UNIFY CORP, 424B4, 1996-06-17

UNIFY CORP
424B4, 1996-06-17
PREPACKAGED SOFTWARE

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<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-03834
2,140,000 SHARES

[LOGO]

COMMON STOCK

OF THE 2,140,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,866,000 ARE BEING
SOLD BY THE COMPANY AND 274,000 ARE BEING SOLD BY THE SELLING STOCKHOLDERS. THE
COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS."

PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. SEE "UNDERWRITING" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE COMMON STOCK HAS BEEN
APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "UNFY."

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE............... $12.00 $0.84 $11.16 $11.16
TOTAL (3)............... $25,680,000 $1,797,600 $20,824,560 $3,057,840
</TABLE>

(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.

(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $1,000,000.

(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
321,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS,
IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO
PUBLIC WILL TOTAL $29,532,000, THE UNDERWRITING DISCOUNT WILL TOTAL
$2,067,240 AND THE PROCEEDS TO COMPANY WILL TOTAL $24,406,920. SEE
"UNDERWRITING."

THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND TO THEIR RIGHT TO REJECT
ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE CERTIFICATES
REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT THE OFFICE OF
MONTGOMERY SECURITIES ON OR ABOUT JUNE 19, 1996.

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

MONTGOMERY SECURITIES

NEEDHAM & COMPANY, INC.

BLACK & COMPANY

JUNE 14, 1996
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[Photos]

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent accountants and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION INCLUDING "RISK FACTORS" AND
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.

THE COMPANY
Unify Corporation ("Unify" or the "Company") develops, markets and supports
client/server application development tools and database management software
products. In March 1995, the Company introduced Unify VISION 2.0, an advanced
client/server application development environment for the development,
deployment and management of high-end scalable applications. Unify VISION
combines a powerful and scalable client/server architecture with a flexible and
easy-to-use rapid application development technology. The Company is continuing
to market and enhance Unify ACCELL, a family of fourth generation language
("4GL") application development tools and Unify DataServer, a family of database
management system products. As of April 30, 1996, the Company had licensed Unify
VISION to over 175 customers and Unify ACCELL and DataServer products to over
2,000 customers worldwide.

The migration by many organizations towards client/server computing has
created significant demand for applications and their associated development
tools. The success of entry-level client/server applications has led
organizations to seek to extend client/server computing beyond the workgroup
level and across the enterprise to address business-critical operations. These
high-end business-critical applications are significantly more complex to
develop and maintain as compared to entry-level applications. Accordingly,
organizations increasingly require more sophisticated, powerful application
development tools to develop applications which support distributed
heterogeneous environments, high volumes of complex on-line transaction
processing and substantial numbers of concurrent enterprise-wide users.
According to the Hurwitz Consulting Group, the annual market size for high-end
client/server application development environments is projected to increase from
approximately $600 million as of November 1995 to approximately $2.5 billion by
the year 2000.

Unify's mission is to be the leading independent supplier of high-end
scalable client/server application development solutions. By providing
organizations with the benefits of low cost of entry, rapid time to market, and
low cost of ownership, Unify VISION is designed to enable organizations to
develop, deploy and manage business-critical high-end applications. Unify
VISION's approach to scalable application development is designed to allow
organizations to deliver full-scale, enterprise-wide high-end solutions or
migrate to high-end client/server solutions on an incremental basis. Unify
VISION is designed to enable organizations to rapidly develop and deploy
high-end client/server applications by taking immediate advantage of advanced
techniques including object-oriented programming, automatic application
partitioning and integrated application management. The Company believes that
Unify VISION enables organizations to adopt these advanced techniques at their
own pace, thereby reducing business disruption, time and high costs associated
with their initial client/server investments and allows them to deliver
applications to end-users more rapidly.

The Company's products are marketed and sold through the Company's direct
sales force in the U.S. and through subsidiaries in Japan, England, France, the
Netherlands and Germany and through a network of distributors and value added
resellers ("VARs") worldwide. Significant customers that have licensed Unify
VISION include, among others, Amoco, Fannie Mae, Glaxo, Hewlett-Packard, Merrill
Lynch, the National Security Agency, NYNEX, Pacific Bell and Sumitomo Metal
Industries Ceramics. The Company believes that significant opportunities exist
for continued sales of Unify VISION into the Company's worldwide installed base
of over 2,000 Unify ACCELL and DataServer customers. Unify VISION allows those
customers to preserve their substantial investments in existing applications
while upgrading to more advanced client/ server applications. Additionally, the
Company's strategy is to expand sales through the VAR channel. Currently, the
Company's largest VAR customers include Computron Software, General Instrument,
Northern Telecom, Triad Systems and Westinghouse Security Electronics.

Although the Company's operating plans assume taxable and operating income
in future periods, because of the Company's history of operating losses and
expected near term losses, the Company determined in connection with the
Company's accounting for deferred taxes, that such plans were not sufficient to
record such deferred taxes as an asset without a full valuation allowance under
applicable accounting policies.

The Company was incorporated in California in 1980 and reincorporated into
Delaware in May 1996. The Company's executive offices are located at 181 Metro
Drive, 3rd Floor, San Jose, California 95110 and the telephone at that address
is (408) 467-4500. The Company's home page can be located on the World Wide Web
at http://www.unify.com.

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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company... 1,866,000 shares
Common Stock offered by the Selling
Stockholders......................... 274,000 shares
Common Stock to be outstanding after
the offering......................... 7,506,831 shares (1)
Use of proceeds....................... For working capital and general
corporate purposes
Nasdaq National Market symbol......... UNFY
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues................................................ $ 36,524 $ 37,160 $ 30,549 $ 28,849 30,165
Gross margin.................................................. 29,002 27,988 21,072 20,276 23,774
Loss from operations.......................................... (4,552) (2,998) (4,891) (479) (951)
Net loss...................................................... (4,375) (2,717) (7,063) (479) (938)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net loss per share (2).............................. $ (0.08) $ (0.18)
--------- ---------
--------- ---------
Shares used in computing pro forma net loss per share (2)..... 5,639 5,327
--------- ---------
--------- ---------
</TABLE>

<TABLE>
<CAPTION>
APRIL 30, 1996
--------------------------------------
AS
ACTUAL PRO FORMA (3) ADJUSTED (4)
--------- ------------- ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 3,028 $ 3,095 $ 22,920
Working capital (deficit)............................................... (3,183) (3,116) 16,709
Total assets............................................................ 12,997 13,064 32,609
Long-term debt, net of current portion.................................. 2,456 2,456 2,456
Total stockholders' equity (deficit).................................... (29,173) (2,380) 17,445
</TABLE>

- ------------------------------
(1) Excludes (i) 878,457 shares of Common Stock issuable upon exercise of
outstanding options, including options under the Company's 1991 Stock Option
Plan ("Stock Option Plan"), with a weighted average exercise price of $2.00
and 35,749 shares issuable upon the exercise of outstanding warrants with a
weighted average exercise price of $8.88 per share, and (ii) 406,620 and
400,000 shares of Common Stock reserved for future issuance under the Stock
Option Plan and the Company's 1996 Employee Stock Purchase Plan ("Purchase
Plan"), respectively, as of April 30, 1996. See "Management" and Note 5 of
Notes to Consolidated Financial Statements.

(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the number of shares used to compute pro forma net loss per share.

(3) Reflects (i) the automatic conversion of all outstanding shares of the
Company's Preferred Stock (including accrued dividends) into 3,566,297
shares Common Stock upon the consummation of this offering; and (ii) the
issuance of 190,459 shares of Common Stock upon the exercise of outstanding
warrants upon the consummation of this offering.

(4) Adjusted to reflect the sale of 1,866,000 shares of Common Stock offered by
the Company hereby and after application of the estimated net proceeds
therefrom. See "Capitalization" and "Use of Proceeds."
------------------------------

UNIFY, UNIFY ACCELL, UNIFY VISION, APPMAN, SMARTVIEW, DATASERVER, VISIONWEB
and the Unify logo are trademarks of the Company. All other trademarks or
tradenames referred to in this Prospectus are the property of their respective
owners.
------------------------

EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
GIVES EFFECT TO (I) THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF THE
COMPANY'S PREFERRED STOCK (INCLUDING ACCRUED DIVIDENDS) INTO 3,566,297 SHARES OF
COMMON STOCK UPON THE CONSUMMATION OF THIS OFFERING; AND (II) THE ISSUANCE OF
190,459 SHARES OF COMMON STOCK UPON THE EXERCISE OF OUTSTANDING WARRANTS UPON
THE CONSUMMATION OF THIS OFFERING; AND ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED.

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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS. THE DISCUSSION IN THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.

HISTORY OF OPERATING LOSSES; TRANSITION OF BUSINESS

Although the Company had small profits for the third and fourth quarters of
fiscal 1996, the Company has had operating losses on an annual basis for each of
the past five fiscal years. As of April 30, 1996, the Company had an accumulated
deficit of $30.3 million. The Company's revenues have declined in each year
since fiscal 1993 as a result of declines in the sales of the Company's
DataServer database products and Unify ACCELL application development tools.
Such declines were in part offset by sales of Unify VISION 1.0 which was first
introduced in December 1993 and Unify VISION 2.0, an advanced client/server
application development environment introduced in March 1995. The Company's
ability to achieve revenue growth and profitability are substantially dependent
upon the success of Unify VISION. License revenues from Unify VISION were $2.2
million and $5.0 million for fiscal 1995 and 1996, respectively, representing
12% and 25% of total license revenues for each year. No assurance can be given
that Unify VISION or the Company's other products will achieve market acceptance
or that the Company will achieve and maintain profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

FLUCTUATING QUARTERLY RESULTS AND SEASONALITY; EXPECTED OPERATING LOSS IN FIRST
FISCAL QUARTER

The Company's quarterly operating results have varied significantly in the
past, and the Company expects that such results are likely to vary significantly
from time to time in the future. Such variations result from, among other
matters, the following: the size and timing of significant orders and their
fulfillment; demand for the Company's products; the number, timing and
significance of product enhancements and new product announcements by the
Company and its competitors; changes in pricing policies by the Company or its
competitors; changes in the level of operating expenses; changes in the
Company's sales incentive plans; budgeting cycles of its customers; customer
order deferrals in anticipation of enhancements or new products offered by the
Company or its competitors; product life cycles; product defects and other
product quality problems; personnel changes; the results of international
expansion; currency fluctuations; seasonal trends and general domestic and
international economic and political conditions. The Company typically receives
a number of orders ranging in size from several hundred thousand dollars to
approximately $1 million in any fiscal quarter. Because a significant portion of
the Company's revenues has been, and the Company believes will continue to be,
derived from such large orders, the timing of such orders and their fulfillment
has caused and is expected to continue to cause material fluctuations in the
Company's operating results, particularly on a quarterly basis. In addition, the
Company intends to continue to expand its domestic and international direct
sales force. The timing of such expansion and the rate at which new sales people
become productive could also cause material fluctuations in the Company's
quarterly operating results.

Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast. Revenues are also difficult to forecast because the
market for client/server application development software is rapidly evolving,
and the Company's sales cycle, from initial evaluation to purchase and the
provision of support services, is lengthy and varies substantially from customer
to customer. Because the Company normally ships products within a short time
after it receives an order, it typically does not have any material backlog. As
a result, to achieve its quarterly revenue objectives, the Company is dependent
upon obtaining orders in any given quarter for shipment in that quarter.
Furthermore, because many customers place orders toward the end of a quarter,
the Company generally recognizes a substantial portion of its revenues at the
end of a quarter. As the Company's expense levels are based in significant part
on the Company's expectations as to future revenues and are therefore relatively
fixed in the short

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term, if revenue levels fall below expectations, net income is likely to be
disproportionately adversely affected. The Company is increasing its sales,
marketing and product development expenditures, and operating results will be
materially adversely affected if the Company does not achieve revenue growth.
There can be no assurance that the Company will be able to achieve or maintain
profitability on a quarterly or annual basis in the future. Due to the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Information."

The Company expects that its operating results will be affected by seasonal
trends. The Company believes that it is likely it will experience relatively
higher revenues in fiscal quarters ending April 30 and relatively lower revenues
in fiscal quarters ending July 31 as a result of efforts by its direct sales
force to meet fiscal year-end sales quotas. The Company also anticipates that it
may experience relatively weaker demand in the quarters ending July 31 and
October 31 as a result of reduced sales activity in Europe during the summer
months. In particular, due to the foregoing factors and to increased investments
in selling, general and administrative and research and development expenses in
advance of the release of Unify VISION 3.0, the Company expects that it will
incur an operating loss for the quarter ending July 31, 1996. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON NEW PRODUCT ACCEPTANCE; DEPENDENCE ON GROWTH OF HIGH-END
CLIENT/SERVER TOOLS MARKET

The Company currently expects Unify VISION and related services to account
for an increasingly significant percentage of the Company's future revenues and
accordingly the Company is devoting an increasing level of its resources to such
product. As a result, factors adversely affecting the pricing of or demand for
Unify VISION, such as, but not limited to, competition or technological change,
would have a material adverse effect on the Company's business, operating
results and financial condition. The Company's future financial performance will
depend, in significant part, on the successful development, introduction and
customer acceptance of new and enhanced versions of Unify VISION, including
Unify VISION 3.0 scheduled for release in the third calendar quarter of 1996.
There can be no assurance that the Company will timely and successfully
introduce such new or enhanced versions. There also can be no assurance that the
Company will continue to be successful in marketing Unify VISION or other
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview;" "Business -- Products" and "-- Product
Development."

To date, only a limited number of the Company's customers have completed the
development and deployment of high-end client/server applications using Unify
VISION. If the Company's customers are not able to successfully develop and
deploy high-end client/server applications with Unify VISION, the viability of
Unify VISION could be questioned and the Company's reputation could be damaged,
which could have material adverse effects on the Company's business, operating
results and financial condition. In addition, the Company expects that a
significant percentage of its future revenues will be derived from sales to
existing customers of its Unify ACCELL and DataServer products. If such existing
customers fail to migrate to high-end client/server applications, purchase
competitive products, or have difficulty deploying applications built with Unify
VISION, the Company's relationships with such customers, revenues from sales of
Unify VISION and the Company's other products, and the Company's business,
operating results and financial condition could be materially adversely
affected. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Despite the recent growth in sales of Unify VISION, there can be no
assurance that the market for high-end client/server applications and associated
development tools will continue to grow. If the high-

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end client/server market fails to grow, or grows more slowly than the Company
currently anticipates, the Company's business, operating results and financial
condition would be materially and adversely affected. See "Business -- Industry
Background."

ANTICIPATED DECLINE IN REVENUE FROM MATURE PRODUCTS

Most of the Company's revenues to date have been attributable to its
DataServer database products and Unify ACCELL application development tools.
Revenues derived from the sales of these products declined over fiscal 1994 and
1995 and were flat for fiscal 1996. While the Company expects such decline to
continue, revenues from the sales of such products will continue to represent an
important portion of the Company's revenues for at least the next several years.
Although the Company is continuing to invest in the development, sales,
marketing and support of such products, there can be no assurance that revenues
from such products will not decline faster than expected. If revenues from such
products decline materially or at a more rapid rate than the Company currently
anticipates, the Company's business, operating results and financial condition
would be materially adversely affected. See "Business -- Strategy;" "--
Products;" "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

LENGTHY SALES CYCLE

The Company's products are typically used to develop applications that are
critical to a customer's business, and the purchase of the Company's products is
often part of a customer's larger business process re-engineering initiative or
implementation of client/server computing. As a result, the licensing and
implementation of the Company's software products generally involve a
significant commitment of management attention and resources by prospective
customers. Accordingly, the Company's sales process is subject to delays
associated with a long approval process that typically accompanies significant
initiatives or capital expenditures. The Company's business, operating results
and financial condition could be materially adversely affected if customers
reduce or delay orders. There can be no assurance that the Company will not
continue to experience these and additional delays in the future. Such delays
may contribute to significant fluctuations of quarterly operating results in the
future and may adversely affect such results.

INTENSE COMPETITION

The Company has experienced and expects to continue to experience intense
competition from current and future competitors. The Company's current direct
competitors for high-end client/server development tools, among others, include
Forte Software, Inc. ("Forte") and Dynasty Technologies, Inc. ("Dynasty"). The
Company also competes with database vendors such as Oracle Corporation
("Oracle"), Informix Corporation ("Informix"), Sybase, Inc. ("Sybase"), IBM
Corporation ("IBM") and others, which offer their own development tools for use
with their proprietary databases. In addition to its direct competitors, the
Company also competes with companies that offer other types of development tools
which can be used in lieu of advanced development tools such as Unify VISION.
Among the other types of tools which can be used by customers include products
offered by Powersoft (a subsidiary of Sybase), Microsoft Corporation
("Microsoft"), and others. Companies offering products competitive with the
Company's Unify ACCELL and DataServer products include Oracle, Informix and
Sybase among others.

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gross margins and loss of market share, any one of which could materially
adversely affect the Company's business, operating results and financial
condition. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of the Company's prospective customers. Accordingly, it is possible that
new competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to sell additional licenses and
maintenance and support renewals on terms favorable to the Company. Further,
competitive pressures could require the Company to reduce the price of its
products and related services, which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competition, and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Business -- Competition."

RAPID TECHNOLOGICAL CHANGE

The software market in which the Company competes is characterized by rapid
technological change, frequent introductions of new and enhanced products,
changes in customer demands and evolving industry standards. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete and unmarketable. The Company's future
success will depend upon its ability to address the increasingly sophisticated
needs of its customers by supporting existing and emerging hardware, software,
database and networking platforms and by developing and introducing enhancements
to Unify VISION and new products on a timely basis that keep pace with such
technological developments, emerging industry standards and customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing enhancements to Unify VISION and new products that
respond to technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that could delay
or prevent the successful development, introduction and sale of such
enhancements or products or that such enhancements or products will adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance. If the release dates of any future Unify VISION enhancements,
including Unify VISION 3.0, scheduled for release in the third calendar quarter
of 1996, or new products are delayed or if when released they fail to achieve
market acceptance, the Company's business, operating results and financial
condition would be materially adversely affected. In addition, the introduction
or announcement of new product offerings or enhancements by the Company or the
Company's competitors may cause customers to defer or forgo purchases of current
versions of Unify VISION, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business --
Product Development."

