...................................           --      3,330,603        246,690        246,690
  Accounts receivable; net of allowance for doubtful
    accounts of $26,900 at December 31, 1997, $244,733 at
    December 31, 1998, and $257,699 at March 31, 1999.....      211,015      3,570,927      5,630,306      5,630,306
  Prepaid expenses........................................      317,250        247,413        461,774        461,774
  Other...................................................      267,754        100,930          8,789          8,789
                                                            -----------    -----------    -----------    -----------
         Total current assets.............................   17,445,360      8,448,457     18,795,665     18,795,665
Furniture, equipment and leasehold improvements, net......    1,528,155      1,796,346      1,968,675      1,968,675
                                                            -----------    -----------    -----------    -----------
         Total assets.....................................  $18,973,515    $10,244,803    $20,764,340    $20,764,340
                                                            ===========    ===========    ===========    ===========
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable........................................  $   746,413    $ 1,176,190    $ 2,164,753    $ 2,164,753
  Accrued expenses........................................           --        654,009        888,347        888,347
  Deferred revenue........................................       37,087      1,063,658      2,362,609      2,362,609
  Current portion of long-term debt.......................      313,210        435,820        385,661        385,661
                                                            -----------    -----------    -----------    -----------
         Total current liabilities........................    1,096,710      3,329,677      5,801,370      5,801,370
Long-term debt, less current portion......................      294,727        324,787        249,987        249,987
Commitments and contingencies.............................           --             --             --             --
Redeemable convertible preferred stock:
  Series A redeemable convertible preferred stock, $.001
    par value -- authorized, issued and outstanding
    3,683,050 (liquidation preference $3,683,050).........    3,658,050      3,658,050      3,658,050             --
  Series B redeemable convertible preferred stock, $.001
    par value -- authorized 1,600,000 shares; issued and
    outstanding 1,500,938 (liquidation preference
    $8,000,000)...........................................    7,980,000      7,980,000      7,980,000             --
Stockholders' equity (deficit):
  Series C convertible preferred stock, $.001 par value --
    authorized 2,000,000 shares; issued and outstanding
    1,728,283 at December 31, 1997 and 1,922,588 at
    December 31, 1998 and March 31, 1999, respectively
    (liquidation preference $16,880,323)..................   15,154,325     16,856,323     16,856,323             --
  Series D convertible preferred stock, $.001 par value --
    authorized 1,600,000 shares; issued and outstanding
    1,313,158 at March 31, 1999 (liquidation preference
    $12,475,001) (unaudited)..............................           --             --     12,463,001             --
  Common stock, $.001 par value -- authorized 21,000,000
    shares; issued and outstanding 5,086,391 at December
    31, 1997, 5,206,779 at December 31, 1998, 5,220,258 at
    March 31, 1999 (unaudited) and 13,639,992 at March 31,
    1999 (pro forma)......................................        5,086          5,207          5,220         13,640
  Additional paid-in capital..............................      174,796        365,985        373,427     41,322,381
  Accumulated deficit.....................................   (9,286,679)   (22,171,726)   (26,478,912)   (26,478,912)
  Other comprehensive loss................................           --             --        (40,626)       (40,626)
  Notes receivable from stockholders......................     (103,500)      (103,500)      (103,500)      (103,500)
                                                            -----------    -----------    -----------    -----------
         Total stockholders' equity (deficit).............    5,944,028     (5,047,711)     3,074,933     14,712,983
                                                            -----------    -----------    -----------    -----------
         Total liabilities and stockholders' equity
           (deficit)......................................  $18,973,515    $10,244,803    $20,764,340    $20,764,340
                                                            ===========    ===========    ===========    ===========
</TABLE>

                             See accompanying notes
                                       F-3
<PAGE>   64

                          SILVERSTREAM SOFTWARE, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                         PERIOD FROM
                                         MAY 8, 1996            YEARS ENDED              THREE MONTHS ENDED
                                        (INCEPTION) TO          DECEMBER 31,                  MARCH 31,
                                         DECEMBER 31,    --------------------------   -------------------------
                                             1996           1997           1998          1998          1999
                                        --------------   -----------   ------------   -----------   -----------
                                                                                             (UNAUDITED)
<S>                                     <C>              <C>           <C>            <C>           <C>
Revenue:
  Software license....................   $        --     $   248,524   $  5,982,534   $   578,495   $ 2,606,846
  Services............................            --              --        825,365       104,077       867,446
                                         -----------     -----------   ------------   -----------   -----------
          Total revenue...............            --         248,524      6,807,899       682,572     3,474,292
Cost of revenue:
  Software license....................            --          89,997        695,225       118,226       253,816
  Services............................            --         281,796      1,413,962       251,799     1,330,351
                                         -----------     -----------   ------------   -----------   -----------
          Total cost of revenue.......            --         371,793      2,109,187       370,025     1,584,167
                                         -----------     -----------   ------------   -----------   -----------
Gross profit (loss)...................            --        (123,269)     4,698,712       312,547     1,890,125
Operating expenses:
  Sales and marketing.................        34,532       3,853,766     10,848,396     2,305,322     4,037,413
  Research and development............       849,868       2,622,200      5,069,465     1,239,560     1,503,050
  General and administrative..........       120,398       1,961,205      2,141,187       531,675       696,576
                                         -----------     -----------   ------------   -----------   -----------
          Total operating expenses....     1,004,798       8,437,171     18,059,048     4,076,557     6,237,039
                                         -----------     -----------   ------------   -----------   -----------
Loss from operations..................    (1,004,798)     (8,560,440)   (13,360,336)   (3,764,010)   (4,346,914)
Interest income.......................        53,214         274,331        559,495        58,159        54,597
Interest expense......................            --         (48,986)       (84,206)      (16,147)      (14,869)
                                         -----------     -----------   ------------   -----------   -----------
Net loss..............................   $  (951,584)    $(8,335,095)  $(12,885,047)  $(3,721,998)  $(4,307,186)
                                         ===========     ===========   ============   ===========   ===========
Basic and diluted net loss per
  share:..............................   $      (.45)    $     (1.71)  $      (2.52)  $      (.73)  $      (.83)
                                         ===========     ===========   ============   ===========   ===========
Weighted-average common shares used in
  computing basic and diluted net loss
  per share:..........................     2,103,535       4,882,996      5,122,480     5,106,947     5,215,648
                                         ===========     ===========   ============   ===========   ===========
Pro forma basic and diluted net loss
  per share...........................                                 $      (1.06)                $      (.34)
                                                                       ============                 ===========
Weighted-average common shares used in
  computing pro forma basic and
  diluted net loss per share..........                                   12,181,677                  12,759,943
                                                                       ============                 ===========
</TABLE>

                             See accompanying notes
                                       F-4
<PAGE>   65

                          SILVERSTREAM SOFTWARE, INC.

                     CONSOLIDATED STATEMENTS OF CHANGES IN
   REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                REDEEMABLE
                                CONVERTIBLE               CONVERTIBLE
                              PREFERRED STOCK           PREFERRED STOCK           COMMON STOCK        ADDITIONAL
                          -----------------------   -----------------------   ---------------------    PAID-IN     ACCUMULATED
                           SHARES       AMOUNT       SHARES       AMOUNT       SHARES     PAR VALUE    CAPITAL       DEFICIT
                           ------       ------       ------       ------       ------     ---------   ----------   -----------
<S>                       <C>         <C>           <C>         <C>           <C>         <C>         <C>          <C>
Issuance of common stock
 in May, July, August
 and November 1996......                                                      4,639,367    $4,639
Issuance of Series A
 preferred stock in
 July, August and
 November 1996 (net of
 issuance costs of
 $25,000)...............  3,683,050   $ 3,658,050
Net loss................                                                                                           $  (951,584)
                          ---------   -----------   ---------   -----------   ---------    ------      --------    ------------
Balance at December 31,
 1996...................  3,683,050     3,658,050                             4,639,367     4,639                     (951,584)
Issuance of common stock
 in April, August,
 November and December
 1997...................                                                        577,914       578      $174,796
Issuance of Series B
 preferred stock in June
 and September 1997 (net
 of issuance costs of
 $20,000)...............  1,500,938     7,980,000
Note issued for purchase
 of common stock in
 August 1997............
Repurchase and
 retirement of common
 stock in February and
 October 1997...........                                                       (130,890)     (131)
Issuance of Series C
 preferred stock in
 November and December
 (net of issuance costs
 of $20,000)............                            1,728,283   $15,154,325
Net loss................                                                                                            (8,335,095)
                          ---------   -----------   ---------   -----------   ---------    ------      --------    ------------
Balance at December 31,
 1997...................  5,183,988    11,638,050   1,728,283    15,154,325   5,086,391     5,086       174,796     (9,286,679)
Issuance of common stock
 in January and December
 1998...................                                                         64,863        65       181,887
Issuance of Series C
 preferred stock in
 March 1998 (net of
 issuance costs of
 $4,000)................                              194,305     1,701,998
Exercise of stock
 options in June through
 December 1998..........                                                         55,525        56         9,302
Net loss................                                                                                           (12,885,047)
                          ---------   -----------   ---------   -----------   ---------    ------      --------    ------------
Balance at December 31,
 1998...................  5,183,988    11,638,050   1,922,588    16,856,323   5,206,779     5,207       365,985    (22,171,726)
Issuance of Series D
 preferred stock in
 March 1999 (net of
 issuance costs of
 $12,000) (unaudited)...                            1,313,158    12,463,001
Repurchase and
 retirement of common
 stock in March 1999
 (unaudited)............                                                        (10,754)      (11)
Exercise of stock
 options in March 1999
 (unaudited)............                                                         24,233        24         7,442
Net loss (unaudited)....                                                                                            (4,307,186)
Currency translation
 adjustment
 (unaudited)............
Comprehensive income
 (loss).................
                          ---------   -----------   ---------   -----------   ---------    ------      --------    ------------
Balance at March 31,
 1999...................  5,183,988   $11,638,050   3,235,746   $29,319,324   5,220,258    $5,220      $373,427    $(26,478,912)
                          =========   ===========   =========   ===========   =========    ======      ========    ============

<CAPTION>

                              OTHER         NOTES          TOTAL
                          COMPREHENSIVE   RECEIVABLE   STOCKHOLDERS'
                             INCOME       FROM SALE       EQUITY
                             (LOSS)        OF STOCK      (DEFICIT)
                          -------------   ----------   -------------
<S>                       <C>             <C>          <C>
Issuance of common stock
 in May, July, August
 and November 1996......                               $      4,639
Issuance of Series A
 preferred stock in
 July, August and
 November 1996 (net of
 issuance costs of
 $25,000)...............
Net loss................                                   (951,584)
                            --------      ---------    ------------
Balance at December 31,
 1996...................                                   (946,945)
Issuance of common stock
 in April, August,
 November and December
 1997...................                                    175,374
Issuance of Series B
 preferred stock in June
 and September 1997 (net
 of issuance costs of
 $20,000)...............
Note issued for purchase
 of common stock in
 August 1997............                  $(103,500)       (103,500)
Repurchase and
 retirement of common
 stock in February and
 October 1997...........                                       (131)
Issuance of Series C
 preferred stock in
 November and December
 (net of issuance costs
 of $20,000)............                                 15,154,325
Net loss................                                 (8,335,095)
                            --------      ---------    ------------
Balance at December 31,
 1997...................                   (103,500)      5,944,028
Issuance of common stock
 in January and December
 1998...................                                    181,952
Issuance of Series C
 preferred stock in
 March 1998 (net of
 issuance costs of
 $4,000)................                                  1,701,998
Exercise of stock
 options in June through
 December 1998..........                                      9,358
Net loss................                                (12,885,047)
                            --------      ---------    ------------
Balance at December 31,
 1998...................                   (103,500)     (5,047,711)
Issuance of Series D
 preferred stock in
 March 1999 (net of
 issuance costs of
 $12,000) (unaudited)...                                 12,463,001
Repurchase and
 retirement of common
 stock in March 1999
 (unaudited)............                                        (11)
Exercise of stock
 options in March 1999
 (unaudited)............                                      7,466
Net loss (unaudited)....                                 (4,307,186)
Currency translation
 adjustment
 (unaudited)............    $(40,626)                       (40,626)
                                                       ------------
Comprehensive income
 (loss).................                                 (4,347,812)
                            --------      ---------    ------------
Balance at March 31,
 1999...................    $(40,626)     $(103,500)   $  3,074,933
                            ========      =========    ============
</TABLE>

                             See accompanying notes
                                       F-5
<PAGE>   66

                          SILVERSTREAM SOFTWARE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                       PERIOD FROM
                                                       MAY 8, 1996            YEARS ENDED              THREE MONTHS ENDED
                                                      (INCEPTION) TO          DECEMBER 31,                  MARCH 31,
                                                       DECEMBER 31,    --------------------------   -------------------------
                                                           1996           1997           1998          1998          1999
                                                      --------------   -----------   ------------   -----------   -----------
                                                                                                           (UNAUDITED)
<S>                                                   <C>              <C>           <C>            <C>           <C>
OPERATING ACTIVITIES
Net loss............................................    $ (951,584)    $(8,335,095)  $(12,885,047)  $(3,721,998)  $(4,307,186)
Adjustments to reconcile net loss to net cash used
  in operating activities:
  Depreciation and amortization.....................        29,750         345,494        724,045       154,549       238,025
  Provision for allowances on accounts receivable...            --          26,900        217,833        50,171        12,966
  Operating expenses paid with issuance of preferred
    stock...........................................        83,050          79,998             --            --            --
  Operating expenses paid with issuance of common
    stock...........................................            --          20,700        181,952        22,500            --
  Changes in operating assets and liabilities:
    Accounts receivable.............................            --        (237,915)    (3,577,745)   (1,311,705)   (2,072,345)
    Prepaid expenses................................       (13,671)       (303,579)        69,837        76,989      (214,361)
    Other current assets............................            --              --        166,824       262,254        92,141
    Accounts payable and accrued expenses...........        75,413         403,246      1,083,786         9,446     1,222,901
    Deferred revenue................................            --          37,087      1,026,571       637,927     1,298,951
                                                        ----------     -----------   ------------   -----------   -----------
Net cash used in operating activities...............      (777,042)     (7,963,164)   (12,991,944)   (3,819,867)   (3,728,908)
                                                        ----------     -----------   ------------   -----------   -----------
INVESTING ACTIVITIES
Purchase of furniture and equipment.................      (338,587)     (1,564,812)      (992,236)     (264,777)     (410,354)
Sale (purchase) of available-for-sale securities....            --              --     (3,330,603)   (5,156,093)    3,083,914
                                                        ----------     -----------   ------------   -----------   -----------
Net cash provided by (used in) investing
  activities........................................      (338,587)     (1,564,812)    (4,322,839)   (5,420,870)    2,673,559
                                                        ----------     -----------   ------------   -----------   -----------
FINANCING ACTIVITIES
Net proceeds from issuance of preferred stock.......     3,575,000      23,054,327      1,701,998     1,701,993    12,463,001
Net proceeds from issuance of common stock..........         4,639          51,043          9,358            --         7,455
Proceeds from line of credit........................       269,914         513,110        602,317       602,317            --
Payments on long-term debt..........................            --        (175,087)      (449,647)      (74,766)     (124,959)
                                                        ----------     -----------   ------------   -----------   -----------
Net cash provided by financing activities...........     3,849,553      23,443,393      1,864,026     2,229,544    12,345,497
                                                        ----------     -----------   ------------   -----------   -----------
Effects of exchange rate on cash and cash
  equivalents.......................................            --              --             --            --       (40,626)
Net increase (decrease) in cash and cash
  equivalents.......................................     2,733,924      13,915,417    (15,450,757)   (7,011,193)   11,249,522
Cash and cash equivalents at beginning of period....            --       2,733,924     16,649,341    16,649,341     1,198,584
                                                        ----------     -----------   ------------   -----------   -----------
Cash and cash equivalents at end of period..........    $2,733,924     $16,649,341   $  1,198,584   $ 9,638,148   $12,448,106
                                                        ==========     ===========   ============   ===========   ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
  Income taxes......................................    $       --     $       456   $     14,283   $     2,392   $        --
                                                        ==========     ===========   ============   ===========   ===========
  Interest..........................................    $       --     $    48,986   $     84,206   $    16,147   $    14,869
                                                        ==========     ===========   ============   ===========   ===========
</TABLE>

                            See accompanying notes.
                                       F-6
<PAGE>   67

                          SILVERSTREAM SOFTWARE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  NATURE OF BUSINESS

     SilverStream Software, Inc. (the Company) was incorporated on May 8, 1996.
The Company is a global provider of application server software and services
that enable businesses and other large organizations to create, deploy and
manage software applications for intranets, extranets and the Internet. The
Company markets their software worldwide and has sales offices in the United
Kingdom, The Netherlands, Belgium, Germany, Hong Kong, Singapore and Taiwan.

     The market for application server software has only recently begun to
develop, is rapidly evolving and will likely have an increasing number of
competitors. The market is marked by rapid technological change, frequent new
product introductions and enhancements and evolving industry standards. The
Company's future financial performance will depend on the market's acceptance of
its application server products and the Company's ability to successfully
introduce enhancements to their application server products and to expand its
operations to meet the evolving customer needs within the industry.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described in this note and
elsewhere in the accompanying consolidated financial statements and notes.

  USE OF ESTIMATES

     The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

  CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The Company accounts for cash equivalents and marketable securities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Cash
equivalents are short-term, highly liquid investments with original maturity
dates of three months or less. Cash equivalents are carried at cost, which
approximates fair market value. The Company's marketable securities are
classified as available-for-sale and are recorded at fair value with any
unrealized gain or loss recorded as an element of stockholders' equity
(deficit). As of December 31, 1998 and March 31, 1999, the Company's marketable
securities consisted of investment-grade corporate bonds.

     As of December 31, 1998, the Company's marketable securities had the
following contractual maturities.

<TABLE>
<S>                                                           <C>
Within 1 year...............................................  $3,083,913
After 1 year through 5 years................................     246,690
                                                              ----------
                                                              $3,330,603
                                                              ==========
</TABLE>

  CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, marketable
securities and accounts receivable. Concentration of credit risk with respect to
marketable securities is limited as marketable securities are primarily
investment-grade corporate bonds with high-credit, quality financial
institutions.

                                       F-7
<PAGE>   68
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Concentration of credit risk with respect to accounts receivable is limited
due to the large number of companies comprising the Company's customer base.
On-going credit evaluations of customers' financial condition are performed and
collateral is generally not required. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.

  FURNITURE AND EQUIPMENT

     Furniture and equipment is stated at cost. Depreciation is computed by use
of the straight-line method over the following estimated useful lives:

<TABLE>
<S>                                                           <C>
Leasehold improvements......................................  5 years
Furniture and fixtures......................................  5 years
Computer equipment and software.............................  3 years
Telephone equipment.........................................  3 years
</TABLE>

  ADVERTISING COSTS

     The Company expenses advertising costs as incurred. Advertising costs were
$0, $187,000 and $858,000 for the period ended December 31, 1996 and the years
ended December 31, 1997 and 1998, respectively, and $341,000 and $68,000 for the
three months ended March 31, 1998 and 1999, respectively.

  CAPITALIZED SOFTWARE

     Certain software development costs are capitalized when incurred under SFAS
No. 86. Capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. Capitalizable costs to date have
been immaterial and therefore have been expensed as incurred.

  REVENUE RECOGNITION

     Revenue recognition from software license fees and from sales of software
products is recognized when persuasive evidence of an agreement exists, delivery
of the product has occurred, no significant Company obligations with regard to
implementation remain, the fee is fixed or determinable and collectibility is
probable. Upgrade assurance agreements include the right to unspecified upgrades
on an if-and-when available basis. Upgrade assurance revenue is deferred and
recognized on a straight-line basis as license revenue over the life of the
related agreement, which is typically one year.

     Services revenue is primarily comprised of revenue from consulting,
technical support and education services. Services revenue from consulting and
education is billed on a time and materials basis and is recognized as the
services are performed. Services revenue on fixed price service arrangements is
recognized upon completion of specific contractual milestone events, or based on
an estimated percentage of completion as work progresses. Technical support
revenue is deferred and recognized on a straight-line basis as service revenue
over the life of the related agreement, which is typically one year.

     Customer advances and billed amounts due from customers in excess of
revenue recognized are recorded as deferred revenue and recognized as the
services are delivered.

     Sales to independent software vendors are deferred and recognized on a
straight line basis as product revenue over the life of the agreement, which is
typically one year. Partner fees are deferred and

                                       F-8
<PAGE>   69
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recognized on a straight line basis as an offset to operating expenses over the
life of the agreement, which is typically one year.

     Customer returns are estimated and accrued for as a percentage of net
product revenues based upon historical trends.

     The Company adopted Statement of Position (SOP) 97-2, "Software Revenue
Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," as of January 1, 1998. SOP 97-2 and SOP
98-4 provide guidance for recognizing revenue on software transactions and
supersede SOP 91-1.

     The Company will adopt SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions." SOP 98-9 amends SOP
98-4 to extend the period of deferral of the application of certain passages of
SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March
15, 1999. All other provisions of SOP 97-2 are effective for transactions
entered into in fiscal years beginning after March 15, 1999.

     The adoption of SOP 97-2 and SOP 98-4 did not have a material impact on the
Company's financial results. In addition, the Company believes that the adoption
of SOP 98-9 will not have a material impact on the Company's financial results.

  EARNINGS PER SHARE

     The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings per Share". SFAS 128 requires calculation and presentation of basic
and diluted earnings per share. Basis earnings per share is calculated based on
the weighted average number of common shares outstanding and excludes any
dilutive effects of warrants, stock options, or other type securities. Diluted
earnings per share is calculated based on the weighted average number of common
shares outstanding and the dilutive effect of warrants, stock options, and
related securities calculated using the treasury stock method. Dilutive
securities are excluded from the diluted earnings per share calculation if their
effect is anti-dilutive.

  INCOME TAXES

     The Company provides for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Under SFAS 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

  FINANCIAL INSTRUMENTS

     The fair value of the Company's financial instruments, which include cash
and cash equivalents, marketable securities, accounts receivable and accounts
payable and long term debt, are based on assumptions concerning the amount and
timing of estimated future cash flows and assumed discount rates reflecting
varying degrees of perceived risk. The carrying value of these financial
instruments approximated their fair value at December 31, 1997 and 1998 due to
the short term nature of these instruments and the variable interest rate on the
long term debt.

  FOREIGN CURRENCY TRANSLATIONS

     Financial statements of foreign subsidiaries are translated into U.S.
dollars at the exchange rate as of the balance sheet dates, with the exception
of revenues, costs and expenses. All revenues, costs and expenses are translated
at a weighted-average of exchange rates in effect during the year. Net exchange

                                       F-9
<PAGE>   70
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

gains or losses resulting from the translation of the foreign financial
statements are recorded as a separate component of comprehensive income.
Transaction adjustments for all foreign subsidiaries are included in income.

  STOCK COMPENSATION ARRANGEMENTS

     The Company adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company has continued to account for employee stock options in accordance with
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees," and has included the pro forma disclosures required by SFAS No.
123 for all periods presented.

  NON-MONETARY TRANSACTIONS

     The Company has entered into certain non-monetary transactions involving
the issuance of preferred or common stock in consideration for professional and
marketing services provided to the Company by third parties. The Company has
accounted for these non-monetary transactions in accordance with SFAS No. 123.
All transactions are accounted for based on the fair value of the goods or
services received or on the fair value of the equity instruments issued, where
the fair value of the goods or services received is not reliably manageable.

  COMPREHENSIVE INCOME

     As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes new rules for the reporting and display
of comprehensive income and its components. SFAS 130 requires unrealized gains
and losses on the Company's available-for-sale securities and the foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior to the three-month period ended March 31, 1999, amounts pertaining
to comprehensive income were not material and have therefore not been separately
stated.

  SEGMENT REPORTING

     Effective January 1, 1998, the Company adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
superseded SFAS No. 14, "Financial Reporting for Segment of a Business
Enterprise." SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in interim financial
reports. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS 131 did not affect results of operation or financial position, but did
affect the disclosure of segment information. See Note 10.

  UNAUDITED INTERIM FINANCIAL INFORMATION

     The interim financial information at March 31, 1999 and for the three
months ended March 31, 1998 and 1999, all of which is unaudited, was prepared by
the Company on a basis consistent with the audited financial statements. In
management's opinion, such information reflects all adjustments which are of a
normal recurring nature and which are necessary to present fairly the results of
the periods presented.

                                      F-10
<PAGE>   71
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  UNAUDITED PRO FORMA BALANCE SHEET

     Upon an initial public offering of the Company's common stock, each
outstanding share of Series A, B, C, and D convertible preferred stock will be
converted into one share of common stock. This reclassification has been
reflected in the unaudited pro forma balance sheet as of March 31, 1999.

  UNAUDITED PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE

     The unaudited pro forma basic and diluted net loss per share is computed
using the weighted-average number of outstanding common shares assuming
conversion of all preferred shares into common shares (at date of original
issuance), which will occur upon completion of the initial public offering, as
contemplated herein. Common share equivalents are excluded from the calculation
as their effect is anti-dilutive.

  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In March 1998, the Accounting Standard Executive Committee ("AcSEC") issued
SOP 98-1, "Accounting of the Costs of Computer Software Developed or Obtained
for Internal Use." The adoption of SOP 98-1, which is effective for SilverStream
beginning January 1, 1999, did not have a material effect on SilverStream's
financial condition or results of operations.

     In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 is effective for SilverStream's calendar year
1999 financial statements and the adoption did not have a material effect on
SilverStream financial condition or results of operations.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities." The Company is
currently analyzing the effect, if any, the standard will have on its financial
condition or results of operations.

3.  FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Furniture, equipment and leasehold improvements consists of the following:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                               -------------------------     MARCH 31,
                                                  1997          1998           1999
                                               ----------    -----------    -----------
                                                                            (UNAUDITED)
<S>                                            <C>           <C>            <C>
Furniture and fixtures.......................  $  360,315    $   502,821    $   513,593
Computer equipment and software..............   1,302,285      2,051,809      2,447,641
Telephone equipment..........................     150,067        162,205        163,306
Leasehold improvements.......................      90,732        178,800        181,449
                                               ----------    -----------    -----------
                                                1,903,399      2,895,635      3,305,989
Less accumulated depreciation and
  amortization...............................    (375,244)    (1,099,289)    (1,337,314)
                                               ----------    -----------    -----------
                                               $1,528,155    $ 1,796,346    $ 1,968,675
                                               ==========    ===========    ===========
</TABLE>

                                      F-11
<PAGE>   72
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  ACCRUED EXPENSES

     Accrued expenses include the following:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,     MARCH 31,
                                                                  1998           1999
                                                              ------------     ---------
                                                                              (UNAUDITED)
<S>                                                           <C>             <C>
Provision for estimated returns.............................    $231,260       $241,799
Fringe benefits.............................................     124,337        211,873
Occupancy...................................................     130,507        105,457
Professional fees...........................................      66,387         93,982
Bonus.......................................................      19,996        104,998
Other.......................................................      81,522        130,238
                                                                --------       --------
                                                                $654,009       $888,347
                                                                ========       ========
</TABLE>

5.  DEBT

  LONG-TERM DEBT

     Under the terms of a credit facility, negotiated in 1996 and expiring March
1, 2000, borrowings of approximately $387,418 and $246,072 converted fully into
separate term loans on March 31, 1997 and September 30, 1997, respectively.
Principal repayments began April 1, 1997 and October 31, 1997 in 30 equal
monthly payments. Interest on the loans accrues at prime rate plus 0.5% (8.25%
at December 31, 1998) and is payable monthly in arrears. The outstanding balance
under the facility at December 31, 1997 and 1998 and March 31, 1999 was
$607,937, $308,870 and $234,103, respectively.

     Under terms of a credit facility, negotiated in 1997 and expiring March 1,
2001, borrowings of approximately $602,000 converted fully into a term loan on
March 30, 1998. Principal repayments began April 1, 1998 in 36 equal monthly
payments. Interest on the loan accrues at prime rate plus 0.5% and is payable
monthly in arrears. The outstanding balance under the facility at December 31,
1998 and March 31, 1999 was $451,737 and $401,544, respectively.

     Borrowings under the terms of both credit facilities are secured by
substantially all the Company's tangible assets.

     The aggregate maturities of long term debt are as follows:

<TABLE>
<S>                                                 <C>
1999............................................    $435,820
2000............................................     274,594
2001............................................      50,193
                                                    --------
                                                    $760,607
                                                    ========
</TABLE>

  LINE OF CREDIT

     The Company currently has a $750,000 line of credit with its bank for the
purpose of financing equipment purchases. The line of credit converts fully into
a term loan on October 31, 1999. Principal repayments begin on November 1, 1999
in 36 equal monthly payments. Interest on the loan accrues at prime plus 0.5%
and is payable monthly. Borrowings are secured by substantially all the
Company's tangible assets. The loan contains restrictive covenants which
include, among other restrictions, maintaining minimum tangible net worth
requirements, and limitations on incurring additional indebtedness and paying
cash dividends. There were no amounts outstanding under the line of credit at
March 31, 1999.

                                      F-12
<PAGE>   73
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Subsequent to March 31, 1999, the Company borrowed $673,263 under the line
of credit.

6.  LEASES

     The Company leases office space and certain equipment under operating
leases expiring through April 2003. Future minimum payments under noncancelable
operating leases are as follows:

<TABLE>
<S>                                                <C>
1999...........................................    $1,184,150
2000...........................................       535,114
2001...........................................        31,876
2002...........................................        29,604
2003...........................................         2,415
                                                   ----------
Total minimum lease payments...................    $1,783,159
                                                   ==========
</TABLE>

     Rent expense charged to operations for the period ended December 1996, and
the years ended December 1997 and 1998 was $41,000, $336,000 and $602,000,
respectively, and for the three months ended March 31, 1998 and 1999 was
$100,000 and $283,000, respectively.

7.  EMPLOYEE BENEFITS

  1996 FOUNDERS STOCK INCENTIVE PLAN

     In May 1996, the Company adopted the 1996 Founders Stock Incentive Plan
(the 1996 Plan) and authorized the issuance of up to 3,877,000 shares of common
stock. The Company issued and sold an aggregate of 3,775,031 shares of common
stock under the 1996 Plan pursuant to founders stock restriction agreements at
the fair value of the stock at the date of the issuance. The restricted stock
vests over four to five years at various rates. The Company has the option to
buy back unvested shares at the price paid if the purchaser ceases to be
affiliated with the Company during the vesting period. An aggregate of 145,394
shares of common stock have been repurchased by the Company under the 1996 Plan.

  1997 STOCK INCENTIVE PLAN

     In February 1997, the Company adopted the 1997 Stock Incentive Plan (the
1997 Plan) covering all eligible employees, officers, directors, consultants and
advisors. As of December 31, 1998 the Company has reserved 1,305,719 shares of
common stock for issuance under the 1997 Plan. Under the 1997 Plan, the Company
may grant stock options to purchase shares of the Company's common stock,
restricted common stock awards and other stock-based awards having terms and
conditions at the discretion of the Company's Board of Directors. The prices,
terms and vesting periods of stock awards under the 1997 Plan are determined by
the Board of Directors at the date of the grant. The 1997 Plan also contains
provisions which stipulate that upon an acquisition event the Board of Directors
is authorized to determine that any stock option, restricted stock or other
stock-based award granted under the 1997 Plan may become immediately exercisable
in full or in part.

     The Company holds notes receivable totaling $103,500 from employees at
December 31, 1997 and 1998, and at March 31, 1998 and 1999. These notes arose
from transactions in September 1997 whereby the Company loaned the employees
money to purchase an aggregate of 207,000 shares of the Company's common stock
at the then fair market value. The notes receivable are fully recourse to the
employees and are due to be paid in full, with accrued interest at the rate of
6.39% per annum, on August 26, 2002. These notes receivable are shown as a
reduction in stockholders' equity in the accompanying balance sheets.

                                      F-13
<PAGE>   74
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  401(K) PLAN

     The Company has a 401(k) plan (the Plan), whereby eligible employees may
contribute up to 15% of their compensation, subject to limitations established
by the Internal Revenue Code. The Company may also contribute a discretionary
matching contribution, to each such participant's deferred compensation equal to
a discretionary percentage determined by the Company. As of March 31, 1999, the
Company had not made any discretionary matching contributions in any of the
fiscal periods presented.