DEPENDENCE ON RESELLERS

A substantial portion of the Company's total revenues are derived through
sales through VARs and distributors. Revenues from distributors and resellers
accounted for approximately 61%, 59%, and 60% of the Company's software license
revenues for fiscal 1994, 1995 and 1996, respectively. The success of the
Company is therefore dependent in large part upon the performance of its
resellers, which is outside the Company's control. The Company's ability to
achieve significant revenue growth in the future will depend in large part on
its success in maintaining existing and establishing additional relationships
with distributors, resellers and VARs worldwide. The loss of any of the
Company's major resellers either to competitive products offered by other
companies or to products developed internally by the resellers, or the failure
to attract new resellers could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Sales and
Marketing."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND SALES

Revenues derived from international customers accounted for 51%, 56% and 56%
of total revenues in fiscal 1994, 1995 and 1996, respectively. A key component
of the Company's strategy is its planned further expansion into international
markets. If the revenues generated by international operations are

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not adequate to offset the expense of establishing, expanding and maintaining
such operations, the Company's business, operating results and financial
condition will be materially adversely affected. Although the Company has had
international operations for a number of years, there can be no assurance that
the Company will be able to successfully market, sell and deliver its products
in these markets. In addition, due to the uncertainty as to the Company's
ability to expand its international presence, there are certain risks inherent
in doing business on an international level, such as: unexpected changes in
regulatory requirements; export restrictions, tariffs and other trade barriers;
difficulties in staffing and managing foreign operations; longer payment cycles;
problems in collecting accounts receivable; political instability; fluctuations
in currency exchange rates; seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world; and potentially
adverse tax consequences, any of which could adversely impact the success of the
Company's international operations. There can be no assurance that one or more
of such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, operating
results and financial condition. In addition, the Company's subsidiaries in
Europe and Japan operate in local currencies, and their results are translated
monthly into U.S. dollars. If the value of the U.S. dollar increases relative to
foreign currencies, the Company's business, operating results and financial
condition could be materially adversely affected. Currently the Company does not
employ any hedging strategies against currency exposures and does not anticipate
doing so in the foreseeable future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations;" "Business -- Sales and
Marketing" and Note 11 to Notes to Consolidated Financial Statements.

SOFTWARE DEFECTS AND POTENTIAL RELEASE DELAYS

Software products frequently contain errors or defects, especially when
first introduced or when new versions or enhancements are released. The Company
expects to introduce Unify VISION 3.0 in the third calendar quarter of 1996.
Although the Company has not experienced material adverse effects resulting from
any such defects or errors to date, there can be no assurance that, despite
testing by the Company and by current and potential customers, defects and
errors will not be found in current versions, new versions or enhancements after
commencement of commercial shipments, resulting in loss of revenues, delay in
market acceptance, or unexpected re-programming costs, which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Business -- Product Development."

PRODUCT LIABILITY

The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions. In fiscal 1990, the Company was subject to two
claims regarding its database product notwithstanding such provisions. In fiscal
1995, one of such claims was settled and the second resulted in a substantial
arbitration judgment award against the Company. The sale and support of Unify
VISION by the Company may involve the risk of such claims, any of which are
likely to be substantial in light of the use of Unify VISION in high-end
applications. A successful product liability claim brought against the Company
could have a material adverse effect upon the Company's business, operating
results and financial condition. See Note 10 to Notes to Consolidated Financial
Statements.

DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL PERSONNEL

The Company's success depends largely on the efforts and abilities of
certain key personnel. The loss of the services of one or more of the Company's
executive officers or the inability to recruit additional senior management
could have a material adverse effect on the Company's business, operating
results and financial condition. In particular, the loss of the services of Mr.
Reza Mikailli, the Company's Chief Executive Officer, would materially and
adversely affect the Company. The Company

9
<PAGE>
does not have any key man insurance on the life of Mr. Mikailli. Loss of other
key personnel could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Employees."

The success of the Company depends in large part upon the ability of the
Company to recruit and retain qualified employees, particularly highly-skilled
engineers and direct sales and support personnel. The competition for such
personnel is intense. There can be no assurance that the Company will be
successful in retaining or recruiting key personnel. Any failure by the Company
to expand or retain its engineering, direct sales and support personnel would
materially adversely affect the Company's business, operating results and
financial condition. See "Business -- Employees."

NEW PERSONNEL; MANAGEMENT OF GROWTH

Since February 1995, the Company has hired a new senior management team and
made significant changes in the Company's organization in order to focus on the
development, marketing and support of Unify VISION. Approximately half of the
Company's officers were hired within the past 18 months, and the Company intends
to hire additional key personnel in the near future. In addition, most of the
sales and marketing force was hired during the past 12 months. The Company's
potential expansion may also significantly strain the Company's management,
financial, customer support, operational and other resources. If the Company
achieves successful market acceptance of Unify VISION, the Company may undergo a
period of rapid growth. To accommodate this growth, the Company is in the
process of implementing a variety of new and upgraded operating and financial
systems, procedures and controls, including the improvement of its accounting
and other internal management systems. There can be no assurance that such
efforts can be accomplished successfully. Any failure to expand these areas in
an efficient manner could have a material adverse effect on the Company.
Moreover, there can be no assurance that the Company's systems, procedures and
controls will be adequate to support the Company's future operations. Any rapid
growth could require that the Company secure additional facilities or expand in
its current facilities. Any move to new facilities or expansion of its present
facilities could be disruptive and could have a material adverse effect on the
Company's business, operating results and financial condition.

THIRD-PARTY LICENSES

The Company is dependent on third-party suppliers for certain software such
as Galaxy from VISIX Software and RPC Tool from Microsoft which are embedded in
certain of its products. Although the Company believes that the functionality
provided by software which is licensed from third parties is obtainable from
multiple sources or could be developed by the Company, if any such third-party
licenses were terminated or not renewed or if these third parties fail to
develop new products in a timely manner, the Company could be required to
develop an alternative approach to developing its products which could require
payment of substantial fees to third parties, internal development costs and
delays and might not be successful in providing the same level of functionality.
Such delays, increased costs or reduced functionality could materially adversely
affect the Company's business, operating results and financial condition. See
"Business -- Intellectual Property."

FUTURE CAPITAL NEEDS

The Company believes that the net proceeds of this offering, together with
cash flow from operations and other existing sources of liquidity, will be
sufficient to meet its projected working capital and other cash requirements
through the end of fiscal 1997. However, there is no assurance that future
events may not cause the Company to seek additional capital sooner. If
additional capital is required, there can be no assurance that it will be
available or, if available, that it will be on terms satisfactory to the
Company. The sale of additional equity or other securities will result in
further dilution of the Company's stockholders. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

10
<PAGE>
INTELLECTUAL PROPERTY RIGHTS

The Company relies on a combination of copyright, trademark and trade secret
laws, non-disclosure agreements and other intellectual property protection
methods to protect its proprietary technology. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. Policing unauthorized use of the Company's products is
difficult, and while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be a
persistent problem. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the United
States. There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate or that
competition will not independently develop similar technology. Although the
Company claims trademark rights in UNIFY, ACCELL, UNIFY VISION, APPMAN,
SMARTVISION, DATASERVER, VISIONWEB and the Unify logo, the company has only
obtained U.S. trademark registrations for UNIFY and ACCELL. In the event of any
future dispute regarding use of any such trademarks, including UNIFY and ACCELL,
there can be no assurance that the Company would be able to successfully
challenge any third party's use of an allegedly infringing trademark or
successsfully defend a claim that the Company's trademarks infringe third party
trademarks.

Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any notices that the Company is infringing the intellectual property rights of
others, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. If any such claims are asserted, there
can be no assurance that the Company will be able to defend such claim or obtain
licenses on reasonable terms. The Company's involvement in any patent dispute or
other intellectual property dispute or action to protect trade secrets and
know-how may have a material adverse effect on the Company's business, operating
results and financial condition. Adverse determinations in any litigation may
subject the Company to significant liabilities to third parties, require the
Company to seek licenses from third parties and prevent the Company from
manufacturing and selling its products. Any of these situations can have a
material adverse effect on the Company's business, operating results or
financial condition. See "Business -- Intellectual Property."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of shares of Common Stock in the public market
after this offering could adversely affect the market price of the Common Stock
and the Company's ability to raise capital in the future in the equity markets.
In addition to the 2,140,000 shares to be sold in this offering approximately
100,000 shares not subject to lock-up agreements will be eligible for immediate
sale in the public market pursuant to Rule 144 and approximately 250,000
additional shares not subject to lock-up agreements will be eligible for sale
beginning 90 days after the date of this Prospectus, subject in some cases to
compliance with certain volume limitations under Rule 144. Approximately
5,000,000 shares are subject to lock-up agreements with the representatives of
the Underwriters pursuant to which such shares cannot be sold for 180 days
following the offering without the consent of Montgomery Securities. Commencing
180 days after the date of this Prospectus, upon the expiration of lock-up
agreements, substantially all of the Common Stock will be eligible for immediate
sale in the public market pursuant to Rule 144, subject in some cases to
compliance with certain volume limitations under Rule 144. Although to the
Company's knowledge, there are no plans, arrangements, agreements or
understandings regarding any intent to seek Montgomery Securities' consent to
release securities subject to the lock-up nor any general policy with respect to
granting such consent, in the ordinary course, a request may be made for an
early release. Montgomery Securities in its sole discretion and without notice,
may release all or any portion of the securities subject to lock-up agreements
for sale in the public market prior to the expiration of the lock-up agreements.
Furthermore, the Company intends, ninety days after the consummation of the
offering, to register approximately 1,700,000 shares of Common Stock reserved
for issuance to its employees, directors and consultants under the Company's
Stock Option Plan and Purchase Plan. As of April 30, 1996 options and warrants
for the purchase

11
<PAGE>
of 914,206 shares of Common Stock were outstanding with an average exercise
price of $2.27, of which approximately 295,000 are subject to lock-up
agreements. See "Shares Eligible for Future Sale" and "Underwriting."

ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

There has been no prior public market for the Company's Common Stock, and
there can be no assurance that a viable public market for the Common Stock will
develop or be sustained after this offering. The initial public offering price
was determined through negotiation between the Company and the Underwriters
based upon several factors and may not be an indication of the market price of
the Common Stock after the offering. The Company believes that a variety of
factors could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially, including: announcements of developments related to the
Company's business; fluctuations in the Company's operating results and order
levels; general conditions in the computer industry or the worldwide economy;
announcements of technological innovations; new products or product enhancements
by the Company or its competitors; changes in financial estimates by securities
analysts; developments in patent, copyright or other intellectual property
rights; and developments in the Company's relationships with its customers,
distributors and suppliers. In addition, in recent years the stock market in
general, and the market for shares of equity securities of many high technology
companies in particular, has experienced extreme price fluctuations which have
often been unrelated to the operating performance of such companies. Such
fluctuations may adversely affect the market price of the Company's Common
Stock. See "Underwriting."

CONTINUED CONTROL BY MANAGEMENT; TRANSACTIONS WITH AFFILIATES; LIMITATIONS ON
LIABILITY

Upon completion of this offering, the officers and directors of the Company
and entities affiliated with certain directors, as a group, will hold or be
deemed to beneficially own approximately 35.1% of the outstanding Common Stock.
Existing management will continue to hold sufficient voting power to enable it
to continue to significantly influence the election of directors and the control
of the business and affairs of the Company for the foreseeable future. Such
concentration of ownership may also have the effect of delaying, deferring or
preventing a change in control of the Company. Management has broad discretion
in the use of proceeds. In addition, the Company has a substantial number of
authorized but unissued shares. Except in limited circumstances, such shares may
be issued by the Company without stockholder approval. See "Principal and
Selling Stockholders."

In the past, the Company has been substantially dependent upon equity and
debt financing provided by existing investors in the Company, including venture
capital funds affiliated with directors of the Company. The Company believes
that all of such transactions have been on arms-length terms. The Company does
not currently anticipate any additional financing transactions involving the
Company and any investors affiliated with members of the Board of Directors. In
addition, the Company is seeking additional outside independent directors.
Although all members of the Board of Directors are subject to fiduciary duties
regarding related party transactions, it is possible for the Board of Directors
to approve such transactions without any independent approval. In addition,
pursuant to the Company's Restated Certificate of Incorporation, the liability
of the Company's Directors for monetary damages is limited to the maximum extent
permitted by law.

EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION AND DELAWARE LAW

The Company's Certificate of Incorporation authorizes the Company's Board of
Directors to issue Preferred Stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of these shares, without
further stockholder approval. The rights of the holders of Common Stock will be
subject to and may be adversely affected by the rights of holders of any
Preferred Stock that may be issued in the future. The ability to issue Preferred
Stock without stockholder approval could have the effect of making it more
difficult for a third party to acquire a majority of the voting stock of the
Company thereby delaying, deferring or preventing a change in control of the
Company. See "Management -- Directors and Executive Officers;" "Principal and
Selling Stockholders" and "Description of Capital Stock."

12
<PAGE>
DEFERRED TAX ASSETS

The Company's accounting for deferred taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109 involves the evaluation of a number of
factors concerning the realizability of the Company's deferred tax assets. To
support the Company's conclusion that a 100% valuation allowance was required,
management primarily considered such factors as the Company's history of
operating losses and expected near-term future losses, the nature of the
Company's deferred tax assets, the lack of significant firm sales backlog, no
significant excess of appreciated asset value over the tax basis of the
Company's net assets and the absence of taxable income in prior carryback years.
Although management's operating plans assume taxable and operating income in
future periods, management's evaluation of all the available evidence in
assessing the realizability of the deferred tax assets indicates that such plans
were not considered sufficient to overcome the available negative evidence.
Based upon the weight of available evidence, the Company has provided a full
valuation allowance against its net deferred tax assets as the Company believes
that it is more likely than not that the deferred tax assets will not be
realized. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Comparison of Years Ended April 30, 1995 and 1996 --
Provision for Income Taxes.'

SUBSTANTIAL DILUTION

Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution of $9.82 per share in the net tangible book value of the
Common Stock. To the extent that outstanding options and warrants to purchase
the Company's Common Stock are exercised, there will be further dilution. See
"Dilution."

13
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,866,000 shares of
Common Stock offered by the Company hereby, after deducting the underwriting
discount and commissions and estimated offering expenses, are estimated to be
approximately $19,800,000 ($23,400,000 if the Underwriters' over-allotment
option is exercised in full).

The principal reasons for this offering are to increase the Company's equity
capital and to create a public market for the Company's Common Stock, which will
facilitate future access by the Company to public equity markets and enhance the
ability of the Company to use its Common Stock as consideration for
acquisitions.

The Company intends to use the net proceeds of this offering primarily for
working capital and other general corporate purposes, including expansion of the
Company's product development and sales and marketing efforts and potential
acquisitions. The amounts actually expended by the Company for working capital
purposes will vary significantly depending upon a number of factors, including
future revenue growth, the amount of cash generated by the Company's operations
and the progress of the Company's product development efforts. In addition, the
Company may make one or more acquisitions of complementary technologies,
products or businesses which broaden or enhance the Company's current product
offerings. However, the Company has no specific agreements or commitments, and
is not currently engaged in any negotiations, with respect to any such
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

Pending the uses described above, the net proceeds from this offering will
be invested in deposits with banks and in short-term, investment grade,
interest-bearing securities, including government obligations and money market
instruments.

The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders. See "Principal and Selling Stockholders."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain any future earnings to finance
the growth and development of its business. In addition, under the terms of the
Company's existing credit facilities, the payment of dividends is restricted.

14
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of April
30, 1996, (i) on an actual basis, (ii) on a pro forma basis to give effect to
the reincorporation of the Company in the State of Delaware, the conversion of
all outstanding Preferred Stock into Common Stock (including accrued dividends)
and the issuance of 190,459 shares of Common Stock upon the exercise of certain
outstanding warrants, and (iii) as adjusted to reflect the sale of the 1,866,000
shares of Common Stock offered by the Company hereby and the receipt and
application by the Company of the estimated net proceeds therefrom. The
capitalization information set forth in the table below is qualified by the more
detailed Consolidated Financial Statements and Notes thereto appearing elsewhere
in this Prospectus and should be read in conjunction with such Consolidated
Financial Statements and Notes. See "Use of Proceeds."

<TABLE>
<CAPTION>
APRIL 30, 1996
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED (1)
---------- ----------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Current portion of long-term debt.................................. $ 255 $ 255 $ 255
---------- ----------- ---------------
---------- ----------- ---------------
Long-term debt..................................................... $ 2,456 $ 2,456 $ 2,456
Minority interest.................................................. 495 495 495
Redeemable preferred stock, $0.001 par value; 2,931,370 shares
designated; 2,876,136 shares issued and outstanding; no shares
authorized, issued or outstanding pro forma and as adjusted....... 26,726 -- --
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 7,931,370 shares authorized;
no shares issued or outstanding pro forma and as adjusted....... -- -- --
Common Stock, $0.001 par value, 40,000,000 shares authorized;
1,884,075 shares issued and outstanding; 5,640,831, shares
issued and outstanding pro forma; 7,506,831 shares issued and
outstanding as adjusted (2)..................................... 2 6 8
Additional paid-in capital....................................... 2,188 28,977 48,800
Notes receivable from stockholders............................... (265) (265) (265)
Cumulative translation adjustments............................... (816) (816) (816)
Accumulated deficit.............................................. (30,282) (30,282) (30,282)
---------- ----------- ---------------
Total stockholders' equity (deficit)......................... (29,173) (2,380) 17,445
---------- ----------- ---------------
Total capitalization..................................... $ 504 $ 571 $ 20,396
---------- ----------- ---------------
---------- ----------- ---------------
</TABLE>

- ------------------------
(1) As adjusted to reflect the sale of 1,866,000 shares of Common Stock offered
by the Company hereby and after application of the estimated net proceeds
therefrom.

(2) Excludes 914,206 shares of Common Stock issuable upon exercise of options
and warrants, 406,620 shares reserved for future issuances under the Stock
Option Plan and 400,000 shares reserved for future issuances under the
Purchase Plan. See "Management" and Notes 5 and 12 of Notes to Consolidated
Financial Statements.