  STOCK OPTION DISCLOSURES

     The Company has adopted the disclosure provisions only of SFAS 123. The
fair values for these options were estimated at the date of grant using the
minimum value method with the following assumptions:

<TABLE>
<CAPTION>
                                                                  THREE MONTHS
                                                  YEARS ENDED        ENDED
                                                  DECEMBER 31,     MARCH 31,
                                                  ------------    ------------
                                                  1997    1998    1998    1999
                                                  ----    ----    ----    ----
                                                                  (UNAUDITED)
<S>                                               <C>     <C>     <C>     <C>     <C>
Expected life (years)...........................  4.97    5.35    5.34    5.00
Risk free interest rate.........................  5.66%   4.75%   4.92%   4.95%
Dividend yield..................................    --      --      --      --
</TABLE>

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:

<TABLE>
<CAPTION>
                                                    YEARS ENDED               THREE MONTHS ENDED
                                                    DECEMBER 31,                   MARCH 31,
                                             --------------------------   ---------------------------
                                                1997           1998           1998           1999
                                             -----------   ------------   ------------   ------------
                                                                                  (UNAUDITED)
<S>                                          <C>           <C>            <C>            <C>
Pro forma net loss.........................  $(8,351,473)  $(12,996,310)  $(3,735,026)   $(4,393,205)
Pro forma net loss per share...............  $     (1.71)  $      (2.54)  $      (.73)   $      (.84)
</TABLE>

     Compensation expense under SFAS 123 for 1997 and 1998 is not representative
of future expense, as it includes one and two years of expense, respectively. In
future years, the effect of determining compensation cost using the fair value
method will include additional vesting and associated expense.

                                      F-14
<PAGE>   75
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Option activity under the 1997 Plan is summarized below:

<TABLE>
<CAPTION>
                                           YEARS ENDED DECEMBER 31,
                                    ---------------------------------------    THREE MONTHS ENDED
                                           1997                 1998             MARCH 31, 1999
                                    ------------------   ------------------   --------------------
                                              WEIGHTED             WEIGHTED               WEIGHTED
                                              AVERAGE              AVERAGE                AVERAGE
                                              EXERCISE             EXERCISE               EXERCISE
                                    OPTIONS    PRICE     OPTIONS    PRICE      OPTIONS     PRICE
                                    -------   --------   -------   --------    -------    --------
                                                                                  (UNAUDITED)
    <S>                             <C>       <C>        <C>       <C>        <C>         <C>
    Outstanding, beginning of
      year........................       --       --     607,000    $ .34       895,175    $1.15
    Granted.......................  614,000     $.34     381,950     2.21       201,450     4.11
    Expired or canceled...........   (7,000)     .20     (38,250)     .37       (28,750)    1.02
    Exercised.....................       --              (55,525)     .17       (24,233)     .40
                                    -------              -------              ---------
    Outstanding, end of year......  607,000      .34     895,175     1.15     1,043,642     1.76
                                    =======              =======              =========
    Exercisable at end of year....       --              159,850                180,249
    Available for future grants...  398,719               55,019                532,319
    Weighted-average fair value of
      options granted during
      year........................              $.33                $2.16                  $4.03
</TABLE>

     The following table presents weighted-average price and life information
about significant option groups outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                           OPTIONS OUTSTANDING
                  -------------------------------------
                                 WEIGHTED-
                                  AVERAGE     WEIGHTED-                 WEIGHTED-
                                 REMAINING     AVERAGE                   AVERAGE
   RANGE OF         NUMBER      CONTRACTUAL   EXERCISE      NUMBER      EXERCISE
EXERCISE PRICES   OUTSTANDING      LIFE         PRICE     EXERCISABLE     PRICE
---------------   -----------   -----------   ---------   -----------   ---------
<S>               <C>           <C>           <C>         <C>           <C>
$ .02 - $ .20       162,475     6.79 Years      $ .07        30,525       $.08
        $ .50       363,750     5.89 Years        .50       127,225        .50
        $ .90       137,500     7.99 Years        .90         2,100        .90
        $3.00       241,450     9.23 Years       3.00            --         --
                    -------                                 -------
$ .02 - $3.00       905,175     7.26 Years      $1.15       159,850       $.43
                    =======                                 =======
</TABLE>

8.  PREFERRED STOCK

     In July, August and November 1996, the Company sold 3,683,050 shares of
Series A redeemable convertible preferred stock, par value $.001, at $1.00 per
share. Proceeds to the Company were $3,575,000 (net of $25,000 of issuance
costs).

     In June and September 1997, the Company sold 1,500,938 shares of Series B
redeemable convertible preferred stock, par value $.001, at $5.33 per share.
Proceeds to the Company were $7,900,002 (net of $20,000 of issuance costs).

     In November and December 1997, the Company sold 1,728,283 shares of Series
C convertible preferred stock, par value $.001, at $8.78 per share. Proceeds to
the Company were $15,154,325 (net of $20,000 of issuance costs).

     In March 1998, the Company sold 194,305 shares of Series C convertible
preferred stock, par value $.001, at $8.78 per share. Proceeds to the Company
were $1,701,998 (net of $4,000 of issuance costs).

     In March 1999, the Company sold 1,313,158 shares of Series D convertible
preferred stock, par value $.001, at $9.50 per share. Proceeds to the Company
were $12,463,001 (net of $12,000 of issuance costs).

                                      F-15
<PAGE>   76
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company has reserved up to 8,659,208 shares of its common stock for
issuance upon conversion of the preferred stock.

     Significant features of the Series A, B, C and D preferred stocks are as
follows:

  CONVERSION

     As more fully described in the Company's amended Certificate of
Incorporation, each share of preferred stock is convertible at the shareholder's
option into such number of shares of common stock as determined by a conversion
factor, as defined. The preferred stock will automatically convert upon the
closing of a qualified public offering of the Company's common stock, as
defined.

  REDEMPTION

     At the written request of the holders of a majority of the outstanding
shares of Series A and Series B preferred stock, the Company will redeem a
specified percentage of the Series A and Series B preferred stock on December
31, 2001, 2002 and 2003, respectively. The price per share to be paid to the
Series A and Series B preferred stockholders shall be $1.00 and $5.33,
respectively, plus any dividends declared but unpaid.

  DIVIDENDS

     The holders of preferred stock shall be entitled to receive, when and if
declared by the Board of Directors of the Company, dividends in the same amount
per share as would be payable on the number of shares of common stock into which
the preferred stock is then convertible, payable in preference and priority to
payment of any cash dividend on common stock.

  VOTING

     Shares of preferred stock are entitled to a number of votes on any matter
put before the shareholders of the Company equal to the number of shares of
common stock into which they are convertible.

  LIQUIDATION

     Upon liquidation of the Company, holders of Series A, Series B, Series C
and Series D preferred stock shall be first entitled, before any distribution or
payment is made to holders of common stock, to be paid $1.00, $5.33, $8.78 and
$9.50 per share, respectively, plus any declared and unpaid dividends thereon.

9.  INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. A valuation allowance has been established to reflect
the uncertainty of future taxable income to utilize available tax loss

                                      F-16
<PAGE>   77
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carryforwards and other deferred tax assets. Significant components of the
Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                            --------------------------
                                                               1997           1998
                                                            -----------    -----------
<S>                                                         <C>            <C>
Deferred tax assets:
  Net operating loss carryforward.........................  $ 3,700,000    $ 8,900,000
  Research and development credit carryforward............      150,000        350,000
  Other...................................................       67,000        146,000
Deferred tax liabilities:
  Depreciation............................................     (135,000)      (247,000)
                                                            -----------    -----------
                                                              3,782,000      9,149,000
  Less valuation allowance for deferred tax assets........   (3,782,000)    (9,149,000)
                                                            -----------    -----------
Total.....................................................  $        --    $        --
                                                            ===========    ===========
</TABLE>

     As of December 31, 1998, the Company has net operating loss carryforwards
and research and development tax carryforwards of approximately $22,300,000 and
$350,000, respectively, available to offset future Federal taxable income. These
carryforwards begin to expire in 2012 and may be subject to certain limitations.

10.  SEGMENT AND GEOGRAPHIC INFORMATION

     The Company operates in one business segment: the development and delivery
of software and services that enable its customers to build and deploy business
applications on intranets, extranets and the Internet. Revenues by geographic
region is as follows:

<TABLE>
<CAPTION>
                              PERIOD FROM
                              MAY 8, 1996                                 THREE MONTHS ENDED
                             (INCEPTION) TO   YEARS ENDED DECEMBER 31,         MARCH 31,
                              DECEMBER 31,    ------------------------   ---------------------
                                  1996           1997          1998        1998        1999
                             --------------   -----------   ----------   --------   ----------
                                                                              (UNAUDITED)
<S>                          <C>              <C>           <C>          <C>        <C>
United States..............    $       --      $181,017     $4,999,717   $558,298   $2,377,344
International..............            --        67,507      1,808,182    124,274    1,096,948
                               ----------      --------     ----------   --------   ----------
Total......................    $       --      $248,524     $6,807,899   $682,572   $3,474,292
                               ==========      ========     ==========   ========   ==========
</TABLE>

                                      F-17
<PAGE>   78
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  LOSS PER SHARE (UNAUDITED)

     The following table sets forth the computation of basic and diluted loss
per share:

<TABLE>
<CAPTION>
                          PERIOD FROM
                          MAY 8, 1996                                     THREE MONTHS ENDED
                         (INCEPTION) TO    YEARS ENDED DECEMBER 31,            MARCH 31,
                          DECEMBER 31,    --------------------------   -------------------------
                              1996           1997           1998          1998          1999
                         --------------   -----------   ------------   -----------   -----------
                                                                              (UNAUDITED)
<S>                      <C>              <C>           <C>            <C>           <C>
Numerator:
  Net loss.............    $ (951,584)    $(8,335,095)  $(12,885,259)  $(3,721,998)  $(4,307,186)
Numerator for basic and
  diluted loss per
  share................    $ (951,584)    $(8,335,095)  $(12,885,259)  $(3,721,998)  $(4,307,186)
Denominator:
  Weighted average
     common shares
     outstanding.......     2,103,535       4,882,996      5,122,480     5,106,947     5,215,648
Denominator for basic
  and diluted loss per
  share................     2,103,535       4,882,996      5,122,480     5,106,947     5,215,648
</TABLE>

     The effect of employee stock options and the convertible preferred stock
has not been included in the computation of the denominator for diluted loss per
share due to their antidilutive nature.

12.  SUBSEQUENT EVENT

     In April and May 1999, the Company sold 239,474 additional shares of Series
D convertible preferred stock, $.001 par value at $9.50 per share. Proceeds to
the Company were approximately $2,275,003.

                                      F-18
<PAGE>   79

[Narrative description of graphic material omitted in electronically filed
document:
This graphic consists of a group of ten equally spaced logos in two rows.
Top row, from left to right: Upside's 1998 Hot 100 Private Companies, NewMedia
Magazine 1998 Hyper Award, Internet World Best of Show, JAVA Developer's Journal
World Class Award and 1999 Network Computing Well-Connected Award. Bottom row,
from left to right: Internet Showcase 1998 Best of Showcase Award, INFO Best
Test Center, Massachusetts Interactive Media Council, Internet World Industry
Award '98 and Best Practice Awards 1998.
The following text appears below the graphic:
SILVERSTREAM SOFTWARE HAS RECEIVED NUMEROUS AWARDS. We believe these awards
demonstrate our ability to deliver application development and deployment
products that help organizations leverage the benefits of Web-based computing.
While we appreciate the recognition, we never lose sight of our mission: TO
BUILD A HIGHLY SCALABLE AND RELIABLE APPLICATION SERVER PRODUCT AND DELIVER
COMPREHENSIVE SERVICES TO ENSURE OUR CUSTOMERS SUCCESS.]
<PAGE>   80

[LOGO][LOGO]
<PAGE>   81

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.

<TABLE>
<S>                                                           <C>
SEC registration fee........................................  $   11,190
NASD filing fee.............................................       4,525
Nasdaq National Market listing fee..........................      95,000
Printing and engraving expenses.............................     175,000
Legal fees and expenses.....................................     300,000
Accounting fees and expenses................................     300,000
Blue Sky fees and expenses (including legal fees)...........      10,000
Transfer agent and registrar fees and expenses..............      15,000
Miscellaneous...............................................      89,285
          Total.............................................  $1,000,000
</TABLE>

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director notwithstanding any provision of law imposing such
liability, except to the extent that the Delaware General Corporation Law
prohibits the elimination or limitation of liability of directors for breach of
fiduciary duty.

     Article EIGHTH of the Restated Certificate provides that a director or
officer of the Registrant (a) shall be indemnified by the Registrant against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of the Registrant) brought against him
by virtue of his position as a director or officer of the Registrant if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful and (b) shall be indemnified by the Registrant against all expenses
(including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of the Registrant naming him as a
party by virtue of his position as a director or officer of the Registrant if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Registrant, except that no indemnification
shall be made with respect to any matter as to which such person shall have been
adjudged to be liable to the Registrant, unless the Court of Chancery of
Delaware determines that, despite such adjudication but in view of all of the
circumstances, he is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
the Registrant against all expenses (including attorneys' fees) incurred in
connection therewith. Expenses shall be advanced to a director or officer in
advance of the final disposition of a legal proceeding, provided that he
undertakes to repay the amount advanced if it is ultimately determined that he
is not entitled to indemnification for such expenses.

                                      II-1
<PAGE>   82

     Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.

     Article EIGHTH of the Restated Certificate further provides that the
indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers the Registrant must indemnify
those persons to the fullest extent permitted by such law as so amended.

     Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.

     The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.

     The Registrant has obtained liability insurance for its officers and
directors.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.

     Since inception, the Registrant has issued the following securities that
were not registered under the Securities Act as summarized below.

     (a) Issuances of capital stock.

           1.  On May 8, 1996, the Registrant issued and sold 1,000 shares of
     its common stock for an aggregate purchase price of $10.00 to David R. Skok
     in connection with the Registrant's incorporation.

           2.  On July 9, 1996, the Registrant issued and sold 1,122,000 shares
     of its common stock for an aggregate purchase price of $1,122 to David R.
     Skok pursuant to a Founders Stock Restriction Agreement.

           3.  On July 9, 1996, the Registrant issued and sold an aggregate of
     2,670,000 shares of its series A preferred stock for an aggregate purchase
     price of $2,670,000 to a group of investors pursuant to a Stock Purchase
     Agreement.

           4.  On August 15, 1996, the Registrant issued and sold 83,050 shares
     of its series A preferred stock to an individual pursuant to a Stock
     Purchase Agreement in consideration of personnel placement services
     rendered by the individual to the Registrant.

                                      II-2
<PAGE>   83

           5.  From August 16, 1996 to September 18, 1996, the Registrant issued
     and sold an aggregate of 1,432,817 shares of its common stock for an
     aggregate purchase price of approximately $1,433 to a group of employees
     pursuant to Founders Stock Restriction Agreements.

           6.  On November 4, 1996, the Registrant issued and sold 1,123,000
     shares of its common stock for an aggregate purchase price of $1,123 to
     David A. Litwack pursuant to a Founders Stock Restriction Agreement.

           7.  On November 4, 1996, the Registrant issued and sold 930,000
     shares of its series A preferred stock for an aggregate purchase price of
     $930,000 to David A. Litwack pursuant to a Stock Purchase Agreement.

           8.  On November 12, 1996, the Registrant issued and sold an aggregate
     of 960,550 shares of its common stock for an aggregate purchase price of
     $960.55 to a group of employees pursuant to Founders Stock Restriction
     Agreements.

           9.  On April 11, 1997, the Registrant issued and sold an aggregate of
     258,664 shares of its common stock for an aggregate purchase price of
     approximately $5,173 to a group of employees pursuant to Founders Stock
     Restriction Agreements.

           10.  On June 16, 1997, the Registrant issued and sold an aggregate of
     1,484,056 shares of its series B preferred stock for an aggregate purchase
     price of $7,910,018.48 to a group of investors pursuant to a Stock Purchase
     Agreement.

          11.  From August 26, 1997 to September 3, 1997, the Registrant issued
     and sold an aggregate of 230,000 shares of its common stock for an
     aggregate purchase price of $115,000 to a group of employees pursuant to
     Founders Stock Restriction Agreements.

          12.  On September 12, 1997, the Registrant issued and sold 16,882
     shares of its series B preferred stock for an aggregate purchase price of
     $89,981.06 to an individual pursuant to a Stock Purchase Agreement.

          13.  On November 2, 1997, the Registrant issued and sold 70,000 shares
     of its common stock for an aggregate purchase price of $35,000 to an
     employee pursuant to a Founders Stock Restriction Agreement.

          14.  On November 5, 1997, December 1, 1997 and January 16, 1998, the
     Registrant issued and sold an aggregate of 48,000 shares of its common
     stock to Intel Corporation pursuant to a Collaboration Agreement in
     consideration of services rendered by Intel to the Registrant.

          15.  On November 6, 1997, the Registrant issued and sold an aggregate
     of 1,722,588 shares of its series C preferred stock for an aggregate
     purchase price of $15,124,322.64 to a group of investors pursuant to a
     Stock Purchase Agreement.

          16.  On December 24, 1997, the Registrant issued and sold 5,695 shares
     of its series C preferred stock for an aggregate purchase price of
     $50,002.10 to an individual pursuant to a Stock Purchase Agreement.

          17.  On March 30, 1998, the Registrant issued and sold an aggregate of
     194,305 shares of its series C preferred stock for an aggregate purchase
     price of $1,705,997.90 to a group of investors pursuant to a Stock Purchase
     Agreement.

          18.  On December 31, 1998, the Registrant issued and sold an aggregate
     of 39,863 shares of its common stock to SilverStream Benelux N.V. in
     consideration of the acquisition of certain assets of SilverStream Benelux
     N.V. by the Registrant.

          19.  On March 1, 1999, the Registrant issued and sold an aggregate of
     1,313,158 shares of its series D preferred stock for an aggregate purchase
     price of $12,475,001 to a group of investors pursuant to a Stock Purchase
     Agreement.

                                      II-3
<PAGE>   84

          20.  On April 9, 1999, the Registrant issued and sold an aggregate of
     55,263 shares of its series D preferred stock for an aggregate purchase
     price of $524,998.50 to a group of investors pursuant to a Stock Purchase
     Agreement.

          21.  On April 14, 1999, the Registrant issued and sold an aggregate of
     78,948 shares of its series D preferred stock for an aggregate purchase
     price of $750,006 to a group of investors pursuant to a Stock Purchase
     Agreement.

          22.  On May 27, 1999, the Registrant issued and sold 105,263 shares of
     its series D preferred stock for an aggregate purchase price of $999,998.50
     to an investor pursuant to a Stock Purchase Agreement.

     (b) Certain grants and exercises of stock options.

          1.  From inception through May 31, 1999, the Registrant granted stock
     options to purchase 1,548,250 shares of common stock at exercise prices
     ranging from $.02 to $8.00 per share to employees, consultants and
     directors pursuant to its 1997 Stock Incentive Plan.

          2.  From inception through May 31, 1999, the Registrant issued and
     sold an aggregate of 130,941 shares of its common stock to employees,
     consultants and directors for aggregate consideration of approximately
     $25,334 pursuant to exercises of options granted under its 1997 Stock
     Incentive Plan.

     No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of options to purchase common stock,
Rule 701 of the Securities Act. All of the foregoing securities are deemed
restricted securities for the purposes of the Securities Act.

                                      II-4
<PAGE>   85

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

     (a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
  NO.                              DESCRIPTION
-------                            -----------
<C>        <S>
  1.1*     Form of Underwriting Agreement
  3.1*     Amended and Restated Certificate of Incorporation of the
           Registrant
  3.2*     Form of Second Amended and Restated Certificate of
           Incorporation of the Registrant, to be filed after to the
           closing of this offering
  3.3      By-Laws of the Registrant
  3.4*     Form of Amended and Restated By-Laws of the Registrant, to
           be effective upon the closing of this offering
  4.1      Specimen common stock certificate
  4.2*     Third Amended and Restated Investor Rights Agreement dated
           March 1, 1999
  5.1*     Opinion of Hale and Dorr LLP
 10.1      1996 Founders Stock Option Plan
 10.2      Amended and Restated 1997 Stock Incentive Plan, and forms of
           agreements thereunder
 10.3      1999 Employee Stock Purchase Plan
 10.4      Form of Founders Stock Restriction Agreement
 10.5      Sub-Sublease Agreement, dated February 14, 1997, between
           Rational Software Corporation (as successor to SQA, Inc.)
           and the Registrant
 10.6      First Amendment to Sub-Sublease Agreement, dated April 1998
 10.7      Term Loan Agreement and Commercial Promissory Note, dated
           March 1, 1999, between Fleet National Bank and the
           Registrant
 10.8      Term Loan Agreement and Commercial Promissory Note, dated
           August 11, 1997, between Fleet National Bank and the
           Registrant
 10.9      Term Loan Agreement and Commercial Promissory Note, dated
           November 5, 1996 between Fleet National Bank and the
           Registrant
 21.1      Subsidiaries of the Registrant
 23.1      Consent of Ernst & Young LLP
 23.2*     Consent of Hale and Dorr LLP (included in Exhibit 5.1)
 24.1      Powers of Attorney (see page II-7)
 27.1      Financial Data Schedule
 27.2      Financial Data Schedule
 27.3      Financial Data Schedule
 27.4      Financial Data Schedule
 27.5      Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

     (b) Financial Statement:

     Schedule II -- Valuation and Qualifying Accounts

     All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.

                                      II-5
<PAGE>   86

ITEM 17.  UNDERTAKINGS.

     The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the Delaware General
Corporation Law, the Restated Certificate of the registrant, the Underwriting
Agreement, 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 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 hereunder, the registrant
will, unless in the opinion of 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 Act and will be governed by the final adjudication of such
issue.

     The undersigned registrant hereby undertakes that:

          (1) For purpose of determining any liability under the Act, the
     information omitted from the form of prospectus filed as part of this
     Registration Statement in reliance upon Rule 430A and contained in a form
     of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or
     497(h) under the Act shall be deemed to be part of this Registration
     Statement as of the time it was declared effective.

          (2) For purpose of determining any liability under the Act, each
     post-effective amendment that contains a form of prospectus shall be deemed
     to be a new Registration Statement relating to the securities offered
     therein, and the offering of such securities at that time shall be deemed
     to be the initial bona fide offering thereof.

                                      II-6
<PAGE>   87

                                   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 Burlington, Massachusetts, on this
11th day of June, 1999.

                                          SILVERSTREAM SOFTWARE, INC.

                                          By:
                                                  /s/ DAVID A. LITWACK
                                            ------------------------------------
                                          David A. Litwack
                                          President and Chief Executive Officer

                        POWER OF ATTORNEY AND SIGNATURES

     We, the undersigned officers, directors and authorized representatives of
SilverStream Software, Inc. hereby severally constitute and appoint David R.
Skok, David A. Litwack and Craig A. Dynes and each of them singly, our true and
lawful attorneys with full power to them, and each of them singly, with full
powers of substitution and resubstitution, to sign for us and in our names in
the capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable SilverStream Software, Inc. to comply with the provisions of
the Securities Act of 1933, as amended, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, or their substitute or
substitutes, to said Registration Statement and any and all amendments thereto
or to any subsequent Registration Statement for the same offering which may be
filed under Rule 462(b).

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
                  SIGNATURE                                     TITLE                        DATE
                  ---------                                     -----                        ----
<S>                                            <C>                                       <C>

              /s/ DAVID R. SKOK                Chairman of the Board of Directors        June 11, 1999
---------------------------------------------
                David R. Skok

            /s/ DAVID A. LITWACK               President, Chief Executive Officer and    June 11, 1999
---------------------------------------------  Director (Principal Executive Officer)
              David A. Litwack

             /s/ CRAIG A. DYNES                Vice President, Chief Financial Officer   June 11, 1999
---------------------------------------------  and Treasurer (Principal Financial and
               Craig A. Dynes                  Accounting Officer)

             /s/ TIMOTHY BARROWS               Director                                  June 11, 1999
---------------------------------------------
               Timothy Barrows

           /s/ RICHARD A. D'AMORE              Director                                  June 11, 1999
---------------------------------------------
             Richard A. D'Amore

            /s/ PAUL J. SEVERINO               Director                                  June 11, 1999
---------------------------------------------
              Paul J. Severino
</TABLE>

                                      II-7
<PAGE>   88

                                                                     SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                          SILVERSTREAM SOFTWARE, INC.

<TABLE>
<CAPTION>
                                                                       ADDITIONS
                                                                -----------------------
                                                   BALANCE AT   CHARGED TO   CHARGED TO                 BALANCE
                                                   BEGINNING    COSTS AND      OTHER                    AT END
                   DESCRIPTION                     OF PERIOD     EXPENSES     ACCOUNTS    DEDUCTIONS   OF PERIOD
                   -----------                     ----------   ----------   ----------   ----------   ---------
<S>                                                <C>          <C>          <C>          <C>          <C>
December 31, 1998 Allowance for Doubtful
  Accounts.......................................   $ 26,900     218,614           --          781     $244,733
December 31, 1997 Allowance for Doubtful
  Accounts.......................................   $      0      26,900           --           --     $ 26,900
December 31, 1996 Allowance for Doubtful
  Accounts.......................................   $      0           0                               $      0
</TABLE>

                                       S-1
<PAGE>   89

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
  NO.          DESCRIPTION
-------        -----------
<C>       <C>  <S>
  1.1*    --   Form of Underwriting Agreement
  3.1*    --   Amended and Restated Certificate of Incorporation of the
               Registrant
  3.2*    --   Form of Second Amended and Restated Certificate of
               Incorporation of the Registrant, to be filed after to the
               closing of this offering
  3.3     --   By-Laws of the Registrant
  3.4*    --   Form of Amended and Restated By-Laws of the Registrant, to
               be effective upon the closing of this offering
  4.1     --   Specimen common stock certificate
  4.2*    --   Third Amended and Restated Investor Rights Agreement dated
               March 1, 1999
  5.1*    --   Opinion of Hale and Dorr LLP
 10.1     --   1996 Founders Stock Option Plan
 10.2     --   Amended and Restated 1997 Stock Incentive Plan, and forms of
               agreements thereunder
 10.3     --   1999 Employee Stock Purchase Plan
 10.4     --   Form of Founders Stock Restriction Agreement
 10.5     --   Sub-Sublease Agreement, dated February 14, 1997, between
               Rational Software Corporation (as successor to SQA, Inc.)
               and the Registrant
 10.6     --   First Amendment to Sub-Sublease Agreement, dated April 1998
 10.7     --   Term Loan Agreement and Commercial Promissory Note, dated
               March 1, 1999, between Fleet National Bank and the
               Registrant
 10.8     --   Term Loan Agreement and Commercial Promissory Note, dated
               August 11, 1997, between Fleet National Bank and the
               Registrant
 10.9     --   Term Loan Agreement and Commercial Promissory Note, dated
               November 5, 1996 between Fleet National Bank and the
               Registrant
 21.1     --   Subsidiaries of the Registrant
 23.1     --   Consent of Ernst & Young LLP
 23.2*    --   Consent of Hale and Dorr LLP (included in Exhibit 5.1)
 24.1     --   Powers of Attorney (see page II-7)
 27.1     --   Financial Data Schedule
 27.2     --   Financial Data Schedule
 27.3     --   Financial Data Schedule
 27.4     --   Financial Data Schedule
 27.5     --   Financial Data Schedule
</TABLE>

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

* To be filed by amendment.
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1

     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1999

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

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

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

                          SILVERSTREAM SOFTWARE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                           -------------------------
DELAWARE                             7372                            04-3318325
 (STATE OR OTHER JURISDICTION OF      (PRIMARY STANDARD INDUSTRIAL             (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)      CLASSIFICATION CODE NUMBER)           IDENTIFICATION NUMBER)
-------------------------

                        ONE BURLINGTON WOODS, SUITE 200
                        BURLINGTON, MASSACHUSETTS 01803
                                 (781) 238-5400
    (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                  OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                           -------------------------

                                DAVID A. LITWACK
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                          SILVERSTREAM SOFTWARE, INC.
                        ONE BURLINGTON WOODS, SUITE 200
                              BURLINGTON, MA 01803
                                 (781) 238-5400
               (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
               NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
                           -------------------------

                                   COPIES TO:
MARK G. BORDEN, ESQ.                                JOHN A. MELTAUS, ESQ.
                JOHN H. CHORY, ESQ.                           TESTA, HURWITZ & THIBEAULT, LLP
                 HALE AND DORR LLP                                    125 HIGH STREET
                  60 STATE STREET                               BOSTON, MASSACHUSETTS 02110
            BOSTON, MASSACHUSETTS 02109                          TELEPHONE: (617) 248-7000
             TELEPHONE: (617) 526-6000                           TELECOPY: (617) 248-7100
             TELECOPY: (617) 526-5000
-------------------------

    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  As soon as
practicable after the effective date hereof.

    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,
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
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
                                                                 PROPOSED MAXIMUM
                   TITLE OF EACH CLASS OF                       AGGREGATE OFFERING          AMOUNT OF
                SECURITIES TO BE REGISTERED                          PRICE(1)          REGISTRATION FEE(2)
------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per share.....................       $40,250,000              $11,189.50
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
    as amended.

(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
    maximum aggregate offering price.
                           -------------------------

    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.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2

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 we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)

Issued                   , 1999

                                                Shares
[LOGO][LOGO]

                                  COMMON STOCK
                            ------------------------
SILVERSTREAM SOFTWARE, INC. IS OFFERING                SHARES OF COMMON STOCK.
THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$          AND $     PER SHARE.

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

WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "SSSW."

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

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.

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

                           PRICE $            A SHARE
                            ------------------------
UNDERWRITING
                                          PRICE TO             DISCOUNTS AND            PROCEEDS TO
                                           PUBLIC               COMMISSIONS             SILVERSTREAM
                                          --------             -------------            ------------
Per Share........................            $                       $                       $
Total............................            $                       $                       $
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

SilverStream has granted the underwriters the right to purchase up to an
additional                shares of common stock to cover over-allotments.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on             , 1999.

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

MORGAN STANLEY DEAN WITTER
                       BANCBOSTON ROBERTSON STEPHENS
                                     SG COWEN
            , 1999
3

[Narrative description of graphic material omitted in electronically filed
document:
The following text is at the top of the page and spans the front cover foldout:
SILVERSTREAM: ENABLING POWERFUL BUSINESS APPLICATIONS FOR THE WEB.
The following text appears on the inside front cover foldout:
Organizations around the world are focusing on how the Web will impact their
businesses, and are starting to develop A NEW GENERATION OF WEB-BASED
APPLICATIONS that allow them to take advantage of the power of the Web.
Previously a company's Web site would simply involve publishing static marketing
documents. However, it was not long before the world realized that the Web could
be used for FAR MORE POWERFUL APPLICATIONS SUCH AS E-COMMERCE, CUSTOMER SERVICE
AND SUPPLY CHAIN MANAGEMENT.
    Web-based applications are transforming the way we do business. These
    applications have the following characteristics:
    - They use the Web to reach a much broader audience, bringing businesses
      closer to their customers, partners, suppliers and employees.
    - They integrate data from existing applications, including relational
      databases, enterprise resource planning systems, legacy mainframe systems,
      document management systems and external data sources.
    Application servers are the platforms that allow organizations to build this
    new generation of applications. Furthermore, the Web architecture offers
    significant cost benefits over traditional computing architectures because
    it avoids the need to install and maintain software on the user's remote
    computer. Instead, a Web browser or 'thin client' is used to run the
    application. As a result, many organizations are integrating future
    application development to a Web architecture based on application servers.
The inside front cover contains a graphic that consists of a large disk entitled
"Web." On the left side of the large disk are several groups of human figures
labeled "customers," "suppliers," "employees," "consumers" and "partners." On
the right side of the disk are several three-dimensional cylinders under the
heading "Data Sources." The cylinders are labeled "Lotus Notes," "SAP," "DB/2,"
"Oracle" and "PeopleSoft."
In the center of the large disk are two smaller disks, stacked one on top of the
other. The bottom disk is entitled "Customer-Written Applications" and includes
several icons labeled "E-commerce," "Transaction Processing," "Decision
Support," "Demand & Supply Chain Management," "Customer Support" and "Enterprise
Portals."
The top disk is entitled "SilverStream Application Server" and contains a
detailed graphic outlining the fundamental components of the SilverStream
Application Server architecture:
    1. At the bottom is a horizontal three-dimensional rectangle entitled
       "Enterprise Deployment Services," which rectangle includes four boxes
       entitled "Scalability," "Reliability," "Security" and "Manageability."
    2. On top of the rectangle are three vertical three-dimensional rectangles:
       a. The vertical rectangle on the left is entitled "Presentation Layer,"
          and includes two boxes entitled "HTML" and "Java"
       b. The vertical rectangle in the middle is entitled "Business Logic
          Layer," and includes three boxes entitled "Distributed Objects,"
          "Transactions" and "Content Management"
       c. The vertical rectangle on the right is entitled "Data Access Layer,"
          and includes two boxes entitled "Data Access Objects" and "Enterprise
          Data Connectors"
    3. Above the three rectangles and connected to each by thin lines is a
       horizontal three-dimensional rectangle entitled "Development Tools."
    4. To the left of the rectangle entitled "Presentation Layer" are two
       computer icons under the title "Users." There is a two-way arrow between
       the rectangle and the icons.
    5. To the right of the rectangle entitled "Data Access Layer" are three
       three-dimensional cylinders under the title "Data." There is a two-way
       arrow between the rectangle and the cylinders.]
The following text appears below the graphic:
The SilverStream Application Server is a comprehensive platform that allows
developers to:
    - Increase productivity using powerful integrated development tools that
      shorten time-to-market
    - Access and integrate data and applications from multiple diverse sources
    - Incorporate custom business logic by building reusable business objects
    - Create the presentation layer using Java or HTML as the user interface
    - Develop sophisticated applications with high transaction processing
      capabilities
    - Deploy applications that scale to handle high volumes of users and
      transactions with high reliability
    - Secure applications and data from unwanted access
    - Integrate and manage rich content required for applications such as
      product catalogs
4

                               TABLE OF CONTENTS
PAGE
                                        ----
PROSPECTUS SUMMARY....................     3
RISK FACTORS..........................     5
SPECIAL NOTE REGARDING FORWARD-LOOKING
  STATEMENTS..........................    14
USE OF PROCEEDS.......................    15
DIVIDEND POLICY.......................    15
CAPITALIZATION........................    16
DILUTION..............................    17
SELECTED CONSOLIDATED FINANCIAL
  DATA................................    18
MANAGEMENT'S DISCUSSION AND ANALYSIS
  OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS.......................    19
BUSINESS..............................    29
PAGE
                                        ----
MANAGEMENT............................    42
CERTAIN TRANSACTIONS..................    47
PRINCIPAL STOCKHOLDERS................    49
DESCRIPTION OF CAPITAL STOCK..........    51
SHARES ELIGIBLE FOR FUTURE SALE.......    54
UNDERWRITERS..........................    56
LEGAL MATTERS.........................    58
EXPERTS...............................    58
WHERE YOU CAN FIND MORE INFORMATION...    58
INDEX TO CONSOLIDATED FINANCIAL
  STATEMENTS..........................   F-1
------------------------

     We are a Delaware corporation. Our principal executive offices are located
at One Burlington Woods, Suite 200, Burlington, Massachusetts 01803 and our
telephone number is (781) 238-5400. Our World Wide Web site address is
www.silverstream.com. The information in the Web site is not incorporated by
reference into this prospectus.

     SilverStream(R) is our registered trademark and SilverStream Application
Server and the SilverStream logo are our trademarks. This prospectus also
contains trademarks and trade names of other companies.

     You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.

     UNTIL                , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT BUY, SELL OR TRADE THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

     Except as set forth in the Consolidated Financial Statements and Notes
thereto or as otherwise indicated, all information in this prospectus:

     - assumes no exercise of the underwriters' over-allotment option;

     - reflects the conversion of all outstanding shares of our convertible
       preferred stock into shares of common stock;

     - reflects the filing, as of the closing of the offering, of our amended
       and restated certificate of incorporation and the adoption of our amended
       and restated by-laws implementing certain provisions described below
       under "Description of Capital Stock -- Delaware Law and Certain Charter
       and By-Law Provisions; Anti-Takeover Effects;" and

     - reflects a        -for-1 stock split of our common stock to be effected
       prior to the offering.

                                        2
5

                               PROSPECTUS SUMMARY

     You should read the following summary together with the more detailed
information regarding SilverStream and the common stock being sold in this
offering and our Consolidated Financial Statements and Notes thereto appearing
elsewhere in this prospectus.

                          SILVERSTREAM SOFTWARE, INC.

     SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. The advantages of Web-based technology are driving the creation of a
new generation of business-transforming software applications. These powerful
Web-based applications link a broad universe of customers, vendors, employees
and partners with multiple, diverse data sources. Using our products and
services, organizations can rapidly develop scalable, reliable and secure Web
applications in diverse areas such as e-commerce, employee self-service, supply
chain management, customer service and work flow management.

     Organizations are using Web applications to conduct "e-business," which
encompasses business-to-business, business-to-employee and business-to-consumer
transactions. These organizations recognize that if they are able to offer
easy-to-access, compelling, real-time applications as a means of transacting
business and interacting with business partners and customers, they can create
closer and more enduring business relationships, new efficiencies and
significant competitive and strategic advantages. To date, organizations have
been required to use many different development tools, programming languages and
technologies, often from different vendors, and have had to rely on custom
programming and complex integration activities to develop their Web
applications. These applications have often been difficult and expensive to
create, deploy and manage. In order to compete in this dynamic e-business
environment, organizations need scalable, reliable and secure solutions that
shorten the time-to-market for powerful new Web applications.

     SilverStream's products and services are designed to help our customers
meet the new challenges posed by Web-based technology and applications. Our
products consist of an application server, an integrated set of development
tools and enterprise data connectors. Our products reduce the complexity of
developing Web applications and enable customers to extend the reach of these
applications, access multiple information sources and simplify administration.
We also offer comprehensive consulting, education and technical support services
to help ensure the successful development and implementation of Web applications
by our customers.

     We market our products and services globally through our direct sales force
and a network of independent software vendors, value-added resellers and
consulting and training partners. To date, we have licensed the SilverStream
Application Server to over 500 customers in a wide variety of industries,
including communication, financial services, government, manufacturing, oil and
gas, pharmaceutical, technology and transportation. Our customers include ARCO,
Bankers Trust, Enron, Federal Express, Hewlett-Packard, Johnson & Johnson, MCI
WorldCom, NASA, Pfizer, Raytheon, Samsung, SBC Communications, Siemens,
StorageTek, The Chicago Stock Exchange, The United States Army, UPS and The Walt
Disney Company.

                                        3
6

                                  THE OFFERING
Common stock offered........................    shares
Common stock to be outstanding after this
  offering..................................    shares
Use of proceeds.............................    For general corporate purposes, including
                                                working capital and capital expenditures.
                                                See "Use of Proceeds."
Proposed Nasdaq National Market symbol......    SSSW
SUMMARY CONSOLIDATED FINANCIAL DATA
PERIOD FROM
                                       MAY 8, 1996          YEARS ENDED           THREE MONTHS ENDED
                                      (INCEPTION) TO        DECEMBER 31,               MARCH 31,
                                       DECEMBER 31,    ----------------------   -----------------------
                                           1996          1997         1998         1998         1999
                                      --------------   ---------   ----------   ----------   ----------
                                               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
  Software license..................    $      --      $     249   $    5,983   $      579   $    2,607
  Services..........................           --             --          825          104          867
                                        ---------      ---------   ----------   ----------   ----------
Total revenue.......................           --            249        6,808          683        3,474
Cost of revenue:
  Software license..................           --             90          695          118          254
  Services..........................           --            282        1,414          252        1,330
                                        ---------      ---------   ----------   ----------   ----------
Total cost of revenue...............           --            372        2,109          370        1,584
                                        ---------      ---------   ----------   ----------   ----------
Gross profit (loss).................           --           (123)       4,699          313        1,890
Total operating expenses............        1,005          8,437       18,059        4,077        6,237
                                        ---------      ---------   ----------   ----------   ----------
Loss from operations................       (1,005)        (8,560)     (13,360)      (3,764)      (4,347)
Net loss............................    $    (952)     $  (8,335)  $  (12,885)  $   (3,722)  $   (4,307)
                                        =========      =========   ==========   ==========   ==========
Basic and diluted net loss per
  share.............................    $    (.45)     $   (1.71)  $    (2.52)  $     (.73)  $     (.83)
Weighted-average common shares used
  in computing basic and diluted net
  loss per share....................    2,103,535      4,882,996    5,122,480    5,106,947    5,215,648
Pro forma basic and diluted net loss
  per share.........................                                                         $     (.34)
Weighted-average common shares used
  in computing pro forma basic and
  diluted net loss per share........                                                         12,759,943
Shares used in computing pro forma basic and diluted net loss per share
above include the 8,659,208 shares of common stock issuable upon conversion of
our outstanding preferred stock upon the closing of this offering.

     The pro forma as adjusted column in the consolidated balance sheet data
below gives effect to the conversion of our outstanding preferred stock into
common stock upon the closing of this offering and the sale of the
shares of common stock in this offering at an assumed initial public offering
price of $     , after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us. See "Use of Proceeds"
and "Capitalization."
AS OF
                                                                  MARCH 31, 1999
                                                              ----------------------
                                                                          PRO FORMA
                                                              ACTUAL     AS ADJUSTED
                                                              -------    -----------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................  $12,448        $
Working capital.............................................   12,994
Total assets................................................   20,764
Long-term debt, less current portion........................      250
Redeemable convertible preferred stock......................   11,638        --
Total stockholders' equity..................................    3,075
4
7

                                  RISK FACTORS

     You should consider carefully the risks described below before you decide
to buy our common stock. The risks and uncertainties described below are not the
only ones facing us. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In such case,
the trading price of our common stock could fall, and you may lose all or part
of the money you paid to buy our common stock.

RISKS RELATED TO OUR BUSINESS

  OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS

     SilverStream was founded in May 1996 and has a limited operating history.
We began shipping our first products, the SilverStream Application Server 1.0
and related software development tools, in November 1997. Our limited operating
history makes an evaluation of our future prospects very difficult. The revenue
and income potential of our business and market are unproven. We will encounter
risks and difficulties frequently encountered by early-stage companies in new
and rapidly evolving markets. These risks include our:

     - Limited number of customers that have implemented and are using our
       products;

     - Substantial dependence on our SilverStream Application Server;

     - Need to enhance our SilverStream Application Server and introduce new
       products;

     - Need to expand our sales and professional services organizations;

     - Need to build strategic partnerships and relationships;

     - Need to compete in a highly competitive market;

     - Need to manage rapidly expanding operations; and

     - Need to attract and retain key personnel.

If we do not successfully address these risks, our business would be seriously
harmed.

  THE MARKET FOR OUR PRODUCTS IS EMERGING AND OUR BUSINESS WILL SUFFER IF IT
  DOES NOT DEVELOP
  AS WE EXPECT

     The market for Web application server software has only recently begun to
develop, is rapidly evolving and will likely have an increasing number of
competitors. We cannot be certain that a viable market for our products will
emerge or be sustainable. If the application server market fails to develop, or
develops more slowly than expected, our business and operating results would be
seriously harmed.

  OUR SUCCESS DEPENDS ON WIDESPREAD MARKET ACCEPTANCE OF OUR APPLICATION SERVER

     We expect to continue to derive substantially all of our revenue from our
SilverStream Application Server and related products and services. Failure to
achieve broad market acceptance of the SilverStream Application Server, or a
decline in the price of, or demand for, our Application Server would seriously
harm our business and operating results. We cannot predict the level of market
acceptance that will be achieved or maintained by our products and services.

  OUR BUSINESS WILL SUFFER IF WE DO NOT SUCCESSFULLY INTRODUCE ENHANCEMENTS TO
OUR APPLICATION SERVER

     Our future financial performance will depend significantly on revenue from
future enhancements to the SilverStream Application Server that we are currently
developing and plan to develop. There are significant risks inherent in product
development, enhancement and introduction. We are currently developing Version
3.0 of our Application Server, which we expect will include functionality that
we do not currently have, including improvements to the programming environment
as well as support for

                                        5
8

computing standards, such as Enterprise JavaBeans and Java2, and third-party
development tools. Version 3.0 will require significant additional development
and we cannot predict the time required to complete development and testing or
the date of commercial release. Any delay or difficulties in completing such
development would seriously harm our business and operating results. In
addition, we cannot be certain that enhanced versions of the SilverStream
Application Server will meet customer performance needs or expectations when
shipped or that new versions will be free of significant software defects or
bugs.

  WE HAVE INCURRED LOSSES AND WE EXPECT FUTURE LOSSES

     Our failure to significantly increase our revenue would seriously harm our
business and operating results. We have experienced operating losses in each
quarterly and annual period since inception and we expect to incur significant
losses in the future. We incurred net losses of $952,000 for the period ended
December 31, 1996, $8.3 million for the year ended December 31, 1997, $12.9
million for the year ended December 31, 1998 and $4.3 million for the quarter
ended March 31, 1999. As of March 31, 1999, we had an accumulated deficit of
$26.5 million. We expect to significantly increase our research and development,
sales and marketing and general and administrative expenses in future periods.
As a result, we will need to significantly increase our quarterly revenue to
achieve and maintain profitability. We may not be able to sustain our recent
revenue growth rates or achieve sufficient revenue for profitability. In fact,
we may not have any future revenue growth, and our revenue could decline.

  OUR QUARTERLY OPERATING RESULTS ARE VOLATILE, AND IF WE FAIL TO MEET THE
  EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE MARKET PRICE OF OUR
  COMMON STOCK MAY DECREASE SIGNIFICANTLY

     Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results will
likely fall below the expectations of securities analysts or investors in some
future quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our common stock.

     Our quarterly operating results may vary depending on a number of factors,
including:

     - Demand for our SilverStream Application Server and related products and
       services;

     - Our ability to help our customers achieve success in their initial use of
       our products;

     - Actions taken by our competitors, including new product introductions and
       enhancements;

     - Our success in, and continued penetration of, international markets and
       the economic conditions of these markets;

     - Delays or reductions in spending for, or the implementation of,
       application server software by our potential customers as companies
       attempt to stabilize their computer systems in order to reduce the risk
       of computer system problems associated with the Year 2000;

     - Our ability to develop, introduce and market new products and
       enhancements to our existing products on a timely basis;

     - Deferral of customer orders in anticipation of product enhancements or
       new products;

     - Our ability to expand our sales and marketing operations, including
       hiring additional sales personnel, and to expand indirect sales channels;

     - Our ability to expand our service operations, including hiring additional
       services personnel, and to attract additional third-party service
       providers; and

     - The mix of software license and services revenue.

     In addition, we anticipate that the size of customer orders may increase as
we focus on larger business accounts. As a result, a delay in recognizing
revenue, even from just one account, could have a significant negative impact on
our operating results. In the past, a significant portion of our sales have been
                                        6
9

recognized near the end of a quarter. As a result, a delay in anticipated sales
past the end of a particular quarter could negatively impact our operating
results.

     Although we have limited historical financial data, we believe that our
quarterly operating results may experience seasonal fluctuations. For instance,
quarterly results may fluctuate based on our clients' calendar year budgeting
cycles, slow summer purchasing patterns in Europe and our compensation policies
that tend to compensate sales personnel, typically in the latter half of the
year, for achieving annual quotas.

  WE DEPEND ON INCREASED BUSINESS FROM OUR CURRENT AND NEW CUSTOMERS

     If we fail to grow our customer base or generate repeat and expanded
business from our current and new customers, our business and operating results
would be seriously harmed. Most of our customers initially make a limited
purchase of our products and services for pilot programs. Many of these
customers may not choose to purchase additional licenses to expand their use of
our products. Many of these customers have not yet developed or deployed initial
applications based on our products. If these customers do not successfully
develop and deploy such initial applications, they may not choose to purchase
deployment licenses or additional development licenses. Our business model
depends on the expanded use of our products within our customers' organizations.

     In addition, as we introduce new versions of our products or new products,
our current customers may not require the functionality of our new products and
may not ultimately license these products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our software license revenue would negatively impact our future services
revenue. In addition, if customers elect not to renew their maintenance
agreements, our services revenue could be significantly adversely affected.

  WE HAVE A LONG SALES CYCLE THAT DEPENDS UPON FACTORS OUTSIDE OUR CONTROL

     A customer's decision to purchase our products typically involves a
significant decision by the prospective customer's senior information technology
managers, as the customer applications to be built and deployed using our
products are generally critical to the customer's business. In addition, we
generally need to educate potential customers on the use and benefits of an
application server and on the performance features of the SilverStream
Application Server. As a result, our products have a long sales cycle which can
take over six months. We face difficulty predicting the quarter in which sales
to expected customers may occur. The sale of our products is also subject to
delays from the lengthy budgeting, approval and competitive evaluation processes
that typically accompany significant information technology purchasing
decisions. For example, customers frequently begin by evaluating our products on
a limited basis and devote time and resources to testing our products before
they decide whether or not to purchase a license for deployment. Customers may
also defer orders as a result of anticipated releases of new products or
enhancements by us or our competitors.

  FAILURE TO DEVELOP AND EXPAND OUR SALES, MARKETING AND DISTRIBUTION
  CAPABILITIES WOULD HARM OUR BUSINESS

     We need to expand our sales and marketing operations in order to increase
market awareness of our products, market the SilverStream Application Server to
a greater number of organizations and generate increased revenue. However,
competition for qualified sales personnel is intense and we may not be able to
hire enough qualified individuals in the future. Our products and services
require a sophisticated sales effort targeted at senior information technology
management of our prospective customers. New hires require extensive training
and typically require at least six months to achieve full productivity. We have
limited experience managing a large, expanding and geographically dispersed
direct sales force. In addition, we have limited experience marketing our
products broadly to a large number of potential customers.

     We have a limited number of third-party distribution agreements and we may
not be able to increase the number of our distribution relationships or maintain
our existing relationships. Our current agreements
                                        7
10

with our distribution partners do not prevent these companies from selling
products of other companies, including products that may compete with our
products, and do not generally require these partners to purchase minimum
quantities of our products. These distributors could give higher priority to the
products of other companies or to their own products, than they give to our
products. As a result, the loss of, or a significant reduction in sales volume
to our current or future distribution partners could seriously harm our revenue
and operating results, and a significant increase in sales through these
channels could also negatively impact our gross margins. In addition, sales
through these channels generally have a lower price than direct sales.

  FAILURE TO EXPAND OUR SERVICES OFFERINGS WOULD HARM OUR BUSINESS

     We believe that growth in our product sales depends on our ability to
provide our customers with comprehensive services, including application
engineering, implementation, training and support, and to educate third-party
resellers, instructors and consultants on how to provide similar services. As a
result, we plan to increase the number of our services personnel to meet these
needs. However, competition for qualified service personnel is intense and we
may not be able to attract, train or retain the number of highly qualified
service personnel that our business needs.

     We expect our services revenue to increase in dollar amount as we continue
to provide consulting, education and technical support services that complement
our products and as our installed base of customers grows. To date, our cost of
services revenue has been significantly higher than our services revenue, and we
expect to continue to incur losses from our services business in the future. If
our services business becomes profitable, an increase in services revenue in
absolute dollars could negatively impact our total gross margin because margins
on revenue derived from services are generally lower than margins on revenue
derived from software licenses.

  OUR MARKETS ARE HIGHLY COMPETITIVE AND WE MAY NOT CONTINUE TO COMPETE
SUCCESSFULLY

     Our markets are new, rapidly evolving and highly competitive, and we expect
this competition to persist and intensify in the future. Our failure to maintain
and enhance our competitive position could seriously harm our business and
operating results. We encounter current or potential competition from a number
of sources, including:

     - Vendors of application server products and services;

     - Internally developed applications; and

     - Companies that market business application software.

     Our Application Server competes with application server products from other
vendors, including: IBM's WebSphere and Domino server solutions; Sun
Microsystems' NetDynamics and Netscape Application Server; Microsoft's Internet
Information Server, Active Server pages, Transaction Server and COM technology;
BEA Systems' Weblogic and Oracle's Application Server. In addition, we compete
with various methods of application distribution and management, including the
web browser, and with application server vendors and others that have introduced
software distribution capabilities into their products.

     Potential competitors may bundle their products or incorporate an
application server component into existing products in a manner that discourages
users from purchasing our products. Furthermore, new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements than we can.

     Some of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. Many of
these companies have more extensive customer bases, broader customer
relationships and broader industry alliances that they could leverage, including
relationships with many of our current and potential customers. These companies
also have significantly

                                        8
11

more established customer support and professional services organizations. In
addition, these companies may adopt aggressive pricing policies or may bundle
their competitive products with broader product offerings.

  OUR BUSINESS IS INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS

     To be successful, we believe we must expand our international operations.
Therefore, we expect to commit significant resources to expand our international
sales and marketing activities. We are increasingly subject to a number of risks
associated with international business activities. These risks generally
include:

     - Expenses associated with customizing products for foreign countries;

     - Currency exchange rate fluctuations;

     - Seasonal fluctuations in purchasing patterns;

     - Unexpected changes in regulatory requirements;

     - Tariffs, export controls and other trade barriers;

     - Longer accounts receivable payment cycles and difficulties in collecting
       accounts receivable;

     - Difficulties in managing and staffing international operations;

     - Potentially adverse tax consequences, including restrictions on the
       repatriation of earnings; and

     - The risks related to the recent global economic turbulence and adverse
       economic circumstances in Asia.

  WE DEPEND ON CONTINUED USE OF THE INTERNET AND GROWTH OF ELECTRONIC BUSINESS

     Rapid growth in the use of and interest in the Internet has occurred only
recently. As a result, acceptance and use may not continue to develop at
historical rates, and a sufficiently broad base of consumers and enterprises may
not adopt, and continue to use, the Internet and other online services as a
medium of commerce. Risks include potentially inadequate development of the
necessary network infrastructure or delayed development of enabling technologies
and performance improvements. Demand and market acceptance for recently
introduced services and products available over the Internet are subject to a
high level of uncertainty, and there exist few proven services and products. Our
success will depend, in large part, upon third parties maintaining the Internet
infrastructure required to provide a reliable network backbone with the speed,
data capacity, security and hardware necessary for reliable Internet access and
services. Further, the use of our products for corporate or enterprise intranets
and extranets is subject to similar risks and uncertainties.

  WE MUST RESPOND TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS

     The markets for our products and services are marked by rapid technological
change, frequent new product introductions and enhancements, uncertain product
life cycles, changes in customer demands and evolving industry standards. New
products based on new technologies or new industry standards can quickly render
existing products obsolete and unmarketable. Any delays in our ability to
develop and release enhanced or new products could seriously harm our business
and operating results. Our technology is complex, and new products and product
enhancements can require long development and testing periods. Our failure to
conform to prevailing standards could have a negative effect on our business and
operating results.

  WE MUST MANAGE OUR GROWTH AND EXPANSION

     We have expanded our operations rapidly since inception. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. To be successful, we will need to
implement

                                        9
12

additional management information systems, improve our operating,
administrative, financial and accounting systems, procedures and controls, train
new employees and maintain close coordination among our executive, engineering,
professional services, accounting, finance, marketing, sales and operations
organizations. In addition, our growth has resulted, and any future growth will
result, in increased responsibilities for management personnel.

     In addition, our principal executive office lease is due to expire in July
2000. We may move our headquarters to new office space or expand into additional
office space. We cannot be certain that office space will be available on
reasonable terms. We would likely experience significant costs, and we could
experience a disruption in the development or marketing of our products, in
connection with an expansion or move.

  FAILURE TO RETAIN AND ATTRACT KEY PERSONNEL WOULD HARM OUR BUSINESS

     Our success depends largely on the skills, experience and performance of
the members of our senior management and other key personnel, including our
Chairman, David Skok, and our President and Chief Executive Officer, David
Litwack. We may not be successful in attracting, assimilating or retaining
qualified personnel in the future. None of our senior management or other key
personnel is bound by an employment agreement. If we lose one or more of the
members of our senior management or other key employees, our business and
operating results could be seriously harmed. In addition, our future success
will depend largely on our ability to continue attracting, training, motivating
and retaining highly skilled personnel. Like other software companies in the
Boston, Massachusetts area, we face intense competition for qualified personnel
including software engineering, service and support, and sales and marketing
personnel.

  WE RELY ON THIRD-PARTY SOFTWARE AND TECHNOLOGY

     Our products integrate third-party text search, object middleware,
compiler, encryption, transaction processing and monitoring, Java virtual
machine and database technology and products. There are inherent limitations in
the use and capabilities of much of the technology that we license from third
parties. Our business would be seriously harmed if the providers from whom we
license software and technology ceased to deliver and support reliable products,
enhance their current products in a timely fashion or respond to emerging
industry standards. In addition, the third-party software may not continue to be
available to us on commercially reasonable terms or at all. For example, we
license certain components of our products from limited or sole source
suppliers, including encryption technology which we license from RSA Data
Security. Many of these licenses are subject to periodic renewal. The loss of,
or inability to maintain or obtain this software for any reason could result in
significant shipment delays or reductions. Furthermore, we might be forced to
limit the features available in our current or future product offerings. Either
alternative could seriously harm our business and operating results.

     Almost all of our products are written in Java and require a Java virtual
machine made available by Sun Microsystems in order to operate. 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 the future, our customers may also require the
ability to deploy our products on platforms for which technically acceptable
Java implementations either do not exist or are not available on commercially
reasonable terms.

  SOFTWARE DEFECTS WOULD HARM OUR BUSINESS

     Complex software products like ours can contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. We have in the past discovered software errors in our new releases and
new products after their introduction and expect that this will continue. We
could experience delays in release, lost revenue and customer frustration during
the period required to correct any such errors. Despite internal testing and
testing by current and potential customers, our current and

                                       10
13

future products may contain serious defects, including Year 2000 errors. Defects
or errors in current or future products, including the planned SilverStream
Application Server Version 3.0, could result in lost revenue or a delay in
market acceptance, which would seriously harm our business and operating
results.

     As many of our customers use our products for business-critical
applications, errors, defects or other performance problems could result in
financial or other damage to our customers and could significantly impair their
operations. Our customers could seek damages for losses related to any of these
issues. A product liability claim brought against us, even if not successful,
would likely be time consuming and costly to defend and could adversely affect
our marketing efforts.

  YEAR 2000 ISSUES COULD ADVERSELY AFFECT OUR BUSINESS

     We are in the process of assessing any Year 2000 issues with the computer,
communications and software systems that we use to deliver our products and to
manage our internal operations. We have not finalized our assessment or
formulated a final plan or budget to remedy our Year 2000 issues. If our systems
do not operate properly with respect to date calculations involving the Year
2000 and subsequent dates, we could incur unanticipated expenses to remedy any
problems, which could seriously harm our business. We may also experience
reduced sales of our products as current or potential customers reduce their
budgets for enterprise software and Internet products due to increased
expenditures on their own Year 2000 compliance efforts.

     The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information technology
systems nevertheless could be substantially impaired or cease to operate due to
Year 2000 problems. Additionally, we rely on information technology supplied by
third parties, and our other business partners, including third-party
distributors and consultants, also are heavily dependent on information
technology systems and on their own and third-party vendor systems. Year 2000
problems experienced by us or any of these third parties could materially
adversely affect our business. Prior versions of our products may contain
technology from third parties that is not Year 2000 compliant. Additionally, the
Internet could face serious disruptions arising from the Year 2000 problem.

     Many of our customers and potential customers have implemented policies
that prohibit or strongly discourage making changes or additions to their
internal computer systems until after January 1, 2000. We will experience fewer
sales if potential customers delay the purchase and implementation of our
products until after January 1, 2000. Purchasing decisions may be delayed as
potential customers stabilize their internal computer systems or divert 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 would be seriously harmed.

     Given the pervasive nature of the Year 2000 problem, we cannot guarantee
that disruptions in other industries and market segments will not adversely
affect our business. Moreover, our costs related to Year 2000 compliance, which
thus far have not been material, could ultimately be significant. In the event
that we experience disruptions as a result of the Year 2000 problem, our
business could be seriously harmed. Our efforts to address Year 2000 issues are
described in more detail in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance."

  PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED

     We rely on a combination of contractual provisions, confidentiality
procedures, and patent, trademark, trade secret and copyright laws to protect
the proprietary aspects of our technology. These legal protections afford only
limited protection. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use our proprietary information. Litigation may be necessary to enforce our
intellectual property rights, to protect our trade secrets and to determine the
validity and scope of the proprietary rights of others. Any litigation could
result in substantial costs and diversion of resources with no assurance of
success and could seriously harm our business and operating

                                       11
14

results. In addition, we sell our products internationally, and the laws of many
countries do not protect our proprietary rights as well as the laws of the
United States.

     We obtain a major portion of our software license revenue from licensing
our products under standardized "shrink wrap" agreements that our customers do
not sign. If any of these agreements were deemed unenforceable, those customers
may seek to use and copy our technology without appropriate limitations.

     We have no patents, and none may be issued from our existing patent
applications. Our future patents, if any, may be successfully challenged or may
not provide us with any competitive advantages.

  WE MAY BE FOUND TO INFRINGE PROPRIETARY RIGHTS OF OTHERS

     Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our products. As a result, we may be found to infringe on the
proprietary rights of others. Furthermore, companies in the software market and
the Internet market are increasingly bringing suits alleging infringement of
their proprietary rights, particularly patent rights. We have been subject to
such claims in the past. Any litigation or claims, whether or not valid, could
result in substantial costs and diversion of resources with no assurance of
success. Intellectual property litigation or claims could force us to do one or
more of the following:

     - Cease selling, incorporating or using products or services that
       incorporate the challenged intellectual property;

     - Obtain a license from the holder of the infringed intellectual property
       right, which license may not be available on reasonable terms; and

     - Redesign products or services.

     In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our business and
operating results would be significantly harmed.

  OUR BUSINESS COULD BE AFFECTED AS A RESULT OF ANY FUTURE ACQUISITIONS

     In order to remain competitive, we may find it necessary to acquire
additional businesses, products or technologies. If we identify an appropriate
acquisition candidate, we may not be able to negotiate the terms of the
acquisition successfully, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Further, completing a potential acquisition and integrating an acquired business
will cause significant diversions of management time and resources. If we
consummate one or more significant acquisitions in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with one or more significant acquisitions in
which the consideration included cash, we could be required to use a substantial
portion of our available cash, including proceeds from this offering, to
consummate any acquisition. Acquisition financing may not be available on
favorable terms, or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would seriously harm our operating results.

RISKS RELATED TO THIS OFFERING

  WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS

     We expect the net proceeds from this offering, together with cash generated
from operations will be sufficient to meet our working capital and capital
expenditure needs for at least the next 12 months. After that, we may need to
raise additional funds and we cannot be certain that we will be able to obtain
additional financing on favorable terms, if at all. Further, if we issue
additional equity securities, stockholders may experience additional dilution or
the new equity securities may have rights, preferences or privileges senior to
those of existing holders of common stock. If we cannot raise funds on
acceptable terms, if and when needed, we may not be able to develop or enhance
our products and services, take

                                       12
15

advantage of future opportunities, grow our business or respond to competitive
pressures or unanticipated requirements, which could seriously harm our
business.

  OUR STOCK PRICE MAY BE VOLATILE

     Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. This price may vary from the market price of the common stock
after this offering. You may be unable to sell your shares of common stock at or
above the initial public offering price. The market price of the common stock
may fluctuate significantly in response to the following factors, some of which
are beyond our control:

     - Variations in our quarterly operating results;

     - Changes in securities analysts' estimates of our financial performance;

     - Changes in market valuations of similar companies;

     - Announcements by us or our competitors of new or enhanced products or
       significant contracts, acquisitions or strategic partnerships;

     - Additions or departures of key personnel;

     - Future sales of our common stock or other securities; and

     - Fluctuations in stock market price and volume, which are particularly
       common among securities of software and Internet-based companies.

  WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY

     In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.

  OUR STOCK PRICE COULD BE AFFECTED BY SHARES BECOMING AVAILABLE FOR SALE

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

  PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, SUBSTANTIAL DILUTION

     We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire common stock at prices significantly below the initial public offering
price. To the extent these outstanding options are ultimately exercised, there
will be further dilution to investors in this offering. See "Dilution."

  WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS

     Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. For more information regarding these provisions, see "Description
of Capital Stock -- Delaware Law and Certain Charter and By-Law Provisions;
Anti-Takeover Effects."

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  OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL
SILVERSTREAM

     Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
     % of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This could have the effect of delaying or preventing a change of
control of SilverStream. See "Principal Stockholders."

  WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING

     We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend the
proceeds, and stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the proceeds from this offering,
in our operations or external investments, to yield a favorable return.

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will" and "would" or similar
words. You should read statements that contain these words carefully because
they discuss our future expectations, contain projections of our future results
of operations or of our financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, results of operations and financial position.

                                       14
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                                USE OF PROCEEDS

     We estimate that our net proceeds from the sale of the          shares of
common stock will be approximately $          , assuming an initial public
offering price of $     per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us. If the
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $          .

     The principal purposes of this offering are to establish a public market
for our common stock, to increase our visibility in the marketplace, to
facilitate future access to public capital markets, to provide liquidity to
existing stockholders and to obtain additional working capital.

     We expect to use the net proceeds for working capital, capital expenditures
and general corporate purposes. Although we may use a portion of the net
proceeds to acquire businesses, products or technologies that are complementary
to our business, we have no specific acquisitions planned. Pending these uses,
we plan to invest the net proceeds in short-term, investment grade,
interest-bearing securities.

                                DIVIDEND POLICY

     We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, for use in
the operation of our business. Our existing equipment line of credit and term
loans prohibit the payment of dividends without the consent of the lender.