15
<PAGE>
DILUTION

The pro forma net tangible book deficit of the Company as of April 30, 1996
was $3,430,000, or $0.61 per share of Common Stock. Pro forma net tangible book
deficit per share is equal to the Company's total tangible assets less its total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of 1,866,000 shares of Common Stock offered by the
Company hereby and the receipt by the Company of the estimated net proceeds
therefrom, the pro forma as adjusted net tangible book value of the Company as
of April 30, 1996 would have been $16,395,000 or $2.18 per share. This
represents an immediate increase in pro forma net tangible book value of $2.79
per share to existing stockholders and an immediate dilution of $9.82 per share
to new investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $ 12.00
Pro forma net tangible book deficit per share as of April 30,
1996.............................................................. $ (0.61)
Increase in net tangible book value per share attributable to new
investors......................................................... 2.79
---------
Pro forma as adjusted net tangible book value per share after the
offering.......................................................... 2.18
---------
Dilution per share to new investors................................ $ 9.82
---------
---------
</TABLE>

The following table sets forth on a pro forma basis as of April 30, 1996,
the existing stockholders and new investors with respect to number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid (based upon the initial public
offering price of $12.00 per share and before deducting the underwriting
discounts and commissions and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 5,640,831 75.1% $ 23,386,000 51.1% $ 4.15
New investors......................... 1,866,000 24.9 22,392,000 48.9 12.00
----------- ----- -------------- -----
Total............................. 7,506,831 100.0% $ 45,778,000 100.0%
----------- ----- -------------- -----
----------- ----- -------------- -----
</TABLE>

The foregoing tables exclude (i) 878,457 shares of Common Stock issuable
upon exercise of outstanding options including options under the Company's Stock
Option Plan, of which 254,530 are exercisable as of April 30, 1996, or within 60
days thereafter, (ii) 406,620 shares of Common Stock reserved for future
issuance under the Stock Option Plan and (iii) 35,749 shares of Common Stock
reserved for issuance upon exercise of currently exercisable outstanding
warrants. The weighted average exercise price per share of the Company's
outstanding stock options is $2.00 and the weighted average exercise price per
share of the outstanding warrants is $8.88. See "Management;" and "Description
of Capital Stock."
- ------------------------
(1) Sales by the Selling Stockholders in this offering will cause the number of
shares held by the existing stockholders to be reduced to 5,366,831, or
approximately 71.5% of the shares of Common Stock to be outstanding after
this offering, and will increase the number of shares to be purchased by new
stockholders to 2,140,000, or 28.5% of the total number of shares of Common
Stock to be outstanding after this offering. Assuming full exercise of the
Underwriters' over-allotment option, the percentage of shares held by
existing stockholders would be 68.6% of the total number of shares of Common
Stock to be outstanding after this offering, and the number of shares held
by new stockholders would be increased to 2,461,000 shares, or 31.4% of the
total number of shares of Common Stock to be outstanding after this
offering. See "Management" and "Principal and Selling Stockholders."

16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto and "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 years ended April 30, 1994,
1995 and 1996 and the consolidated balance sheet data at April 30, 1995 and 1996
are derived from the audited consolidated financial statements included
elsewhere herein. The consolidated statement of operations data for the years
ended April 30, 1992 and 1993 and the consolidated balance sheet data at April
30, 1992, 1993 and 1994 are derived from audited consolidated financial
statements not included in this Prospectus.

<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses.................................... $ 25,566 $ 23,882 $ 19,048 $ 17,995 $ 20,444
Services............................................. 10,958 13,278 11,501 10,854 9,721
--------- --------- --------- --------- ---------
Total revenues..................................... 36,524 37,160 30,549 28,849 30,165
--------- --------- --------- --------- ---------
Cost of revenues:
Software licenses.................................... 2,769 2,400 3,262 2,787 2,059
Services............................................. 4,753 6,772 6,215 5,786 4,332
--------- --------- --------- --------- ---------
Total cost of revenues............................. 7,522 9,172 9,477 8,573 6,391
--------- --------- --------- --------- ---------
Gross margin........................................... 29,002 27,988 21,072 20,276 23,774
--------- --------- --------- --------- ---------
Operating expenses:
Product development.................................. 4,778 5,878 5,598 5,324 5,805
Selling, general and administrative.................. 28,776 24,389 19,795 15,000 18,920
Restructuring charges................................ -- 719 570 431 --
--------- --------- --------- --------- ---------
Total operating expenses........................... 33,554 30,986 25,963 20,755 24,725
--------- --------- --------- --------- ---------
Loss from operations............................... (4,552) (2,998) (4,891) (479) (951)
Other income (expense), net............................ 655 533 (1,830) 392 176
--------- --------- --------- --------- ---------
Loss before income taxes........................... (3,897) (2,465) (6,721) (87) (775)
Provision for income taxes............................. (478) (252) (342) (392) (163)
--------- --------- --------- --------- ---------
Net loss........................................... $ (4,375) $ (2,717) $ (7,063) $ (479) $ (938)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net loss per share........................... $ (0.08) $ (0.18)
--------- ---------
--------- ---------
Shares used in computing pro forma net loss per share
(1)................................................... 5,639 5,327
--------- ---------
--------- ---------
</TABLE>

<TABLE>
<CAPTION>
APRIL 30,
----------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 7,292 $ 4,730 $ 2,495 $ 3,776 $ 3,028
Working capital (deficit).......................... 5,575 1,803 (4,518) (3,116) (3,183)
Total assets....................................... 22,104 19,866 13,081 12,681 12,997
Long-term debt, net of current portion............. 959 803 471 1,488 2,456
Redeemable preferred stock......................... 21,466 21,466 23,219 24,973 26,726
Total stockholders' deficit........................ (12,502) (15,365) (24,287) (26,628) (29,173)
</TABLE>

- ------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the number of shares used to compute pro forma net loss per share.

17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

The Company develops, markets and supports Unify VISION, an advanced
client/server application development environment for the development,
deployment and management of high-end scalable applications. The Company is also
continuing to market and enhance Unify ACCELL, a family of 4GL application
development tools, and Unify DataServer, a family of database management system
products.

The Company was founded in 1980 to develop a UNIX-based database and in 1990
began focusing on the development of application development tools compatible
with the Company's database as well as databases offered by other companies such
as Oracle and Informix. In response to the expected growth in client/server
computing, the Company determined in 1992 to concentrate its product development
efforts on advanced client/server development tools resulting in the
introduction of an initial version of Unify VISION in December 1993 which was
directed at entry-level workgroup applications. In response to the emerging
market for high-end scalable development tools, the Company developed Unify
VISION 2.0, a significant enhancement to the initial release including a new
product architecture. Unify VISION 2.0 was introduced in March 1995. Since
February 1995, the Company has hired a new senior management team and made
significant changes in the Company's organization. In particular, the Company's
sales and marketing organization has been significantly changed with most
personnel having been hired after May 1995.

The Company's strategy is to aggressively market and enhance Unify VISION.
The Company continues to support its extensive installed base of Unify ACCELL
and DataServer products, which represents a significant source of potential
Unify VISION customers. The Company also generates significant revenue from
services, including customer maintenance, consulting and training. The following
table sets forth the revenues from licenses of the Company's Unify VISION and
Unify ACCELL and DataServer products and services revenue for the periods
indicated:

<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
License revenues:
Unify VISION.............................................. $ 708 $ 2,176 $ 5,009
Unify ACCELL and DataServer............................... 18,340 15,819 15,435
--------- --------- ---------
Total license revenues.................................. 19,048 17,995 20,444
Services revenues........................................... 11,501 10,854 9,721
--------- --------- ---------
Total revenues.......................................... $ 30,549 $ 28,849 $ 30,165
--------- --------- ---------
--------- --------- ---------
</TABLE>

The Company currently is focusing its product development and sales and
marketing resources principally on Unify VISION. The Company expects that
revenues from Unify VISION and related services will account for substantially
all of the growth, if any, in the Company's total revenues during the
foreseeable future. The Company expects that revenues from Unify ACCELL and
DataServer will continue to decline. As a result, factors adversely affecting
the pricing of or demand for Unify VISION could have a material adverse effect
on the Company's business, operating results and financial condition. See "Risk
Factors -- Dependence on New Product Acceptance; Dependence on Growth of High-
end Client/Server Tools Market;" "-- Anticipated Decline in Revenue from Mature
Products" and "-- Intense Competition."

18
<PAGE>
The Company incurred net losses in four of the last eight quarters and in
each of the last five fiscal years. As of April 30, 1996 the Company had an
accumulated deficit of $30.3 million. Although the Company's total revenues
increased in fiscal 1996 from fiscal 1995, the Company's total revenues had
decreased in both fiscal 1994 and 1995. There can be no assurance that any of
the Company's business strategies will be successful or that the Company will be
able to sustain profitability on a quarterly or annual basis. See "Risk Factors
- -- History of Operating Losses; Transition of Business" and "-- Fluctuating
Quarterly Results and Seasonality; Expected Operating Loss in First Fiscal
Quarter."

The Company licenses its software through its direct sales force in the
U.S., Europe and Japan and through distributors and VARs worldwide. Revenues
from distributors and VARs accounted for approximately 61%, 59%, and 60% of the
Company's software license revenues for fiscal 1994, 1995 and 1996,
respectively. The Company's ability to achieve significant revenue growth in the
future will depend in large part on its success in maintaining existing and
establishing additional relationships with distributors and VARs worldwide. See
"Risk Factors -- Dependence on Resellers."

The Company recognizes software license revenue when a non-cancelable
license agreement has been executed, the product has been shipped, all
significant contractual obligations have been satisfied and collection of the
resulting receivable is deemed probable by management. Maintenance revenue is
recognized ratably over the maintenance period, and revenues from consulting and
training services are recognized as performed. Software licenses include both
development licenses and run-time licenses. License fees from Unify VISION are
generally based upon the number of developers or end users, as applicable.

RESULTS OF OPERATIONS

The following table sets forth the consolidated statement of operations data
of the Company expressed as a percent of total revenues for the periods
indicated:

<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Software licenses......................................... 62.4 % 62.4 % 67.8 %
Services.................................................. 37.6 37.6 32.2
----- ----- -----
Total revenues.......................................... 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
Software licenses......................................... 10.7 9.7 6.8
Services.................................................. 20.3 20.0 14.4
----- ----- -----
Total cost of revenues.................................. 31.0 29.7 21.2
----- ----- -----
Gross margin................................................ 69.0 70.3 78.8
----- ----- -----
Operating expenses:
Product development....................................... 18.3 18.4 19.3
Selling, general and administrative....................... 64.8 52.0 62.7
Restructuring charges..................................... 1.9 1.5 --
----- ----- -----
Total operating expenses................................ 85.0 71.9 82.0
----- ----- -----
Loss from operations.................................... (16.0) (1.6) (3.2)
Other income (expense), net................................. (6.0) 1.3 0.6
----- ----- -----
Loss before income taxes................................ (22.0) (0.3) (2.6)
Provision for income taxes.................................. (1.1) (1.4) (0.5)
----- ----- -----
Net loss................................................ (23.1)% (1.7)% (3.1)%
----- ----- -----
----- ----- -----
</TABLE>

19
<PAGE>
COMPARISON OF YEARS ENDED APRIL 30, 1995 AND 1996

TOTAL REVENUES

The Company's total revenues include software license revenues from sales of
its Unify VISION, Unify ACCELL and DataServer products, as well as service
revenues from maintenance, consulting services and training. Total revenues for
fiscal 1996 increased 5% to $30.2 million from $28.8 million for fiscal 1995.

International revenues include all software license and service revenues
from locations other than the United States. International revenues from the
Company's direct sales organizations in Europe and Japan and from distributors
and resellers in all international locations accounted for 56% of total revenues
for each of fiscal 1996 and 1995.

SOFTWARE LICENSES. Software license revenues for fiscal 1996 increased 14%
to $20.4 million from $18.0 million for fiscal 1995. Software license revenues
from Unify VISION 2.0 increased 130% to $5.0 million for fiscal 1996 from $2.2
million for fiscal 1995. This increase reflects increased acceptance of Unify
VISION and increased sales through the Company's direct sales organization in
the U.S. Software license revenues from Unify ACCELL and DataServer were
consistent from year to year. The Company expects that revenues from these
products will decline in future periods.

SERVICES. Service revenues for fiscal 1996 decreased 10% to $9.7 million
from $10.9 million for fiscal 1995. The decrease in service revenues during this
period was primarily the result of a decline in consulting revenue following a
strategic shift away from consulting services which do not directly support new
product sales.

COST OF REVENUES

COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of
product documentation, packaging and production costs in the U.S. and Japan,
royalties paid for licensed technology, costs related to funded development
contracts, and amortization of capitalized software development costs. Cost of
software licenses for fiscal 1996 decreased to $2.1 million, or 10% of software
license revenues, as compared to $2.8 million, or 15% of software license
revenues, for fiscal 1995. Amortization of capitalized software development
costs decreased to $0.6 million in fiscal 1996 from $1.1 million for fiscal
1995.

COST OF SERVICES. Cost of services consists primarily of employee,
facilities and travel costs incurred in providing customer support under
software maintenance contracts and consulting and training services. Cost of
services for fiscal 1996 decreased to $4.3 million, or 45% of service revenues,
as compared to $5.8 million, or 53% of service revenues for fiscal 1995. The
decrease in cost of services during this period was primarily due to a decline
in total consulting staff. Cost of services as a percentage of revenue declined
in fiscal 1996 as a result of improved consulting staff productivity. The
Company expects to gradually increase its consulting staff from current levels.

OPERATING EXPENSES

PRODUCT DEVELOPMENT. Product development expenses consist primarily of
employee and facilities costs incurred in the development and testing of new
products and in the porting of new and existing products to additional hardware
platforms and operating systems. Product development expenditures for fiscal
1996 remained relatively constant at $5.8 million, or 19% of total revenues, as
compared to $5.7 million, or 20% of total revenues, for fiscal 1995. The Company
believes that substantial investment in product development is critical to
maintaining technological leadership and therefore expects product development
expenditures to increase in fiscal 1997.

Software development costs have been accounted for in accordance with SFAS
No. 86. Under this standard, capitalization of software development costs begins
upon the establishment of technological feasibility. The Company begins
capitalization upon completion of a working model and amortizes capitalized
software development costs over the estimated useful life of the products,
generally one to

20
<PAGE>
three years. In accordance with this policy, there were no capitalizable
software development costs in fiscal 1996 and $0.4 million of such costs in
fiscal 1995. As of April 30, 1996, all capitalized software development costs
had been fully amortized. See Note 1 of Notes to Consolidated Financial
Statements.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
(SG&A) expenses consist primarily of salaries, bonuses and commissions,
promotional and travel expenses, professional services, facilities and bad debt
expenses. SG&A expenses for fiscal 1996 increased to $18.9 million, or 63% of
total revenues, as compared to $15.0 million, or 52% of total revenues, for
fiscal 1995. The percent and dollar increases in fiscal 1996 SG&A expenses were
due to the recruitment of several key employees which filled open positions in
the U.S. sales and marketing organizations and to an increase in promotional and
travel expenses related to the launch of Unify VISION 2.0. The Company
anticipates additional legal, accounting and other administrative expenses as a
result of becoming a publicly traded company. The Company intends to continue to
increase its expenditures in SG&A in absolute dollars.

OTHER INCOME (EXPENSE), NET. Other income (expense), net, consists of the
minority interest in the Company's Japanese joint venture, exchange gains and
losses, and interest earned by the Company on its cash and cash equivalents,
offset by interest expense on long-term debt. Other income was $0.2 million for
fiscal 1996 and $0.4 million for fiscal 1995. Other income for fiscal 1995 also
includes a $0.3 million loss from litigation offset by a $0.3 million
nonrecurring gain from the forgiveness of amounts due to the minority interest
stockholders of the Company's Japanese subsidiary. The Company's subsidiaries in
Europe and Japan operate in local currencies. To date, foreign currency gains
and losses have been immaterial; however, if the value of the U.S. dollar
increases relative to foreign currencies, the Company's business, operating
results and financial condition could be materially adversely affected.
Currently, the Company does not employ any hedging strategies against currency
exposures and does not anticipate doing so in the near future.

PROVISION FOR INCOME TAXES. The Company has accounted for income taxes in
accordance with the provisions of SFAS No. 109 for all periods presented. Under
SFAS No. 109, the Company recognizes deferred tax assets and liabilities for the
expected future consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. The Company had available
federal net operating loss carryforwards of approximately $10.7 million as of
April 30, 1996. Under current tax legislation, the Company's utilization of its
operating loss carryforwards may be limited or impaired in certain circumstances
resulting from a change in ownership. See Note 6 of Notes to Consolidated
Financial Statements. After utilization of its net operating loss carryforwards,
the Company expects that its effective tax rate will approximate the statutory
rate.

The Company has provided a full valuation allowance against its net deferred
tax assets as it has determined that it is more likely than not that the
deferred tax assets will not be realized. The Company's accounting for deferred
taxes under SFAS No. 109 involves the evaluation of a number of factors
concerning the realizability of the Company's deferred tax assets. To support
the Company's conclusion that a 100% valuation allowance was required,
management primarily considered such factors as the Company's history of
operating losses and expected near-term future losses, the nature of the
Company's deferred tax assets, the lack of significant firm sales backlog, no
significant excess of appreciated asset value over the tax basis of the
Company's net assets and the absence of taxable income in prior carryback years.
Although management's operating plans assume taxable and operating income in
future periods, management's evaluation of all the available evidence in
assessing the realizability of the deferred tax assets indicates that such plans
were not considered sufficient to overcome the available negative evidence.

COMPARISON OF YEARS ENDED APRIL 30, 1994 AND 1995

TOTAL REVENUES

Total revenues for fiscal 1995 decreased 6% to $28.8 million from $30.5
million for fiscal 1994. The decrease in total revenues was primarily due to
declining software license revenues from Unify ACCELL and DataServer products,
partially offset by increases in Unify VISION sales.

21
<PAGE>
International revenues were 56% of total revenues in fiscal 1995 as compared
to 51% of total revenues in fiscal 1994.

SOFTWARE LICENSES. Software license revenues for fiscal 1995 decreased 6%
to $18.0 million from $19.0 million for fiscal 1994. During fiscal 1995,
revenues from Unify ACCELL and DataServer products declined to $15.8 million as
compared to $18.3 million for fiscal 1994. Revenues from Unify VISION, which was
first introduced in December 1993, were $2.2 million during fiscal 1995 as
compared to $0.7 million in fiscal 1994.

SERVICES. Service revenues for fiscal 1995 decreased 6% to $10.9 million
from $11.5 million for fiscal 1994. The decrease was primarily attributable to a
$1.4 million decrease in consulting and training revenue, partially offset by an
increase in maintenance revenues.

COST OF REVENUES

COST OF SOFTWARE LICENSES. Cost of software licenses in fiscal 1995 was
$2.8 million, or 15% of software license revenues, as compared to $3.3 million,
or 17% of software license revenues, in fiscal 1994. Fiscal 1994 cost of
software licenses included higher costs associated with the development and
production of documentation and packaging for the new Unify VISION product.
Amortization of capitalized software development costs decreased to $1.1 million
in fiscal 1995 from $1.4 million for fiscal 1994.

COST OF SERVICES. Cost of services in fiscal 1995 was $5.8 million, or 53%
of service revenues, as compared to $6.2 million, or 54% of service revenues, in
fiscal 1994. The decrease in fiscal 1995 consulting costs due to the reduction
of subcontractor costs after the completion of a large consulting contract in
fiscal 1994 was partially offset by increased costs associated with customer
support following the introduction of Unify VISION.

OPERATING EXPENSES

PRODUCT DEVELOPMENT. Product development expenditures in fiscal 1995 were
$5.7 million, or 20% of total revenues, as compared to $6.3 million, or 21% of
total revenues, in fiscal 1994. The decrease in expenditures was the result of a
cost reduction program instituted in the third quarter of fiscal 1994, and, to a
lesser extent, efficiencies associated with the automation of software testing
and the purchase of third-party software for integration into the Company's
products. Capitalized software development costs were $0.4 million and $0.8
million, or 1% and 2%, of total revenues in fiscal 1995 and 1994, respectively.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses in fiscal 1995 were
$15.0 million, or 52% of total revenues, as compared to $19.8 million, or 65% of
total revenues, in fiscal 1994. The percent and dollar decreases in fiscal 1995
from fiscal 1994 were primarily the result of a cost reduction program
instituted in the third quarter of fiscal 1994, significantly lower promotional
spending and lower legal expenses.

RESTRUCTURING CHARGE. The Company recorded restructuring charges of $0.4
million in fiscal 1995 and $0.6 million in fiscal 1994. The restructuring
charges represent costs associated with consolidation of facilities,
reorganization activities connected with reductions in work force and severance.
In fiscal 1995 the Company reorganized its operations, particularly its sales
and marketing staff, to focus on the opportunities for Unify VISION in the
high-end application development tools market. See Note 7 of Notes to
Consolidated Financial Statements.

OTHER INCOME (EXPENSE), NET. Other income was $0.4 million in fiscal 1995
and other expense was $1.8 million in fiscal 1994. Fiscal 1994 other expense
includes a charge of $2.2 million for settlement of litigation relating to two
product disputes. Fiscal 1995 other income includes a charge of $0.3 million for
settlement of litigation and a $0.3 million nonrecurring gain from the
forgiveness of amounts due to the minority interest stockholders of the
Company's Japanese subsidiary. See Notes 8 and 10 of Notes to Consolidated
Financial Statements.

PROVISION FOR INCOME TAXES. In fiscal 1995 and 1994, the Company recorded
no federal income tax provision due to net losses in those periods. The Company
recorded a tax provision related primarily to foreign income tax withholding on
software license royalties paid to the Company by certain foreign licensees.

22
<PAGE>
QUARTERLY INFORMATION

The following tables set forth certain unaudited consolidated statement of
operations data for the eight quarters ended April 30, 1996, as well as such
data expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited condensed consolidated
financial statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information. Such statement of operations data should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto.

<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses........... $ 4,329 $ 4,580 $ 4,559 $4,527 $ 3,618 $ 4,777 $ 5,749 $6,300
Services.................... 2,793 2,722 2,626 2,713 2,494 2,484 2,333 2,410
-------- -------- -------- --------- -------- -------- -------- ---------
Total revenues............ 7,122 7,302 7,185 7,240 6,112 7,261 8,082 8,710
-------- -------- -------- --------- -------- -------- -------- ---------
Cost of revenues:
Software licenses........... 678 721 570 818 549 509 456 545
Services.................... 1,366 1,438 1,446 1,536 1,069 960 1,148 1,155
-------- -------- -------- --------- -------- -------- -------- ---------
Total cost of revenues.... 2,044 2,159 2,016 2,354 1,618 1,469 1,604 1,700
-------- -------- -------- --------- -------- -------- -------- ---------
Gross margin.................. 5,078 5,143 5,169 4,886 4,494 5,792 6,478 7,010
-------- -------- -------- --------- -------- -------- -------- ---------
Operating expenses:
Product development......... 1,385 1,289 1,138 1,512 1,401 1,532 1,464 1,408
Selling, general and
administrative............. 3,578 3,740 3,816 3,866 4,211 4,611 4,984 5,114
Restructuring charge........ -- -- -- 431 -- -- -- --
-------- -------- -------- --------- -------- -------- -------- ---------
Total operating
expenses................. 4,963 5,029 4,954 5,809 5,612 6,143 6,448 6,522
-------- -------- -------- --------- -------- -------- -------- ---------
Income (loss) from
operations............... 115 114 215 (923) (1,118) (351) 30 488
Other income (expense), net... (101) 90 162 241 204 33 (2) (59)
-------- -------- -------- --------- -------- -------- -------- ---------
Income (loss) before income
taxes...................... 14 204 377 (682) (914) (318) 28 429
Provision for income taxes.... (123) (109) (45) (115) (65) (44) (14) (40)
-------- -------- -------- --------- -------- -------- -------- ---------
Net income (loss)........... $ (109) $ 95 $ 332 $ (797) $ (979) $ (362) $ 14 $ 389
-------- -------- -------- --------- -------- -------- -------- ---------
-------- -------- -------- --------- -------- -------- -------- ---------
</TABLE>

23
<PAGE>
The following table sets forth certain unaudited quarterly financial
information of the Company for each of the Company's last eight fiscal quarters
expressed as a percent of total revenues for the periods indicated.

<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses..................... 60.8% 62.7% 63.5% 62.5% 59.2% 65.8% 71.1% 72.3%
Services.............................. 39.2 37.3 36.5 37.5 40.8 34.2 28.9 27.7
-------- -------- -------- --------- -------- -------- -------- ---------
Total revenues...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- --------- -------- -------- -------- ---------
Cost of revenues:
Software licenses..................... 9.5 9.9 8.0 11.3 9.0 7.0 5.6 6.3
Services.............................. 19.2 19.7 20.1 21.2 17.5 13.2 14.2 13.2
-------- -------- -------- --------- -------- -------- -------- ---------
Total cost of revenues.............. 28.7 29.6 28.1 32.5 26.5 20.2 19.8 19.5
-------- -------- -------- --------- -------- -------- -------- ---------
Gross margin............................ 71.3 70.4 71.9 67.5 73.5 79.8 80.2 80.5
-------- -------- -------- --------- -------- -------- -------- ---------
Operating expenses:
Product development................... 19.4 17.7 15.8 20.9 22.9 21.1 18.1 16.2
Selling, general and administrative... 50.3 51.2 53.1 53.4 68.9 63.5 61.7 58.7
Restructuring charge.................. -- -- -- 6.0 -- -- -- --
-------- -------- -------- --------- -------- -------- -------- ---------
Total operating expenses............ 69.7 68.9 68.9 80.3 91.8 84.6 79.8 74.9
-------- -------- -------- --------- -------- -------- -------- ---------
Income (loss) from operations........... 1.6 1.5 3.0 (12.8) (18.3) (4.8) 0.4 5.6
Other income (expense), net............. (1.4) 1.3 2.3 3.3 3.3 0.4 -- (0.6)
-------- -------- -------- --------- -------- -------- -------- ---------
Income (loss) before income taxes..... 0.2 2.8 5.3 (9.5) (15.0) (4.4) 0.4 5.0
Provision for income taxes.............. (1.7) (1.5) (0.7) (1.5) (1.0) (0.6) (0.2) (0.5)
-------- -------- -------- --------- -------- -------- -------- ---------
Net income (loss)..................... (1.5)% 1.3% 4.6% (11.0)% (16.0)% (5.0)% 0.2% 4.5%
-------- -------- -------- --------- -------- -------- -------- ---------
-------- -------- -------- --------- -------- -------- -------- ---------
</TABLE>

Fiscal 1995 software license and service revenues were primarily from the
Company's more mature Unify ACCELL and DataServer product families and were flat
quarter to quarter. The Company introduced Unify VISION 2.0, its advanced
client/server application development environment, in March 1995. Total revenues
declined in the first quarter of fiscal 1996 due to seasonality and to the fact
that the U.S. sales organization was in the process of restaffing and
retraining. Revenues increased in the second, third and fourth quarters of
fiscal 1996 due to improved productivity in the U.S. sales organization,
increased sales of Unify VISION 2.0 worldwide and several large Unify ACCELL and
DataServer product sales.

24
<PAGE>
The following table sets forth the revenues from licenses of the Company's
Unify VISION and Unify ACCELL and DataServer products and service revenues for
each quarter of fiscal 1996.

<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------
JUL. 31, OCT. 31, JAN. 31, APRIL 30,
1995 1995 1996 1996
--------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
License revenues:
Unify VISION.................................. $ 540 $ 1,012 $ 1,426 $ 2,031
Unify ACCELL and DataServer................... 3,078 3,765 4,323 4,269
--------- --------- --------- -------------
Total license revenues...................... 3,618 4,777 5,749 6,300
Services revenues............................... 2,494 2,484 2,333 2,410
--------- --------- --------- -------------
Total revenues.............................. $ 6,112 $ 7,261 $ 8,082 $ 8,710
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>

In the fourth quarter of fiscal 1995, the increase in cost of software
licenses was due primarily to a one-time, $210,000 write off of prepaid
third-party royalties on fiscal 1993 revenue the recognition of which had been
deferred due to the uncertainty of its collection; it was determined in fiscal
1995 that recognition of this revenue was unlikely and the related royalties
were therefore charged to expense. The increase in cost of services in the
fourth quarter of fiscal 1995 was due to a one-time, $210,000 write off of
prepaid maintenance costs which were determined to have no future value.

The Company kept staffing levels and operating expenses relatively stable
during fiscal 1995 in order to minimize net losses in a period of flat revenues.
Quarterly product development expenditures were stable in fiscal 1995 and 1996.
SG&A expenses increased quarter by quarter in fiscal 1996 due to the restaffing
of the U.S. sales and marketing organizations and to increasing promotional and
travel expenses related to the launch of Unify VISION 2.0.

25
<PAGE>
part on the Company's expectations as to future revenues and are therefore
relatively fixed in the short term, if revenue levels fall below expectations,
net income is likely to be disproportionately adversely affected. The Company is
increasing its sales, marketing and product development expenditures, and
operating results will be materially adversely affected if the Company does not
achieve revenue growth. There can be no assurance that the Company will be able
to achieve or maintain profitability on a quarterly or annual basis in the
future. Due to the foregoing factors, it is likely that in some future quarter
the Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.

The Company expects that its operating results will be affected by seasonal
trends. The Company believes that it is likely that it will experience
relatively higher revenues in its quarters ending April 30 and relatively lower
revenues in its quarters ending July 31 as a result of efforts by its direct
sales force to meet fiscal year-end sales quotas. The Company also anticipates
that it may also experience relatively weaker demand in the quarters ending July
31 and October 31 as a result of reduced sales activity in Europe during the
summer months. In particular, due to the foregoing factors and to increased
investments in selling, general and administrative and research and development
expenses in advance of the release of Unify VISION 3.0, the Company expects that
it will incur an operating loss for the quarter ending July 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has principally financed its operations and
investments in property and equipment through the private sale of equity
securities, totaling $23.3 million, equipment lease and bank lines of credit
which have been substantially repaid, and a $3.0 million stockholder line of
credit.

The Company used cash from operations of $0.9 million in fiscal 1994,
generated cash from operations of $1.3 million in fiscal 1995 and used cash from
operations of $1.1 million in fiscal 1996. Cash used in fiscal 1996 was
primarily due to increased accounts receivable. In fiscal 1994, 1995 and 1996,
the Company's investing activities have consisted primarily of purchases of
property and equipment and capitalization of software development costs.

As of April 30, 1996, the Company had $3.0 million in cash and cash
equivalents and negative working capital of $3.2 million. The Company has a $3.0
million line of credit provided by certain stockholders of the Company which
expires in July 1997. Advances under the stockholder provided credit facility
are made at the discretion of the lenders and bear interest at 3.75% per annum.
The amount outstanding on this line of credit as of April 30, 1996 was $2.3
million. The Company also has a $2.5 million revolving line of credit with a
bank which expires in March 1997. Total borrowings under this line are generally
limited to 80% of eligible accounts receivable and up to $500,000 may be used
separately to finance equipment purchases with no receivable borrowing
limitation. Borrowings bear interest at 2.75% and 3.50% over the bank's prime
lending rate for accounts receivable based and equipment borrowings,
respectively. See Notes 3, 4 and 5 of Notes to Consolidated Financial
Statements.

The Company believes that the net proceeds from the offering, anticipated
cash flow from operations, and its existing cash, cash equivalents and unused
borrowing capacity will be sufficient to meet its cash requirements during the
next 12 months. Thereafter, depending on its rate of growth and profitability,
the Company may require additional equity or debt financing to meet its working
capital requirements or capital equipment needs. There can be no assurance that
additional financing will be available when required or, if available, that it
will be on terms satisfactory to the Company.

26
<PAGE>
BUSINESS

THE COMPANY

Unify Corporation ("Unify" or the "Company") develops, markets and supports
client/server application development tools and database management software
products. In March 1995, the Company introduced Unify VISION 2.0, an advanced
client/server application development environment for the development,
deployment and management of high-end scalable applications. Unify VISION
combines a powerful and scalable client/server architecture with a flexible and
easy-to-use rapid application development technology. The Company is continuing
to market and enhance Unify ACCELL, a family of fourth generation language
("4GL") application development tools and Unify DataServer, a family of database
management system products. As of April 30, 1996, the Company had licensed Unify
VISION to over 175 customers and Unify ACCELL and DataServer products to over
2,000 customers worldwide.

INDUSTRY BACKGROUND

Information technology ("IT") has increasingly become central to almost all
aspects of business operations from customer ordering and support to
manufacturing systems to domestic and international financial systems.
Historically, large organizations relied upon mainframe and mini-computers,
which offered reliability, streamlined control and scalability for multiple
users running transaction-intensive applications. However, the combination of
significant price/performance advances in computing capabilities and increased
competitive pressures to lower costs, improve performance and increase
flexibility and responsiveness have led organizations to attempt to manage more
of their business over networks of "client" and "server" computers. The move to
enterprise-wide "client/server" systems often requires that organizations
integrate diverse hardware and software environments which are distributed in
multiple locations. At the same time, organizations are increasingly automating
business processes. Such organizations are demanding timely delivery of
easy-to-use, robust and flexible applications. Addressing these requirements
concurrently creates significant challenges in developing, deploying and
managing applications.

The initial adoption of client/server computing occurred primarily at an
entry level, typically for small workgroups. These entry-level client/server
applications generally require relatively simple data sharing, generate low
network traffic, involve limited, simple transactions and source information
from a single shared central database. Entry-level applications have been based
upon a two-tier architecture with the application generally running on a single
desktop PC platform (first tier) with all data transferred to the client over a
network from a single shared database server (second tier). The success of
entry-level client/server applications has led organizations to extend
client/server computing through more of the business enterprise to address
business-critical operations. These new "high-end" applications are
significantly more difficult to develop and deploy as compared to entry-level
applications in that they must address issues such as support of distributed
heterogeneous environments; high volumes of complex on-line transaction
processing; and substantial numbers of concurrent enterprise-wide users.

The migration by many organizations toward client/server computing has
created significant demand for applications and their associated development
tools. According to the Hurwitz Consulting Group, the annual market size for
client/server development tools is projected to increase from approximately $600
million as of November 1995 to approximately $2.5 billion by the year 2000. This
market

27
<PAGE>
includes both the development tools offered by major relational database
vendors, which currently capture a significant portion of the overall
client/server tools market, as well as the developers of database-independent
tools.

The first generation of independent tools vendors, such as Powersoft with
its PowerBuilder product, addressed the need for database independence in the
development of entry-level client/server applications and provided easy-to-use
graphical tools. However, such entry-level tools have proven to be ineffective
in implementing high-end client/server applications. As the number of users
increase and applications become more complex, the network becomes burdened by
the amount of data which must be transferred to desktop PCs. Further, the
requirement for PC-only processing is a limiting factor for applications which
require increasingly complex and concurrent processing by multiple users. The
architecture of entry-level tools generally does not support "application
partitioning," in which application functions can be divided and processed on
multiple servers and not limited to processing only on the desktop PC. In
addition to this lack of scalability, the architectures of entry-level
application development tools do not support advanced development methodologies,
heterogeneous computing environments with multiple development and deployment
platforms, or advanced applications management and maintenance functionality.

Organizations seeking to deliver high-end client/server applications
confront multiple business issues. These include the cost of development, the
requirement to rapidly develop and deploy applications and the cost of
maintaining and extending applications as organizations evolve. Faced with these
issues and the pressure to address a growing backlog of business-critical
applications, many organizations are choosing to move, or "migrate," to high-end
client/server applications on an incremental basis rather than pursue a
full-scale enterprise-wide development process. This enables them to maximize
use of existing investments in personnel and computer infrastructure and reduce
the business disruption, time and cost of full-scale application development,
deployment and maintenance.

Whether organizations require full-scale, enterprise-wide, high-end
applications, or are migrating to such applications on an incremental basis,
organizations need tools with available features such as application
partitioning, scalability, rapid application development, application management
and the ability to run in heterogenous computing environments. At the same time,
organizations want to minimize IT expenditures and to avoid substantial
complexity and inflexibility, which leads to longer and more costly development
and maintenance.

THE UNIFY SOLUTION

Unify VISION provides comprehensive, integrated application development
solutions for customers planning to develop enterprise-wide, high-end
applications on a full scale, as well as customers that are migrating to
high-end client/server applications on an incremental basis. By providing
organizations with the benefits of low cost of entry, rapid time to market and
low cost of ownership, Unify VISION addresses customer needs for developing,
deploying and managing high-end client/server applications cost effectively and
efficiently. Unify VISION combines ease-of-use with the power and scalability of
advanced application development technology.