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                                 CAPITALIZATION

     The following table sets forth our capitalization as of March 31, 1999. The
pro forma information gives effect to the conversion of all of our outstanding
preferred stock into common stock upon the closing of this offering and assumes
the filing of an amended and restated certificate of incorporation after the
closing of this offering authorizing 2,000,000 shares of preferred stock and
100,000,000 shares of common stock. The pro forma as adjusted information gives
effect to the foregoing as well as the issuance and sale of the
shares of common stock in this offering at an assumed initial public offering
price of $     per share, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by us. The outstanding
share information excludes: (1) 1,043,642 shares of common stock issuable on
exercise of outstanding options as of March 31, 1999 with a weighted average
exercise price of $1.76 per share, (2) 532,319 shares of common stock reserved
for future issuance under our stock plans as of March 31, 1999 and (3) an
additional 1,844,281 shares of common stock reserved for issuance under our
stock plans after March 31, 1999.
AS OF MARCH 31, 1999
                                                            ------------------------------------------------
                                                                                                PRO FORMA
                                                               ACTUAL         PRO FORMA        AS ADJUSTED
                                                            ------------      ---------        -----------
                                                            (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Long-term debt, less current portion......................    $    250         $    250          $    250
Redeemable convertible preferred stock, $.001 par value;
  5,283,050 shares authorized; 5,183,988 shares issued and
  outstanding, actual; no shares authorized, issued and
  outstanding, pro forma and pro forma as adjusted........      11,638               --                --
Stockholders' equity:
Convertible preferred stock, $.001 par value; 3,600,000
  shares authorized; 3,235,746 shares issued and
  outstanding, actual; no shares authorized, issued and
  outstanding, pro forma and pro forma as adjusted........      29,319               --                --
Preferred stock, $.001 par value; no shares authorized,
  issued and outstanding, actual; 2,000,000 shares
  authorized, pro forma and pro forma as adjusted; no
  shares issued and outstanding, pro forma and pro forma
  as adjusted.............................................          --               --                --
Common stock, $.001 par value; 21,000,000 shares
  authorized, 5,220,258 shares issued and outstanding,
  actual; 100,000,000 shares authorized, pro forma and pro
  forma as adjusted; 13,639,992 shares issued and
  outstanding, pro forma;                shares issued and
  outstanding, pro forma as adjusted......................           5               13
Additional paid-in capital................................         373           41,322
Accumulated deficit.......................................     (26,479)         (26,479)
Other comprehensive loss..................................         (41)             (41)
Notes receivable from stockholders........................        (104)            (104)
                                                              --------         --------          --------
          Total stockholders' equity......................       3,073           14,711
                                                              --------         --------          --------
          Total capitalization............................    $ 14,961         $ 14,961          $
                                                              ========         ========          ========
16
19

                                    DILUTION

     SilverStream's pro forma net tangible book value as of March 31, 1999,
after giving effect to the conversion of all outstanding shares of convertible
preferred stock into common stock upon the closing of this offering, was
approximately $14.7 million, or $1.08 per share of common stock. Pro forma net
tangible book value per share represents our tangible net worth (tangible assets
less total liabilities) divided by the 13,639,992 shares of common stock
outstanding after giving effect to the conversion of all outstanding shares of
convertible preferred stock into common stock. After giving effect to the
issuance and sale of the                shares of common stock in this offering
(at an assumed initial public offering price of $          per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us), SilverStream's pro forma net tangible book
value as of March 31, 1999 would have been $          , or $     per share. This
represents an immediate increase in pro forma net tangible book value to
existing stockholders of $     per share and an immediate dilution to new
investors of $     per share. The following table illustrates this per share
dilution:
Assumed initial public offering price per share.............           $
  Pro forma net tangible book value per share as of March
     31, 1999...............................................  $1.08
  Increase in pro forma net tangible book value per share
     attributable to new investors..........................
                                                              -----
Pro forma net tangible book value per share after this
  offering..................................................
                                                                       ----
Dilution per share to new investors.........................           $
                                                                       ====
The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of convertible preferred stock into common
stock upon the closing of this offering, as of March 31, 1999, the difference
between the number of shares of common stock purchased from SilverStream, the
total consideration paid to SilverStream, and the average price per share paid
by existing stockholders and by new investors (at an assumed initial public
offering price of $     per share, before deduction of estimated underwriting
discounts and commissions and estimated offering expenses payable by us):
SHARES PURCHASED        TOTAL CONSIDERATION       AVERAGE
                                        ---------------------    ----------------------    PRICE PER
                                          NUMBER      PERCENT      AMOUNT       PERCENT      SHARE
                                        ----------    -------    -----------    -------    ---------
Existing stockholders.................  13,639,992          %    $41,336,000          %      $3.03
New investors.........................
                                        ----------     -----     -----------    ------
          Total.......................                 100.0%    $               100.0%
                                        ==========     =====     ===========    ======
The table above assumes no exercise of stock options outstanding at March
31, 1999. As of March 31, 1999, there were options outstanding to purchase
1,043,642 shares of common stock with a weighted average exercise price of $1.76
per share and 532,319 shares reserved for future grant or award under
SilverStream's stock plans. To the extent any of these options are exercised,
there will be further dilution to new investors. To the extent all of such
outstanding options had been exercised as of March 31, 1999, pro forma net
tangible book value per share after this offering would be $          and total
dilution per share to new investors would be $     . After March 31, 1999, we
increased the number of shares reserved for issuance under our stock plans by an
additional 1,844,281 shares of common stock.

     If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to                shares, or
     % of the total number of shares of common stock outstanding after this
offering.

                                       17
20

                      SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data should be read in
conjunction with our Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the period ended December 31, 1996 and the years ended
December 31, 1997 and 1998 and the consolidated balance sheet data as of
December 31, 1997 and 1998 are derived from our Consolidated Financial
Statements that have been audited by Ernst & Young LLP, independent auditors,
and are included elsewhere in this prospectus. The consolidated balance sheet
data as of December 31, 1996 are derived from our audited consolidated financial
statements not included in this prospectus. The consolidated financial data as
of March 31, 1998 and 1999 and for the three-month periods ended March 31, 1998
and 1999 are derived from our unaudited Consolidated Financial Statements
included elsewhere in this prospectus and include all adjustments, consisting
only of normal, recurring adjustments, that SilverStream considers necessary for
a fair presentation of our consolidated financial position and our consolidated
results of operations for those periods. Operating results for the three-month
period ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1999.
PERIOD FROM
                                                           MAY 8, 1996          YEARS ENDED           THREE MONTHS ENDED
                                                          (INCEPTION) TO        DECEMBER 31,               MARCH 31,
                                                           DECEMBER 31,    ----------------------   -----------------------
                                                               1996          1997         1998         1998         1999
                                                          --------------   ---------   ----------   ----------   ----------
                                                                   (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
  Software license......................................    $      --      $     249   $    5,983   $      579   $    2,607
  Services..............................................           --             --          825          104          867
                                                            ---------      ---------   ----------   ----------   ----------
        Total revenue...................................           --            249        6,808          683        3,474
Cost of revenue:
  Software license......................................           --             90          695          118          254
  Services..............................................           --            282        1,414          252        1,330
                                                            ---------      ---------   ----------   ----------   ----------
        Total cost of revenue...........................           --            372        2,109          370        1,584
                                                            ---------      ---------   ----------   ----------   ----------
Gross profit (loss).....................................           --           (123)       4,699          313        1,890
Operating expenses:
  Sales and marketing...................................           35          3,854       10,848        2,305        4,037
  Research and development..............................          850          2,622        5,070        1,240        1,503
  General and administrative............................          120          1,961        2,141          532          697
                                                            ---------      ---------   ----------   ----------   ----------
        Total operating expenses........................        1,005          8,437       18,059        4,077        6,237
                                                            ---------      ---------   ----------   ----------   ----------
Loss from operations....................................       (1,005)        (8,560)     (13,360)      (3,764)      (4,347)
Other income, net.......................................           53            225          475           42           40
                                                            ---------      ---------   ----------   ----------   ----------
Net loss................................................    $    (952)     $  (8,335)  $  (12,885)  $   (3,722)  $   (4,307)
                                                            =========      =========   ==========   ==========   ==========
Basic and diluted net loss per share....................    $    (.45)     $   (1.71)  $    (2.52)  $     (.73)  $     (.83)
                                                            =========      =========   ==========   ==========   ==========
Weighted-average common shares used in computing basic
  and diluted net loss per share........................    2,103,535      4,882,996    5,122,480    5,106,947    5,215,648
                                                            =========      =========   ==========   ==========   ==========
Pro forma basic and diluted net loss per share..........                                                         $     (.34)
                                                                                                                 ==========
Weighted-average common shares used in computing pro
  forma basic and diluted net loss per share............                                                         12,759,943
                                                                                                                 ==========
AS OF DECEMBER 31,          AS OF MARCH 31,
                                                              ----------------------------    ------------------
                                                               1996      1997       1998       1998       1999
                                                              ------    -------    -------    -------    -------
                                                                                (IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................  $2,734    $16,649    $ 1,220    $ 9,638    $12,448
Working capital.............................................   2,591     16,349      5,119     14,783     12,994
Total assets................................................   3,056     18,974     10,245     18,151     20,764
Long-term debt, less current portion........................     189        295        325        836        250
Redeemable convertible preferred stock......................   3,658     11,638     11,638     11,638     11,638
Total stockholders' equity (deficit)........................    (947)     5,944     (5,048)     3,947      3,075
18
21

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

     The following discussion should be read together with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in such
forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."

OVERVIEW

     SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. From our incorporation in May 1996 through December 1997, we were
considered a development stage enterprise and our activities were primarily
focused on raising capital, conducting research and development, and
establishing markets and distribution channels for our products. In November
1997, we began commercial shipment of the initial version of our Application
Server. Today, we have licensed the SilverStream Application Server to more than
500 customers around the world.

     We derive our revenue from the sale of software product licenses and from
professional consulting, education and technical support services. We recognize
our software license revenue in accordance with Statement of Position 97-2,
"Software Revenue Recognition." Statement of Position 97-2 generally requires
revenues earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements. We
generally recognize revenue allocated to software licenses upon delivery of the
software products, provided that we have no remaining significant obligations
with regard to implementation, the license fee is fixed or determinable and
collection of the fee is probable. Our customers often contract for maintenance
which provides them with new releases of software and various technical support
and services for a period of typically one year. We recognize maintenance
revenue ratably over this 12-month period. We license our software to
independent software vendors who pay us a prepayment at the beginning of their
contract. We recognize this revenue ratably over the period of the contract,
typically one year. Revenue derived from arrangements with resellers of our
products is not recognized until the software is sold to the end-user. We
recognize revenue from the sale of technical support services ratably over the
maintenance term and revenue from the sale of consulting and education services
as the services are performed.

     We record cash receipts from customers and billed amounts due from
customers in excess of recognized revenue as deferred revenue. The timing and
amount of cash receipts from customers can vary significantly depending on
specific contract terms and can therefore have a significant impact on the
amount of deferred revenue in any given period.

     Our cost of software license revenue includes royalties due to third
parties for technology included in our products, the cost of manuals and product
documentation, media used to deliver our products and shipping and fulfillment
costs. Our cost of services revenue includes salaries and related expenses for
our consulting, education and technical support services organizations, costs of
third parties contracted to provide consulting services to customers and an
allocation of our facilities, communications and depreciation expenses.

     Our operating expenses are classified into three general categories: sales
and marketing, research and development and general and administrative. Sales
and marketing expenses consist primarily of salaries and other related costs for
sales and marketing personnel, sales commissions, travel, public relations and
marketing materials and tradeshows. Research and development expenses consist
primarily of personnel costs to support product development. General and
administrative expenses consist primarily of salaries and other related costs
for operations and finance employees, legal and accounting services and certain
facilities-related expenses.

                                       19
22

     Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and professional services departments, and to establish an
administrative organization. As a result, we have incurred net losses in each
fiscal quarter since inception and had an accumulated deficit of $22.2 million
as of December 31, 1998 and $26.5 million as of March 31, 1999. We anticipate
that our operating expenses will increase substantially in future quarters as we
increase sales and marketing operations, expand distribution channels, increase
research and development, broaden professional services, expand facilities and
support, and improve operational and financial systems. Accordingly, we expect
to incur additional losses for the foreseeable future. In addition, our limited
operating history makes it difficult for us to predict future operating results
and, accordingly, there can be no assurance that we will achieve or sustain
revenue growth or profitability.

RESULTS OF OPERATIONS

     The following table presents selected consolidated financial data for the
periods indicated as a percentage of total revenue. Data for the period from
inception through December 31, 1996 is not presented because we had no revenue
during that period.
YEARS ENDED          THREE MONTHS ENDED
                                                        DECEMBER 31,             MARCH 31,
                                                    --------------------    --------------------
                                                      1997        1998        1998        1999
                                                    --------    --------    --------    --------
Revenue:
  Software license................................     100.0%       87.9%       84.8%       75.0%
  Services........................................       0.0        12.1        15.2        25.0
                                                    --------    --------    --------    --------
          Total revenue...........................     100.0       100.0       100.0       100.0
                                                    --------    --------    --------    --------
Cost of revenue:
  Software license................................      36.2        10.2        17.3         7.3
  Services........................................     113.4        20.8        36.9        38.3
                                                    --------    --------    --------    --------
          Total cost of revenue...................     149.6        31.0        54.2        45.6
                                                    --------    --------    --------    --------
Gross profit (loss)...............................     (49.6)       69.0        45.8        54.4
Operating expenses:
  Sales and marketing.............................   1,550.7       159.4       337.7       116.2
  Research and development........................   1,055.1        74.5       181.6        43.3
  General and administrative......................     789.1        31.5        77.9        20.0
                                                    --------    --------    --------    --------
          Total operating expenses................   3,394.9       265.3       597.2       179.5
                                                    --------    --------    --------    --------
Loss from operations..............................  (3,444.5)     (196.2)     (551.4)     (125.1)
Other income, net.................................      90.7         7.0         6.2         1.1
                                                    --------    --------    --------    --------
Net loss..........................................  (3,353.8)%    (189.3)%    (545.3)%    (124.0)%
                                                    ========    ========    ========    ========
QUARTERS ENDED MARCH 31, 1998 AND 1999

  REVENUE

     Total revenue increased by approximately $2.8 million from $683,000 in the
quarter ended March 31, 1998 to $3.5 million in the quarter ended March 31,
1999. This increase was attributable to an increase in our customer base
resulting in substantial growth in software license and services revenue.
Revenue from international sales increased by approximately $976,000 from
$124,000 in the quarter ended March 31, 1998 to $1.1 million in the quarter
ended March 31, 1999 primarily due to increased selling and related activities
in Germany, Belgium, The Netherlands, Singapore, Hong Kong and Taiwan.

     Software License.  Software license revenue increased by approximately $2.0
million from $579,000 in the quarter ended March 31, 1998 to $2.6 million in the
quarter ended March 31, 1999. This increase is

                                       20
23

attributable to increased unit sales of our products following the release of
Version 2.0 in October 1998 and higher prices realized for our products in 1999
as compared to 1998.

     Services.  Services revenue increased by approximately $763,000 from
$104,000 in the quarter ended March 31, 1998 to $867,000 in the quarter ended
March 31, 1999. This increase is attributable to increases in the number of our
customers and support contracts as well as the creation and expansion of our
professional consulting organization and the provision of a wider range of
services to customers.

     We believe that growth in our software license sales depends on our ability
to provide our customers with support, education, and consulting services and
educate third-party consulting partners on how to use our products. As a result,
we intend to expand our services organizations in 1999 and we believe that
services revenue will continue to increase as a percentage of total revenue. We
expect that revenue from professional consulting services will increase in the
future to the extent that additional customers license our products and as we
expand both our capacity for the delivery of these services as well as the scope
of our services offerings. We expect that services revenue from support
agreements will increase in the future as a result of new and existing license
agreements.

  COST OF REVENUE

     Software License.  Cost of software license revenue increased by
approximately $136,000 from $118,000 in the quarter ended March 31, 1998 to
$254,000 in the quarter ended March 31, 1999. This increase is attributable to
third-party royalties, packaging costs for shipments to new customers and
shipments of product updates to existing customers. We expect software license
costs to increase in the future due to additional customers licensing our
products and the licensing of additional third-party technology that we may
choose to embed in our product offerings.

     Services.  Cost of services revenue increased by approximately $1.1 million
from $252,000 in the quarter ended March 31, 1998 to $1.3 million in the quarter
ended March 31, 1999. This increase in cost of services revenue is primarily due
to the creation and rapid expansion of our consulting services organization in
late 1998 and, to a lesser extent, an increase in the number of our education
and technical support personnel. To date, our services costs have been higher
than our services revenue, and we expect that trend to continue for the next
several quarters as we continue to expand all of our services organizations. We
expect services costs to increase in the future to the extent that we continue
to generate new customers and associated software license and services revenue.
Services costs as a percentage of services revenue can be expected to vary
significantly from period to period depending on the mix of services we provide,
whether such services are provided by us or third-party contractors, and overall
utilization rates.

  OPERATING EXPENSES

     Sales and Marketing.  Sales and marketing expenses increased by
approximately $1.7 million from $2.3 million in the quarter ended March 31, 1998
to $4.0 million in the quarter ended March 31, 1999. The increase in sales and
marketing expenses is attributable to increases in sales commissions, the number
of sales and marketing employees in North America, the number of our
international offices and marketing program spending. We believe these expenses
will increase significantly in future periods as we expect to continue to expand
our sales and marketing efforts. We also anticipate that sales and marketing
expenses may fluctuate as a percentage of a total revenue from period to period
as new sales personnel are hired and begin to achieve productivity.

     Research and Development.  Research and development expenses increased by
approximately $263,000 from $1.2 million in the quarter ended March 31, 1998 to
$1.5 million in the quarter ended March 31, 1999. The increase in research and
development expenses is primarily attributable to increases in the number of
research and development personnel to support the Company's product development
activities. We believe that continued investment in research and development is
critical to attaining our strategic objectives, and, as a result, we expect
research and development expenses to increase significantly in future periods.
To date, all software development costs have been expensed in the period
incurred.
                                       21
24

     General and Administrative.  General and administrative expenses increased
by approximately $165,000 from $532,000 in the quarter ended March 31, 1998 to
$697,000 in the quarter ended March 31, 1999. This increase is attributable to a
growing number of administrative employees, increased facility costs, increased
professional fees and an increase in the bad debt reserve as our revenue and
accounts receivable grew. We believe general and administrative expenses will
increase, as we expect to add personnel to support our expanding operations,
incur additional costs related to the growth of our business, and assume the
responsibilities of a public company.

  OTHER INCOME, NET

     Other income, net decreased from $42,000 in the quarter ended March 31,
1998 to $40,000 in the quarter ended March 31, 1999. This decrease is
attributable to increases in interest expense during the quarter ended March 31,
1999 over the same period in the previous year. This interest expense results
from capital equipment loans used to purchase computer equipment.

YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

  REVENUE

     Total revenue increased by approximately $6.6 million from $249,000 in 1997
to $6.8 million in 1998 due to the release of our initial products in November
1997 and the ensuing increase in our customer base. Revenue from international
sales increased by approximately $1.7 million from $67,000 in 1997 to $1.8
million in 1998. We had no revenue during the period from inception until
December 31, 1996.

     Software License.  Software license revenue increased by approximately $5.7
million from $249,000 in 1997 to $6.0 million in 1998. We first began shipping
our products in November 1997. The increase in software license revenue was due
primarily to an increase in the number of customers resulting from a full year
of selling in 1998 and the release of Version 2.0 of our products in October
1998.

     Services.  We had no services revenue in 1997 and services revenue of
$825,000 in 1998. Services revenue in 1998 resulted primarily from education and
support services delivered to an increasing customer base and, to a lesser
extent, from the sale of professional consulting services.

  COST OF REVENUE

     Software License.  Cost of software license revenue increased by
approximately $605,000 from $90,000 in 1997 to $695,000 in 1998. The increase is
attributable to increases in software license revenue and the royalties we pay
on third-party software incorporated into Version 2.0 of our products which
began shipping in October 1998.

     Services.  Cost of services revenue increased by approximately $1.1 million
from $282,000 in 1997 to $1.4 million in 1998. The increase was primarily due to
the creation of our professional consulting services organization, the planned
hiring of additional consultants in 1998 and the increase in the number of
software license customers, who generally require our professional services.

  OPERATING EXPENSES

     Sales and Marketing.  Sales and marketing expenses in 1996 amounted to
$35,000 and increased by approximately $7.0 million from $3.9 million in 1997 to
$10.8 million in 1998. The increase in these periods was due to increases in
sales and marketing personnel and marketing program expenditures. During 1998,
we expanded international sales and marketing operations in Germany, Belgium,
The Netherlands, Hong Kong, Singapore and Taiwan and we increased the number of
personnel and offices in North America.

     Research and Development.  Research and development expenses in 1996
amounted to $850,000 and increased by approximately $2.4 million from $2.6
million in 1997 to $5.1 million in 1998. The increase in these periods was
primarily due to the hiring of more engineering personnel.

                                       22
25

     General and Administrative.  General and administrative expenses in 1996
amounted to $120,000 and increased by approximately $180,000 from $2.0 million
in 1997 to $2.1 million in 1998. The increase in these periods was due to the
hiring of more personnel, increases in facility costs, professional fees and our
bad debt reserve as our revenue and accounts receivable grew.

  OTHER INCOME, NET

     Other income, net in 1996 amounted to $53,000 and increased by
approximately $250,000 from $225,000 in 1997 to $475,000 in 1998. The increase
was due primarily to an increase in interest income earned from cash balances on
hand in 1998 compared to 1997. Proceeds from the private sale of equity
securities in 1997 and 1998 caused cash and short-term investment balances in
1998 to be higher than those in 1997.

                                       23
26

QUARTERLY RESULTS

     The following table presents our unaudited quarterly operating results for
each of the six quarters ended March 31, 1999 both in absolute dollars and as a
percentage of our total revenue for each quarter. This information has been
derived from our unaudited consolidated financial statements. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements contained in this prospectus and
include all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of such information. You should
read this information in conjunction with our Consolidated Financial Statements
and Notes thereto appearing elsewhere in this prospectus. You should not draw
any conclusions about our future results from the results of operations for any
quarter.
THREE MONTHS ENDED
                                  ---------------------------------------------------------------------
                                  DEC. 31,    MARCH 31,   JUNE 30,    SEPT. 30,   DEC. 31,    MARCH 31,
                                    1997        1998        1998        1998        1998        1999
                                  ---------   ---------   ---------   ---------   ---------   ---------
                                                   (IN THOUSANDS, EXCEPT PERCENTAGES)
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Revenue:
  Software license..............   $   249     $   579     $   948     $ 1,916     $ 2,539     $ 2,607
  Services......................        --         104         113         115         494         867
                                   -------     -------     -------     -------     -------     -------
          Total revenue.........       249         683       1,061       2,031       3,033       3,474
Cost of revenue:
  Software license..............        90         118          84         138         355         254
  Services......................       282         252         267         361         534       1,330
                                   -------     -------     -------     -------     -------     -------
          Total cost of
            revenue.............       372         370         351         499         889       1,584
                                   -------     -------     -------     -------     -------     -------
Gross profit (loss).............      (123)        313         710       1,532       2,144       1,890
Operating expenses:
  Sales and marketing...........     1,283       2,305       2,148       2,678       3,716       4,037
  Research and development......       647       1,240       1,190       1,336       1,304       1,503
  General and administrative....     1,123         532         462         489         659         697
                                   -------     -------     -------     -------     -------     -------
          Total operating
            expenses............     3,053       4,077       3,800       4,503       5,679       6,237
                                   -------     -------     -------     -------     -------     -------
Loss from operations............    (3,176)     (3,764)     (3,090)     (2,971)     (3,535)     (4,347)
Other income, net...............       216          42         210         200          23          40
                                   -------     -------     -------     -------     -------     -------
Net loss........................   $(2,960)    $(3,722)    $(2,880)    $(2,771)    $(3,512)    $(4,307)
                                   =======     =======     =======     =======     =======     =======
AS A PERCENTAGE OF TOTAL
  REVENUE:
Revenue:
  Software license..............       100%         85%         89%         94%         84%         75%
  Services......................        --          15          11           6          16          25
                                   -------     -------     -------     -------     -------     -------
          Total revenue.........       100         100         100         100         100         100
Cost of revenue:
  Software license..............        36          17           8           7          11           8
  Services......................       113          37          25          18          18          38
                                   -------     -------     -------     -------     -------     -------
          Total cost of
            revenue.............       149          54          33          25          29          46
                                   -------     -------     -------     -------     -------     -------
Gross profit (loss).............       (49)         46          67          75          71          54
Operating expenses:
  Sales and marketing...........       516         337         203         132         123         116
  Research and development......       260         182         112          65          43          43
  General and administrative....       451          78          43          24          22          20
                                   -------     -------     -------     -------     -------     -------
          Total operating
            expenses............     1,227         597         358         221         188         179
                                   -------     -------     -------     -------     -------     -------
Loss from operations............    (1,276)       (551)       (291)       (146)       (117)       (125)
Other income, net...............        87           6          20          10           1           1
                                   -------     -------     -------     -------     -------     -------
Net loss........................    (1,189)%      (545)%      (271)%      (136)%      (116)%      (124)%
                                   =======     =======     =======     =======     =======     =======
24
27

     Our total revenue has increased in each quarter following the commercial
release of our products in November 1997. The increase in each quarter is due to
the increase in the number of our customers resulting from increased market
awareness and acceptance of our software, expansion of our sales organization
and increased services revenue reflecting the growth in the installed base of
product licenses. Growth in software license revenue accelerated in the last two
quarters of 1998 as we increased our direct sales force in North America and
expanded direct European operations in Germany, Belgium and The Netherlands.
Services revenue increased in the fourth quarter of 1998 and the first quarter
of 1999 following the release of Version 2.0 of our Application Server and the
expansion of our professional consulting services organization and our services
offerings.

     Cost of software license revenue has increased in conjunction with our
increases in software license revenue. Software license costs were higher in the
quarter ended March 31, 1998 due to the increased number of releases following
the release of Version 1.0 of our Application Server in November 1997 and in the
quarter ended December 31, 1998 following the release of Version 2.0 in October
1998.

     Cost of services revenue has increased as we have increased the size of our
support, education and professional consulting organizations. Cost of services
revenue increased during the quarters ended December 31, 1998 and March 31, 1999
due to increased usage of third-party consultants as well as salaries and
related costs for increased professional services personnel following the
release of Version 2.0.

     Operating expenses have generally increased in absolute dollars each
quarter as we have increased staffing in sales and marketing, product
development and general and administrative functions. Sales and marketing
expenses increased in the quarters ended September 30, 1998 and December 31,
1998 due to an increase in the number of direct sales staff in North America and
the expansion of sales operations in Germany, Belgium and The Netherlands. Sales
and marketing expenses further increased in the quarter ended December 31, 1998
with the expansion of sales operations in Hong Kong, Singapore and Taiwan. Sales
and marketing expenses increased in the quarter ended March 31, 1999 due to
increases in salaries, the number of direct sales personnel and sales
commissions and incentives paid in the quarter. Research and development
expenses increased in the quarter ended March 31, 1999 due to an increase in
personnel and the creation of a performance and tuning laboratory which resulted
in increased depreciation and equipment lease costs.

     As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Accordingly, we base our expenses in part
on future revenue projections. Most of these expenses are fixed in the short
term, and we may not be able to quickly reduce spending if revenue is lower than
we have projected. Our ability to forecast accurately our quarterly revenue is
limited due to the long sales and deployment cycle of our software products,
which makes it difficult to predict the quarter in which license sales will
occur, and the early nature of the market for application servers. If our
revenue does not meet projections, our business, operating results and financial
condition could be materially adversely affected and net losses in a given
quarter would be even greater than expected.

     We plan to increase our operating expenses to expand sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services, expand our facilities and
support and improve operational and financial systems. If our revenue does not
increase along with these expenses, our business, operating results and
financial condition could be materially adversely affected and net losses in a
given quarter would be even greater than expected.

     Although we have a limited operating history, we believe that quarterly
operating results may experience seasonal fluctuations. For instance, quarterly
results may fluctuate based on customer calendar year budgeting cycles, and slow
summer purchasing patterns in Europe.

NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS

     As of December 31, 1998, we had net operating losses and research and
development carryforwards of approximately $22.3 million and $350,000,
respectively. The net operating loss and credit carryforwards will expire at
various dates, beginning 2012, if not utilized. Under the provisions of the
Internal Revenue Code, certain substantial changes in our ownership may limit
the amount of net operating loss carry-forwards that could be utilized annually
in the future to offset taxable income. A valuation allowance has

                                       25
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been established in our financial statements to reflect the uncertainty of
future taxable income required to utilize available tax loss carryforwards and
other deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have funded our operations primarily through the
private sale of our equity securities, resulting in net proceeds of
approximately $41.0 million. We have also funded our operations through
equipment financings. As of December 31, 1998, we had $4.5 million in cash, cash
equivalents and marketable securities, and $5.1 million in working capital. As
of March 31, 1999, we had $12.7 million in cash, cash equivalents and marketable
securities, and $13.0 million in working capital. We have three term loans for
amounts borrowed to finance equipment. These term loans are from the same bank
and bear interest at the bank's prime rate plus 0.5%. At March 31, 1999, we had
a total of $636,000 outstanding under these term loans. We also have a $750,000
equipment line of credit with a bank that bears interest at the bank's prime
rate plus 0.5%. At March 31, 1999, nothing was outstanding under this line of
credit. Borrowings under these term loans and the line of credit is secured by
substantially all of our tangible assets.

     Net cash used in operating activities was $8.0 million in 1997, $13.0
million in 1998 and $3.7 million in the quarter ended March 31, 1999. Net cash
flows from operating activities in each period reflect increasing net losses
and, to a lesser extent, accounts receivable offset in part by increases in
accounts payable, accrued expenses and deferred revenue.

     Net cash used in investing activities was $1.6 million in 1997 and $4.3
million in 1998, while investing activities provided $2.7 million in the quarter
ended March 31, 1999. Cash used in investing activities reflects purchases of
property and equipment in each period, purchases of short-term investments in
1998, and proceeds from the sale of short-term investments in the quarter ended
March 31, 1999.

     Net cash provided by financing activities was $23.4 million in 1997, $1.9
million in 1998 and $12.3 million in the quarter ended March 31, 1999. Cash
provided by financing activities includes proceeds from the issuance of
preferred and common stock, offset by the payments on long-term debt in each
period, as well as proceeds from equipment financings in 1997 and 1998.

     Capital expenditures were $1.6 million in 1997, $1.0 million in 1998 and
$410,000 in the quarter ended March 31, 1999. Our capital expenditures consisted
of purchases of operating resources to manage our operations, including computer
hardware and software, office furniture and equipment and leasehold
improvements. We expect that our capital expenditures will continue to increase
in the future. Since inception, we have generally funded capital expenditures
either through the use of working capital or with equipment bank loans.

     We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. 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 of, or investments in,
complementary businesses, technologies or product lines. We believe that the net
proceeds from the sale of the common stock in this offering, together with funds
generated from operations, will be sufficient to meet our working capital
requirements for at least the next 12 months. Thereafter, we may find it
necessary to obtain additional equity or debt financing. In the event additional
financing is required, we may not be able to raise it on acceptable terms or at
all.

YEAR 2000 COMPLIANCE

     The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.

     The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information and
non-information technology systems nevertheless could be substantially impaired
or cease to operate due to Year 2000 problems. Additionally, we rely on
information technology supplied by third parties, and our participating
resellers also are heavily dependent on information technology systems
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and on their own third-party vendor systems. Year 2000 problems experienced by
us or any of these third parties could materially adversely affect our business.

     We have conducted a review of the Year 2000 state of readiness for the
current version of our products. This review included assessment, implementation
(including remediation, upgrading and replacement of certain product versions),
validation and testing. We have not yet, however, completed contingency
planning. We continue to respond to customer questions about prior versions of
our products on a case-by-case basis. Based on our review, we believe the
current versions of our products are Year 2000 compliant, when configured and
used in accordance with the related documentation and provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or with our products are also Year 2000 compliant.

     We have defined Year 2000 compliant as the ability to:

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

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

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

     - Store and provide output of date information in ways that are unambiguous
       as to century if the date elements in interfaces and data storage specify
       the century; and

     - Recognize year 2000 as a leap year.

     We have tested software obtained from third parties that is incorporated
into our products, and are seeking assurances from our vendors that licensed
software is Year 2000 compliant. Despite testing by us and by current and
potential clients, and assurances from developers of products incorporated into
our products, our products may contain undetected errors or defects associated
with Year 2000 date functions. Known or unknown errors or defects in our
products could result in delay or loss of revenue, diversion of development
resources, damage to our reputation, increased service and warranty costs, or
liability to our customers, any of which could materially adversely affect our
business, operating results, or financial condition. Some commentators have
predicted significant litigation regarding Year 2000 compliance issues. Because
of the unprecedented nature of such litigation, it is uncertain whether or to
what extent we may be affected by it.

     We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology. We have also initiated an assessment of our
non-information technology systems. We expect to complete testing of our
information and non-information technology systems in 1999. To the extent that
we are not able to test the technology provided by third-party vendors, we are
seeking assurances from these vendors that their systems are Year 2000
compliant. We are not currently aware of any material operational issues or
costs associated with preparing our internal information technology and
non-information technology systems for the Year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal information technology and non-
information technology systems.

     We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for
purchases of our products and services, or delay those purchases. As a result,
our business, results of operations or financial condition could be materially
adversely affected.

     We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. We may experience

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material problems and costs with Year 2000 compliance that could adversely
affect our business, results of operations and financial condition.

     We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
material. Finally, we are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failure interruptions.

CONVERSION TO EURO

     Certain of the common member countries of the European Union have agreed to
adopt the Euro as their legal currency. We have established plans and begun
developing the necessary modifications for the technical adaptation of our
internal information technology and other systems to accommodate Euro-
denominated transactions. We expect to be able to process Euro-denominated
transactions on a timely basis. We are also assessing the business implications
of the conversion to the Euro, including long-term competitive implications and
the effect of market risk with respect to financial instruments. We do not
believe the Euro will have a significant effect on our business, financial
position, cash flows or results of operations. We will continue to assess the
impact of Euro conversion issues as the applicable accounting, tax, legal and
regulatory guidance evolves.

MARKET RISK

     SilverStream does not currently use derivative financial instruments. We
generally place our marketable security investments in high credit quality
instruments, primarily U.S. Government and Federal Agency obligations,
tax-exempt municipal obligations and corporate obligations with contractual
maturities of ten years or less. We do not expect any material loss from our
marketable security investments and therefore believe that our potential
interest rate exposure is not material.

     Internationally, SilverStream invoices customers primarily in local
currency. We are exposed to foreign exchange rate fluctuations from when
customers are invoiced in local currency until collection occurs. We do not
currently enter into foreign currency hedge transactions. Through March 31,
1999, foreign currency fluctuations have not had a material impact on our
financial position or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

     In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance for accounting for costs of software products developed or
purchased for internal use, including when costs should be capitalized. The
adoption of this standard did not have a material effect on our financial
condition or results of operations.

     In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. The adoption of
this standard did not have a material effect on our financial condition or
results of operations.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including 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, 1999.
We are presently analyzing the impact, if any, that the adoption of SFAS No. 133
will have on our financial condition or results of operations.

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                                    BUSINESS

OVERVIEW

     SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. The advantages of Web-based technology are driving the creation of a
new generation of business-transforming software applications. These powerful
Web-based applications link a broad universe of customers, vendors, employees
and partners with multiple, diverse data sources. Our products and services help
our customers to rapidly develop Web applications that are scalable, reliable
and secure. Using our products and services, organizations can create and deploy
robust Web applications in diverse areas such as e-commerce, employee
self-service, supply chain management, customer service and work flow
management.

     Our products consist of an application server, an integrated set of
development tools and enterprise data connectors. The SilverStream Application
Server tightly integrates data sources, business logic and presentation of
content to the user. Using our Application Server, our customers can seamlessly
access information and data from diverse sources. Our customers can design their
applications to include the rules that govern the way the application operates,
the business logic, that are consistent with their business policies. Our
products allow the business logic to be maintained centrally and therefore
easily changed and instantly implemented. The SilverStream Application Server
maintains the presentation, or look and feel, of the application centrally and
presents content to the user locally, without the need to install application
software on the user's remote computer. Our development tools shorten the time
to market by simplifying the development process required to build complex Web
applications. We also offer comprehensive application engineering,
implementation, training and support services to help ensure the successful
development and implementation of Web applications by our customers.

     We market our products and services globally through our direct sales force
and a network of independent software vendors, value-added resellers and
consulting and training partners. To date, we have licensed the SilverStream
Application Server to over 500 customers in a wide variety of industries,
including communication, financial services, government, manufacturing, oil and
gas, pharmaceutical, technology and transportation. Our customers include ARCO,
Bankers Trust, Enron, Federal Express, Hewlett-Packard, Johnson & Johnson, MCI
WorldCom, NASA, Pfizer, Raytheon, Samsung, SBC Communications, Siemens,
StorageTek, The Chicago Stock Exchange, The United States Army, UPS and The Walt
Disney Company.

INDUSTRY BACKGROUND

     During the last 40 years, computer-based business applications have evolved
through three fundamental architectures: mainframe, client/server, and, now,
Web-based computing. The introduction of each of these architectures has created
opportunities to develop new applications for businesses. Business application
computing began with the mainframe, which enabled centralized control of these
applications, but gave limited access to users. The development of personal
computers and the widespread adoption of local area networks provided the
foundation for client/server computing, which gave more users greater access to
information and applications, but sacrificed centralized control.

     Web-based computing combines the benefits of prior computing architectures
with far greater accessibility for networked, mobile and remote users. Today,
organizations are extending their enterprises by using the Internet to connect
their customers, vendors, employees and partners. To link their constituencies
across these extended enterprises, organizations are creating Web applications
that enable the dynamic delivery of information and transactional capabilities.
The increasing use of Web-based computing by organizations reflects the ability
of these powerful Web applications to fundamentally transform the way these
organizations operate. Application servers enable organizations to create,
deploy and manage these Web applications. Forrester Research, an independent
research firm, estimates that the market for application server software will
grow from $412 million in 1998 to $2.2 billion by 2002.

     Organizations often employ Web applications to conduct "e-business," which
refers to business-to-business, business-to-employee and business-to-consumer
transactions and communications conducted through the use of Internet
technology. These organizations recognize that if they are able to offer
easy-to-

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access, compelling, real-time applications as a means of transacting business,
they can create closer and more enduring business relationships, new
efficiencies and significant competitive and strategic advantages. As a result
of these benefits, the e-business market is large and growing rapidly. Forrester
Research estimates that Internet-based business-to-business trade, the subset of
e-business that encompasses the trade of goods and services in which the final
order is placed over the Internet, will grow from $43 billion in 1998 to over $1
trillion in 2003.

     In order to compete in this dynamic e-business environment, organizations
need comprehensive, integrated solutions that enable the creation of powerful
Web-based applications, shorten the time-to-market for initial deployment and
allow rapid updates and changes. To capitalize on the new opportunities afforded
by Web applications, organizations must overcome several challenges:
--------------------------------------------------------------------------------------------------------
CHALLENGE                                     CUSTOMER NEED
--------------------------------------------------------------------------------------------------------
  Data stored in multiple diverse data        - Ability to aggregate and manipulate data from
     sources                                    multiple diverse sources
                                              - Ability to present seamless, easy-to-use interface
                                                to data
  Heterogeneous, incompatible legacy          - Standards-based, open Web development environment
  software applications and computer          - Interoperability of Web applications among legacy
  platforms                                     applications and platforms
                                              - Preservation of investment in legacy resources
  Availability of business-critical Web       - Rapid response time for users
  applications                                - Secure, controlled access
                                              - Reliable performance and up time
  Accessibility by unknown and unpredictable  - Scalability
  user community                              - Compatibility with various popular user interfaces
  Ability to manage and update Web            - Centralized business logic
  applications                                - Centralized command and control functionality
  Time to market in an environment with       - Integrated, powerful and easy-to-use development
  limited information technology resources      environment
                                              - Rapid development, deployment and modification of
                                                Web applications
--------------------------------------------------------------------------------------------------------
To meet these challenges, organizations have been required to use multiple
development tools, programming languages and applications from different
vendors. As a result, organizations have typically had to rely on custom
programming and complex integration activities to develop their Web
applications, which have often been difficult and expensive to create, deploy
and manage.

THE SILVERSTREAM SOLUTION

     SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. Organizations use our products for such diverse Web applications as e-

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commerce, employee self-service, supply chain management, customer service and
workflow management. Our products and services provide the following benefits:

     Enable Creation and Deployment of Business-Focused Web
Applications.  Business-focused Web applications enable the dynamic delivery of
information and transactional capabilities to a broad group of users. Our
products provide a scalable, reliable, secure and manageable platform for Web
applications that addresses the unpredictable traffic volumes and patterns and
other challenges faced by Web applications. By addressing performance,
connectivity and security issues, our products allow customers to focus their
resources on the business elements of their Web applications such as reaching
new customers, developing new businesses, providing superior customer service,
shortening supply cycles and improving the flow of information.

     Extend Reach of Applications and Simplify Administration.  The SilverStream
Application Server allows organizations to leverage the advantages of thin
client computing, which eliminates the need for application software to be
installed on the user's computer. Our Application Server allows users to access
Web applications through common, easy-to-use Web browsers and other graphical
interfaces. The central location of Web applications permits organizations to
rapidly modify and deploy applications, enabling organizations to respond
quickly to evolving business requirements. These benefits allow organizations to
extend Web applications to a broader audience and assist these organizations in
reducing their administrative and maintenance costs.

     Enable Creation of Applications that Access Multiple Information
Sources.  The existence of diverse systems, information and data sources often
results in stand-alone applications that are unable to interact with one
another. SilverStream's products allow Web applications to access information
and data seamlessly from various sources, such as relational databases, host
applications, enterprise resource planning systems and document management
systems. By using our products, customers can focus on the design and
functionality of strategic Web applications to create comprehensive solutions
while preserving their investments in legacy systems.

     Reduce the Complexity of Developing Web Applications.  SilverStream's
integrated set of development tools provide a common development environment and
a consistent look and feel that span multiple, diverse technologies, such as
Hyper-Text Markup Language (HTML), Java and reusable software objects. We
provide a consistent development interface that is familiar to application
developers and we offer powerful development functionality. Our products and
related consulting, education and support services enhance the productivity of
Web application developers, allowing our customers to leverage the existing
capabilities of their development staff in an environment where skilled Web
application developers are in short supply.

STRATEGY

     Our objective is to enhance our position as a leading global provider of
application server software and related products and services. To achieve this
goal, we are pursuing the following strategies:

     Capture Emerging Market Opportunity.  The market for Web-based application
servers is relatively new. We believe that it is important to reach customers at
an early stage of their adoption of Web technology. We intend to expand our
customer base by seeding a large number of accounts with our products and
offering a range of services to help ensure that initial implementations are
successful. We plan to leverage these initial successes by selling additional
application servers as customers expand their initial deployments and develop
new Web applications.

     Extend Technology Leadership.  We intend to enhance our leadership position
by increasing the performance, functionality and ease of use of our Application
Server and by integrating new technologies into our products. We will continue
to devote substantial resources to the enhancement of our application server
software. The next release of our Application Server, Version 3.0, is expected
to include improvements to the programming environment as well as support for
computing standards such as Enterprise JavaBeans (EJB) and Java2, and
third-party development tools such as Inprise's JBuilder and Symantec's Visual
Cafe. We intend to leverage our core technology by developing and selling
additional complementary products. In early 1999, we introduced our Enterprise
Data Connectors, which facilitate connections to popular business applications
such as SAP, Lotus Notes and PeopleSoft.

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     Maintain Commitment to Open Standards and Interoperability.  We plan to
continue to support open standards in our Application Server to facilitate
interoperability with major databases, operating systems, network protocols and
hardware platforms. Our Application Server currently supports standards for
programming languages such as HTML and Java, as well as standards for
communication protocols, security mechanisms, and directory and relational
database access. By supporting open standards, we are able to market our
products to a broad range of customers who can then choose among the hardware,
software and networking technologies that best serve their needs without
sacrificing performance, functionality or flexibility.

     Leverage Professional Services Capabilities.  As Web-based technologies
have become increasingly important to our customers, there has been increased
demand for comprehensive service offerings. By offering our clients a full range
of professional services on a global basis, we promote the rapid success of
customer projects, creating significant opportunities to sell additional
software licenses to our customers. We intend to increase the size of our
service organization worldwide. In addition, we intend to augment our service
offerings by developing and strengthening our strategic relationships with
systems integrators, training partners and consultants.

     Expand Worldwide Sales Efforts.  To expand our sales to both new and
existing customers, we plan to continue to pursue a multi-channel distribution
strategy that includes both our direct sales force and relationships with
independent software vendors, value-added resellers and consulting and training
partners. We currently have ten offices throughout North America and plan to
continue to expand our North American sales staff. We also plan to continue
expansion of our international presence by establishing additional overseas
offices, adding direct sales personnel and increasing our indirect sales and
services channels. We currently have four sales offices in Europe and three in
Asia. Our international sales accounted for approximately 27% and 32% of our
total revenue in 1998 and the first quarter of 1999, respectively.

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PRODUCTS AND SERVICES

  PRODUCTS

     Our product offerings are summarized below:
--------------------------------------------------------------------------------------------------------
PRODUCT                 DESCRIPTION                                          SHIPMENT DATES
--------------------------------------------------------------------------------------------------------
  Application Server    Application server for the creation, deployment and  Version 2.5 shipped in
                          management of Web applications.                      May 1999. First
                                                                               version shipped in
                          Available for Windows NT, Solaris or HP-UX           November 1997.
                          operating systems.
                          Licensed on a per processor basis for unlimited
                          users with no per seat or per connection charges.
  Single Developer      A complete development and testing environment for   Version 2.5 shipped in
  Pack                    creating Web applications integrated with the        May 1999. First
  Group Developer Pack    SilverStream Application Server.                     version shipped in
  (5 or 10 Developers)                                                         November 1997.
                        The Single Developer Pack is for standalone
                          development on a single Windows NT machine.
                        The Group Developer Packs are for teams of up to 5
                          or 10 developers to work both independently on
                          their own computers and as a group. Includes 5 or
                          10 Single Developer Packs and a 5- or 10-user
                          SilverStream Application Server for group testing
                          on Windows NT, Solaris or HP-UX operating
                          systems.
                        Each of the Developer Packs is priced and sold
                          separately.
  Enterprise Data       Products that provide connections to SAP, Lotus      First shipped in April
  Connectors              Notes and PeopleSoft applications.                   1999.
                        Each Enterprise Data Connector is priced and sold
                          separately.
--------------------------------------------------------------------------------------------------------
SERVICES

     As part of our ongoing commitment to provide a complete solution for our
customers, we offer comprehensive consulting, education and technical support
services that complement our product offerings. As of May 31, 1999, our services
organization comprised 50 professionals.

     To complement our service organization, we train and promote a broad
network of SilverStream partners, ranging from international consulting firms to
local consultants that offer consulting, education and technical support
services. Our customers are encouraged to engage consultants, instructors and
developers whose proficiency with our products has been certified by us and who
have been designated Certified SilverStream Developers or Certified SilverStream
Field Application Engineers.

     Consulting Services.  We provide application engineering and implementation
services to assist our customers in developing and implementing Web applications
using our products. Consulting services include advisory, prototyping, design,
test and configuration, deployment and tuning services, and technical account
management services. We generally provide our consulting services on a time and
materials basis.

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     Education Services.  We offer our customers and partners introductory and
advanced training in the use of our software products. Our employees as well as
Certified SilverStream Trainers offer our training classes around the world. We
price these services by course.

     Technical Support Services.  We believe that a high level of technical
support services is critical to our customers' success and an important
competitive advantage. We offer technical support to our customers, ranging from
dedicated on-site support personnel, to telephone support from our Burlington
and Belgium offices during normal business hours, to 24-hour on-line support
available through our Website. The pricing of our technical support services
varies according to the level of support required.

PRODUCT ARCHITECTURE

     The SilverStream Application Server is a tightly integrated platform that
incorporates components and features required to create, deploy and manage
highly scalable and sophisticated Web applications. The fundamental components
of the architecture are shown below:
[Narrative description of graphic material omitted in electronically filed
document]
This is a detailed graphic outlining the fundamental components of the
SilverStream Application Server architecture:
1. At the bottom is a horizontal three-dimensional rectangle entitled
   "Enterprise Deployment Services," which rectangle includes four boxes
   entitled "Scalability," "Reliability," "Security" and "Manageability."
2. On top of the rectangle are three vertical three-dimensional rectangles:
    a. The vertical rectangle on the left is entitled "Presentation Layer," and
       includes two boxes entitled "HTML" and "Java"
    b. The vertical rectangle in the middle is entitled "Business Logic Layer,"
       and includes three boxes entitled "Distributed Objects," "Transactions"
       and "Content Management"
    c. The vertical rectangle on the right is entitled "Data Access Layer," and
       includes two boxes entitled "Data Access Objects" and "Enterprise Data
       Connectors"
3. Above the three rectangles and connected to each by thin lines is a
   horizontal three-dimensional rectangle entitled "Development Tools."
4. To the left of the rectangle entitled "Presentation Layer" are two computer
   icons under the title "Users." There is a two-way arrow between the rectangle
   and the icons.
5. To the right of the rectangle entitled "Data Access Layer" are three
   three-dimensional cylinders under the title "Data." There is a two-way arrow
   between the rectangle and the cylinders.]

  PRESENTATION LAYER

     Presentation refers to the user interface layer of an application. This is
where the user interacts with the application by entering data, using menus and
hyperlinks, and viewing dynamically generated pages containing data and rich
content. Our products allow developers to support both HTML and Java graphical
user interfaces. HTML has the advantage of quickly running in any Web browser.
Java has the advantage of providing a much richer interactive user interface
that is similar to that of a Microsoft Windows application, but requires an
initial download of some software. Typically, our customers choose to mix both
technologies in a single application, using HTML for Internet users and Java for
intranet users who interact heavily with the application.

          HTML.  The SilverStream Application Server incorporates a powerful
     engine for generating dynamic HTML pages that contain data and rich
     content. Developers can design their HTML pages either by writing industry
     standard Java Servlets, or using a graphical page designer which generates
     Servlets automatically.

          Java.  The SilverStream Application Server enables the secure
     development, downloading and running of graphic Java applications. Java
     applications are stored centrally in the SilverStream Application Server
     and are downloaded on demand to browsers on remote user computers via the
     Web. Our Application Server also provides a Java application runtime called
     JRunner which allows the same Java applications to run without a browser,
     behaving more like a full Windows application. JRunner also provides for
     the download of applications on demand, providing the feel of a

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     client/server application, but without requiring the application to be
     installed or maintained on each remote computer.

  BUSINESS LOGIC LAYER

     Business logic is the set of rules that a Web-based application follows,
based on the customer's business policies. For example, in a supply-chain Web
application, business logic defines how items such as discounts, freight and
state tax are calculated, how products are re-ordered and how a customer's
credit limit is checked. In a Web-based application, it is usually desirable to
separate the business logic from the user interface. This makes it easier to
change the business logic and maintain the application.

          Distributed Objects and Transactions.  The SilverStream Application
     Server provides a complete set of tools that allows developers to create
     re-usable business objects that encapsulate their business logic. We also
     provide powerful capabilities for managing transactions involving multiple
     tables. In our next version of the SilverStream Application Server, Version
     3.0, we intend to provide support for the industry standard Enterprise
     JavaBeans version 1.1. This is intended to allow customers to distribute
     objects across the network and control transactions across objects.

          Content Management.  In addition to its primary focus on structured
     data, our Application Server also provides a set of features to manage rich
     content such as product catalogs, news articles, financial research,
     documents, Adobe Acrobat PDF files, graphics, and photographs. These
     features include full text retrieval, file upload/download, version control
     and a powerful HTML Edit Control written in Java. These features allow
     developers to create Web applications such as e-commerce sites and
     corporate portals that combine rich content with transactions.

  DATA ACCESS LAYER

     The data access layer provides connectivity to multiple disparate data
sources. The SilverStream Application Server provides high performance drivers,
using industry standard Java Database Connectivity (JDBC), for relational
databases, including Oracle, DB/2, Sybase, Microsoft SQL Server, Informix and
others. For non-relational data sources, our Application Server provides an
architecture known as data source objects. Customers, partners and consultants
can write data source objects to connect to a wide range of data sources. To
simplify the creation of data source objects, we offer our Enterprise Data
Connectors that allow customers to easily create data source objects for SAP,
Lotus Notes and PeopleSoft. Our partners offer a wide range of additional
enterprise data connectors for data sources such as CICS, MQ Series, Tuxedo, Top
End and Encina.

  ENTERPRISE DEPLOYMENT SERVICES

     Enterprise-class Web applications, which consist of connectivity, business
logic and presentation, require the following attributes:

          Scalability.  The SilverStream Application Server utilizes a number of
     techniques such as database connection pooling and thread pooling to
     deliver very high performance and throughput across multiple processors in
     a single server machine. Our Application Server also offers near linear
     scalability using load-balanced clusters of servers. This allows our
     customers to handle increased load simply by adding more machines to the
     cluster.

          Reliability.  SilverStream's advanced failover capabilities are
     designed to ensure that customers' applications remain operational even
     when a server fails. SilverStream's session-level failover feature enables
     users to continue operations uninterrupted with seamless recovery of their
     transactional data even when the server to which they were previously
     connected fails.

          Manageability.  The SilverStream management console provides a full
     interface to monitor server performance, manage clusters, database
     connections, security, and other settings. SilverStream provides a standard
     network management protocol to interoperate with existing enterprise
     systems management software such as Tivoli's TME, Computer Associates'
     Unicenter, or Hewlett-Packard's OpenView. SilverStream's Application Server
     allows an application to be updated without taking the server or cluster
     down.

          Security.  Our product provides a complete set of features for
     encryption, authentication and access control that are required to create
     highly secure applications. In addition to providing its own

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     directory, our Application Server is also able to interface to directories
     such as Windows NT, NIS+ and those that are standard Lightweight Directory
     Access Protocol (LDAP) compliant.

  INTEGRATED DEVELOPMENT TOOLS

     SilverStream provides a rich set of development tools that are tightly
integrated with the functionality provided by the SilverStream Application
Server. These include several visual designers for HTML pages, Java
applications, business objects and content management. Also included are a
programming editor, context sensitive help, a repository, a debugger and
facilities for integrating with popular source control products. SilverStream's
integrated development tools consist of the following graphical designers:

          Page Designer.  SilverStream development tools allow developers to
     design their HTML pages by writing either industry standard Java Servlets,
     or using SilverStream's Page Designer which creates Servlets graphically.
     SilverStream's Page Designer offers a visual, object-oriented, event-driven
     programming model that makes the development of data-driven dynamic pages
     far easier and faster than coding them manually. Developers drag and drop
     elements onto a page from a tool palette, set properties using a property
     sheet, and then define the behavior of the elements by writing Java code
     that is executed at the server whenever an event is generated (for example,
     when a user clicks a button). Unlike competing alternatives that embed
     scripts inside HTML pages, this technique leverages the existing skills of
     developers who have worked with products such as PowerBuilder or Visual
     Basic.

          Form and View Designers.  SilverStream provides a development
     environment for generating graphic Java applications. The development
     environment is similar to the Page Designer, with a common look and feel.
     The Form Designer allows developers to build graphical forms, typically
     displaying data. The View Designer is frequently used in conjunction with
     the Form Designer to display data in a multi-row presentation.

          Object Designer.  The Object Designer allows developers to create
     business logic written in Java, that will typically reside on the
     application server and may be reused by other applications. These objects
     may use any of the services offered by the SilverStream Application Server,
     including connecting to data sources. They may also be triggered by events
     like the receipt of an e-mail or a request to modify a specific piece of
     data.

CUSTOMERS

     Our customer base spans multiple industry segments. The following is a
representative list of our customers. We do not intend the identification of
these customers to imply that these customers are actively endorsing or
promoting our products.

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39
COMMUNICATION           MANUFACTURING           TECHNOLOGY
Ameritech               Fuji Photo              Advanced Micro
MCI WorldCom            Owens Illinois            Devices
Nortel                  Raytheon                Hewlett-Packard
SBC Communications      Samsung                 Siebel Systems
                                                StorageTek
MEDIA                   ENERGY                  TRANSPORTATION
TCI Communications      ARCO                    Federal Express
The Walt Disney         Conoco                  Southwest Airlines
Company                 Enron                   UPS
FINANCIAL SERVICES      GOVERNMENT              OTHER
Bankers Trust           Federal Home Loan Bank  AAA
Bank One                Federal Reserve Bank    Dupont
Citicorp                of  New York            InterContinental Hotels
J.P. Morgan             Internal Revenue        Polaroid
The Chicago Stock       Service                 Red Herring
  Exchange              NASA                    Sears, Roebuck
Transamerica            The United States Army
                        PHARMACEUTICAL
                        Johnson & Johnson
                        Pfizer
The following case studies illustrate the challenges faced by
representative customers in deploying business applications and the benefits
derived from developing and deploying these applications using our Application
Server.

  GLOBAL TRAVEL COMPANY

     The travel agency industry has recently undergone changes due to reduced
commissions from airlines, hotels and rental car companies. To remain
competitive, a global travel company needed to be able to create rapidly many
travel product offerings while providing superior service through travel
agencies and via direct, self-service over the Internet. The company's
requirements included the maintenance of customer profiles in a relational
database, as well as access to a diverse set of airline, hotel and other
reservation systems. Travel agent experts needed to be able to perform the
complex transactions required to plan multi-leg trips, including air travel,
hotel, car rental and dinner and theater reservations.

     The travel company selected the SilverStream Application Server and
deployed its Web-based application in two phases. In the first phase, the
company rolled out the application to its affiliated travel agencies.
SilverStream's connectivity features were used to maintain customer profiles and
access travel services. In the second phase, the company used SilverStream's
HTML capability to provide a simpler, browser-based interface to customers via
the Internet. By using the SilverStream Application Server, the company was able
to provide more efficient processing by travel agents and better customer
service, while offering the option of self-service to customers. The
SilverStream Application Server enabled the company to adapt its travel
offerings to meet changing market demands and to serve its customers more
efficiently.

  NATIONAL INSURANCE PROVIDER

     An insurance company provides coverage through a network of thousands of
geographically dispersed independent agents. A claim goes through a complex
process inside the company, during which critical information is available to
agents only on a limited basis by telephone inquiry. The customer wanted to
streamline its claims-handling process by providing its agents direct access to
data and information, including daily claim status, claims adjusters' notes and
monthly account activity. However, the claim and

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account information was stored in separate relational databases and agents had
widely differing hardware and software packages and platforms.

     The customer used the SilverStream Application Server to build and deploy
an application in approximately five months. Agents now have broad access to
relevant, up-to-date information about individual claims and accounts, including
powerful search capabilities. The insurance company is enhancing the application
to give each agent access to all information and services relevant to such
agent's relationship with the company. By using the SilverStream Application
Server, the customer was able to reduce inefficiencies in its claims-handling
process by allowing its nationwide network of agents to access relevant data and
information easily and securely, regardless of the user's computer and
networking system and without local administration.

  GLOBAL SUPPLIER OF COMPUTER STORAGE DEVICES

     A supplier of computer storage devices provides a constantly changing
selection of thousands of sophisticated technology products. These products are
sold by hundreds of direct employees and thousands of distributors worldwide.
The answers to the distributors' many detailed questions were typically hard to
find or unavailable when needed. As part of a strategic growth initiative, the
customer needed to build a repository of support and marketing information that
could be easily accessed across the globe. The source of this information was
hundreds of sales and service employees, who created information about the
products in a broad variety of ways, ranging from data sheets to video clips.
The customer needed an application that would let employee "content creators"
easily place information in a repository in whatever form they wished and then
have that information easily accessible by distributors worldwide. These
distributors had a variety of abilities and had a diverse set of platforms.

     The solution was to use SilverStream's products to build a content-rich,
intranet/extranet application. Employees can use an intranet application to
create and manage content. Using a thin Java client, that requires no local
administration, employees are able to find and select "documents," annotate
them, associate them with products and attach any kind of file, including
Microsoft Word or PowerPoint files or even video clips. Documents can be
prioritized, versioned and secured to limit access. The intranet application
also provides usage reports and allows for the specification of expiration
dates. Distributors, using a standard browser, can log in and search for desired
topics. Search requests can be extremely complex, using a variety of criteria,
and may return multiple, prioritized answers. The attached files may then be
viewed or downloaded. This new repository efficiently links a community of
information providers and distributors with a database that is expected to grow
beyond a terabyte in the near future.

SALES, MARKETING AND DISTRIBUTION

     We market our products through a worldwide combination of a direct sales
force, partners and distributors. As of May 31, 1999, our sales and marketing
organization consisted of 76 employees, of which:

     - 25 are located in our headquarters in Burlington, Massachusetts,

     - 28 are located in sales offices in North America, and

     - 23 are located in sales offices in the United Kingdom, The Netherlands,
       Belgium, Germany, Hong Kong, Singapore and Taiwan.

     We have four types of partners that either sell, or help us sell, our
products:

     - Value added reseller partners, or VAR partners, resell our products to
       customers;

     - Consulting partners introduce new potential customers to us and provide
       consulting services to our customers;

     - Training partners offer training and educational courses to our
       customers; and

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41

     - Independent software vendor partners, or ISV partners, use our products
       to create their own software products.

     As of May 31, 1999, we had approximately 190 partners in the United States
and Canada and over 200 partners in the rest of the world.

     Our products are also sold in the Czech Republic, France, Japan,
Scandinavia, South Africa, South America and Spain, through distributors who
sell our products and provide consulting, training and educational courses to
customers in those countries. In Japan, our distributor has translated our
products into Kanji. Our products allow customers to create applications in
different languages.

     We also have marketing relationships with other companies who have products
that work well with our products. Our SilverNet technology partners are
comprised of companies who have created commercial products which complement our
products or who market and sell these complementary products. As of May 31,
1999, we had 62 SilverNet technology partners, including Actuate, IBM,
PeopleSoft, Rational and SAP. We work with SilverNet partners to help make it
easier for customers to use our products with the SilverNet partners' products.

     Our marketing programs are designed to attract potential customers so that
we, or one of our partners, can demonstrate our products directly to potential
customers. We hold many seminars, some with our partners, send out direct mail
and attend trade shows, and provide information about our company and our
products on our Web site. We also conduct public relations activities, including
interviews and demonstrations for industry analysts and product reviewers.

RESEARCH AND DEVELOPMENT

     As of May 31, 1999, we had 45 employees responsible for product
development, quality assurance and documentation. Our research and development
organization is divided into five teams: server, client, application
development, quality assurance and documentation.

     We are very focused on enhancing the scalability, performance and
reliability of our Application Server. Our quality assurance department has a
dedicated performance and tuning laboratory designed to improve the performance
of customers' Web-based applications. This laboratory has the ability to
simulate up to 12,000 simultaneous users communicating with SilverStream
Application Servers running on as many as 32 processors on a dedicated 100
megabits per second network.

     We have made, and will continue to make, a substantial investment in
research and development. Research and development expenses were $2.6 million in
1997, $5.1 million in 1998 and $1.5 million in the first quarter of 1999. All of
our software development costs have been expensed as incurred.

     While we have developed, and expect to continue to develop, most new
products and enhancements to existing products internally, we have licensed
certain software technology from third parties. See "Risk Factors -- Risks
Related to Our Business -- We Rely on Third-Party Software and Technology."

COMPETITION

     The market for application server software products is intensely
competitive, subject to rapid technological change and significantly affected by
new product introductions and other market activities of industry participants.
We expect competition to persist and intensify in the future. Our primary
sources of competition include vendors of application server software and
services, such as BEA Systems, IBM, Microsoft, Oracle and Sun Microsystems, as
well as in-house development efforts by potential customers or partners. In
addition, we compete with numerous other developers of business application
software. We believe that the principal competitive factors in our industry
include product performance and functionality, ease of use, scalability, ability
to integrate external data sources, product and company reputation, customer
support and price. See "Risk Factors -- Risks Related to Our Business -- Our
Markets are Highly Competitive and We May Not Continue to Compete Successfully."

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PROPRIETARY RIGHTS AND LICENSING

     Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology. We presently have five patent
applications pending in the United States. We cannot predict whether any of
these applications will result in any issued patents or, if patents are issued,
any meaningful protection. We seek to protect our source code for our software,
documentation and other written materials under trade secret and copyright laws.
We license our software pursuant to "shrinkwrap" and, in some cases, signed
license agreements, which impose certain restrictions on the licensee's ability
to utilize the software. Finally, we seek to limit disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our source code. Due to rapid technological change, we
believe that factors such as the technological and creative skills of our
personnel, new product developments and enhancements to existing products are
more important than the various legal protections of our technology to
establishing and maintaining a technology leadership position.

     Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of our
software exists, software piracy can be expected to be a persistent problem. In
addition, the laws of many countries do not protect our proprietary rights to as
great an extent as do the laws of the United States. Litigation may be necessary
in the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement or invalidity. Any such resulting
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition. There can be no assurance that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business,
operating results and financial condition.

     There can be no assurance that third parties will not claim infringement
with respect to our current or future products. We expect that developers of
Web-based application software products will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and as the functionality of products in different segments of the
software industry increasingly overlaps. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
us to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all. A successful infringement claim against us and our failure or inability to
license the infringed rights or develop or license technology with comparable
functionality could have a material adverse effect on our business, financial
condition and operating results. See "Risk Factors -- Risks Related to Our
Business -- Protection of Our Intellectual Property is Limited."

     We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms. If
we cannot maintain licenses to this third-party software, distribution of our
products could be delayed until equivalent software could be developed or
licensed and integrated into our products, which could materially adversely
affect our business, operating results and financial condition.