LOW COST OF ENTRY. Unify VISION allows organizations to adopt high-end
client/server solutions on an incremental basis. Unify VISION's approach to
scalable application development is designed to allow organizations to deliver
full-scale, enterprise-wide, high-end solutions or migrate to high-end client/
server solutions on an incremental basis. These applications can be readily
extended in functionality and for broader use throughout the organization. The
Company believes that the ease of use and flexibility of Unify VISION allow
organizations to maximize use of their existing investments in computer
infrastructure and development personnel. For example, Unify VISION offers
object-oriented programming, but allows developers to adopt object orientation
at their own pace, thereby increasing productivity. Similarly, Unify VISION
enables developers to use application partitioning, but allows developers to
avoid partitioning if additional complexity is not needed.

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RAPID TIME TO MARKET. The Company believes that the unique architecture of
Unify VISION allows organizations to develop and deploy high-end client/server
applications rapidly. Unify VISION has a scalable RADD (Rapid Application
Development and Deployment) architecture that is designed to enable developers
to quickly and easily produce complex, business-critical applications. Unify
VISION is designed to simplify the development and deployment of high-end
client/server applications through an easy-to-use graphical application
development environment; application partitioning; cross-platform portability;
its built-in application and transaction models; a sophisticated, but not rigid
object-oriented programming environment; and repository-based, team development
facilities.

LOW COST OF OWNERSHIP. Unify VISION is designed to reduce the cost of
managing and extending high-end client/server applications, addressing the needs
of organizations as they grow and change. Applications developed on one platform
can be deployed automatically on multiple platforms in a heterogenous computing
environment while maintaining a complete native look and feel. Applications are
developed using components which can be reused or extended. Partitioning of
applications can be invoked or changed in connection with the deployment of
applications, thereby eliminating the need for the application to be
redeveloped. Unify VISION's APPMAN also offers a broad range of application
management services, including event management, performance management,
software distribution, and administration. The Company believes that such
services optimize use of existing IT infrastructure and extend the lifespan of
existing applications, thereby reducing the demands on development personnel.
Unify VISION's APPMAN also provides automatic integration with leading system
and network management products thereby reducing the need for custom
programming.

STRATEGY

The Company's mission is to be the leading independent supplier of high-end
scalable client/server application development solutions. The following are the
key elements of the Company's strategy:

DELIVER EASY-TO-USE, SCALABLE, HIGH-END CLIENT/SERVER SOLUTIONS. The
Company believes that today's high-end development tools do not offer the ease
of use and scalability that customers will increasingly require. In order to
address these needs, the Company has developed a unique architecture which
provides for ease of use, lower development cost and full scalability. The
Company provides solutions for customers seeking to preserve existing IT
investments and minimize the costs and complexity of migrating to a
client/server environment. A key aspect of this strategy is to provide tools
which allow customers to develop applications which are truly scalable and which
can continue to be used and extended as the application is adopted more widely
throughout an enterprise.

SUPPORT CHANGING COMPUTING ENVIRONMENTS. The Company's strategy is to
provide tools which offer the same degree of ease-of-use, power and flexibility
in response to changing environments. The Company is developing enhancements to
Unify VISION to support application development for Internet and Intranet
applications. The Company believes Unify VISION is well-positioned for these
emerging market opportunities because the architecture of Unify VISION allows
customers to easily extend and adapt their high-end client/server applications
to changing environments.

CAPITALIZE ON LARGE INSTALLED CUSTOMER BASE. The Company plans to continue
to leverage its installed base of over 2,000 customers of Unify ACCELL and
DataServer worldwide. The Company's strategy is to sell Unify VISION to this
customer base as it migrates to high-end client/server applications, while
continuing to seek revenue from sales of enhanced versions of its Unify ACCELL
and DataServer products in the interim. Unify VISION provides a unique scalable
solution which allows Unify ACCELL customers to maximize their significant
investment in existing applications while upgrading to more advanced
client/server applications. The Company is continuing to devote resources to
enhance its Unify ACCELL and DataServer products, thereby assisting its
customers which are not yet ready to move to high-end client/server
environments.

LEVERAGE WORLDWIDE INFRASTRUCTURE. The Company has developed an extensive
international network to provide direct and indirect sales, product development
and support. The Company has more than five years of extensive experience in
developing international versions of its products and selling

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and supporting such products internationally. International sales represented
56% of revenues in each of fiscal 1995 and fiscal 1996. The Company believes
that this network will be an important competitive factor in taking advantage of
the emerging adoption of client/server computing internationally.

EXPAND VAR SALES CHANNELS. The Company believes that the flexibility and
ease of use of its development tools are particularly well-suited for use by
VARs. The Company currently has over 400 VAR customers, and sales to VARs
represented approximately 35% of software license revenues in fiscal 1996. Use
of VARs allows the Company to expand its sales channels using the VARs' sales
forces and minimizes the cost of customer support. The Company has developed
specialized pricing and support policies to support VARs. In order to increase
its market presence, the Company intends to focus additional resources to
recruit additional medium to large VARs.

DIFFERENTIATE THROUGH SUPERIOR CUSTOMER SUPPORT. The Company believes that
superior customer support is critical for customers to successfully deliver
high-end client/server solutions. Due to the complexity of client/server
computing, support services must be able to address issues which arise from
components of the client/server system beyond the Company's products such as
multiple databases, computing platforms and operating systems. The Company has
nearly fifteen years of experience in supporting database and application
development products. Because each customer has unique needs, the Company offers
modular customer support programs that match each customer's development cycle
and allow for the addition of new services as needs change.

PRODUCTS

The Company's products include Unify VISION and the Unify ACCELL and
DataServer families of products. Unify VISION is an advanced client/server
application development tool for development, deployment and management of
high-end scalable applications. Unify ACCELL is a family of 4GL application
development tools and Unify DataServer is a family of database management system
products. Since the introduction of Unify VISION 2.0, license revenues from
Unify VISION have continued to represent an increasing percentage of the
Company's revenue, increasing from 12% of license revenues in fiscal 1995 to 25%
of license revenues in fiscal 1996.

UNIFY VISION

Unify VISION is an advanced client/server application development
environment, designed to offer ease-of-use and to combine the flexibility and
productivity of client/server computing with the scalability and performance
required by enterprise-wide high-end applications. Unify VISION supports all
three major parts of the application lifecycle -- development, deployment and
management. Unify VISION is designed to provide deployment and management
flexibility and to allow end-users to adopt their applications to their changing
enterprise without substantial custom programming.

Unify VISION provides an object-oriented, graphical development environment
that includes a multi-user repository for team development, a powerful 4GL, a
graphical user interface ("GUI") designer, and an interactive debugging
facility. Unify VISION automatically interfaces and tightly integrates with
leading database systems. Unify VISION provides a set of built-in dialog forms,
called SmartView dialogs, that automates the task of selecting and customizing
application features and eliminates custom programming. Applications developed
with Unify VISION are portable across heterogenous desktop GUI, operating
system, network and database platforms. Developers can build complex
applications in their preferred development platform and deploy across preferred
end-user environment without the need for custom programming or recompilation.
Unify VISION supports automated, dynamic application partitioning, and can be
deployed in two-tier or multi-tier network environments.

Unify VISION's APPMAN is designed to automate the management of high-end
applications by embedding application management functionality into every
application. Unify VISION's APPMAN automatically supports software distribution,
event management, administration, and performance

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management. Unify VISION also automatically integrates with industry-leading
third-party system and network management products. It also includes an open
toolkit to allow developers to integrate the system and network management
products of their choice.

Unify VISION supports Windows, Windows NT and Motif desktops for both
application development and deployment and Macintosh for deployment only. Unify
VISION supports the native "look and feel" of all of these desktop interfaces.
Unify VISION supports leading server platforms including IBM RS/6000, HP 9000,
SUN SPARC, Digital Alpha UNIX, and Windows NT. Unify VISION provides native
interfaces to leading database products including Oracle, Sybase, Informix,
CA-Ingres, Microsoft SQL Server and Unify DataServer. Unify VISION supports the
Microsoft ODBC interface for PC-based workgroup database products.

The Company has adopted a platform-independent, user-based pricing model and
licenses its software for both development and deployment. The U.S. list price
for Unify VISION development license fees is $4,995 per developer. Deployment
license fees are $395 per application per end-user and $10,000 per application
server. The Company also bundles five development licenses and 10 deployment
licenses for a U.S. list price of $25,000. Typical initial license fees range
from $25,000 to $100,000.

UNIFY ACCELL

Unify ACCELL development tool sets are UNIX-based application development
products for building complex, business-critical applications targeted for
character-based platforms. They are designed to maximize developer productivity
through tight integration of 4GL technologies and optimized database features in
a flexible development environment. Unify ACCELL's modular architecture combines
an application generator, 4GL, and an interactive debugging facility with
database-server connectivity.

Developers can use the Unify ACCELL application generator to create forms
from scratch or can use an automatically-created default form. Unify ACCELL's
4GL is an event-driven programming language with powerful features supporting
more than 250 4GL statements, data types and functions. Unify ACCELL's database
independent technology supports native interfaces to major database products
including Oracle, Sybase, Informix, CA-Ingres and Unify DataServer. Unify ACCELL
applications are also portable across industry leading UNIX platform, database,
and client/server networking environments.

License fees for Unify ACCELL are based upon the hardware configuration and
number of end-users. The U.S. list prices range from $2,120 for a single
developer system to $425,000 for the largest multi-user systems.

UNIFY DATASERVER

Unify DataServer is a family of database management products that is
designed to scale from small systems to large high volume on-line transaction
processing (OLTP) systems. At the entry level, the Unify DataServer is designed
to be a high performance easy-to-use product with minimal maintenance and memory
requirements. The DataServer family of products is designed so that the growth
of user requirements over time can be quickly accommodated. Unify DataServer
supports ANSI SQL standard and an industry standard ODBC interface to provide
access to hundreds of third-party tools and products. Unify DataServer products
provide a variety of database access methods which deliver high performance
across a wide variety of environments and deployment configurations. Unify
DataServer products support all major UNIX platforms and client/server
networking environments.

Unify DataServer pricing is based upon hardware configuration and the number
of users. The U.S. list prices range from $1,410 for a single developer system
to $342,000 for the largest multi-user systems.

SERVICE AND SUPPORT

The Company believes that superior customer service and support, including
product support and maintenance, customer training and consulting services, are
critical for achieving and maintaining

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customer satisfaction and for assisting customers to successfully develop and
deliver high-end client/ server solutions. Due to the complexity of
client/server computing, support services must be able to address issues which
arise from components of the client/server system beyond the Company's products
such as multiple databases, computing platforms and operating systems. The
Company has extensive experience in supporting database and application
development products. The Company's service and support revenues for fiscal 1996
were $9.7 million or 32% of total revenues for such period.

SUPPORT. The Company offers modular customer support programs which can be
modified to match the customers' development cycles and can be customized as
needs change. All support levels provide telephone, e-mail and facsimile access,
enabling customers to log inquiries for resolution by the Company's support
staff. Service levels can be tailored by customers to select preferred call
response time, information reporting, and other features including 24-hour a
day, seven days a week support. The Company currently has annual maintenance
contracts with over 750 customers. During each of the past three years, over 80%
of the Company's support customers have renewed their support contracts.

Annual Unify VISION support is priced at $1,250 plus 10% of the development
license fee per developer for up to 4 developers. Support for additional
developers is generally priced at 10% of the license fee for each such
developer. Annual support for deployment licenses is generally priced at 10% of
the deployment license fee.

TRAINING. The Company is committed to offering its customers a
comprehensive range of training courses and materials. The Company offers two
educational options. Customers may attend a broad range of courses offered on a
regularly scheduled basis at Unify training centers located in San Jose,
California; Reston, Virginia; Surrey, England; Paris, France; Tokyo, Japan and
Vianen, the Netherlands. The Company can also provide on-site training at
customers' facilities. Charges for training services are $1,750 per student for
a five-day program.

CONSULTING. The Company provides a full range of consulting services with
the objective of adding value to the development process while at the same time
protecting customers' initial software investment. The primary goal of
consulting services is to enable customers to approach development in a manner
which maximizes the benefits that can be derived from the Company's tools and to
successfully develop high-end client/server applications. Consulting services
are generally used in connection with complex development projects and often
involve, among other elements, business process re-engineering, full life cycle
application development, and design and development reviews. Charges for
consulting services average between $1,000 to $1,500 per day with typical
consulting services running from one to eight weeks in duration.

As of April 30, 1996, the Company had 25 employees engaged in support and 14
in training and consulting. The Company intends to continue to expand its
service and support staff and make additional investments in its support
infrastructure during the remainder of fiscal 1997.

UNIFY VISION TECHNOLOGY

The Company has designed and developed Unify VISION to provide a
comprehensive, integrated solution for development, deployment and management of
high-end client/server applications.

APPLICATION DEVELOPMENT. Unify VISION provides an integrated,
object-oriented, repository-based development environment which is designed to
enable developers to quickly and easily produce high-end business-critical
client/server applications. Below is a graphical depiction of this development
environment.

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[LOGO]

Unify VISION's SCALABLE RADD (Rapid Application Development and Deployment)
architecture supports the transition to an object-oriented paradigm, but does
not require programmers to be fully trained in object orientation. Rather, Unify
VISION supports a flexible transition, combining object-oriented and procedural
programming techniques so that a customer can evolve towards object orientation
at its own speed while maintaining productivity. Unify VISION includes a
GUI-independent graphical designer, a class editor, an object-oriented 4GL,
graphical debugger, and built-in SmartView dialogs. Developers can use SmartView
dialogs to define complex operations such as application behavior and database
interfaces without manual coding. Unify VISION is built on a default application
and transaction model that eliminates much of the low-level repetitive complex
programming effort. The model consists of a set of built-in procedures and logic
that automates code-intensive functions including GUI behavior, form generation,
application partitioning, enterprise-wide database connectivity,
transaction-based logic and cross-platform portability. Unify VISION's
multi-user object repository and integrated version control facilities allow
large teams of developers to work together to develop an application without
overriding or corrupting each other's application code.

Unify VISION's GUI SMART ARCHITECTURE allows developers to build
applications which are independent of the desktop windowing system. Unify VISION
includes a platform-independent GUI toolkit that stores applications in a GUI
independent format and provides user-controlled font mapping. The application
automatically assumes the native look and feel of the GUI platform on which it
is running, eliminating the need to recompile or redesign the user interface.
This enables a team of developers to work within their preferred GUI environment
and co-develop an application.

Unify VISION's DATABASE SMART ARCHITECTURE automates and simplifies the
complex task of database interfacing. It provides built-in, high-performance
database access which exploits specialized features in major database management
systems. The application programmer simply specifies the database table
associated with each object, the transaction rules and the locking mode, and
Unify VISION automatically generates the optimum programming code. Unify VISION
provides portability for applications across all leading databases, supporting
all native extensions while enabling the use of vendor-specific enhancements
such as PL/SQL or TRANSACT-SQL. Unify VISION's DATABASE SMART interface
automates virtually all database connectivity and transaction management
including query-by-form, insert, update, delete, master/detail relationship, and
transaction control. Unify VISION generates optimized SQL for each brand of
database and supports simultaneous access to multiple heterogeneous data
sources. Furthermore, when an application originally developed for one database
is switched to another, Unify VISION automatically resolves the differences in
command syntax, semantics, locking, and transaction control without additional
coding.

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Unify VISION's EXTENSIBLE PLATFORM-INDEPENDENT ARCHITECTURE allows customers
to write platform-independent applications while at the same time integrating
with platform-specific products such as Microsoft Word and Lotus Notes.
Customers can integrate their applications with third-party products via
AppleTalk, AppleEvents, Windows DDE and UNIX sockets, depending on the platform.
In addition, Unify VISION 3.0, currently scheduled for release in the third
calendar quarter of 1996, will also support object linking and embedding (OLE).
Unify VISION's OLE automation will allow users to create form objects containing
Word documents, Excel spreadsheets, and other third-party objects. In addition,
applications running on Windows, Windows NT, UNIX, and Macintosh will be able to
access OLE objects via OLE automation.

APPLICATION DEPLOYMENT. Unify VISION's platform-independent architecture
combined with its advanced distributed application processing services,
including application partitioning, provide a variety of flexible and extendable
deployment alternatives. Below is a graphical depiction of this deployment
environment.

[LOGO]

Unify VISION's distributed application services are built around an OBJECT
BROKER technology that supports automated, dynamic partitioning and execution of
applications. Application partitioning involves the splitting apart of
application components such as desktop services, application services, and data
management services and locating them on various computing resources throughout
the network. Application partitioning provides enhanced scalability and resource
utilization and maximizes performance while reducing maintenance requirements.

Unify VISION's OBJECT BROKER is a custom messaging technology, designed to
scale for most any type of computing environment including single CPU, Symmetric
Multi-Processors (SMP), tightly-coupled processor clusters, and massively
parallel systems (MPP). Unify VISION's OBJECT BROKER supports asynchronous
messaging and publish/subscribe event generation and reporting features. Unify
VISION developers can develop partition-ready applications and deploy them
across multiple computing resources, all linked transparently with the Unify
OBJECT BROKER. Unify VISION applications are network configuration independent
and can be deployed on two-tier or multi-tier networks without specific coding,
configuration changes, or recompiling. These application partitions are binary
portable and can be stored in a network server. At the time of execution, Unify
VISION's advanced distributed services automatically establish communication
links among the various partitions of applications.

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Unify VISION's advanced distributed services support shared and reusable
application services that allow a single copy of an application service to be
shared by multiple clients and used among several applications. This allows IT
organizations to reduce maintenance costs and provides a higher level of control
and efficiency. Unify VISION's server replication technology supports multiple
copies of an application service distributed throughout the network. This
provides higher scalability, more efficient load balancing and higher system
availability in case of partial system failure.

APPLICATION MANAGEMENT. Unify VISION's comprehensive, open, integrated
management architecture enables IT organizations to manage their applications
using any preferred management system or different systems at different sites.
The architecture is open and extendable, capable of evolving in parallel with
the customers' developing client/server management infrastructures. Unify VISION
automatically embeds application management functionality in the application
during the development cycle. Below is a graphical depiction of this management
environment.

[LOGO]

For event management, Unify VISION automatically embeds over 400
application-specific events into the developed application. In addition,
developers can define their own application-specific events. Unify VISION's
APPMAN includes agents for Tivoli's Enterprise Console and BMC Patrol.

For performance management, Unify VISION's APPMAN automatically monitors and
generates over 60 different performance metrics. These metrics profile the vital
statistics of an application with respect to response times and resource
utilization. Unify VISION's APPMAN includes software agents for integration with
the H.P. MeasureWare system and PerfView console and BMC Patrol performance
management products.