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EMPLOYEES

     As of May 31, 1999, we had a total of 195 employees of whom:

     - 45 were in research and development;

     - 76 were in sales and marketing;

     - 50 were in customer service and support; and

     - 24 were in finance and administration.

     Our future success will depend in part on our ability to attract, retain
and motivate highly qualified technical and management personnel, for whom
competition is intense. Our employees are not represented by any collective
bargaining unit. We believe our relations with our employees are good.

PROPERTIES

     Our headquarters are currently located in a leased facility in Burlington,
Massachusetts, consisting of approximately 40,000 square feet under a sublease
that expires in July 2000. We have also leased offices for sales and support
personnel in North America, Europe and Asia. See "Risk Factors -- Risks Related
to Our Business -- We Must Manage Our Growth and Expansion."

LEGAL PROCEEDINGS

     We are not a party to any material legal proceedings.

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                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The executive officers and directors of SilverStream and their ages and
positions as of May 31, 1999 are as follows:
NAME                                        AGE   POSITION
----                                        ---   --------
David R. Skok.............................  43    Chairman of the Board of Directors
David A. Litwack..........................  52    President, Chief Executive Officer and Director
Peter E. Brumme...........................  49    Executive Vice President, Sales and Marketing
Craig A. Dynes............................        Vice President, Chief Financial Officer and
                                            44    Treasurer
Arnold S. Epstein.........................  49    Vice President and Chief Technology Officer
Diane Gordon..............................  40    Vice President, Customer Services
John W. Pearce............................  45    Vice President, International Operations
Kim A. Sheffield..........................  43    Vice President, Research and Development
Timothy Barrows...........................  42    Director
Richard A. D'Amore........................  45    Director
Paul J. Severino..........................  52    Director
David R. Skok founded SilverStream and has served as our Chairman of the
Board of Directors since our inception and as our President and Chief Executive
Officer from May 1996 to November 1996. He also served as our Treasurer from May
1996 to June 1999. Before founding SilverStream, Mr. Skok founded Watermark
Software, a document management and imaging company, and served as its President
and Chief Executive Officer from January 1993 until June 1996, following its
acquisition by FileNet. From September 1990 to December 1994, Mr. Skok also
served as Chief Executive Officer of Xionics Document Technologies, Inc., a
document imaging company. Mr. Skok also currently serves as a director of
Xionics.

     David A. Litwack has served as our President and Chief Executive Officer
since May 1997, and as a member of our Board of Directors since November 1996.
Before joining SilverStream, Mr. Litwack served as Executive Vice President of
Sybase Inc., an enterprise software company, from February 1995 to May 1997 and
as President of Powersoft Corporation, a client server development tools
company, from June 1991 to its acquisition by Sybase in February 1995. In
addition, Mr. Litwack is a director of Object Design, Inc.

     Peter E. Brumme has served as our Executive Vice President, Sales and
Marketing since January 1999 and was our Chief Operating Officer from January
1997 to December 1998. Prior to joining SilverStream, Mr. Brumme served as Chief
Operating Officer of Watermark from July 1995 to December 1996 and as Senior
Vice President, Sales and Marketing from April 1993 to June 1995.

     Craig A. Dynes has served as our Vice President and Chief Financial Officer
since July 1997 and as our Treasurer since June 1999. Prior to joining
SilverStream, Mr. Dynes served as Vice President of Finance, Products Group, of
Sybase from October 1996 to June 1997. Mr. Dynes served as Vice President of
Finance and Operations and Chief Financial Officer of Powersoft from August 1995
to October 1996, and as Chief Financial Officer of Watcom, a compiler software
company, from 1992 until July 1995, following its acquisition by Powersoft.

     Arnold S. Epstein has served as our Vice President and Chief Technology
Officer since July 1996. Prior to joining SilverStream, Mr. Epstein served as
Chief Technical Officer of Watermark from March 1993 to June 1996.

     Diane Gordon has served as our Vice President, Customer Services since
January 1999. Prior to joining SilverStream, Ms. Gordon served as Vice President
of Operations of Gartner Learning, an independent research company, from March
1997 to September 1998. From March 1991 to February 1997, Ms. Gordon served as
Director of Professional Services of Progress Software, a software company.

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     John W. Pearce has served as our Vice President, International Sales since
January 1997. He also served as our Chief Financial Officer from July 1996 to
July 1997. Prior to joining SilverStream, Mr. Pearce served as Vice President,
International Sales and Chief Financial Officer of Watermark from January 1993
to June 1996.

     Kim A. Sheffield has served as our Vice President, Research and Development
since July 1996. Prior to joining SilverStream, Mr. Sheffield served as Vice
President of Research & Development, Powersoft Division of Sybase from February
1995 to June 1996. From 1988 to February 1995, Mr. Sheffield served in various
capacities with Powersoft including as Vice President of Engineering from July
1994 to February 1995.

     Timothy Barrows has served as a director of SilverStream since July 1996.
Mr. Barrows has been a General Partner of Matrix Venture Partners since 1984.

     Richard A. D'Amore has served as a director of SilverStream since July
1996. Mr. D'Amore has been a General Partner of North Bridge Venture Partners
since 1994. He is a director of Solectron Corporation, Veeco Instruments Inc.
and Xionics.

     Paul J. Severino has served as a director of SilverStream since May 1999.
Mr. Severino has served as the Chairman of NetCentric Corporation, a provider of
Internet protocol telephony applications, since August 1997 and Chief Executive
Officer since February 1998. Prior to that, he served as NetCentric's Acting
Chief Executive Officer from August 1997 to February 1998. He is a founder of
Wellfleet Communications, Inc., a supplier of internetworking communication
products, where he served as Chairman of the Board from October 1986 to October
1994. From October 1994 to October 1996, he served as Chairman of BayNetworks
after its formation from the merger of Wellfleet and Synoptics. Mr. Severino is
also a director of Media 100 Inc. and MTDC (Massachusetts Telecommunications
Development Corporation).

     Each executive officer serves at the discretion of the Board of Directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. There are no family relationships
among any of the directors or executive officers of SilverStream. Each of the
directors serves on the Board of Directors pursuant to the terms of an agreement
that will terminate upon the closing of this offering.

ELECTION OF DIRECTORS

     Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Skok and Barrows will serve in the class whose term expires in 2000;
Messrs. Litwack and D'Amore will serve in the class whose term expires in 2001;
and Mr. Severino will serve in the class whose term expires in 2002. Upon the
expiration of the term of a class of directors, directors in such class will be
elected for three-year terms at the annual meeting of stockholders in the year
in which such term expires. This classification of the Board of Directors may
have the effect of delaying or preventing changes in control or management of
SilverStream.

COMPENSATION OF DIRECTORS

     We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors. We may, in our discretion, grant
stock options and other equity awards to our non-employee directors from time to
time pursuant to our 1997 Stock Incentive Plan. On April 30, 1999, we granted to
Paul J. Severino an option to purchase 25,000 shares of common stock at a per
share exercise price of $8.00 under our 1997 Stock Incentive Plan in connection
with his joining our Board. Mr. Severino's option was fully vested upon grant.

BOARD COMMITTEES

     The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee, which consists of Messrs. Barrows,
D'Amore and Severino, reviews executive
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salaries, administers our bonus, incentive compensation and stock plans, and
approves the salaries and other benefits of our executive officers. In addition,
the Compensation Committee consults with our management regarding our benefit
plans and compensation policies and practices.

     The Audit Committee, which consists of Messrs. Barrows, D'Amore and
Severino, reviews the professional services provided by our independent
accountants, the independence of such accountants from our management, our
annual financial statements and our system of internal accounting controls. The
Audit Committee also reviews such other matters with respect to our accounting,
auditing and financial reporting practices and procedures as it may find
appropriate or may be brought to its attention.

EXECUTIVE COMPENSATION

     The table below sets forth, for the year ended December 31, 1998, the cash
compensation earned by (1) our Chairman of the Board, (2) our Chief Executive
Officer and (3) each of the four most highly compensated other executive
officers who received annual compensation in excess of $100,000, collectively
referred to below as the Named Executive Officers. In accordance with the rules
of the Securities and Exchange Commission the compensation set forth in the
table below does not include medical, group life or other benefits which are
available to all of our salaried employees, and perquisites and other benefits,
securities or property which do not exceed the lesser of $50,000 or 10% of the
person's salary and bonus shown in the table. In the table below, columns
required by the regulations of the Securities and Exchange Commission have been
omitted where no information was required to be disclosed under those columns.

                           SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
                                                              ---------------------
NAME AND PRINCIPAL POSITION                                   SALARY($)    BONUS($)
---------------------------                                   ---------    --------
David R. Skok...............................................  $120,000     $     0
Chairman of the Board of Directors
David A. Litwack............................................   120,000           0
President and Chief Executive Officer
Peter E. Brumme.............................................   125,000      20,000
Executive Vice President, Sales and Marketing
John W. Pearce..............................................   125,000      20,000
Vice President, International Operations
Kim A. Sheffield............................................   120,000      20,000
Vice President, Research and Development
Arnold S. Epstein...........................................   120,000      20,000
Vice President and Chief Technology Officer
STOCK OPTIONS

     We have not granted any stock options to our Named Executive Officers.

BENEFIT PLANS

     1997 Stock Incentive Plan.  Our 1997 Stock Incentive Plan was originally
adopted in February 1997 and was amended and restated in June 1999. Up to
3,500,000 shares of our common stock, subject to adjustment in the event of
stock splits and other similar events, may be issued pursuant to awards granted
under the 1997 Stock Incentive Plan. The 1997 Stock Incentive Plan provides for
the grant of incentive stock options intended to qualify under Section 422 of
the Internal Revenue Code, nonstatutory stock options, restricted stock awards
and other stock-based awards.

                                       44
47

     Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the 1997 Stock Incentive
Plan. Under present law, however, incentive stock options may only be granted to
employees. No participant may receive any award for more than 250,000 shares in
any calendar year.

     Optionees receive the right to purchase a specified number of shares of our
common stock at a specified option price, subject to the terms and conditions of
the option grant. We may grant options at an exercise price less than, equal to
or greater than the fair market value of our common stock on the date of grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
may not be granted at an exercise price less than the fair market value of the
common stock on the date of grant, or less than 110% of the fair market value in
the case of incentive stock options granted to optionees holding more than 10%
of the voting power of SilverStream. The 1997 Stock Incentive Plan permits our
Board of Directors to determine how optionees may pay the exercise price of
their options, including by cash, check or in connection with a "cashless
exercise" through a broker, by surrender to us of shares of common stock, by
delivery to us of a promissory note, or by any combination of the permitted
forms of payment.

     As of May 31, 1999, 198 persons would have been eligible to receive awards
under the 1997 Stock Incentive Plan, including eight executive officers and
three non-employee directors. The granting of awards under the 1997 Stock
Incentive Plan is discretionary.

     Our Board of Directors administers the 1997 Stock Incentive Plan. Our Board
of Directors has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the plan and to interpret its
provisions. It may delegate authority under the 1997 Stock Incentive Plan to one
or more committees of the Board of Directors and, in limited circumstances, to
one or more of our executive officers. Our Board of Directors has authorized the
Compensation Committee to administer the 1997 Stock Incentive Plan, including
the granting of options to our executive officers. Subject to any applicable
limitations contained in the 1997 Stock Incentive Plan, our Board of Directors,
our Compensation Committee or any other committee or executive officer to whom
our Board of Directors delegates authority, as the case may be, selects the
recipients of awards and determines:

     - the number of shares of common stock covered by options and the dates
       upon which such options become exercisable;

     - the exercise price of options;

     - the duration of options; and

     - the number of shares of common stock subject to any restricted stock or
       other stock-based awards and the terms and conditions of such awards,
       including the conditions for repurchase, issue price and repurchase
       price.

     In the event of a merger, liquidation or other acquisition event, our Board
of Directors is authorized to provide for outstanding options or other
stock-based awards to be assumed or substituted for by the acquiror. If the
acquiror refuses to assume or substitute for outstanding awards, they will
accelerate and become fully exercisable and free of restrictions, prior to
consummation of the acquisition event.

     No award may be granted under the 1997 Stock Incentive Plan after June
2007, but the vesting and effectiveness of awards previously granted may extend
beyond that date. Our Board of Directors may at any time amend, suspend or
terminate the 1997 Stock Incentive Plan, except that no award granted after an
amendment of the 1997 Stock Incentive Plan and designated as subject to Section
162(m) of the Internal Revenue Code by our Board of Directors shall become
exercisable, realizable or vested, to the extent such amendment was required to
grant such award, unless and until such amendment is approved by our
stockholders.

     1996 Founders Stock Incentive Plan.  Our 1996 Founders Stock Incentive Plan
was adopted in May 1996 and authorized the issuance of up to 3,877,000 shares of
our common stock. From May 1996 to April 1997, an aggregate of 3,775,031 shares
of common stock was issued under the plan pursuant to

                                       45
48

founders stock restriction agreements. As of May 31, 1999, an aggregate of
145,394 shares of common stock had been repurchased by SilverStream pursuant to
the terms of such agreements. No additional awards may be made under the 1996
Founders Stock Incentive Plan.

     1999 Employee Stock Purchase Plan.  Our 1999 Employee Stock Purchase Plan
was adopted by our Board of Directors in June 1999 and our stockholders will
also be asked to approve adoption of the plan. The 1999 Employee Stock Purchase
Plan authorizes the issuance of up to a total of 300,000 shares of our common
stock to participating employees.

     All of our employees, including directors who are employees, and all
employees of any participating subsidiaries:

     - whose customary employment is more than 20 hours per week for more than
       five months in a calendar year;

     - who have been employed by us for at least three months prior to
       enrolling; and

     - who are employed on the first day of a designated payroll deduction
       offering period

are eligible to participate in the 1999 Employee Stock Purchase Plan. Employees
who would immediately after the grant own five percent or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate. As of May 31, 1999, 151 of our employees would have been
eligible to participate in the 1999 Employee Stock Purchase Plan.

     On the first day of an offering period, we will grant to each eligible
employee who has elected to participate in the 1999 Employee Stock Purchase Plan
an option to purchase shares of common stock as follows: the employee may
authorize an amount (up to 10%, or such lesser amount as shall be determined by
the Board, of such employee's base pay) to be deducted from such employee's base
pay during the offering period. On the last day of the offering period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the 1999
Employee Stock Purchase Plan, the option exercise price is an amount equal to
85% of the closing price per share of the common stock on either the first day
or the last day of the offering period, whichever is lower. The first offering
period under the 1999 Employee Stock Purchase Plan will commence on the date on
which trading of our common stock commences on the Nasdaq National Market, with
the option price on the first day of such offering period equivalent to the
initial public offering price. In no event may an employee purchase in any one
offering period a number of shares which exceeds the number of shares determined
by dividing the product of (1) $2,083 and (2) the number of full months in the
offering period by the closing market price of a share of common stock on the
first business day of the offering period or such other number as may be
determined by the Board prior to the commencement date of the offering period.
The Compensation Committee may, in its discretion, choose an offering period of
12 months or less for each offering and may choose a different offering period
for each offering.

     An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or for
any other reason, is not entitled to exercise any option, and the employee's
accumulated payroll deductions will be refunded. However, upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated payroll
deductions in the participant's account would purchase at the date of death.

     Because participation in the 1999 Employee Stock Purchase Plan is
voluntary, we cannot now determine the number of shares of our common stock to
be purchased by any of our current executive officers, by all of our current
executive officers as a group or by our non-executive employees as a group.

     401(k) Plan.  On January 1, 1998, we adopted an employee savings and
retirement plan qualified under Section 401 of the Internal Revenue Code and
covering all of our employees. Pursuant to the 401(k) plan, employees may elect
to reduce their current compensation by up to the statutorily prescribed annual
limit and have the amount of such reduction contributed to the 401(k) plan. We
may make matching or additional contributions to the 401(k) plan in amounts to
be determined annually by our Board of Directors.

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                              CERTAIN TRANSACTIONS

PREFERRED STOCK ISSUANCES

     Since our incorporation in May 1996, we have issued and sold shares of
preferred stock to the following persons and entities who are our executive
officers, directors or principal stockholders. For more detail on shares held by
these purchasers, see "Principal Stockholders."
SERIES A     SERIES B     SERIES C     SERIES D
                                                  PREFERRED    PREFERRED    PREFERRED    PREFERRED
INVESTOR                                            STOCK        STOCK        STOCK        STOCK
--------                                          ---------    ---------    ---------    ---------
David R. Skok...................................   930,000      159,475       56,948       52,632
David A. Litwack................................   930,000      178,238       38,185       52,632
Peter E. Brumme.................................        --       11,257           --           --
John W. Pearce..................................        --        9,381           --           --
Kim A. Sheffield................................        --        9,381           --           --
Arnold S. Epstein...............................        --       11,257           --           --
Craig A. Dynes..................................        --        9,381           --           --
Matrix IV Management Co., L.P.(1)...............   870,000      375,235      113,896      134,210
North Bridge Venture Partners, L.P.(2)..........   870,000      375,235      113,896      105,263
Funds affiliated with Essex Investment
  Management Co., LLC (3).......................        --           --      455,581      342,105
------------
(1) Composed of Matrix Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P.
    Matrix IV Management Co., L.P. is the general partner of each of Matrix
    Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P. Timothy Barrows, a
    director of SilverStream, is a general partner of Matrix IV Management Co.,
    L.P.

(2) Richard A. D'Amore, a director of SilverStream, is a general partner of
    North Bridge Venture Management L.P., which is the general partner of North
    Bridge Venture Partners, L.P.

(3) Composed of Essex Performance Fund, L.P., Essex High Technology Fund, L.P.,
    The New Discovery Fund Limited Ltd., Robertson Foundation and Essex Private
    Placement Fund, Limited Partnership.

     Series A Financing.  On July 9, 1996, August 15, 1996 and November 4, 1996
we issued an aggregate of 3,683,050 shares of Series A preferred stock to six
investors, including David R. Skok, David A. Litwack, Matrix and North Bridge.
The per share purchase price for our Series A preferred stock was $1.00.

     Series B Financing.  On June 16, 1997 and September 12, 1997, we issued an
aggregate of 1,500,938 shares of Series B preferred stock to 21 investors,
including David R. Skok, David A. Litwack, Peter E. Brumme, John W. Pearce, Kim
A. Sheffield, Arnold E. Epstein, Craig A. Dynes, Matrix and North Bridge. The
per share purchase price for our Series B preferred stock was $5.33.

     Series C Financing.  On November 6, 1997, December 24, 1997 and March 30,
1998, we issued an aggregate of 1,922,588 shares of Series C preferred stock to
35 investors, including David R. Skok, David A. Litwack, Matrix, North Bridge
and Essex. The per share purchase price for our Series C preferred stock was
$8.78.

     Series D Financing.  On March 1, 1999, April 9, 1999, April 14, 1999 and
May 27, 1999, we issued an aggregate of 1,552,632 shares of Series D preferred
stock to 25 investors, including David R. Skok, David A. Litwack, Matrix, North
Bridge and Essex. The per share purchase price for our Series D preferred stock
was $9.50.

                                       47
50

COMMON STOCK ISSUANCES

     The following table presents selected information regarding our issuances
of common stock to our executive officers. On May 8, 1996, in connection with
our incorporation, we issued an aggregate of 1,000 shares of common stock to
David R. Skok. We issued the remaining shares of common stock pursuant to
founders stock restriction agreements with each of the executive officers which
give us certain rights to repurchase all or a portion of the shares at their
purchase price in the event that the executive officer ceases to be employed by
us. Each of the shares issued in 1996 had a purchase price of $.001 per share.
Each of the shares issued in 1997 had a purchase price of $.50 per share.
EXECUTIVE OFFICER                                             DATE OF ISSUANCE    NUMBER OF SHARES
-----------------                                             ----------------    ----------------
David R. Skok...............................................      05/08/96               1,000
                                                                  07/09/96           1,122,000
David A. Litwack............................................      11/04/96           1,123,000
Peter E. Brumme.............................................      11/12/96             564,850
John W. Pearce..............................................      08/16/96             347,600
Kim A. Sheffield............................................      08/16/96             347,600
Arnold S. Epstein...........................................      08/16/96             451,880
Craig A. Dynes..............................................      11/02/97              70,000
STOCK OPTION GRANTS

     On April 30, 1999, we granted to Craig A. Dynes, our Vice President, Chief
Financial Officer and Treasurer, an option to purchase 10,000 shares of common
stock at a per share exercise price of $8.00 under our 1997 Stock Incentive
Plan. Mr. Dynes' option shall vest 20% on April 30, 2000 and then quarterly for
four years.

     On April 30, 1999, we granted to Diane Gordon, our Vice President, Customer
Services, an option to purchase 5,000 shares of common stock at a per share
exercise price of $8.00 under our 1997 Stock Incentive Plan. Ms. Gordon's option
shall vest 20% on April 30, 2000 and then quarterly for four years.

     On April 30, 1999, we granted to Paul J. Severino an option to purchase
25,000 shares of common stock at a per share exercise price of $8.00 under our
1997 Stock Incentive Plan in connection with his joining our Board. Mr.
Severino's options were fully vested upon grant.

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

     We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested directors on the Board of Directors, and will continue to be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.

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51

                             PRINCIPAL STOCKHOLDERS

     The following table sets forth information regarding beneficial ownership
of our common stock as of May 31, 1999, and as adjusted to reflect the sale of
the shares of common stock in this offering, by:

     - each person who owns beneficially more than 5% of the outstanding shares
       of our common stock;

     - each of our directors and the Named Executive Officers; and

     - all of our directors and executive officers as a group.

     Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting or investment power with
respect to shares. Shares of common stock issuable under stock options that are
exercisable within 60 days after May 31, 1999 are deemed outstanding for
computing the percentage ownership of the person holding the options but are not
deemed outstanding for computing the percentage ownership of any other person.
Unless otherwise indicated below, to our knowledge, all persons named in the
table have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law. Unless otherwise indicated, the address of each person owning
more than 5% of the outstanding shares of common stock is c/o SilverStream
Software, Inc., One Burlington Woods, Suite 200, Burlington, Massachusetts
01803.
PERCENTAGE OF
                                                                                         COMMON
                                                                                   STOCK OUTSTANDING
                                                                                  --------------------
                                                             NUMBER OF SHARES      BEFORE      AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER                        BENEFICIALLY OWNED    OFFERING    OFFERING
------------------------------------                        ------------------    --------    --------
Matrix IV Management Co., L.P.(1).........................      1,493,341           10.7%
  1000 Winter Street, Suite 4500
  Waltham, MA 02154
North Bridge Venture Partners, L.P........................      1,464,394           10.5
  950 Winter Street, Suite 4600
  Waltham, MA 02154
Funds affiliated with Essex Investment Management Co.,
  LLC(2)..................................................        797,686            5.7
  125 High Street
  Boston, MA 02110-2702
David R. Skok(3)..........................................      2,322,055           16.7
David A. Litwack(4).......................................      2,312,055           16.6
Peter E. Brumme...........................................        576,107            4.1
John W. Pearce............................................        356,981            2.6
Kim A. Sheffield..........................................        356,981            2.6
Arnold S. Epstein.........................................        453,757            3.3
Timothy Barrows(1)........................................      1,493,341           10.7
  c/o Matrix IV Management Co., L.P.
  1000 Winter Street, Suite 4500
  Waltham, MA 02154
Richard A. D'Amore(5).....................................      1,464,394           10.5
  c/o North Bridge Venture Partners, L.P.
  950 Winter Street, Suite 4600
  Waltham, MA 02154
Paul J. Severino(6).......................................         25,000              *           *
All executive officers and directors as a group (11
persons)(7)...............................................      9,440,052           67.8
------------
 *  Less than 1% of the outstanding common stock.

(1) Composed of 1,418,674 shares held by Matrix Partners IV, L.P. and 74,667
    shares held by Matrix IV Entrepreneurs Fund, L.P. Matrix IV Management Co.,
    L.P. is the general partner of each of Matrix Partners IV, L.P. and Matrix
    IV Entrepreneurs Fund, L.P. Mr. Barrows, a director of SilverStream, is

                                       49
52

    a general partner of Matrix IV Management Co., L.P. Mr. Barrows disclaims
    beneficial ownership of the shares held by Matrix Partners IV, L.P. and
    Matrix IV Entrepreneurs Fund, L.P. except to the extent of his pecuniary
    interests therein arising from his general partnership interest in Matrix IV
    Management Co., L.P.

(2) Composed of 192,417 shares held by Essex Performance Fund, L.P., 192,417
    shares held by Essex High Technology Fund, L.P., 96,178 shares held by The
    New Discovery Fund Limited Ltd., 32,099 shares held by Robertson Foundation,
    and 284,575 shares held by Essex Private Placement Fund, Limited
    Partnership. Essex Investment Management Co., LLC acts as investment advisor
    to each of the foregoing entities and has voting and investment power with
    respect to such shares.

(3) Includes 1,000,000 shares held by the David R. Skok Irrevocable Trust and
    100,000 shares held by the David R. Skok 1997 Irrevocable Family Trust.

(4) Includes 1,123,000 shares held by the Litwack Irrevocable Trust.

(5) Consists of 1,464,394 shares held by North Bridge Venture Partners, L.P. Mr.
    D'Amore, a director of SilverStream, is a general partner of North Bridge
    Venture Management L.P., which is the general partner of North Bridge
    Venture Partners, L.P. Mr. D'Amore disclaims beneficial ownership of the
    shares held by North Bridge Venture Partners, L.P. except to the extent of
    his pecuniary interests therein arising from his general partnership
    interests in North Bridge Venture Management, L.P.

(6) Consists of 25,000 shares of common stock issuable upon the exercise of
    fully vested stock options.

(7) Includes 25,000 shares of common stock issuable upon the exercise of fully
    vested stock options.

                                       50
53

                          DESCRIPTION OF CAPITAL STOCK

     After this offering, the authorized capital stock of SilverStream will
consist of 100,000,000 shares of common stock, $.001 par value per share, and
2,000,000 shares of preferred stock, $.001 par value per share. As of May 31,
1999, there were outstanding (1) 5,237,658 shares of common stock held by 66
stockholders of record, (2) 8,659,208 shares of convertible preferred stock
(convertible into 8,659,208 shares of common stock) held by 72 stockholders of
record and (3) options to purchase an aggregate of 1,343,309 shares of common
stock. Based upon the number of shares outstanding as of that date, and giving
effect to the issuance of the shares of common stock offered by the Company in
this offering, there will be      shares of common stock outstanding upon the
closing of this offering.

     The following summary of certain provisions of our securities and various
provisions of our amended and restated certificate of incorporation and our
amended and restated bylaws is not intended to be complete and is qualified by
reference to the provisions of applicable law and to our amended and restated
certificate of incorporation and amended and restated bylaws included as
exhibits to the Registration Statement of which this prospectus is a part. See
"Where You Can Find More Information."

COMMON STOCK

     Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the Board of Directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of SilverStream, the holders of common
stock are entitled to receive ratably the net assets of SilverStream available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by SilverStream in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of common stock are subject to the
rights of the holders of shares of any series of preferred stock which
SilverStream may designate and issue in the future. Certain holders of common
stock have the right to require SilverStream to register their shares of common
stock under the Securities Act in certain circumstances. See "Shares Eligible
for Future Sale."

PREFERRED STOCK

     Under the terms of our amended and restated certificate of incorporation,
the Board of Directors is authorized to issue shares of preferred stock in one
or more series without stockholder approval. The Board has discretion to
determine the rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences of each series of preferred stock.

     The purpose of authorizing the Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of the
outstanding voting stock of SilverStream. The issuance of preferred stock with
voting and conversion rights may adversely affect the voting power of the
holders of common stock. SilverStream has no present plans to issue any shares
of preferred stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS

     SilverStream is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a
                                       51
54

prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, "interested stockholder" is a person
who, together with affiliates and associates, owns, or within three years did
own, 15% or more of the corporation's voting stock.

     The amended and restated certificate of incorporation and amended and
restated by-laws to be effective on the closing of this offering provide:

     - that the Board of Directors be divided into three classes, as nearly
       equal in size as possible, with staggered three-year terms;

     - that directors may be removed only for cause by the affirmative vote of
       the holders of at least 75% of the shares of our capital stock entitled
       to vote; and

     - that any vacancy on the Board of Directors, however occurring, including
       a vacancy resulting from an enlargement of the Board, may only be filled
       by vote of a majority of the directors then in office.

     The classification of the Board of Directors and the limitations on the
removal of directors and filling of vacancies could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, SilverStream.

     The amended and restated certificate of incorporation and amended and
restated by-laws also provide that, after the closing of this offering:

     - any action required or permitted to be taken by the stockholders at an
       annual meeting or special meeting of stockholders may only be taken if it
       is properly brought before such meeting and may not be taken by written
       action in lieu of a meeting; and

     - special meetings of the stockholders may only be called by the Chairman
       of the Board of Directors, the President, or by the Board of Directors.
       Our amended and restated by-laws provide that, in order for any matter to
       be considered "properly brought" before a meeting, a stockholder must
       comply with requirements regarding advance notice to us. These provisions
       could delay until the next stockholders' meeting stockholder actions
       which are favored by the holders of a majority of our outstanding voting
       securities. These provisions may also discourage another person or entity
       from making a tender offer for our common stock, because such person or
       entity, even if it acquired a majority of our outstanding voting
       securities, would be able to take action as a stockholder (such as
       electing new directors or approving a merger) only at a duly called
       stockholders meeting, and not by written consent.

     Delaware's corporation law provides generally that the affirmative vote of
a majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Our amended and restated certificate of incorporation requires the
affirmative vote of the holders of at least 75% of the shares of our capital
stock entitled to vote to amend or repeal any of the foregoing provisions of our
amended and restated certificate of incorporation. Generally our amended and
restated by-laws may be amended or repealed by a majority vote of the Board of
Directors or the holders of a majority of the shares of our capital stock issued
and outstanding and entitled to vote. To amend our amended and restated by-laws
regarding special meetings of stockholders, written actions of stockholders in
lieu of a meeting, and the election, removal and classification of members of
the Board of Directors requires the affirmative vote of the holders of at least
75% of the shares of our capital stock entitled to vote. The stockholder vote
would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any series preferred stock that might be
outstanding at the time any such amendments are submitted to stockholders.

LIMITATION OF LIABILITY AND INDEMNIFICATION

     Our amended and restated certificate of incorporation provides that our
directors and officers shall be indemnified by us to the fullest extent
authorized by Delaware law. This indemnification would cover all
                                       52
55

expenses and liabilities reasonably incurred in connection with their services
for or on behalf of us. In addition, our amended and restated certificate of
incorporation provides that our directors will not be personally liable for
monetary damages to us for breaches of their fiduciary duty as directors, unless
they violated their duty of loyalty to us or our stockholders, acted in bad
faith, knowingly or intentionally violated the law, authorized illegal dividends
or redemptions or derived an improper personal benefit from their action as
directors.

TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for the common stock is BankBoston, N.A.

                                       53
56

                        SHARES ELIGIBLE FOR FUTURE SALE

     Upon completion of this offering, we will have      shares of common stock
outstanding, assuming no exercise of outstanding options. Of these shares, the
     shares to be sold in this offering will be freely tradable without
restriction or further registration under the Securities Act except that any
shares purchased by our affiliates, as that term is defined in Rule 144 under
the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 described below.

SALES OF RESTRICTED SHARES
DAYS AFTER DATE OF             APPROXIMATE SHARES
         THIS PROSPECTUS            ELIGIBLE FOR FUTURE SALE                 COMMENT
        ------------------          ------------------------                 -------
On effectiveness..................
                                                                Freely tradeable shares sold in
                                                                offering
90 days...........................
                                                                Shares saleable under Rule 144
180 days..........................
                                                                Lock-up released; shares saleable
                                                                under Rule 144, 144(k) or 701
Thereafter........................
                                                                Restricted securities held for
                                                                one year or less
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period,
a number of such shares that does not exceed the greater of (1) one percent of
the then outstanding shares of common stock (approximately      shares
immediately after this offering) or (2) the average weekly trading volume in the
common stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of such sale is filed, provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, our affiliates must comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of common stock which are not
restricted securities.

     Under Rule 144(k), a person who is not an affiliate and has not been an
affiliate for at least three months prior to the sale and who has beneficially
owned shares for at least two years may resell such shares without compliance
with the foregoing requirements. In meeting the one- and two-year holding
periods described above, a holder of shares can include the holding periods of a
prior owner who was not an affiliate. The one- and two-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the shares from the issuer or an
affiliate. Rule 701 provides that currently outstanding shares of common stock
acquired under our employee compensation plans may be resold beginning 90 days
after the date of this prospectus (1) by persons, other than affiliates, subject
only to the manner of sale provisions of Rule 144, and (2) by affiliates under
Rule 144 without compliance with its one-year minimum holding period, subject to
certain limitations.

STOCK OPTIONS

     At May 31, 1999, approximately 195,058 shares of common stock were issuable
pursuant to vested options granted under our 1997 Stock Incentive Plan, all of
which are subject to Lock-up Agreements with the Underwriters.

     We intend to file a registration statement on Form S-8 under the Securities
Act within 180 days after the date of this prospectus, to register up to
3,069,059 shares of common stock issuable under our 1997 Stock Incentive Plan,
including the 1,343,309 shares of common stock subject to outstanding options as
of May 31, 1999. This registration statement is expected to become effective
upon filing.

LOCK-UP AGREEMENTS

     Subject to certain exceptions, we and our executive officers, directors and
other SilverStream securityholders have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated,

                                       54
57

none of us will, during the period ending 180 days after the date of this
prospectus, (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock (regardless of whether such
shares or any such securities are then owned by such person or are thereafter
acquired), or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the common stock, regardless of whether any such transactions described in
clauses (1) or (2) of this paragraph are to be settled by delivery of such
common stock or such other securities, in cash or otherwise. In addition, for a
period of 180 days from the date of this prospectus, except as required by law,
we have agreed that our Board of Directors will not consent to any offer for
sale, sale or other disposition, or any transaction which is designed or could
be expected, to result in, the disposition by any person, directly or
indirectly, of any shares of common stock without the prior written consent of
Morgan Stanley & Co. Incorporated except that we may, without such consent,
grant options and sell shares pursuant to our stock plans. See "Underwriters."

REGISTRATION RIGHTS

     After this offering, the holders of approximately 10,905,208 shares of
common stock and rights to acquire common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the agreement between us and the holders of such registrable
securities, 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
exercising registration rights, such holders are entitled to notice of such
registration and are entitled to include shares of such common stock therein.
Additionally, such holders are also entitled to certain demand registration
rights pursuant to which they may require us on up to two occasions to file a
registration statement under the Securities Act at our expense with respect to
our shares of common stock, and we are required to use our best efforts to
effect such registration. Further, holders may require us to file an unlimited
number of additional registration statements on Form S-3 at our expense. All of
these registration rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration and our right not to effect a requested
registration within 180 days following an offering of our securities pursuant to
a Form S-1, including the offering made hereby.

                                       55
58

                                  UNDERWRITERS

     Under the terms and subject to the conditions contained in the underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, BancBoston Robertson Stephens Inc. and SG Cowen Securities
Corporation are acting as representatives, have severally agreed to purchase,
and SilverStream has agreed to sell to the underwriters, the respective number
of shares of common stock set forth opposite the names of the underwriters
below:
NUMBER
NAME                                                          OF SHARES
----                                                          ---------
Morgan Stanley & Co. Incorporated...........................
BancBoston Robertson Stephens Inc. .........................
SG Cowen Securities Corporation.............................
                                                              --------

          Total.............................................
                                                              ========
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered in this offering are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered in this offering, other than those covered by the
over-allotment option described below, if any such shares are taken.

     The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $          a share under the public offering price.
Any underwriters may allow, and such dealers may reallow, a concession not in
excess of $          a share to other underwriters or to certain other dealers.
After the initial offering of the shares of common stock, the offering price and
other selling terms may from time to time be varied by the representatives of
the underwriters.

     SilverStream has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of
               additional shares of common stock at the public offering price
set forth on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of common stock offered in this offering. To the extent such option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of common stock as the number set forth next to such underwriter's name
in the preceding table bears to the total number of shares of common stock set
forth next to the names of all underwriters in the preceding table. If the
underwriter's over-allotment option is exercised in full, the total price to
public would be $          , the total underwriters' discounts and commissions
would be $          , and the total proceeds to us would be $          .

     The following table summarizes the compensation to be paid by SilverStream
to the underwriters:
TOTAL
                                                             --------------------------------
                                                                WITHOUT             WITH
                                                PER SHARE    OVER-ALLOTMENT    OVER-ALLOTMENT
                                                ---------    --------------    --------------
Public offering price.........................   $              $                 $
Underwriting discounts and commissions payable
  by SilverStream.............................
SilverStream estimates expenses payable by us in connection with this
offering, other than the estimated underwriting discounts and commissions
referred to above, will be approximately $1.0 million.

                                       56
59

     At our request, the underwriters have reserved for sale, at the initial
public offering price, up to five percent of the shares of common stock offered
in this offering for our directors, officers, employees and related persons. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.

     SilverStream, our directors and executive officers and certain other of our
stockholders and option holders have each agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters,
during the period ending 180 days after the date of this prospectus, he, she or
it will not, subject to limited exceptions, directly or indirectly:

     - offer, pledge, sell, contract to sell, sell any option or contract to
       purchase, purchase any option or contract to sell, grant any option,
       right or warrant to purchase, lend or otherwise transfer or dispose of,
       directly or indirectly, any shares of common stock or any securities
       convertible into or exercisable or exchangeable for common stock (whether
       such shares or any such securities are then owned by such person or are
       thereafter acquired directly from us); or

     - enter into any swap or other arrangement that transfers to another, in
       whole or in part, any of the economic consequences of ownership of common
       stock,

whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.

     The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.

     We have applied to list our common stock on the Nasdaq National Market
under the symbol "SSSW."

     In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.

     We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.

     In March, April and May 1999, we sold shares of our Series D Preferred
Stock in a private placement. In this private placement, a fund managed and
invested in by Morgan Stanley & Co. Incorporated purchased 105,263 shares of
Series D Preferred Stock, which are convertible into 105,263 shares of common
stock, for approximately $1,000,000, or $9.50 per share. The fund purchased
these shares on the same terms as the other investors in the private placement.

PRICING OF THE OFFERING

     Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price for the shares of
common stock will be determined by negotiations between SilverStream and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price will be:

                                       57
60

     - our record of operations, our current financial position and future
       prospects;

     - the experience of our management;

     - sales, earnings and certain of our other financial and operating
       information in recent periods; and

     - the price-earnings ratios, price-sales ratios, market prices of
       securities and certain financial and operating information of companies
       engaged in activities similar to ours.

The estimated initial public offering price range set forth on the cover page of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.

                                 LEGAL MATTERS

     The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.

                                    EXPERTS

     Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1997 and 1998, and for the
period ended December 31, 1996 and each of the two years in the period ended
December 31, 1998, as set forth in their report. We have included our financial
statements and schedule in this prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.

                      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
we propose to sell in this offering. This prospectus, which is a part of the
registration statement, does not contain all of the information set forth in the
registration statement. For further information about us and the common stock we
propose to sell in this offering, we refer you to the registration statement and
the exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document filed as an exhibit to the registration statement are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the filed exhibit.
The registration statement, including exhibits, may be inspected without charge
at the principal office of the Securities and Exchange Commission in Washington,
D.C. and copies of all or any part of which may be inspected and copied at the
public reference facilities maintained by the Securities and Exchange Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549,
and at the Commission's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. In addition, the Securities and Exchange
Commission maintains a website (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission.

                                       58
61

                          SILVERSTREAM SOFTWARE, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
                                                              ----
Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Operations.......................  F-4
Consolidated Statements of Changes in Redeemable Convertible
  Preferred Stock and Stockholders' Equity (Deficit)........  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-7
F-1
62

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
SilverStream Software, Inc.

     We have audited the accompanying consolidated balance sheets of
SilverStream Software, Inc. (the Company) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' equity (deficit), and cash flows for the
period May 8, 1996 (inception) through December 31, 1996 and the years ended
December 31, 1997 and 1998. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SilverStream
Software, Inc. at December 31, 1997 and 1998, and the consolidated results of
its operations and its cash flows for the period May 8, 1996 (inception) through
December 31, 1996 and the years ended December 31, 1997 and 1998, in conformity
with generally accepted accounting principles.

                                          /s/ ERNST & YOUNG LLP
                                          --------------------------------------

Boston, Massachusetts
March 5, 1999, except for Note 12,
  as to which the date is May 27, 1999

                                       F-2
63

                          SILVERSTREAM SOFTWARE, INC.

                          CONSOLIDATED BALANCE SHEETS
DECEMBER 31,                           PRO FORMA
                                                            --------------------------     MARCH 31,      MARCH 31,
                                                               1997           1998           1999           1999
                                                            -----------    -----------    -----------    -----------
                                                                                                 (UNAUDITED)
ASSETS
Current assets:
  Cash and cash equivalents...............................  $16,649,341    $ 1,198,584    $12,448,106    $12,448,106
  Marketable securities...................................           --      3,330,603        246,690        246,690
  Accounts receivable; net of allowance for doubtful
    accounts of $26,900 at December 31, 1997, $244,733 at
    December 31, 1998, and $257,699 at March 31, 1999.....      211,015      3,570,927      5,630,306      5,630,306
  Prepaid expenses........................................      317,250        247,413        461,774        461,774
  Other...................................................      267,754        100,930          8,789          8,789
                                                            -----------    -----------    -----------    -----------
         Total current assets.............................   17,445,360      8,448,457     18,795,665     18,795,665
Furniture, equipment and leasehold improvements, net......    1,528,155      1,796,346      1,968,675      1,968,675
                                                            -----------    -----------    -----------    -----------
         Total assets.....................................  $18,973,515    $10,244,803    $20,764,340    $20,764,340
                                                            ===========    ===========    ===========    ===========
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable........................................  $   746,413    $ 1,176,190    $ 2,164,753    $ 2,164,753
  Accrued expenses........................................           --        654,009        888,347        888,347
  Deferred revenue........................................       37,087      1,063,658      2,362,609      2,362,609
  Current portion of long-term debt.......................      313,210        435,820        385,661        385,661
                                                            -----------    -----------    -----------    -----------
         Total current liabilities........................    1,096,710      3,329,677      5,801,370      5,801,370
Long-term debt, less current portion......................      294,727        324,787        249,987        249,987
Commitments and contingencies.............................           --             --             --             --
Redeemable convertible preferred stock:
  Series A redeemable convertible preferred stock, $.001
    par value -- authorized, issued and outstanding
    3,683,050 (liquidation preference $3,683,050).........    3,658,050      3,658,050      3,658,050             --
  Series B redeemable convertible preferred stock, $.001
    par value -- authorized 1,600,000 shares; issued and
    outstanding 1,500,938 (liquidation preference
    $8,000,000)...........................................    7,980,000      7,980,000      7,980,000             --
Stockholders' equity (deficit):
  Series C convertible preferred stock, $.001 par value --
    authorized 2,000,000 shares; issued and outstanding
    1,728,283 at December 31, 1997 and 1,922,588 at
    December 31, 1998 and March 31, 1999, respectively
    (liquidation preference $16,880,323)..................   15,154,325     16,856,323     16,856,323             --
  Series D convertible preferred stock, $.001 par value --
    authorized 1,600,000 shares; issued and outstanding
    1,313,158 at March 31, 1999 (liquidation preference
    $12,475,001) (unaudited)..............................           --             --     12,463,001             --
  Common stock, $.001 par value -- authorized 21,000,000
    shares; issued and outstanding 5,086,391 at December
    31, 1997, 5,206,779 at December 31, 1998, 5,220,258 at
    March 31, 1999 (unaudited) and 13,639,992 at March 31,
    1999 (pro forma)......................................        5,086          5,207          5,220         13,640
  Additional paid-in capital..............................      174,796        365,985        373,427     41,322,381
  Accumulated deficit.....................................   (9,286,679)   (22,171,726)   (26,478,912)   (26,478,912)
  Other comprehensive loss................................           --             --        (40,626)       (40,626)
  Notes receivable from stockholders......................     (103,500)      (103,500)      (103,500)      (103,500)
                                                            -----------    -----------    -----------    -----------
         Total stockholders' equity (deficit).............    5,944,028     (5,047,711)     3,074,933     14,712,983
                                                            -----------    -----------    -----------    -----------
         Total liabilities and stockholders' equity
           (deficit)......................................  $18,973,515    $10,244,803    $20,764,340    $20,764,340
                                                            ===========    ===========    ===========    ===========
See accompanying notes
                                       F-3
64

                          SILVERSTREAM SOFTWARE, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM
                                         MAY 8, 1996            YEARS ENDED              THREE MONTHS ENDED
                                        (INCEPTION) TO          DECEMBER 31,                  MARCH 31,
                                         DECEMBER 31,    --------------------------   -------------------------
                                             1996           1997           1998          1998          1999
                                        --------------   -----------   ------------   -----------   -----------
                                                                                             (UNAUDITED)
Revenue:
  Software license....................   $        --     $   248,524   $  5,982,534   $   578,495   $ 2,606,846
  Services............................            --              --        825,365       104,077       867,446
                                         -----------     -----------   ------------   -----------   -----------
          Total revenue...............            --         248,524      6,807,899       682,572     3,474,292
Cost of revenue:
  Software license....................            --          89,997        695,225       118,226       253,816
  Services............................            --         281,796      1,413,962       251,799     1,330,351
                                         -----------     -----------   ------------   -----------   -----------
          Total cost of revenue.......            --         371,793      2,109,187       370,025     1,584,167
                                         -----------     -----------   ------------   -----------   -----------
Gross profit (loss)...................            --        (123,269)     4,698,712       312,547     1,890,125
Operating expenses:
  Sales and marketing.................        34,532       3,853,766     10,848,396     2,305,322     4,037,413
  Research and development............       849,868       2,622,200      5,069,465     1,239,560     1,503,050
  General and administrative..........       120,398       1,961,205      2,141,187       531,675       696,576
                                         -----------     -----------   ------------   -----------   -----------
          Total operating expenses....     1,004,798       8,437,171     18,059,048     4,076,557     6,237,039
                                         -----------     -----------   ------------   -----------   -----------
Loss from operations..................    (1,004,798)     (8,560,440)   (13,360,336)   (3,764,010)   (4,346,914)
Interest income.......................        53,214         274,331        559,495        58,159        54,597
Interest expense......................            --         (48,986)       (84,206)      (16,147)      (14,869)
                                         -----------     -----------   ------------   -----------   -----------
Net loss..............................   $  (951,584)    $(8,335,095)  $(12,885,047)  $(3,721,998)  $(4,307,186)
                                         ===========     ===========   ============   ===========   ===========
Basic and diluted net loss per
  share:..............................   $      (.45)    $     (1.71)  $      (2.52)  $      (.73)  $      (.83)
                                         ===========     ===========   ============   ===========   ===========
Weighted-average common shares used in
  computing basic and diluted net loss
  per share:..........................     2,103,535       4,882,996      5,122,480     5,106,947     5,215,648
                                         ===========     ===========   ============   ===========   ===========
Pro forma basic and diluted net loss
  per share...........................                                 $      (1.06)                $      (.34)
                                                                       ============                 ===========
Weighted-average common shares used in
  computing pro forma basic and
  diluted net loss per share..........                                   12,181,677                  12,759,943
                                                                       ============                 ===========
See accompanying notes
                                       F-4
65

                          SILVERSTREAM SOFTWARE, INC.

                     CONSOLIDATED STATEMENTS OF CHANGES IN
   REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE
                                CONVERTIBLE               CONVERTIBLE
                              PREFERRED STOCK           PREFERRED STOCK           COMMON STOCK        ADDITIONAL
                          -----------------------   -----------------------   ---------------------    PAID-IN     ACCUMULATED
                           SHARES       AMOUNT       SHARES       AMOUNT       SHARES     PAR VALUE    CAPITAL       DEFICIT
                           ------       ------       ------       ------       ------     ---------   ----------   -----------
Issuance of common stock
 in May, July, August
 and November 1996......                                                      4,639,367    $4,639
Issuance of Series A
 preferred stock in
 July, August and
 November 1996 (net of
 issuance costs of
 $25,000)...............  3,683,050   $ 3,658,050
Net loss................                                                                                           $  (951,584)
                          ---------   -----------   ---------   -----------   ---------    ------      --------    ------------
Balance at December 31,
 1996...................  3,683,050     3,658,050                             4,639,367     4,639                     (951,584)
Issuance of common stock
 in April, August,
 November and December
 1997...................                                                        577,914       578      $174,796
Issuance of Series B
 preferred stock in June
 and September 1997 (net
 of issuance costs of
 $20,000)...............  1,500,938     7,980,000
Note issued for purchase
 of common stock in
 August 1997............
Repurchase and
 retirement of common
 stock in February and
 October 1997...........                                                       (130,890)     (131)
Issuance of Series C
 preferred stock in
 November and December
 (net of issuance costs
 of $20,000)............                            1,728,283   $15,154,325
Net loss................                                                                                            (8,335,095)
                          ---------   -----------   ---------   -----------   ---------    ------      --------    ------------
Balance at December 31,
 1997...................  5,183,988    11,638,050   1,728,283    15,154,325   5,086,391     5,086       174,796     (9,286,679)
Issuance of common stock
 in January and December
 1998...................                                                         64,863        65       181,887
Issuance of Series C
 preferred stock in
 March 1998 (net of
 issuance costs of
 $4,000)................                              194,305     1,701,998
Exercise of stock
 options in June through
 December 1998..........                                                         55,525        56         9,302
Net loss................                                                                                           (12,885,047)
                          ---------   -----------   ---------   -----------   ---------    ------      --------    ------------
Balance at December 31,
 1998...................  5,183,988    11,638,050   1,922,588    16,856,323   5,206,779     5,207       365,985    (22,171,726)
Issuance of Series D
 preferred stock in
 March 1999 (net of
 issuance costs of
 $12,000) (unaudited)...                            1,313,158    12,463,001
Repurchase and
 retirement of common
 stock in March 1999
 (unaudited)............                                                        (10,754)      (11)
Exercise of stock
 options in March 1999
 (unaudited)............                                                         24,233        24         7,442
Net loss (unaudited)....                                                                                            (4,307,186)
Currency translation
 adjustment
 (unaudited)............
Comprehensive income
 (loss).................
                          ---------   -----------   ---------   -----------   ---------    ------      --------    ------------
Balance at March 31,
 1999...................  5,183,988   $11,638,050   3,235,746   $29,319,324   5,220,258    $5,220      $373,427    $(26,478,912)
                          =========   ===========   =========   ===========   =========    ======      ========    ============
OTHER         NOTES          TOTAL
                          COMPREHENSIVE   RECEIVABLE   STOCKHOLDERS'
                             INCOME       FROM SALE       EQUITY
                             (LOSS)        OF STOCK      (DEFICIT)
                          -------------   ----------   -------------
Issuance of common stock
 in May, July, August
 and November 1996......                               $      4,639
Issuance of Series A
 preferred stock in
 July, August and
 November 1996 (net of
 issuance costs of
 $25,000)...............
Net loss................                                   (951,584)
                            --------      ---------    ------------
Balance at December 31,
 1996...................                                   (946,945)
Issuance of common stock
 in April, August,
 November and December
 1997...................                                    175,374
Issuance of Series B
 preferred stock in June
 and September 1997 (net
 of issuance costs of
 $20,000)...............
Note issued for purchase
 of common stock in
 August 1997............                  $(103,500)       (103,500)
Repurchase and
 retirement of common
 stock in February and
 October 1997...........                                       (131)
Issuance of Series C
 preferred stock in
 November and December
 (net of issuance costs
 of $20,000)............                                 15,154,325
Net loss................                                 (8,335,095)
                            --------      ---------    ------------
Balance at December 31,
 1997...................                   (103,500)      5,944,028
Issuance of common stock
 in January and December
 1998...................                                    181,952
Issuance of Series C
 preferred stock in
 March 1998 (net of
 issuance costs of
 $4,000)................                                  1,701,998
Exercise of stock
 options in June through
 December 1998..........                                      9,358
Net loss................                                (12,885,047)
                            --------      ---------    ------------
Balance at December 31,
 1998...................                   (103,500)     (5,047,711)
Issuance of Series D
 preferred stock in
 March 1999 (net of
 issuance costs of
 $12,000) (unaudited)...                                 12,463,001
Repurchase and
 retirement of common
 stock in March 1999
 (unaudited)............                                        (11)
Exercise of stock
 options in March 1999
 (unaudited)............                                      7,466
Net loss (unaudited)....                                 (4,307,186)
Currency translation
 adjustment
 (unaudited)............    $(40,626)                       (40,626)
                                                       ------------
Comprehensive income
 (loss).................                                 (4,347,812)
                            --------      ---------    ------------
Balance at March 31,
 1999...................    $(40,626)     $(103,500)   $  3,074,933
                            ========      =========    ============
See accompanying notes
                                       F-5
66

                          SILVERSTREAM SOFTWARE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM
                                                       MAY 8, 1996            YEARS ENDED              THREE MONTHS ENDED
                                                      (INCEPTION) TO          DECEMBER 31,                  MARCH 31,
                                                       DECEMBER 31,    --------------------------   -------------------------
                                                           1996           1997           1998          1998          1999
                                                      --------------   -----------   ------------   -----------   -----------
                                                                                                           (UNAUDITED)
OPERATING ACTIVITIES
Net loss............................................    $ (951,584)    $(8,335,095)  $(12,885,047)  $(3,721,998)  $(4,307,186)
Adjustments to reconcile net loss to net cash used
  in operating activities:
  Depreciation and amortization.....................        29,750         345,494        724,045       154,549       238,025
  Provision for allowances on accounts receivable...            --          26,900        217,833        50,171        12,966
  Operating expenses paid with issuance of preferred
    stock...........................................        83,050          79,998             --            --            --
  Operating expenses paid with issuance of common
    stock...........................................            --          20,700        181,952        22,500            --
  Changes in operating assets and liabilities:
    Accounts receivable.............................            --        (237,915)    (3,577,745)   (1,311,705)   (2,072,345)
    Prepaid expenses................................       (13,671)       (303,579)        69,837        76,989      (214,361)
    Other current assets............................            --              --        166,824       262,254        92,141
    Accounts payable and accrued expenses...........        75,413         403,246      1,083,786         9,446     1,222,901
    Deferred revenue................................            --          37,087      1,026,571       637,927     1,298,951
                                                        ----------     -----------   ------------   -----------   -----------
Net cash used in operating activities...............      (777,042)     (7,963,164)   (12,991,944)   (3,819,867)   (3,728,908)
                                                        ----------     -----------   ------------   -----------   -----------
INVESTING ACTIVITIES
Purchase of furniture and equipment.................      (338,587)     (1,564,812)      (992,236)     (264,777)     (410,354)
Sale (purchase) of available-for-sale securities....            --              --     (3,330,603)   (5,156,093)    3,083,914
                                                        ----------     -----------   ------------   -----------   -----------
Net cash provided by (used in) investing
  activities........................................      (338,587)     (1,564,812)    (4,322,839)   (5,420,870)    2,673,559
                                                        ----------     -----------   ------------   -----------   -----------
FINANCING ACTIVITIES
Net proceeds from issuance of preferred stock.......     3,575,000      23,054,327      1,701,998     1,701,993    12,463,001
Net proceeds from issuance of common stock..........         4,639          51,043          9,358            --         7,455
Proceeds from line of credit........................       269,914         513,110        602,317       602,317            --
Payments on long-term debt..........................            --        (175,087)      (449,647)      (74,766)     (124,959)
                                                        ----------     -----------   ------------   -----------   -----------
Net cash provided by financing activities...........     3,849,553      23,443,393      1,864,026     2,229,544    12,345,497
                                                        ----------     -----------   ------------   -----------   -----------
Effects of exchange rate on cash and cash
  equivalents.......................................            --              --             --            --       (40,626)
Net increase (decrease) in cash and cash
  equivalents.......................................     2,733,924      13,915,417    (15,450,757)   (7,011,193)   11,249,522
Cash and cash equivalents at beginning of period....            --       2,733,924     16,649,341    16,649,341     1,198,584
                                                        ----------     -----------   ------------   -----------   -----------
Cash and cash equivalents at end of period..........    $2,733,924     $16,649,341   $  1,198,584   $ 9,638,148   $12,448,106
                                                        ==========     ===========   ============   ===========   ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
  Income taxes......................................    $       --     $       456   $     14,283   $     2,392   $        --
                                                        ==========     ===========   ============   ===========   ===========
  Interest..........................................    $       --     $    48,986   $     84,206   $    16,147   $    14,869
                                                        ==========     ===========   ============   ===========   ===========
See accompanying notes.
                                       F-6
67

                          SILVERSTREAM SOFTWARE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  NATURE OF BUSINESS

     SilverStream Software, Inc. (the Company) was incorporated on May 8, 1996.
The Company is a global provider of application server software and services
that enable businesses and other large organizations to create, deploy and
manage software applications for intranets, extranets and the Internet. The
Company markets their software worldwide and has sales offices in the United
Kingdom, The Netherlands, Belgium, Germany, Hong Kong, Singapore and Taiwan.

     The market for application server software has only recently begun to
develop, is rapidly evolving and will likely have an increasing number of
competitors. The market is marked by rapid technological change, frequent new
product introductions and enhancements and evolving industry standards. The
Company's future financial performance will depend on the market's acceptance of
its application server products and the Company's ability to successfully
introduce enhancements to their application server products and to expand its
operations to meet the evolving customer needs within the industry.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described in this note and
elsewhere in the accompanying consolidated financial statements and notes.

  USE OF ESTIMATES

     The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

  CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The Company accounts for cash equivalents and marketable securities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Cash
equivalents are short-term, highly liquid investments with original maturity
dates of three months or less. Cash equivalents are carried at cost, which
approximates fair market value. The Company's marketable securities are
classified as available-for-sale and are recorded at fair value with any
unrealized gain or loss recorded as an element of stockholders' equity
(deficit). As of December 31, 1998 and March 31, 1999, the Company's marketable
securities consisted of investment-grade corporate bonds.

     As of December 31, 1998, the Company's marketable securities had the
following contractual maturities.
Within 1 year...............................................  $3,083,913
After 1 year through 5 years................................     246,690
                                                              ----------
                                                              $3,330,603
                                                              ==========
CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, marketable
securities and accounts receivable. Concentration of credit risk with respect to
marketable securities is limited as marketable securities are primarily
investment-grade corporate bonds with high-credit, quality financial
institutions.

                                       F-7
68
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Concentration of credit risk with respect to accounts receivable is limited
due to the large number of companies comprising the Company's customer base.
On-going credit evaluations of customers' financial condition are performed and
collateral is generally not required. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.

  FURNITURE AND EQUIPMENT

     Furniture and equipment is stated at cost. Depreciation is computed by use
of the straight-line method over the following estimated useful lives:
Leasehold improvements......................................  5 years
Furniture and fixtures......................................  5 years
Computer equipment and software.............................  3 years
Telephone equipment.........................................  3 years
ADVERTISING COSTS

     The Company expenses advertising costs as incurred. Advertising costs were
$0, $187,000 and $858,000 for the period ended December 31, 1996 and the years
ended December 31, 1997 and 1998, respectively, and $341,000 and $68,000 for the
three months ended March 31, 1998 and 1999, respectively.

  CAPITALIZED SOFTWARE

     Certain software development costs are capitalized when incurred under SFAS
No. 86. Capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. Capitalizable costs to date have
been immaterial and therefore have been expensed as incurred.

  REVENUE RECOGNITION

     Revenue recognition from software license fees and from sales of software
products is recognized when persuasive evidence of an agreement exists, delivery
of the product has occurred, no significant Company obligations with regard to
implementation remain, the fee is fixed or determinable and collectibility is
probable. Upgrade assurance agreements include the right to unspecified upgrades
on an if-and-when available basis. Upgrade assurance revenue is deferred and
recognized on a straight-line basis as license revenue over the life of the
related agreement, which is typically one year.

     Services revenue is primarily comprised of revenue from consulting,
technical support and education services. Services revenue from consulting and
education is billed on a time and materials basis and is recognized as the
services are performed. Services revenue on fixed price service arrangements is
recognized upon completion of specific contractual milestone events, or based on
an estimated percentage of completion as work progresses. Technical support
revenue is deferred and recognized on a straight-line basis as service revenue
over the life of the related agreement, which is typically one year.

     Customer advances and billed amounts due from customers in excess of
revenue recognized are recorded as deferred revenue and recognized as the
services are delivered.

     Sales to independent software vendors are deferred and recognized on a
straight line basis as product revenue over the life of the agreement, which is
typically one year. Partner fees are deferred and

                                       F-8
69
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recognized on a straight line basis as an offset to operating expenses over the
life of the agreement, which is typically one year.

     Customer returns are estimated and accrued for as a percentage of net
product revenues based upon historical trends.

     The Company adopted Statement of Position (SOP) 97-2, "Software Revenue
Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," as of January 1, 1998. SOP 97-2 and SOP
98-4 provide guidance for recognizing revenue on software transactions and
supersede SOP 91-1.

     The Company will adopt SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions." SOP 98-9 amends SOP
98-4 to extend the period of deferral of the application of certain passages of
SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March
15, 1999. All other provisions of SOP 97-2 are effective for transactions
entered into in fiscal years beginning after March 15, 1999.

     The adoption of SOP 97-2 and SOP 98-4 did not have a material impact on the
Company's financial results. In addition, the Company believes that the adoption
of SOP 98-9 will not have a material impact on the Company's financial results.

  EARNINGS PER SHARE

     The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings per Share". SFAS 128 requires calculation and presentation of basic
and diluted earnings per share. Basis earnings per share is calculated based on
the weighted average number of common shares outstanding and excludes any
dilutive effects of warrants, stock options, or other type securities. Diluted
earnings per share is calculated based on the weighted average number of common
shares outstanding and the dilutive effect of warrants, stock options, and
related securities calculated using the treasury stock method. Dilutive
securities are excluded from the diluted earnings per share calculation if their
effect is anti-dilutive.

  INCOME TAXES

     The Company provides for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Under SFAS 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

  FINANCIAL INSTRUMENTS

     The fair value of the Company's financial instruments, which include cash
and cash equivalents, marketable securities, accounts receivable and accounts
payable and long term debt, are based on assumptions concerning the amount and
timing of estimated future cash flows and assumed discount rates reflecting
varying degrees of perceived risk. The carrying value of these financial
instruments approximated their fair value at December 31, 1997 and 1998 due to
the short term nature of these instruments and the variable interest rate on the
long term debt.

  FOREIGN CURRENCY TRANSLATIONS

     Financial statements of foreign subsidiaries are translated into U.S.
dollars at the exchange rate as of the balance sheet dates, with the exception
of revenues, costs and expenses. All revenues, costs and expenses are translated
at a weighted-average of exchange rates in effect during the year. Net exchange

                                       F-9
70
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

gains or losses resulting from the translation of the foreign financial
statements are recorded as a separate component of comprehensive income.
Transaction adjustments for all foreign subsidiaries are included in income.

  STOCK COMPENSATION ARRANGEMENTS

     The Company adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company has continued to account for employee stock options in accordance with
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees," and has included the pro forma disclosures required by SFAS No.
123 for all periods presented.

  NON-MONETARY TRANSACTIONS

     The Company has entered into certain non-monetary transactions involving
the issuance of preferred or common stock in consideration for professional and
marketing services provided to the Company by third parties. The Company has
accounted for these non-monetary transactions in accordance with SFAS No. 123.
All transactions are accounted for based on the fair value of the goods or
services received or on the fair value of the equity instruments issued, where
the fair value of the goods or services received is not reliably manageable.

  COMPREHENSIVE INCOME

     As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes new rules for the reporting and display
of comprehensive income and its components. SFAS 130 requires unrealized gains
and losses on the Company's available-for-sale securities and the foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior to the three-month period ended March 31, 1999, amounts pertaining
to comprehensive income were not material and have therefore not been separately
stated.

  SEGMENT REPORTING

     Effective January 1, 1998, the Company adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
superseded SFAS No. 14, "Financial Reporting for Segment of a Business
Enterprise." SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in interim financial
reports. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS 131 did not affect results of operation or financial position, but did
affect the disclosure of segment information. See Note 10.

  UNAUDITED INTERIM FINANCIAL INFORMATION

     The interim financial information at March 31, 1999 and for the three
months ended March 31, 1998 and 1999, all of which is unaudited, was prepared by
the Company on a basis consistent with the audited financial statements. In
management's opinion, such information reflects all adjustments which are of a
normal recurring nature and which are necessary to present fairly the results of
the periods presented.

                                      F-10
71
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  UNAUDITED PRO FORMA BALANCE SHEET

     Upon an initial public offering of the Company's common stock, each
outstanding share of Series A, B, C, and D convertible preferred stock will be
converted into one share of common stock. This reclassification has been
reflected in the unaudited pro forma balance sheet as of March 31, 1999.

  UNAUDITED PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE

     The unaudited pro forma basic and diluted net loss per share is computed
using the weighted-average number of outstanding common shares assuming
conversion of all preferred shares into common shares (at date of original
issuance), which will occur upon completion of the initial public offering, as
contemplated herein. Common share equivalents are excluded from the calculation
as their effect is anti-dilutive.

  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In March 1998, the Accounting Standard Executive Committee ("AcSEC") issued
SOP 98-1, "Accounting of the Costs of Computer Software Developed or Obtained
for Internal Use." The adoption of SOP 98-1, which is effective for SilverStream
beginning January 1, 1999, did not have a material effect on SilverStream's
financial condition or results of operations.

     In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 is effective for SilverStream's calendar year
1999 financial statements and the adoption did not have a material effect on
SilverStream financial condition or results of operations.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities." The Company is
currently analyzing the effect, if any, the standard will have on its financial
condition or results of operations.