For software distribution, Unify VISION's APPMAN enables developers to
incorporate software distribution and configuration information during the
development cycle. The resulting application is in a "distribution-ready"
format, compatible with industry-leading ESD (Electronic Software Distribution)
systems. Unify VISION's APPMAN includes an automated deployment configurator
that guides the developer through the process of specifying file configurations
for target platforms. The embedded software agents then automatically generate
the application description files and distribution specifications for the system
administrator's preferred ESD system. Unify VISION's APPMAN provides consistent,
standardized and correct installation of updates of VISION applications across
an enterprise. Unify VISION's APPMAN includes software agents to support
Tivoli's Courier and Microsoft's SMS products.

For administration, Unify VISION provides an integrated graphical console to
display, start, stop and restart Unify VISION application partitions. It also
enables system administrators to view and manage the various components of the
distributed application.

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CUSTOMERS AND MARKETS

As of April 30, 1996, the Company had licensed Unify VISION to over 175
customers worldwide and Unify ACCELL and DataServer products to over 2,000
customers worldwide. The Company's target end-user customers include commercial
and government organizations that utilize sophisticated business-critical
information systems distributed over heterogeneous operating systems and
databases. No customer accounted for more than 10% of the Company's total
revenues for fiscal 1995 or 1996. The following is a representative list of the
Company's end-user customers which purchased at least $25,000 of Unify product
during the last two years:

FINANCIAL SERVICES
3i
Abbey National*
Citicorp
Credit Lyonnais
Fannie Mae*
Fondo Comun*
Merrill Lynch*
Monroe Title Insurance*
Moscow Savings Bank
National Australia Bank
National Westminster Bank plc
New Mexico Mutual Casualty
Sherwood Insurance Systems
State Fund Mutual Insurance
ENERGY
AMOCO*
Itron*
Martin Marrietta Energy Systems
North Power*
Oxley Electricity*

CONSUMER/RETAIL
Budweiser
Equifax
Escom
Tesco Stores

MANUFACTURING

Boeing
Cannon
Hewlett-Packard*
Hitachi
Interleaf
Kubota System Development*
Motorola
OKI
Northrop/Grumman
Pitney Bowes
Siemens
Sony
Sumitomo Metal Industries Ceramics*
Symphony Kitchens
Temple Inland*
Westinghouse Security Electronics*

GOVERNMENT AND EDUCATION

Auburn University
Deakin University
Defense Logistics Agency*
National Security Agency*
Social Security Administration*
U.S. Air Force*
U.S. Army
U.S. Navy

TELECOMMUNICATIONS AND MEDIA
- ------------------------

AT&T
BBC
Cellular Technical Services
Northern Telecom
NTT
NYNEX Corporation*
Pacific Bell*
Reed Information Systems*
Reuters Limited
Southwestern Bell
Telebahia*
US Order*
US West Communications

SERVICES/OTHER

Australian Red Cross*
Computer Sciences Corp.
France Informatique*
Glaxo
Management Recruiters International*
Parkside Community Psychiatric
Sogitec*
UGAP*
Wang Federal Systems*

- ------------------------
* Represents customers that have purchased at least $20,000 of licenses for
Unify VISION.

The Company also sells to VARs, the largest customers for the Company's
products, including Computron Software, General Instrument, Northern Telecom,
Triad Systems and Westinghouse Security Electronics.

Representative case studies of Unify VISION applications in use include:

GOVERNMENT. A large multinational security agency has used Unify VISION for
over a year to develop applications that serve over 700 users. The applications
run with over 50 concurrent users on each server. These enterprise applications
were built in about six months and are deployed on Sun, Microsoft Windows and
IBM RS/6000 platforms. As a result of Unify VISION's ability to run on multiple
platforms, the development team needed to learn only one development tool
environment. A ten-person development team was able to leverage the rapid
application development features of Unify VISION to quickly amend the 150 forms
found in some of the relatively complex installed applications.

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TELECOMMUNICATIONS. A major telecommunications firm is using Unify VISION
to develop and deploy customer service management applications, thereby
improving customer satisfaction while reducing costs. The application
facilitates closure of a customer trouble ticket on one call by retrieving the
incoming caller's ID and phone number and using this information to retrieve and
display all pertinent customer data. The application is used by over 150
customer service representatives and roll-out plans call for an additional 650
users within 12 months. Among the reasons Unify VISION was chosen for the
project include the product's ability to extract information from multiple
databases, such as Oracle and Unify DataServer databases, without locking the
user into a certain client platform.

MANUFACTURING. A large supplier of PC printers employs Unify VISION as the
application development environment for handling their 400-user defects
management system linking three servers at different locations. After three
months of development, the customer was able to rebuild its existing application
and migrate from a character-based client/server environment. Unify VISION's
built-in automated functionality and powerful 4GL enabled the customer to
significantly reduce the number of forms and coding required. Unify VISION
provided a rapid GUI application environment complete with an open interface to
CASE and source code management tools as well as a single code stream supporting
multiple platforms. These capabilities enabled the customer to deploy to
multiple platforms without recompiling, thereby enabling rapid deployment.

FINANCIAL SERVICES. A full-service brokerage firm uses Unify VISION to
develop and support on-line and static security trading systems for their
municipal bond trading floors. The Sun and Windows-based application is the
front-end to mainframe security and pricing data. Part of the enterprise
roll-out includes global and local distributed application partitioning and
application management in both London and New York. Unify VISION satisfied the
customer's requirement for a flexible, easy-to-use tool which could create
applications deployable across multiple platforms. Unify VISION met the
requirements and allowed three database administrators who were knowledgeable
about the data but lacked programming expertise to develop the application and
respond to changing user requirements. During end-user testing, the database
administrators effectively modified the application to integrate with an
additional data source.

SALES AND MARKETING

The Company markets its products and services domestically through a
combination of direct sales and indirect channels, including distributors and
VARs. The Company's marketing efforts are primarily directed at broadening the
market for Unify VISION by increasing the awareness of the importance of a
high-end client/server application development environment and at supporting the
Company's direct and indirect sales channels. Marketing activities include,
among others, conducting public relations and product seminars, issuing
newsletters, conducting direct mailings, preparing other marketing materials,
coordinating the Company's participation in industry programs and forums and
establishing and maintaining close relationships with recognized industry
analysts. The Company also maintains a site on the World Wide Web.

The Company plans to continue to leverage its installed base of over 2,000
Unify ACCELL and DataServer customers. The Company's sales and marketing
strategy in part targets this installed base with the objective of generating
significant revenue for Unify VISION as this customer base migrates to high-end
client/server applications. The Company is also continuing to devote resources
to upgrade its ACCELL and DataServer products, thereby assisting those of its
customers that are not yet moving to high-end client/server applications.

The Company believes that the flexibility and ease-of-use of the Company's
development tools are particularly well suited for use by VARs and that the VAR
channel represents a significant market opportunity. In order to increase its
market presence, the Company intends to supplement its direct sales activities
by expanding its existing VAR sales channels through a focused program to
recruit additional medium to large VARs. Revenues from distributors and
resellers accounted for approximately 61%, 59%, and 60% of the Company's
software license revenues for fiscal 1994, 1995 and 1996,

37
<PAGE>
respectively. The Company's ability to achieve significant revenue growth in the
future will depend in large part on its success in maintaining existing and
establishing additional relationships with distributors, resellers and VARs
worldwide.

The Company markets its products internationally through subsidiaries in
Japan, England, France, the Netherlands and Germany and through distributors and
VARs. International revenue accounted for 51%, 56% and 56% of total revenues in
fiscal 1994, 1995 and 1996, respectively. For detailed information regarding the
distribution of revenues, operating results and assets by geographic area for
fiscal years 1994, 1995 and 1996, see Note 11 of Notes to Consolidated Financial
Statements.

As of April 30, 1996, the Company had 65 and 11 employees engaged in sales
and marketing activities worldwide, respectively. The Company intends to
continue to expand its sales and marketing staff and make additional investments
in marketing and advertising during fiscal 1997.

PRODUCT DEVELOPMENT

Since its inception, the Company has made substantial investments in product
development, and the Company anticipates that it will continue to commit
substantial resources to product development in the future. The Company's
principal development projects include Unify VISION 3.0, which, in addition to a
number of enhancements to existing features, will incorporate support for OLE 2
for application integration and a native Microsoft Windows 95 desktop
environment. Unify VISION 3.0 is expected to be released during the third
calendar quarter of 1996. The Company is also developing a version of Unify
VISION'S APPMAN which can be used by customers to provide application management
for use with applications developed with other development tools. Also, as part
of its strategy to support the extended enterprise, the Company is developing a
version of Unify VISION for use in development of Internet and Intranet
deployable applications. Unify's VISION Web facility allows customers to develop
multi-tiered, high-end client/server applications which run in either LAN-based
client/server environments or over the Internet. In addition, the Company
continues to invest in enhancements to its Unify ACCELL and DataServer products.

The software market in which the Company competes is characterized by rapid
technological change, frequent introductions of new and enhanced products,
changes in customer demands and evolving industry standards. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete and unmarketable. The Company's future
success will depend upon its ability to address the increasingly sophisticated
needs of its customers by supporting existing and emerging hardware, software,
database and networking platforms and by developing and introducing enhancements
to Unify VISION and new products on a timely basis that keep pace with such
technological developments, emerging industry standards and customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing enhancements to Unify VISION and new products that
respond to technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that could delay
or prevent the successful development, introduction and sale of such
enhancements or products or that such enhancements or products will adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance. If the release dates of any future Unify VISION enhancements
or new products are delayed or if when released they fail to achieve market
acceptance, the Company's business, operating results and financial condition
would be materially adversely affected. In addition, the introduction or
announcement of new product offerings or enhancements by the Company or the
Company's competitors may cause customers to defer or forgo purchases of current
versions of Unify VISION, which could have a material adverse effect on the
Company's business, operating results and financial condition.

The Company's product development activities are conducted at its
Sacramento, California facility and its San Jose, California headquarters. As of
March 31, 1996, the Company had a total of 59

38
<PAGE>
employees and contractors in product development, including 48 development
engineers. The Company's product development expenditures for fiscal 1993, 1994,
1995 and 1996 were $7.0 million, $6.3 million, $5.7 million and $5.8 million,
respectively. The Company expects that product development expenses will
continue to increase through fiscal 1997.

COMPETITION

The Company has experienced and expects to continue to experience intense
competition from current and future competitors. The Company's current direct
competitors for high-end client/server development tools include, among others,
Forte and Dynasty. The Company also competes with database vendors such as
Oracle, Informix, Sybase, IBM and others, which offer their own development
tools for use with their proprietary databases. In addition to its direct
competitors, the Company also competes with companies that offer other types of
development tools which can be used in lieu of advanced development tools such
as Unify VISION. Among the other types of tools which can be used by customers
include products offered by Powersoft, Microsoft and others.

For its Unify ACCELL and DataServer products, the Company's business
generally derives from sales of upgrades or additional run time versions of its
products. As a result, the competitive factors are generally the consideration
by a customer as to whether to develop a new system rather than whether to use a
competitor's products with the existing application built using the Company's
products. Vendors of products competitive to the Company's Unify ACCELL and
DataServer products include companies such as Oracle, Informix and Sybase, among
others.

Many of the Company's competitors have significantly greater financial,
technical, marketing and other resources than the Company. The Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than the Company. Also, many
current and potential competitors have greater name recognition and more
extensive customer bases that could be leveraged. The Company also expects to
face additional competition as other established and emerging companies enter
the client/server application development market and new products and
technologies are introduced. Increased competition could result in price
reductions, fewer customer orders, reduced gross margins and loss of market
share, any one of which could materially adversely affect the Company's
business, operating results and financial condition. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition could materially adversely affect the Company's ability
to sell additional licenses and maintenance and support renewals on terms
favorable to the Company. Further, competitive pressures could require the
Company to reduce the price of its products and related services, which could
materially adversely affect the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able to
compete successfully against current and future competition, and the failure to
do so would have a material adverse effect upon the Company's business,
operating results and financial condition.

The Company believes that the most significant competitive factors include
ease of application development, deployment and management functionality;
product performance and quality; customer support; product architecture; and
price. The Company believes it presently competes favorably with respect to each
of these factors. However, the Company's market is still evolving and there can
be no assurance that the Company will be able to compete successfully against
current and future competitors and the failure to do so successfully will have a
material adverse effect upon the Company's business, operating results and
financial condition.

INTELLECTUAL PROPERTY

The Company relies on a combination of copyright, trademark and trade-secret
laws, non-disclosure agreements and other methods to protect its proprietary
technology. Despite the Company's efforts

39
<PAGE>
to protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be expected
to be a persistent problem. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights as fully as do the laws of the
United States. There can be no assurance that the Company's means of protecting
its proprietary rights in the United States or abroad will be adequate or that
competition will not independently develop similar technology. Although the
Company claims trademark rights in UNIFY, ACCELL, UNIFY VISION, APPMAN,
SMARTVISION, DATASERVER, VISIONWEB and the Unify logo, the Company has only
obtained U.S. trademark registrations for UNIFY and ACCELL. In the event of any
future dispute regarding use of any such trademarks, including UNIFY and ACCELL,
there can be no assurance that the Company would be able to successfully
challenge any third party's use of an allegedly infringing trademark or
successfully defend a claim that the Company's trademarks infringe third party
trademarks.

Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any notices that the Company is infringing intellectual property rights of
others, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. If any such claims are asserted, there
can be no assurance that the Company will be able to obtain licenses on
reasonable terms. The Company's involvement in any patent dispute or other
intellectual property dispute or action to protect trade secrets and know-how
may have a material adverse effect on the Company. Adverse determinations in any
litigation may subject the Company to significant liabilities to third parties,
require the Company to seek licenses from third parties and prevent the Company
from manufacturing and selling its systems. Any of these situations can have a
material adverse effect on the Company's business, results of operations or
financial condition.

The Company is dependent on third-party suppliers for certain software such
as Galaxy from VISIX Software and RPC Tool from Microsoft, which are imbedded in
certain of its products. Although the Company believes that the functionality
provided by software which is licensed from third parties is obtainable from
multiple sources or could be developed by the Company, if any such third-party
licenses were terminated or not renewed or if these third parties fail to
develop new products in a timely manner, the Company could be required to
develop an alternative approach to developing its products which could require
payment of substantial fees to third parties, internal development costs and
delays and might not be successful in providing the same level of functionality.
Such delays, increased costs or reduced functionality could materially adversely
affect the Company's business, operating results and financial condition.

EMPLOYEES

As of April 30, 1996, the Company had a total of 190 employees, including 42
in product development, 39 in consulting, training and support, 76 in sales and
marketing and 33 in operations and administration. Of these employees, 147 were
located in the United States, 34 were located in Europe, and nine were located
in Japan.

The success of the Company depends in large part upon the ability of the
Company to recruit and retain qualified employees, particularly highly-skilled
engineers and direct-sales and support personnel. The competition for such
personnel is intense. There can be no assurance that the Company will be
successful in retaining or recruiting key personnel. Any failure by the Company
to expand or retain its engineering, direct sales and support personnel would
materially adversely affect the Company's

40
<PAGE>
business, operating results and financial condition. None of the Company's
employees are represented by a collective bargaining agreement, nor has the
Company experienced any work stoppage. The Company considers its relations with
its employees to be good.

LEGAL PROCEEDINGS

The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. The Company believes that the amount of
ultimate liability with respect to these actions will not materially affect the
consolidated financial position of the Company. As of April 30, 1996, the
Company had future payment obligations in the amount of approximately $217,000
relating to previously settled legal proceedings and claims. Of such amount,
approximately $150,000 is payable in fiscal 1997 and the remainder in fiscal
1998. The Company does not believe that such obligations will have an impact on
the Company's liquidity as of April 30, 1996 in any material respect.

FACILITIES

The Company maintains its headquarters in San Jose, California, in a 12,000
square foot facility under a lease which expires in September 2000. The Company
also leases 30,000 square feet of administrative and engineering space in
Sacramento, California under a lease which expires in October 2000. In addition,
the Company leases sales and support offices in Chicago, Illinois; Irving,
Texas; New York, New York; and Reston, Virginia. The Company also maintains
international offices in England, France, the Netherlands and Japan. The Company
believes that its existing facilities are adequate for its current needs. The
Company believes that suitable additional or alternative space will be available
in the future on commercially reasonable terms as needed. Nevertheless, any move
to new facilities or expansion could be disruptive and could have a material
adverse effect on the Company's business results, operations and financial
condition.

41
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the Company's
directors and executive officers:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------ --- ------------------------------------------
<S> <C> <C>
Reza Mikailli 44 President, Chief Executive Officer and
Director
Paul H. Bach 38 Vice President, US Commercial Sales
Scott Canali 39 Vice President, Marketing
James C. Fleming 51 Vice President, Worldwide Sales
Malcolm Padina 50 Vice President, European Sales
Terrence J. Reilly 51 Vice President, Intercontinental Sales
Susan Salvesen 40 Vice President, Finance and Administration
and Chief Financial Officer
Frank Verardi 47 Vice President, Customer Support & Product
Delivery
Walter Kopp 38 Director, Product Development
D. Kirkwood Bowman (1)(2) 55 Director
Arthur C. Patterson (1)(2) 52 Director
Gerard H. Langeler (1)(2) 45 Director
</TABLE>

- ------------------------
(1) Member of Compensation Committee of the Board of Directors.

(2) Member of Audit Committee of the Board of Directors.

REZA MIKAILLI has been President and Chief Executive Officer and a Director
of the Company since November 1994, after serving as Senior Vice President of
Products from October 1992 to November 1994. From 1989 to 1992 Mr. Mikailli was
Vice President of Server and Connectivity Products at Informix, a manufacturer
of computer database and software tool products. Mr. Mikailli received an M.S.
degree in computer science from Santa Clara University, and a B.S. degree in
computer science and a M.S. degree in mathematics from the University of Tehran,
Iran.

PAUL H. BACH has served as Vice President of U.S. Commercial Sales at the
Company since June 1995. From 1994 to May 1995, Mr. Bach served as Executive
Vice President, Field Operations of Infinity Financial Technology Incorporated,
a software company. From 1989 to 1994, Mr. Bach was employed by Borland
International, Inc. ("Borland"), a software company, most recently as Vice
President and General Manager, Interbase Business Unit and previously as Vice
President of U.S. Interbase Sales. Mr. Bach received a B.S. degree in economics
from The American University, Washington, D.C.