3.  FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Furniture, equipment and leasehold improvements consists of the following:
DECEMBER 31,
                                               -------------------------     MARCH 31,
                                                  1997          1998           1999
                                               ----------    -----------    -----------
                                                                            (UNAUDITED)
Furniture and fixtures.......................  $  360,315    $   502,821    $   513,593
Computer equipment and software..............   1,302,285      2,051,809      2,447,641
Telephone equipment..........................     150,067        162,205        163,306
Leasehold improvements.......................      90,732        178,800        181,449
                                               ----------    -----------    -----------
                                                1,903,399      2,895,635      3,305,989
Less accumulated depreciation and
  amortization...............................    (375,244)    (1,099,289)    (1,337,314)
                                               ----------    -----------    -----------
                                               $1,528,155    $ 1,796,346    $ 1,968,675
                                               ==========    ===========    ===========
F-11
72
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  ACCRUED EXPENSES

     Accrued expenses include the following:
DECEMBER 31,     MARCH 31,
                                                                  1998           1999
                                                              ------------     ---------
                                                                              (UNAUDITED)
Provision for estimated returns.............................    $231,260       $241,799
Fringe benefits.............................................     124,337        211,873
Occupancy...................................................     130,507        105,457
Professional fees...........................................      66,387         93,982
Bonus.......................................................      19,996        104,998
Other.......................................................      81,522        130,238
                                                                --------       --------
                                                                $654,009       $888,347
                                                                ========       ========
5.  DEBT

  LONG-TERM DEBT

     Under the terms of a credit facility, negotiated in 1996 and expiring March
1, 2000, borrowings of approximately $387,418 and $246,072 converted fully into
separate term loans on March 31, 1997 and September 30, 1997, respectively.
Principal repayments began April 1, 1997 and October 31, 1997 in 30 equal
monthly payments. Interest on the loans accrues at prime rate plus 0.5% (8.25%
at December 31, 1998) and is payable monthly in arrears. The outstanding balance
under the facility at December 31, 1997 and 1998 and March 31, 1999 was
$607,937, $308,870 and $234,103, respectively.

     Under terms of a credit facility, negotiated in 1997 and expiring March 1,
2001, borrowings of approximately $602,000 converted fully into a term loan on
March 30, 1998. Principal repayments began April 1, 1998 in 36 equal monthly
payments. Interest on the loan accrues at prime rate plus 0.5% and is payable
monthly in arrears. The outstanding balance under the facility at December 31,
1998 and March 31, 1999 was $451,737 and $401,544, respectively.

     Borrowings under the terms of both credit facilities are secured by
substantially all the Company's tangible assets.

     The aggregate maturities of long term debt are as follows:
1999............................................    $435,820
2000............................................     274,594
2001............................................      50,193
                                                    --------
                                                    $760,607
                                                    ========
LINE OF CREDIT

     The Company currently has a $750,000 line of credit with its bank for the
purpose of financing equipment purchases. The line of credit converts fully into
a term loan on October 31, 1999. Principal repayments begin on November 1, 1999
in 36 equal monthly payments. Interest on the loan accrues at prime plus 0.5%
and is payable monthly. Borrowings are secured by substantially all the
Company's tangible assets. The loan contains restrictive covenants which
include, among other restrictions, maintaining minimum tangible net worth
requirements, and limitations on incurring additional indebtedness and paying
cash dividends. There were no amounts outstanding under the line of credit at
March 31, 1999.

                                      F-12
73
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Subsequent to March 31, 1999, the Company borrowed $673,263 under the line
of credit.

6.  LEASES

     The Company leases office space and certain equipment under operating
leases expiring through April 2003. Future minimum payments under noncancelable
operating leases are as follows:
1999...........................................    $1,184,150
2000...........................................       535,114
2001...........................................        31,876
2002...........................................        29,604
2003...........................................         2,415
                                                   ----------
Total minimum lease payments...................    $1,783,159
                                                   ==========
Rent expense charged to operations for the period ended December 1996, and
the years ended December 1997 and 1998 was $41,000, $336,000 and $602,000,
respectively, and for the three months ended March 31, 1998 and 1999 was
$100,000 and $283,000, respectively.

7.  EMPLOYEE BENEFITS

  1996 FOUNDERS STOCK INCENTIVE PLAN

     In May 1996, the Company adopted the 1996 Founders Stock Incentive Plan
(the 1996 Plan) and authorized the issuance of up to 3,877,000 shares of common
stock. The Company issued and sold an aggregate of 3,775,031 shares of common
stock under the 1996 Plan pursuant to founders stock restriction agreements at
the fair value of the stock at the date of the issuance. The restricted stock
vests over four to five years at various rates. The Company has the option to
buy back unvested shares at the price paid if the purchaser ceases to be
affiliated with the Company during the vesting period. An aggregate of 145,394
shares of common stock have been repurchased by the Company under the 1996 Plan.

  1997 STOCK INCENTIVE PLAN

     In February 1997, the Company adopted the 1997 Stock Incentive Plan (the
1997 Plan) covering all eligible employees, officers, directors, consultants and
advisors. As of December 31, 1998 the Company has reserved 1,305,719 shares of
common stock for issuance under the 1997 Plan. Under the 1997 Plan, the Company
may grant stock options to purchase shares of the Company's common stock,
restricted common stock awards and other stock-based awards having terms and
conditions at the discretion of the Company's Board of Directors. The prices,
terms and vesting periods of stock awards under the 1997 Plan are determined by
the Board of Directors at the date of the grant. The 1997 Plan also contains
provisions which stipulate that upon an acquisition event the Board of Directors
is authorized to determine that any stock option, restricted stock or other
stock-based award granted under the 1997 Plan may become immediately exercisable
in full or in part.

     The Company holds notes receivable totaling $103,500 from employees at
December 31, 1997 and 1998, and at March 31, 1998 and 1999. These notes arose
from transactions in September 1997 whereby the Company loaned the employees
money to purchase an aggregate of 207,000 shares of the Company's common stock
at the then fair market value. The notes receivable are fully recourse to the
employees and are due to be paid in full, with accrued interest at the rate of
6.39% per annum, on August 26, 2002. These notes receivable are shown as a
reduction in stockholders' equity in the accompanying balance sheets.

                                      F-13
74
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  401(K) PLAN

     The Company has a 401(k) plan (the Plan), whereby eligible employees may
contribute up to 15% of their compensation, subject to limitations established
by the Internal Revenue Code. The Company may also contribute a discretionary
matching contribution, to each such participant's deferred compensation equal to
a discretionary percentage determined by the Company. As of March 31, 1999, the
Company had not made any discretionary matching contributions in any of the
fiscal periods presented.

  STOCK OPTION DISCLOSURES

     The Company has adopted the disclosure provisions only of SFAS 123. The
fair values for these options were estimated at the date of grant using the
minimum value method with the following assumptions:
THREE MONTHS
                                                  YEARS ENDED        ENDED
                                                  DECEMBER 31,     MARCH 31,
                                                  ------------    ------------
                                                  1997    1998    1998    1999
                                                  ----    ----    ----    ----
                                                                  (UNAUDITED)
Expected life (years)...........................  4.97    5.35    5.34    5.00
Risk free interest rate.........................  5.66%   4.75%   4.92%   4.95%
Dividend yield..................................    --      --      --      --
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
YEARS ENDED               THREE MONTHS ENDED
                                                    DECEMBER 31,                   MARCH 31,
                                             --------------------------   ---------------------------
                                                1997           1998           1998           1999
                                             -----------   ------------   ------------   ------------
                                                                                  (UNAUDITED)
Pro forma net loss.........................  $(8,351,473)  $(12,996,310)  $(3,735,026)   $(4,393,205)
Pro forma net loss per share...............  $     (1.71)  $      (2.54)  $      (.73)   $      (.84)
Compensation expense under SFAS 123 for 1997 and 1998 is not representative
of future expense, as it includes one and two years of expense, respectively. In
future years, the effect of determining compensation cost using the fair value
method will include additional vesting and associated expense.

                                      F-14
75
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Option activity under the 1997 Plan is summarized below:
YEARS ENDED DECEMBER 31,
                                    ---------------------------------------    THREE MONTHS ENDED
                                           1997                 1998             MARCH 31, 1999
                                    ------------------   ------------------   --------------------
                                              WEIGHTED             WEIGHTED               WEIGHTED
                                              AVERAGE              AVERAGE                AVERAGE
                                              EXERCISE             EXERCISE               EXERCISE
                                    OPTIONS    PRICE     OPTIONS    PRICE      OPTIONS     PRICE
                                    -------   --------   -------   --------    -------    --------
                                                                                  (UNAUDITED)
Outstanding, beginning of
      year........................       --       --     607,000    $ .34       895,175    $1.15
    Granted.......................  614,000     $.34     381,950     2.21       201,450     4.11
    Expired or canceled...........   (7,000)     .20     (38,250)     .37       (28,750)    1.02
    Exercised.....................       --              (55,525)     .17       (24,233)     .40
                                    -------              -------              ---------
    Outstanding, end of year......  607,000      .34     895,175     1.15     1,043,642     1.76
                                    =======              =======              =========
    Exercisable at end of year....       --              159,850                180,249
    Available for future grants...  398,719               55,019                532,319
    Weighted-average fair value of
      options granted during
      year........................              $.33                $2.16                  $4.03
The following table presents weighted-average price and life information
about significant option groups outstanding at December 31, 1998:
OPTIONS OUTSTANDING
                  -------------------------------------
                                 WEIGHTED-
                                  AVERAGE     WEIGHTED-                 WEIGHTED-
                                 REMAINING     AVERAGE                   AVERAGE
   RANGE OF         NUMBER      CONTRACTUAL   EXERCISE      NUMBER      EXERCISE
EXERCISE PRICES   OUTSTANDING      LIFE         PRICE     EXERCISABLE     PRICE
---------------   -----------   -----------   ---------   -----------   ---------
$ .02 - $ .20       162,475     6.79 Years      $ .07        30,525       $.08
        $ .50       363,750     5.89 Years        .50       127,225        .50
        $ .90       137,500     7.99 Years        .90         2,100        .90
        $3.00       241,450     9.23 Years       3.00            --         --
                    -------                                 -------
$ .02 - $3.00       905,175     7.26 Years      $1.15       159,850       $.43
                    =======                                 =======
8.  PREFERRED STOCK

     In July, August and November 1996, the Company sold 3,683,050 shares of
Series A redeemable convertible preferred stock, par value $.001, at $1.00 per
share. Proceeds to the Company were $3,575,000 (net of $25,000 of issuance
costs).

     In June and September 1997, the Company sold 1,500,938 shares of Series B
redeemable convertible preferred stock, par value $.001, at $5.33 per share.
Proceeds to the Company were $7,900,002 (net of $20,000 of issuance costs).

     In November and December 1997, the Company sold 1,728,283 shares of Series
C convertible preferred stock, par value $.001, at $8.78 per share. Proceeds to
the Company were $15,154,325 (net of $20,000 of issuance costs).

     In March 1998, the Company sold 194,305 shares of Series C convertible
preferred stock, par value $.001, at $8.78 per share. Proceeds to the Company
were $1,701,998 (net of $4,000 of issuance costs).

     In March 1999, the Company sold 1,313,158 shares of Series D convertible
preferred stock, par value $.001, at $9.50 per share. Proceeds to the Company
were $12,463,001 (net of $12,000 of issuance costs).

                                      F-15
76
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company has reserved up to 8,659,208 shares of its common stock for
issuance upon conversion of the preferred stock.

     Significant features of the Series A, B, C and D preferred stocks are as
follows:

  CONVERSION

     As more fully described in the Company's amended Certificate of
Incorporation, each share of preferred stock is convertible at the shareholder's
option into such number of shares of common stock as determined by a conversion
factor, as defined. The preferred stock will automatically convert upon the
closing of a qualified public offering of the Company's common stock, as
defined.

  REDEMPTION

     At the written request of the holders of a majority of the outstanding
shares of Series A and Series B preferred stock, the Company will redeem a
specified percentage of the Series A and Series B preferred stock on December
31, 2001, 2002 and 2003, respectively. The price per share to be paid to the
Series A and Series B preferred stockholders shall be $1.00 and $5.33,
respectively, plus any dividends declared but unpaid.

  DIVIDENDS

     The holders of preferred stock shall be entitled to receive, when and if
declared by the Board of Directors of the Company, dividends in the same amount
per share as would be payable on the number of shares of common stock into which
the preferred stock is then convertible, payable in preference and priority to
payment of any cash dividend on common stock.

  VOTING

     Shares of preferred stock are entitled to a number of votes on any matter
put before the shareholders of the Company equal to the number of shares of
common stock into which they are convertible.

  LIQUIDATION

     Upon liquidation of the Company, holders of Series A, Series B, Series C
and Series D preferred stock shall be first entitled, before any distribution or
payment is made to holders of common stock, to be paid $1.00, $5.33, $8.78 and
$9.50 per share, respectively, plus any declared and unpaid dividends thereon.

9.  INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. A valuation allowance has been established to reflect
the uncertainty of future taxable income to utilize available tax loss

                                      F-16
77
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carryforwards and other deferred tax assets. Significant components of the
Company's deferred tax assets and liabilities are as follows:
DECEMBER 31,
                                                            --------------------------
                                                               1997           1998
                                                            -----------    -----------
Deferred tax assets:
  Net operating loss carryforward.........................  $ 3,700,000    $ 8,900,000
  Research and development credit carryforward............      150,000        350,000
  Other...................................................       67,000        146,000
Deferred tax liabilities:
  Depreciation............................................     (135,000)      (247,000)
                                                            -----------    -----------
                                                              3,782,000      9,149,000
  Less valuation allowance for deferred tax assets........   (3,782,000)    (9,149,000)
                                                            -----------    -----------
Total.....................................................  $        --    $        --
                                                            ===========    ===========
As of December 31, 1998, the Company has net operating loss carryforwards
and research and development tax carryforwards of approximately $22,300,000 and
$350,000, respectively, available to offset future Federal taxable income. These
carryforwards begin to expire in 2012 and may be subject to certain limitations.

10.  SEGMENT AND GEOGRAPHIC INFORMATION

     The Company operates in one business segment: the development and delivery
of software and services that enable its customers to build and deploy business
applications on intranets, extranets and the Internet. Revenues by geographic
region is as follows:
PERIOD FROM
                              MAY 8, 1996                                 THREE MONTHS ENDED
                             (INCEPTION) TO   YEARS ENDED DECEMBER 31,         MARCH 31,
                              DECEMBER 31,    ------------------------   ---------------------
                                  1996           1997          1998        1998        1999
                             --------------   -----------   ----------   --------   ----------
                                                                              (UNAUDITED)
United States..............    $       --      $181,017     $4,999,717   $558,298   $2,377,344
International..............            --        67,507      1,808,182    124,274    1,096,948
                               ----------      --------     ----------   --------   ----------
Total......................    $       --      $248,524     $6,807,899   $682,572   $3,474,292
                               ==========      ========     ==========   ========   ==========
F-17
78
                          SILVERSTREAM SOFTWARE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  LOSS PER SHARE (UNAUDITED)

     The following table sets forth the computation of basic and diluted loss
per share:
PERIOD FROM
                          MAY 8, 1996                                     THREE MONTHS ENDED
                         (INCEPTION) TO    YEARS ENDED DECEMBER 31,            MARCH 31,
                          DECEMBER 31,    --------------------------   -------------------------
                              1996           1997           1998          1998          1999
                         --------------   -----------   ------------   -----------   -----------
                                                                              (UNAUDITED)
Numerator:
  Net loss.............    $ (951,584)    $(8,335,095)  $(12,885,259)  $(3,721,998)  $(4,307,186)
Numerator for basic and
  diluted loss per
  share................    $ (951,584)    $(8,335,095)  $(12,885,259)  $(3,721,998)  $(4,307,186)
Denominator:
  Weighted average
     common shares
     outstanding.......     2,103,535       4,882,996      5,122,480     5,106,947     5,215,648
Denominator for basic
  and diluted loss per
  share................     2,103,535       4,882,996      5,122,480     5,106,947     5,215,648
The effect of employee stock options and the convertible preferred stock
has not been included in the computation of the denominator for diluted loss per
share due to their antidilutive nature.

12.  SUBSEQUENT EVENT

     In April and May 1999, the Company sold 239,474 additional shares of Series
D convertible preferred stock, $.001 par value at $9.50 per share. Proceeds to
the Company were approximately $2,275,003.

                                      F-18
79

[Narrative description of graphic material omitted in electronically filed
document:
This graphic consists of a group of ten equally spaced logos in two rows.
Top row, from left to right: Upside's 1998 Hot 100 Private Companies, NewMedia
Magazine 1998 Hyper Award, Internet World Best of Show, JAVA Developer's Journal
World Class Award and 1999 Network Computing Well-Connected Award. Bottom row,
from left to right: Internet Showcase 1998 Best of Showcase Award, INFO Best
Test Center, Massachusetts Interactive Media Council, Internet World Industry
Award '98 and Best Practice Awards 1998.
The following text appears below the graphic:
SILVERSTREAM SOFTWARE HAS RECEIVED NUMEROUS AWARDS. We believe these awards
demonstrate our ability to deliver application development and deployment
products that help organizations leverage the benefits of Web-based computing.
While we appreciate the recognition, we never lose sight of our mission: TO
BUILD A HIGHLY SCALABLE AND RELIABLE APPLICATION SERVER PRODUCT AND DELIVER
COMPREHENSIVE SERVICES TO ENSURE OUR CUSTOMERS SUCCESS.]
80

[LOGO][LOGO]
81

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
SEC registration fee........................................  $   11,190
NASD filing fee.............................................       4,525
Nasdaq National Market listing fee..........................      95,000
Printing and engraving expenses.............................     175,000
Legal fees and expenses.....................................     300,000
Accounting fees and expenses................................     300,000
Blue Sky fees and expenses (including legal fees)...........      10,000
Transfer agent and registrar fees and expenses..............      15,000
Miscellaneous...............................................      89,285
          Total.............................................  $1,000,000
ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director notwithstanding any provision of law imposing such
liability, except to the extent that the Delaware General Corporation Law
prohibits the elimination or limitation of liability of directors for breach of
fiduciary duty.

     Article EIGHTH of the Restated Certificate provides that a director or
officer of the Registrant (a) shall be indemnified by the Registrant against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of the Registrant) brought against him
by virtue of his position as a director or officer of the Registrant if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful and (b) shall be indemnified by the Registrant against all expenses
(including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of the Registrant naming him as a
party by virtue of his position as a director or officer of the Registrant if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Registrant, except that no indemnification
shall be made with respect to any matter as to which such person shall have been
adjudged to be liable to the Registrant, unless the Court of Chancery of
Delaware determines that, despite such adjudication but in view of all of the
circumstances, he is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
the Registrant against all expenses (including attorneys' fees) incurred in
connection therewith. Expenses shall be advanced to a director or officer in
advance of the final disposition of a legal proceeding, provided that he
undertakes to repay the amount advanced if it is ultimately determined that he
is not entitled to indemnification for such expenses.

                                      II-1
82

     Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.

     Article EIGHTH of the Restated Certificate further provides that the
indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers the Registrant must indemnify
those persons to the fullest extent permitted by such law as so amended.

     Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.

     The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.

     The Registrant has obtained liability insurance for its officers and
directors.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.

     Since inception, the Registrant has issued the following securities that
were not registered under the Securities Act as summarized below.

     (a) Issuances of capital stock.

           1.  On May 8, 1996, the Registrant issued and sold 1,000 shares of
     its common stock for an aggregate purchase price of $10.00 to David R. Skok
     in connection with the Registrant's incorporation.

           2.  On July 9, 1996, the Registrant issued and sold 1,122,000 shares
     of its common stock for an aggregate purchase price of $1,122 to David R.
     Skok pursuant to a Founders Stock Restriction Agreement.

           3.  On July 9, 1996, the Registrant issued and sold an aggregate of
     2,670,000 shares of its series A preferred stock for an aggregate purchase
     price of $2,670,000 to a group of investors pursuant to a Stock Purchase
     Agreement.

           4.  On August 15, 1996, the Registrant issued and sold 83,050 shares
     of its series A preferred stock to an individual pursuant to a Stock
     Purchase Agreement in consideration of personnel placement services
     rendered by the individual to the Registrant.

                                      II-2
83

           5.  From August 16, 1996 to September 18, 1996, the Registrant issued
     and sold an aggregate of 1,432,817 shares of its common stock for an
     aggregate purchase price of approximately $1,433 to a group of employees
     pursuant to Founders Stock Restriction Agreements.

           6.  On November 4, 1996, the Registrant issued and sold 1,123,000
     shares of its common stock for an aggregate purchase price of $1,123 to
     David A. Litwack pursuant to a Founders Stock Restriction Agreement.

           7.  On November 4, 1996, the Registrant issued and sold 930,000
     shares of its series A preferred stock for an aggregate purchase price of
     $930,000 to David A. Litwack pursuant to a Stock Purchase Agreement.

           8.  On November 12, 1996, the Registrant issued and sold an aggregate
     of 960,550 shares of its common stock for an aggregate purchase price of
     $960.55 to a group of employees pursuant to Founders Stock Restriction
     Agreements.

           9.  On April 11, 1997, the Registrant issued and sold an aggregate of
     258,664 shares of its common stock for an aggregate purchase price of
     approximately $5,173 to a group of employees pursuant to Founders Stock
     Restriction Agreements.

           10.  On June 16, 1997, the Registrant issued and sold an aggregate of
     1,484,056 shares of its series B preferred stock for an aggregate purchase
     price of $7,910,018.48 to a group of investors pursuant to a Stock Purchase
     Agreement.

          11.  From August 26, 1997 to September 3, 1997, the Registrant issued
     and sold an aggregate of 230,000 shares of its common stock for an
     aggregate purchase price of $115,000 to a group of employees pursuant to
     Founders Stock Restriction Agreements.

          12.  On September 12, 1997, the Registrant issued and sold 16,882
     shares of its series B preferred stock for an aggregate purchase price of
     $89,981.06 to an individual pursuant to a Stock Purchase Agreement.

          13.  On November 2, 1997, the Registrant issued and sold 70,000 shares
     of its common stock for an aggregate purchase price of $35,000 to an
     employee pursuant to a Founders Stock Restriction Agreement.

          14.  On November 5, 1997, December 1, 1997 and January 16, 1998, the
     Registrant issued and sold an aggregate of 48,000 shares of its common
     stock to Intel Corporation pursuant to a Collaboration Agreement in
     consideration of services rendered by Intel to the Registrant.

          15.  On November 6, 1997, the Registrant issued and sold an aggregate
     of 1,722,588 shares of its series C preferred stock for an aggregate
     purchase price of $15,124,322.64 to a group of investors pursuant to a
     Stock Purchase Agreement.

          16.  On December 24, 1997, the Registrant issued and sold 5,695 shares
     of its series C preferred stock for an aggregate purchase price of
     $50,002.10 to an individual pursuant to a Stock Purchase Agreement.

          17.  On March 30, 1998, the Registrant issued and sold an aggregate of
     194,305 shares of its series C preferred stock for an aggregate purchase
     price of $1,705,997.90 to a group of investors pursuant to a Stock Purchase
     Agreement.

          18.  On December 31, 1998, the Registrant issued and sold an aggregate
     of 39,863 shares of its common stock to SilverStream Benelux N.V. in
     consideration of the acquisition of certain assets of SilverStream Benelux
     N.V. by the Registrant.

          19.  On March 1, 1999, the Registrant issued and sold an aggregate of
     1,313,158 shares of its series D preferred stock for an aggregate purchase
     price of $12,475,001 to a group of investors pursuant to a Stock Purchase
     Agreement.

                                      II-3
84

          20.  On April 9, 1999, the Registrant issued and sold an aggregate of
     55,263 shares of its series D preferred stock for an aggregate purchase
     price of $524,998.50 to a group of investors pursuant to a Stock Purchase
     Agreement.

          21.  On April 14, 1999, the Registrant issued and sold an aggregate of
     78,948 shares of its series D preferred stock for an aggregate purchase
     price of $750,006 to a group of investors pursuant to a Stock Purchase
     Agreement.

          22.  On May 27, 1999, the Registrant issued and sold 105,263 shares of
     its series D preferred stock for an aggregate purchase price of $999,998.50
     to an investor pursuant to a Stock Purchase Agreement.

     (b) Certain grants and exercises of stock options.

          1.  From inception through May 31, 1999, the Registrant granted stock
     options to purchase 1,548,250 shares of common stock at exercise prices
     ranging from $.02 to $8.00 per share to employees, consultants and
     directors pursuant to its 1997 Stock Incentive Plan.

          2.  From inception through May 31, 1999, the Registrant issued and
     sold an aggregate of 130,941 shares of its common stock to employees,
     consultants and directors for aggregate consideration of approximately
     $25,334 pursuant to exercises of options granted under its 1997 Stock
     Incentive Plan.

     No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of options to purchase common stock,
Rule 701 of the Securities Act. All of the foregoing securities are deemed
restricted securities for the purposes of the Securities Act.

                                      II-4
85

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

     (a) Exhibits:
EXHIBIT
  NO.                              DESCRIPTION
-------                            -----------
1.1*     Form of Underwriting Agreement
  3.1*     Amended and Restated Certificate of Incorporation of the
           Registrant
  3.2*     Form of Second Amended and Restated Certificate of
           Incorporation of the Registrant, to be filed after to the
           closing of this offering
  3.3      By-Laws of the Registrant
  3.4*     Form of Amended and Restated By-Laws of the Registrant, to
           be effective upon the closing of this offering
  4.1      Specimen common stock certificate
  4.2*     Third Amended and Restated Investor Rights Agreement dated
           March 1, 1999
  5.1*     Opinion of Hale and Dorr LLP
 10.1      1996 Founders Stock Option Plan
 10.2      Amended and Restated 1997 Stock Incentive Plan, and forms of
           agreements thereunder
 10.3      1999 Employee Stock Purchase Plan
 10.4      Form of Founders Stock Restriction Agreement
 10.5      Sub-Sublease Agreement, dated February 14, 1997, between
           Rational Software Corporation (as successor to SQA, Inc.)
           and the Registrant
 10.6      First Amendment to Sub-Sublease Agreement, dated April 1998
 10.7      Term Loan Agreement and Commercial Promissory Note, dated
           March 1, 1999, between Fleet National Bank and the
           Registrant
 10.8      Term Loan Agreement and Commercial Promissory Note, dated
           August 11, 1997, between Fleet National Bank and the
           Registrant
 10.9      Term Loan Agreement and Commercial Promissory Note, dated
           November 5, 1996 between Fleet National Bank and the
           Registrant
 21.1      Subsidiaries of the Registrant
 23.1      Consent of Ernst & Young LLP
 23.2*     Consent of Hale and Dorr LLP (included in Exhibit 5.1)
 24.1      Powers of Attorney (see page II-7)
 27.1      Financial Data Schedule
 27.2      Financial Data Schedule
 27.3      Financial Data Schedule
 27.4      Financial Data Schedule
 27.5      Financial Data Schedule
------------

* To be filed by amendment.

     (b) Financial Statement:

     Schedule II -- Valuation and Qualifying Accounts

     All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.

                                      II-5
86

ITEM 17.  UNDERTAKINGS.

     The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the Delaware General
Corporation Law, the Restated Certificate of the registrant, the Underwriting
Agreement, 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 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 hereunder, the registrant
will, unless in the opinion of 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 Act and will be governed by the final adjudication of such
issue.

     The undersigned registrant hereby undertakes that:

          (1) For purpose of determining any liability under the Act, the
     information omitted from the form of prospectus filed as part of this
     Registration Statement in reliance upon Rule 430A and contained in a form
     of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or
     497(h) under the Act shall be deemed to be part of this Registration
     Statement as of the time it was declared effective.

          (2) For purpose of determining any liability under the Act, each
     post-effective amendment that contains a form of prospectus shall be deemed
     to be a new Registration Statement relating to the securities offered
     therein, and the offering of such securities at that time shall be deemed
     to be the initial bona fide offering thereof.

                                      II-6
87

                                   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 Burlington, Massachusetts, on this
11th day of June, 1999.

                                          SILVERSTREAM SOFTWARE, INC.

                                          By:
                                                  /s/ DAVID A. LITWACK
                                            ------------------------------------
                                          David A. Litwack
                                          President and Chief Executive Officer

                        POWER OF ATTORNEY AND SIGNATURES

     We, the undersigned officers, directors and authorized representatives of
SilverStream Software, Inc. hereby severally constitute and appoint David R.
Skok, David A. Litwack and Craig A. Dynes and each of them singly, our true and
lawful attorneys with full power to them, and each of them singly, with full
powers of substitution and resubstitution, to sign for us and in our names in
the capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable SilverStream Software, Inc. to comply with the provisions of
the Securities Act of 1933, as amended, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, or their substitute or
substitutes, to said Registration Statement and any and all amendments thereto
or to any subsequent Registration Statement for the same offering which may be
filed under Rule 462(b).

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE                                     TITLE                        DATE
                  ---------                                     -----                        ----
/s/ DAVID R. SKOK                Chairman of the Board of Directors        June 11, 1999
---------------------------------------------
                David R. Skok

            /s/ DAVID A. LITWACK               President, Chief Executive Officer and    June 11, 1999
---------------------------------------------  Director (Principal Executive Officer)
              David A. Litwack

             /s/ CRAIG A. DYNES                Vice President, Chief Financial Officer   June 11, 1999
---------------------------------------------  and Treasurer (Principal Financial and
               Craig A. Dynes                  Accounting Officer)

             /s/ TIMOTHY BARROWS               Director                                  June 11, 1999
---------------------------------------------
               Timothy Barrows

           /s/ RICHARD A. D'AMORE              Director                                  June 11, 1999
---------------------------------------------
             Richard A. D'Amore

            /s/ PAUL J. SEVERINO               Director                                  June 11, 1999
---------------------------------------------
              Paul J. Severino
II-7
88

                                                                     SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                          SILVERSTREAM SOFTWARE, INC.
ADDITIONS
                                                                -----------------------
                                                   BALANCE AT   CHARGED TO   CHARGED TO                 BALANCE
                                                   BEGINNING    COSTS AND      OTHER                    AT END
                   DESCRIPTION                     OF PERIOD     EXPENSES     ACCOUNTS    DEDUCTIONS   OF PERIOD
                   -----------                     ----------   ----------   ----------   ----------   ---------
December 31, 1998 Allowance for Doubtful
  Accounts.......................................   $ 26,900     218,614           --          781     $244,733
December 31, 1997 Allowance for Doubtful
  Accounts.......................................   $      0      26,900           --           --     $ 26,900
December 31, 1996 Allowance for Doubtful
  Accounts.......................................   $      0           0                               $      0
S-1
89

                                 EXHIBIT INDEX
EXHIBIT
  NO.          DESCRIPTION
-------        -----------
1.1*    --   Form of Underwriting Agreement
  3.1*    --   Amended and Restated Certificate of Incorporation of the
               Registrant
  3.2*    --   Form of Second Amended and Restated Certificate of
               Incorporation of the Registrant, to be filed after to the
               closing of this offering
  3.3     --   By-Laws of the Registrant
  3.4*    --   Form of Amended and Restated By-Laws of the Registrant, to
               be effective upon the closing of this offering
  4.1     --   Specimen common stock certificate
  4.2*    --   Third Amended and Restated Investor Rights Agreement dated
               March 1, 1999
  5.1*    --   Opinion of Hale and Dorr LLP
 10.1     --   1996 Founders Stock Option Plan
 10.2     --   Amended and Restated 1997 Stock Incentive Plan, and forms of
               agreements thereunder
 10.3     --   1999 Employee Stock Purchase Plan
 10.4     --   Form of Founders Stock Restriction Agreement
 10.5     --   Sub-Sublease Agreement, dated February 14, 1997, between
               Rational Software Corporation (as successor to SQA, Inc.)
               and the Registrant
 10.6     --   First Amendment to Sub-Sublease Agreement, dated April 1998
 10.7     --   Term Loan Agreement and Commercial Promissory Note, dated
               March 1, 1999, between Fleet National Bank and the
               Registrant
 10.8     --   Term Loan Agreement and Commercial Promissory Note, dated
               August 11, 1997, between Fleet National Bank and the
               Registrant
 10.9     --   Term Loan Agreement and Commercial Promissory Note, dated
               November 5, 1996 between Fleet National Bank and the
               Registrant
 21.1     --   Subsidiaries of the Registrant
 23.1     --   Consent of Ernst & Young LLP
 23.2*    --   Consent of Hale and Dorr LLP (included in Exhibit 5.1)
 24.1     --   Powers of Attorney (see page II-7)
 27.1     --   Financial Data Schedule
 27.2     --   Financial Data Schedule
 27.3     --   Financial Data Schedule
 27.4     --   Financial Data Schedule
 27.5     --   Financial Data Schedule
------------

* To be filed by amendment.