SCOTT CANALI has served as Vice President, Marketing at the Company since
April 1995. From 1992 to April 1995, Mr. Canali was Director, Marketing Programs
at Informix. From 1988 to 1992, Mr. Canali was employed by Motorola Inc., an
electronics company, as Director, Software & Channel Marketing of the Computer
Group. Mr. Canali received a B.A. in public service/management and
administration from the University of California at Davis.

JAMES C. FLEMING joined the Company as Vice President, Worldwide Sales in
January 1995. Prior thereto he was President of Intext Systems, a text storage
and retrieval company. From 1992 to 1994, Mr. Fleming served as Vice President,
U.S. Sales at Borland. From 1986 to 1992, Mr. Fleming was employed by Informix,
most recently as Vice President, U.S. & Canadian Sales and Client Services. Mr.
Fleming holds a bachelor's degree from U.C. Santa Barbara and California State
University at San Francisco.

42
<PAGE>
MALCOLM PADINA was appointed Vice President, European Sales at the Company
in February 1995. During 1994 Mr. Padina served as Vice President, European
Operations, of Visgenic Software Inc., a supplier of graphical database
development tools. From 1990 to 1993, Mr. Padina was Managing Director of the
English subsidiary of Informix.

TERRENCE J. REILLY joined the Company as Vice President, Intercontinental
Sales in April 1995. From 1993 to 1995, Mr. Reilly was employed by Blyth
Software, a software company, most recently as Vice President of North American
Sales. From August 1992 to November 1993, Mr. Reilly served as Vice President of
OEM & International Sales at Netlabs, Inc., a network management company. Mr.
Reilly received a B.A. degree in business administration/marketing from Dowling
College, and an A.S.B.A. degree in business and finance from State University of
New York, Farmingdale.

SUSAN SALVESEN joined the Company as Vice President, Finance and
Administration and Chief Financial Officer in April 1996. From May 1994 to April
1996, Ms. Salvesen was Vice President, Finance and Chief Financial Officer of AG
Associates, a semiconductor equipment company. From February 1988 to May 1994,
she served as Corporate Controller at Aspect Telecommunications, where she
managed the accounting and finance operations. She holds a B.A. degree in
economics from Douglass College of Rutgers University and an M.B.A. from the
University of Pittsburgh.

FRANK VERARDI joined the Company in 1988 as Manager of Consulting Services
and was named Director of Client Services in 1989. In November 1995, Mr. Verardi
was appointed Vice President, Customer Support & Product Delivery. Mr. Verardi
received a B.S. degree in Computer Sciences from California State University,
Chico.

WALTER KOPP joined the Company in 1987 as Engineering Manager. In 1992, Mr.
Kopp was named Director of Software Development and in January 1995 he was
appointed as Director of Product Development. Previously, he was Manager of
Software Tools at ROLM Corporation, a manufacturer of telecommunications
equipment, and a Systems Engineer and Systems Programmer at Data General, a
computer company. Mr. Kopp received a B.S. degree from Cornell University and a
M.S. degree in computer science from the University of Massachusetts.

D. KIRKWOOD BOWMAN has served as a director of the Company since December
1986. From 1985 to the present, Mr. Bowman has served as a General Partner of
Inman & Bowman Management, a venture capital management firm, which is the
General Partner of Inman & Bowman and Inman & Bowman Entrepreneurs, both of
which are venture capital funds. Mr. Bowman received a B.A. degree from the
University of the Pacific in international relations and an M.B.A. degree in
finance from the University of California at Berkeley.

ARTHUR C. PATTERSON has served as a director of the Company since December
1986. For more than five years Mr. Patterson has been a Managing Partner of
Accel Partners, a venture capital management firm investing in software and
telecommunication companies. Mr. Patterson is also a Director of AXENT
Technologies, Inc., a security software company, UUNet Technologies, Inc., an
Internet access provider, VIASOFT, Inc., a software company, PageMart Wireless,
Inc., a wireless communication company, and the GT Global group of mutual funds.

GERARD H. LANGELER has served as a director of the Company since May 1993.
From 1992 to the present, Mr. Langeler has served as a General Partner of
Olympic Venture Partners, a venture capital firm. From 1981 to 1992, Mr.
Langeler served as an officer of Mentor Graphics, Inc., a software company. Mr.
Langeler currently serves as a director of Consep, Inc., an agricultural
biotechnology company. Mr. Langeler holds an A.B. degree from Cornell University
and an M.B.A. degree from Harvard University.

Each officer serves at the discretion of the Board of Directors. Directors
are elected annually by the stockholders of the Company. There are no family
relationships among any of the directors or officers of the Company.

43
<PAGE>
The Board of Directors has a Compensation Committee and an Audit Committee,
both currently comprised of Messrs. Bowman, Langeler and Patterson. The
Compensation Committee makes recommendations to the Board concerning salaries
and incentive compensation for officers and employees of the Company. The Audit
Committee reviews the results and scope of the audit and other accounting
related services.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table summarizes all compensation earned by or paid to the
Company's Chief Executive Officer and to each of the Company's other most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 (collectively, the "Named Executive Officers") for services rendered in
all capacities to the Company during the fiscal years ended April 30, 1995 and
1996.

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER ANNUAL OPTIONS ALL OTHER
SALARY BONUS COMPENSATION GRANTED COMPENSATION
NAME AND PRINCIPAL FUNCTION (1) YEAR ($) ($) ($) (#) ($)
- ------------------------------------------------------------ ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Reza Mikailli............................................... 1996 $200,000 $ 88,250 -- 416,274 $12,000(1)
President & Chief 1995 180,000 72,000 -- 66,371 6,000
Executive Officer
James Fleming............................................... 1996 170,000 80,000 -- 10,000 12,000(1)
Vice President, 1995 47,100 20,000 -- 108,841 1,750
Worldwide Sales
Scott Canali................................................ 1996 160,000 40,000 -- 81,790 6,000(1)
Vice President, 1995 -- -- -- -- --
Marketing
Terrence Reilly............................................. 1996 120,000 77,000 -- 40,977 6,000(1)
Vice President, 1995 925 -- -- -- --
Intercontinental Sales
Malcolm Padina.............................................. 1996 133,100 48,300 -- 7,142 30,700(2)
Vice President, 1995 25,100 14,150 -- 54,527 5,600
European Sales
</TABLE>

- ------------------------
(1) Represents an automobile allowance.

(2) Includes $17,000 for automobile allowance and $12,000 for pension
contributions by the Company.

44
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning the option grants
during fiscal 1996 to the Named Executive Officers.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
INDIVIDUAL GRANT ANNUAL RATES OF
----------------------------------------------- STOCK PRICE
% OF TOTAL APPRECIATION FOR
OPTIONS GRANTED OPTION TERM (1)
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION ----------------
NAME (#)(2) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- -------------------------------------- ---------------------- --------------- ---------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Reza Mikailli......................... 223,070 21.4% $0.35 7/20/05 $49,101 $124,431
57,490 5.5 1.40 1/26/06 50,618 128,276
135,714 13.0 4.20 2/07/06 358,469 908,431
James Fleming......................... 10,000 1.0 1.40 1/26/06 8,805 22,312
Scott Canali.......................... 81,790 7.9 0.35 5/17/05 18,003 45,623
Terrence Reilly....................... 27,263 2.6 0.35 5/17/05 6,001 15,208
13,714 1.3 1.40 1/26/06 12,075 30,599
Malcolm Padina........................ 7,142 0.7 1.40 1/26/06 6,289 15,938
</TABLE>

- ------------------------
(1) The potential realizable value is based on the term of the option at the
time of grant (ten years). Potential gains are net of the exercise price but
before taxes associated with the exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at the
end of the relevant option term. The assumed 5% and 10% rates of stock
appreciation are based on appreciation from the exercise price per share
established at the relevant grant date. These rates are provided in
accordance with the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of the future Common
Stock price. Actual gains, if any, on stock option exercises are dependent
on the future financial performance of the Company, overall market
conditions and the option holders' continued employment through the vesting
period. This table does not take into account any appreciation in the price
of the Common Stock from the date of grant to the date of this Prospectus,
other than the columns reflecting assumed rates of appreciation of 5% and
10%.

(2) All options granted in fiscal 1996 have an exercise price equal to the fair
market value on the date of grant. The Company granted options to purchase
an aggregate of 1,040,218 shares to all employees and consultants in fiscal
1996.

OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

The following table sets forth information concerning the option exercises
during the fiscal year ended April 30, 1996 by the Named Executive Officers and
the fiscal 1996 year end option values.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END (1)
--------------------------- ---------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Reza Mikailli ...... 346,931 $181,790 -- 135,714 $ -- $617,499
James Fleming ...... 110,202 40,000 -- 8,639 -- 63,497
Scott Canali ....... 81,790 28,627 -- -- -- --
Terrence Reilly .... 27,263 9,542 -- 13,714 -- 100,798
Malcolm Padina ..... -- -- 15,904 45,765 133,594 376,927
</TABLE>

- ------------------------
(1) Based upon the fair market value of the Company's Common Stock at fiscal
year end of $8.75 per share, as determined by the Board of Directors less
the exercise price payable for such shares.

45
<PAGE>
1991 STOCK OPTION PLAN

The Company's 1991 Stock Option Plan (the "Stock Option Plan") became
effective in March 1991 and was last amended and restated in March 1996. The
purpose of the Stock Option Plan is to attract and retain qualified personnel,
to provide additional incentives to employees, officers and consultants of the
Company and to promote the success of the Company's business. A reserve of
2,200,000 shares of the Company's Common Stock has been established for issuance
under the Stock Option Plan. The Stock Option Plan is administered by the
Compensation Committee of the Board of Directors. Subject to the Stock Option
Plan, the Compensation Committee has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each such grant, the status of any granted option as either an incentive
stock option or a non-statutory option, the vesting schedule to be in effect for
the option grant and the maximum term for which any granted option is to remain
outstanding.

Each option granted under the Stock Option Plan has a maximum term of ten
years, subject to earlier termination following the optionee's cessation of
service with the Company. Options granted under the Stock Option Plan may be
exercised only for fully vested shares. The exercise price of incentive stock
options and non-statutory stock options granted under the Stock Option Plan must
be at least 100% and 85% of the fair market value of the stock subject to the
option on the date of grant, respectively (or 110% with respect to holders of
more than 10% of the voting power of the Company's outstanding stock). The
Compensation Committee determines the fair market value of the stock. The
purchase price is payable immediately upon the exercise of the option. Such
payment may be made in cash, in outstanding shares of Common Stock held by the
participant, through a full recourse promissory note payable in installments
over a period of years or any combination of the foregoing.

The Board of Directors may amend or modify the Stock Option Plan at any
time, provided that no such amendment or modification may adversely affect the
rights and obligations of the participants with respect to their outstanding
options or unvested shares without their consent. In addition, no amendment of
the Stock Option Plan may, without the approval of the Company's stockholders,
(i) materially modify the class of individuals eligible for participation, (ii)
increase the number of shares available for issuance, except in the event of
certain changes to the Company's capital structure, (iii) materially increase
the benefits accruing to Optionees under the Stock Option Plan, or (iv) extend
the term of the Stock Option Plan. The Stock Option Plan will terminate in March
2002, unless sooner terminated by the Board.

EMPLOYEE STOCK PURCHASE PLAN

In March 1996, the Board adopted the 1996 Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan was approved by the stockholders of the
Company in May 1996. The Purchase Plan provides a means by which employees may
purchase Common Stock of the Company through payroll deductions. The Purchase
Plan is implemented by offerings of rights to eligible employees. Generally,
each offering is of 24 months' duration with purchases occurring every six
months. Common Stock is purchased for accounts of employees participating in the
Purchase Plan at a price per share equal to the lower of (i) 85% of the fair
market value of a share of Common Stock on the date of commencement of
participation in the Purchase Plan offering period or (ii) 85% of the fair
market value of a share of Common Stock on the date of purchase. Generally, all
employees, including executive officers, who work at least 20 hours per week and
are customarily employed by the Company or an affiliate of the Company for at
least five months per calendar year may participate in the Purchase Plan and may
authorize payroll deductions of up to 15% of their base compensation for the
purchase of Common Stock under the plan. The Purchase Plan authorizes the
Company to issue up to 400,000 shares of Common Stock. As of the date hereof, no
shares of Common Stock had been purchased under the Purchase Plan. The Purchase
Plan will terminate in March 2006.

EMPLOYMENT AGREEMENTS

In March 1995, the Company entered into an employment agreement with Mr.
Mikailli. Under the agreement, Mr. Mikailli receives an annual salary of
$200,000 and is eligible to receive certain bonus payments upon the Company's
achieving certain levels of its business plan. Mr. Mikailli was also given a

46
<PAGE>
one-time $25,000 "sign-on" bonus and was guaranteed a minimum bonus of $25,000
for each of the third and fourth quarters of fiscal year 1995. In addition, the
Company granted to Mr. Mikailli incentive stock options to purchase a number of
shares of the Common Stock of the Company such that the total number of shares
already held by him, plus the number of shares subject to options, represents 6%
of the fully diluted outstanding capital stock of the Company at such time. The
exercise price of the options is $0.35 per share and the options become
exercisable under a three-year vesting schedule. If Mr. Mikailli is terminated
within twelve months following a merger of the Company or a sale by the Company
of all or substantially all of its assets, these options will automatically
vest. If Mr. Mikailli is terminated under any other circumstances, such options
will have the benefit of one additional year of vesting and Mr. Mikailli will
receive his annual base salary, benefits and bonus for an additional six months
from the date of termination.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board of Directors was formed in
March 1996 and the members of the Compensation Committee are Messrs. Bowman,
Langeler and Patterson. No executive officer of the Company serves as a member
of the board of directors or compensation committee of any entity which has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.

DIRECTOR COMPENSATION

Members of the Company's Board of Directors currently do not receive cash
compensation for their services as directors. During February 1996 each of the
non-employee directors was granted an option to purchase 14,285 shares of Common
Stock at an exercise price of $4.20 per share, which options vest over a
three-year period.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Restated Certificate of Incorporation (the "Certificate")
limits the liability of directors to the maximum extent permitted by Delaware
law. Delaware law provides that a corporation's certificate of incorporation may
contain a provision eliminating or limiting the personal liability of a director
for monetary damages for breach of their fiduciary duties as directors, except
for liability for (i) any breach of their duty of loyalty to the corporation or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (iv) any transaction from which
the director derived an improper personal benefit.

The Company's Bylaws provide that the Company shall indemnify its directors,
officers, and trustees to the fullest extent permitted by law. The Company
believes that indemnification under its Bylaws covers at least negligence and
gross negligence on the part of indemnified parties. The Company's Bylaws also
permit the Company to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the Bylaws would permit indemnification.

The Company has entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Bylaws. These agreements, among other things, indemnify the Company's
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of the
Company, arising out of such person's services as a director or executive
officer of the Company or any other company or enterprise to which the person
provides services at the request of the Company. The Company believes that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.

47
<PAGE>
CERTAIN TRANSACTIONS

In November 1993, the Company entered into a Revolving Credit Agreement with
certain investors (the "Lenders"), pursuant to which the Lenders agreed to make
available to the Company a revolving credit facility of up to $3,000,000. The
amount of the credit facility provided by holders of more than 5% of the
outstanding shares of the Company's Common Stock was as follows:

<TABLE>
<CAPTION>
NAME AMOUNT OF CREDIT
- ----------------------------------------------------------------- -----------------
<S> <C>
Inman & Bowman (1)............................................... $ 561,148
Accel Capital L.P (2)............................................ 456,557
Olympic Venture Partners (3)..................................... 431,929
Merrill, Pickard, Anderson & Eyre (4)............................ 274,991
Institutional Venture Partners (5)............................... 255,199
Robert Fleming Nominees, Ltd. (6)................................ 179,534
</TABLE>

- ------------------------
(1) D. Kirkwood Bowman, a director of the Company, is a General Partner of Inman
& Bowman ("I&B") Management which is a General Partner of I&B.

(2) Arthur Patterson, a director of the Company, is either a General Partner or
a General Partner of the respective General Partner of Accel Capital L.P.,
Accel Capital (International) L.P. and Ellmore C. Patterson Partners.

(3) Gerard Langeler, a director of the Company, is a General Partner of Olympic
Venture Partners ("OVP") II, is Attorney-in-Fact of Rainier Venture Partners
("RVP"), and a Vice President of RVP Advisors Fund and OVP II Advisors Fund.

(4) Merrill, Pickard, Anderson & Eyre ("MPAE") and related parties own of record
391,765 shares of Common Stock of the Company.

(5) Institutional Venture Partners ("IVP") and related parties owns of record
312,657 shares of Common Stock of the Company.

(6) Robert Fleming Nominees, Ltd. and related parties own of record 255,771
shares of the Common Stock of the Company.

The Company's obligations to pay each of the Lenders any amounts loaned to
the Company under the Revolving Credit Agreement were evidenced by full-recourse
Promissory Notes. Each Promissory Note provided that the principal amount of any
amounts loaned accrued interest at a rate of 3.75% per annum. The principal and
all accrued interest under each Promissory Note initially was due on August 30,
1995. In connection with the Revolving Credit Agreement, each Lender was also
issued a Warrant to purchase its pro rata share of 190,476 shares of the
Company's Common Stock at an exercise price of $1.75 per share. Such warrants
were immediately exercisable as to one-half of the shares covered thereby, with
the remaining one-half of the warrant exercisable only after such time as the
total amount advanced to the Company under the credit facility exceeded
$2,000,000. The amount advanced to the Company under the credit facility
exceeded $2,000,000 in January 1996. The warrants may be exercised by payment of
cash or the delivery of a promissory note or by a cashless exercise if the
Lender elects to receive the number of shares receivable upon exercise less the
number of shares having a value equal to the exercise price. The Revolving
Credit Agreement subsequently was amended on two separate occasions, pursuant to
which, among others, the term of the Agreement was extended, initially to
December 31, 1995, and, most recently, to July 31, 1997. Additionally, effective
as of December 31, 1995 the exercise price of the warrants was reduced from
$1.75 per share to $0.35 per share and the Lenders were granted certain
conversion rights relating to amounts outstanding under the revolving Credit
Agreement. Such conversion rights terminate upon the consummation of the
offering.

48
<PAGE>
In January 1996, the Company entered into a loan transaction with Mr.
Mikailli, the proceeds of which were used to exercise stock options. As of April
30, 1996 the principal amount outstanding under such loan was $195,022. The loan
is a full recourse loan bearing interest at the rate of 5% per year and secured
by the underlying shares. The loan is due in three years or earlier on the sale
of the shares.

In March 1995, the Company entered into an Employment Agreement with Mr.
Mikailli. See "Management -- Employment Agreements." The Company has entered
into indemnification agreements with each of its executive officers and
directors. See "Management -- Limitation of Liability and Indemnification
Matters."

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors and 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 of the Board of
Directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.

49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 30, 1996, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by:
(i) each person (or group of affiliated persons) who is known by the Company to
own beneficially 5% or more of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, (iv) all
directors and executive officers as a group and (v) each of the Selling
Stockholders of the Company's Common Stock. Except as otherwise noted, the
persons or entities in this table have sole voting and investment power with
respect to all the shares of Common Stock beneficially owned by them.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER OFFERING
-------------------------- NUMBER OF --------------------------
BENEFICIAL OWNER (1) NUMBER PERCENTAGE SHARES BEING SOLD NUMBER PERCENTAGE
- ------------------------------------------------ ----------- ------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Inman & Bowman (2) ............................. 771,368 13.3% 35,628 735,740 9.6%
4 Orinda Way
Bldg. D, Suite 150
Orinda, CA 94563
Accel Capital L.P. (3) ......................... 628,315 10.9% -- 628,315 8.2%
One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Olympic Venture Partners (4) ................... 606,223 10.5% -- 606,223 7.9%
2420 Carillon Point
Kirkland, WA 98033
Merrill, Pickard, Anderson & Eyre (5) .......... 391,765 6.8% -- 391,765 5.1%
2480 Sand Hill Road
Bldg. 2, Suite 290
Menlo Park, CA 94025
Institutional Venture Partners (6) ............. 312,657 5.4% -- 312,657 4.1%
3000 Sand Hill Road
Bldg. 2, Suite 290
Menlo Park, CA 94025
Fleming Capital Management (7) ................. 255,771 4.4% -- 255,771 3.3%
1285 Avenue of the Americas
16th Floor
New York, New York 10019
D. Kirkwood Bowman (8) ......................... 771,368 13.3% 35,628 735,740 9.6%
Arthur C. Patterson (9) ........................ 628,315 10.9% -- 628,315 8.2%
Gerard Langeler (10) ........................... 606,223 10.5% -- 606,223 7.9%
Reza Mikailli (11) ............................. 384,732 6.7% -- 384,732 5.0%
James Fleming (12) ............................. 110,202 1.9% -- 110,202 1.4%
Scott Canali (13) .............................. 81,790 1.4% -- 81,790 1.1%
Terrence Reilly (14) ........................... 27,263 * -- 27,263 *
Malcolm Padina (15) ............................ 18,175 * -- 18,175 *
All directors and executive officers as
a group (12 persons) (16) ..................... 2,723,219 47.1% 35,628 2,687,591 35.1%
</TABLE>

50
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER OFFERING
-------------------------- NUMBER OF --------------------------
BENEFICIAL OWNER (1) NUMBER PERCENTAGE SHARES BEING SOLD NUMBER PERCENTAGE
- ------------------------------------------------ ----------- ------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Other Selling Stockholders
Selby F. Little, III ........................... 28,571 * 28,571 -- --
Merritt Lutz ................................... 25,704 * 25,704 -- --
David B. Edwards ............................... 52,135 * 24,985 27,150 *
Richard Terry Duryea ........................... 37,800 * 24,857 12,943 *
Nicholas Nierenberg ............................ 107,826 1.8% 20,558 87,268 1.1%
William Osberg ................................. 62,736 1.1% 20,912 41,824 *
Reed Taussig ................................... 17,535 * 17,535 -- --
Harris Trust and Savings Bank .................. 20,317 * 20,317 -- --
as Trustee for the Unisys
Corporation Master Trust
Rhode Island Securities Corporation ............ 19,203 * 19,203 -- --
Hall, Morris, Drufva II LP ..................... 197,283 3.4% 8,878 188,405 2.5%
Battery Ventures ............................... 195,636 3.4% 8,719 186,917 2.4%
Larry Howard ................................... 32,427 * 6,855 25,572 *
J. Gregory Harris .............................. 12,857 * 4,285 8,572 *
Emil Osberg .................................... 13,264 * 4,285 8,979 *
Citibank/N.A. Custodian ........................ 1,548 * 1,548 -- --
for Larry Hagman IRA
Charles Fullerton .............................. 963 * 963 -- --
North Carolina Trust Company ................... 197 * 197 -- --
</TABLE>

- ------------------------
* Less than one percent.

(1) Except as set forth herein the address of the directors and executive
officers set forth in the table is the address of the Company appearing
elsewhere in the Prospectus. A person is deemed to be the beneficial owner
of securities that can be acquired by such person within 60 days upon the
exercise of options.

(2) Includes 756,601 shares held by I&B, 13,180 shares held by I&B
Entrepreneurs and options to buy 1,587 shares held by D. Kirkwood Bowman.

(3) Includes 356,687 shares held by Accel Capital L.P., 237,790 shares held by
Accel Capital (International) L.P., 4,617 shares held by Arthur C.
Patterson, 27,634 shares held by Ellmore C. Patterson Partners and options
to buy 1,587 shares held by Arthur C. Patterson.

(4) Includes 451,478 shares held by OVP II, 149,254 shares held by RVP, 2,053
shares held RVP Advisors Fund, 1,851 shares held by OVP II Advisors Fund and
options to buy 1,587 shares held by Gerald Langeler.

(5) Includes 386,097 shares held by MPAE IV and 5,668 shares held by MPAE
Technology Partners.

(6) Includes 307,970 shares held by IVP IV and 4,687 shares held by IVP
Management IV.

(7) Includes 212,570 shares held by Fleming Capital Management, Inc. and 43,201
shares held by Robert Fleming Nominees, Ltd.

51
<PAGE>
(8) Includes 756,601 shares held by I&B and 13,180 shares held by I&B
Entrepreneurs. Mr. Bowman is a General Partner of I&B Management, which is
the General Partner of I&B and I&B Entrepreneurs. Mr. Bowman disclaims
beneficial ownership of such shares except to the extent to which he holds a
pecuniary interest.

(9) Includes 356,687 shares held by Accel Capital L.P., 237,790 shares held by
Accel Capital (International) L.P., 4,617 shares held by Arthur C. Patterson
and 27,634 shares held by Ellmore C. Patterson Partners. Mr. Patterson is
either a General Partner or a General Partner of the respective General
Partner, of Accel Partners, Accel Capital (International) L.P. or Ellmore C.
Patterson Partners. Mr. Patterson disclaims beneficial ownership of such
shares except to the extent of which he holds a pecuniary interest.

(10) Includes 451,478 shares held by OVP II, 149,254 shares held by RVP, 2,053
shares held by RVP Advisors Fund and 1,851 shares held by OVP II Advisors
Fund. Mr. Langeler is a General Partner of OVP, and is Attorney-in-Fact of
Rainier Venture Partners and a Vice President of both RVP Advisors Fund and
OVP II Advisers Fund. Mr. Langeler disclaims beneficial ownership of such
shares except to the extent to which he holds a pecuniary interest.

(11) Includes 194,762 shares subject to a right of repurchase in favor of the
Company which expires ratably over a three year period.

(12) Includes 76,189 shares subject to a right of repurchase in favor of the
Company which expires ratably over a four year period.

(13) Includes 63,046 shares subject to a right of repurchase in favor of the
Company which expires ratably over a four year period.

(14) Includes 21,015 shares subject to a right of repurchase in favor of the
Company which expires ratably over a four year period.

(15) Represents options to buy shares vested as of June 30, 1996.

(16) Includes 426,910 shares subject to a right of repurchase which expires
ratably over a three or four year vesting period and 4,761 options to buy
shares vested as of June 30, 1996.

52
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.001 par value,
7,506,831 of which will be outstanding, and 5,000,000 shares of Preferred Stock,
$0.001 par value, none of which will be outstanding. At April 30, 1996, the
Company had 5,640,831 shares of Common Stock outstanding held by 294
stockholders. The following description of the capital stock of the Company and
certain provisions of the Company's Restated Certificate of Incorporation and
Bylaws is a summary and is qualified in its entirety by the provisions of the
Restated Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders, including the election of
directors, and, subject to preferences that may be applicable to any Preferred
Stock outstanding at the time, are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." Cumulative voting is
neither required nor permitted under the Company's Restated Certificate of
Incorporation. In the event of liquidation or dissolution of the Company, the
holders of Common Stock are entitled to receive all assets available for
distribution to the stockholders, subject to any preferential rights of any
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
or other subscription rights, and there are no conversion rights or redemption
or sinking fund provisions with respect to the Common Stock. All outstanding
shares of Common Stock are, and the shares offered hereby upon issuance and sale
will be, fully paid and nonassessable. The rights, preferences and privileges of
the holders of Common Stock are subject to, and may be adversely affected by,
the rights of the holders of any shares of Preferred Stock which the Company may
designate and issue in the future.

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of Preferred Stock that
may be issued from time to time in one or more series upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions
applicable to each series of Preferred Stock. The issuance of Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, adversely affect the voting power
of the holders of Common Stock and, under certain circumstances, make it more
difficult for a third party to gain control of the Company, discourage bids for
the Company's Common Stock at a premium or otherwise adversely affect the market
price of the Common Stock. The Company has no current plans to issue any
Preferred Stock.

REGISTRATION RIGHTS

After the closing of this offering, the holders ("Holders") of an aggregate
of approximately 4,900,000 shares of Common Stock are entitled to certain rights
with respect to the registration of such shares for offer and sale to the public
under the Securities Act. Under these provisions, the Holders may request that
the Company file up to two registration statements under the Securities Act with
respect to at least 30% of such Common Stock or lesser percentage if the
aggregate offering price to the public would be at least $3,000,000. Upon
receipt of such a request, the Company is required to notify all other Holders
and to use all reasonable efforts to effect such registration, subject to
certain conditions, including that the request must be received three months
following the closing of this offering. Further, whenever the Company proposes
to register any of its securities under the Securities Act for its own account
or for the account of other security holders, the Company is required to notify
each Holder of the proposed registration and include all Common Stock which such
Holder may request to be included in such registration, subject to certain
limitations. The Company has obtained a waiver of these rights to the extent
they would have applied to this offering. Generally, the Company is required to
bear all expenses (except underwriting discounts, selling commissions and stock
transfer taxes) of all registrations. No Holders have given the Company notice
that they intend to exercise registration rights following the offering.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is The First National
Bank of Boston. Its telephone number is (617) 575-2500.

53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for securities of
the Company. No prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock of the Company in the public market after the lapse of the
restrictions described below could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future at a time
and price which it deems appropriate.

Upon completion of this offering, the Company will have approximately
7,506,831 shares of Common Stock outstanding. Of these shares, the 2,140,000
shares sold in this offering will be freely transferable without restriction or
registration under the Securities Act, except for any shares purchased by
affiliates of the Company. The remaining 5,366,831 shares were sold by the
Company in reliance on exemptions from the registration requirements of the
Securities Act and are "restricted" shares within the meaning of Rule 144
adopted under the Securities Act (the "Restricted Shares"). Of the Restricted
Shares, approximately 115,000 shares not subject to lock-up agreements will be
eligible for immediate sale in the public market pursuant to Rule 144(k).
Beginning 90 days after the effective date of the Registration Statement
approximately 250,000 additional shares not subject to lock-up agreements will
be eligible for sale in the public market pursuant to Rule 144 or Rule 701,
subject to compliance with certain volume limitations under Rule 144.
Approximately 5,000,000 shares are subject to lock-up agreements (the "Lock-Up
Agreements") with the Representatives of the Underwriters (as both terms are
defined below). The holders of shares subject to Lock-Up Agreements have agreed
not to offer, sell or otherwise dispose of any of their shares of Common Stock
for a period of 180 days following the date of this Prospectus, without the
prior written consent of Montgomery Securities, one of the Representatives. See
"Underwriting." Montgomery Securities in its sole discretion and without notice
may earlier release for sale in the public market all or any portion of the
shares subject to the Lock-up Agreements.

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate who has beneficially owned
Restricted Shares for at least a two-year period (as computed under Rule 144) is
entitled to sell within any three-month period a number of such shares that does
not exceed the greater of (i) 1% of the then outstanding shares of the Common
Stock (approximately 75,000 shares after giving effect to this offering) and
(ii) the average weekly trading volume in the Company's Common Stock during the
four calendar weeks immediately preceding such sale. Sales under Rule 144 are
also subject to certain provisions relating to the manner and notice of sale and
the availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an affiliate of the
Company at any time during the 90 days immediately preceding a sale, and who has
beneficially owned restricted shares for at least a three-year period (as
computed under Rule 144), would be entitled to sell such shares under Rule
144(k) without regard to the volume limitation and other conditions described
above. Restricted shares and options to purchase Common Stock sold by the
Company to, among others, its employees, officers and directors pursuant to
written compensation plans or contracts and in reliance on Rule 701 under the
Securities Act, may be resold in reliance on Rule 144 by such persons who are
not affiliates subject only to the provisions of Rule 144 regarding manner of
sale, and by such persons who are affiliates without complying with the Rule's
holding period requirements.

The Company expects to file a registration statement under the Securities
Act 90 days after the completion of this offering to register approximately an
additional 1,700,000 shares of Common Stock reserved for issuance under the
Stock Option Plan and the Purchase Plan.

54
<PAGE>
UNDERWRITING

The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Needham & Company, Inc. and Black & Company (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of such shares, if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------- -----------
<S> <C>
Montgomery Securities............................................ 457,500
Needham & Company, Inc........................................... 457,500
Black & Company.................................................. 350,000

Alex, Brown & Sons Incorporated.................................. 100,000
Cowen & Company.................................................. 100,000
Hambrecht & Quist LLC............................................ 100,000
Morgan Stanley & Co. Incorporated................................ 100,000

Raymond James & Associates, Inc.................................. 75,000
Soundview Financial Group, Inc................................... 75,000
Sutro & Co. Incorporated......................................... 75,000
Unterberg Harris................................................. 75,000
Wessels, Arnold & Henderson, L.L.C............................... 75,000

The Chicago Corporation.......................................... 50,000
Van Kasper & Company............................................. 50,000
-----------
Total........................................................ 2,140,000
-----------
-----------
</TABLE>

The Representatives have advised the Company that the Underwriters initially
propose to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $0.48 per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $0.10 per share to
certain other dealers. After the initial public offering, the offering price and
other selling terms may be changed by the Representatives. The Common Stock is
offered subject to receipt and acceptance by the Underwriters and to certain
other conditions, including the right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 321,000 additional shares of Common Stock, to cover over-allotments, if any,
at the same price per share as the initial 2,140,000 shares to be purchased by
the Underwriters. To the extent the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover
over-allotments made in connection with this offering.

Holders of approximately 5,000,000 shares of Common Stock prior to this
offering have agreed, subject to certain limited exceptions, not to sell or
offer to sell or otherwise dispose of the shares of Common Stock currently held
by them, any options or warrants to purchase any shares of Common Stock or any
securities convertible into or exchangeable for any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Montgomery Securities. Montgomery Securities may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements. In addition, the Company has
agreed that for a period of 180 days after the date of this Prospectus it will
not, without the consent of Montgomery Securities, issue, offer, sell, grant
options to

55
<PAGE>
purchase or otherwise dispose of any equity securities or securities convertible
into or exchangeable for equity securities except for shares of Common Stock
offered hereby and shares issued pursuant to the Stock Option Plan or the
Purchase Plan. See "Management -- 1991 Stock Option Plan;" "-- Employee Stock
Purchase Plan" and "Shares Eligible for Future Sale."

The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters and their controlling persons
against certain liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the Underwriters may be required to make in
respect thereof.

The Representatives have advised the Company that the Underwriters did not
confirm sales to any accounts over which they exercise discretionary authority
in excess of 5% of the number of shares of Common Stock offered hereby.

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined
through negotiations among the Company, the Selling Stockholders and the
Representatives. Among the factors considered in such negotiations were the
history of, and prospects for, the Company and the industry in which it
competes, an assessment of the Company management, its past and present
operations and financial performance, the prospects for future earnings of the
Company, the present state of the Company's development, the general condition
of the securities markets at the time of the offering and the market prices of
and demand for publicly traded common stocks of comparable companies in recent
periods and other factors deemed relevant.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Baker & McKenzie, Palo
Alto, California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.

EXPERTS

The audited Consolidated Financial Statements and schedule of the Company
included in this Prospectus and appearing in the Registration Statement (as
defined below) have been audited by KPMG Peat Marwick LLP, independent auditors,
as set forth in their report thereon appearing elsewhere herein, and are
included in reliance upon the authority of such firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete. Although all material elements
of such contracts, agreements and other documents required to be disclosed in
this Prospectus are so disclosed in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, each such statement being
qualified in all respects by such reference. The Registration Statement and the
exhibits and schedules thereto may be inspected without charge at the public
reference facilities maintained by the Securities and Exchange Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: 13th Floor, Seven World Trade Center, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission, Washington, D.C. at
prescribed rates.

56
<PAGE>
GLOSSARY OF TECHNICAL TERMS

4GL (FOURTH GENERATION LANGUAGE): a programming language designed for ease
of use facilitated by interaction with the programmer, often used to define
languages used with relational databases.

AGENTS: In the client/server model, agents are automatic computer processes
that perform information gathering and preparation on behalf of a client or
server, and often communicate with other agents to perform a larger collective
task.

APPLICATION PARTITIONING: a process by which application functions are
divided and processed on multiple servers, thereby not limiting processing to
any single computer.

CASE -- COMPUTER AIDED SOFTWARE ENGINEERING: a technique for using
computers to help with one or more phases of the software life-cycle, including
the systematic analysis, design, implementation and maintenance of software.

CLIENT/SERVER: an arrangement used on computer networks that makes use of
"distributed intelligence", thereby treating both the central data server and
individual desktop computers as intelligent, programmable devices capable of
sharing data processing tasks.

GUI -- GRAPHICAL USER INTERFACE: a type of display format that enables
users to select commands, start programs and see lists of files and other
options by pointing to pictorial representations ("icons") and lists of menu
items on the screen.

MASSIVELY PARALLEL SYSTEMS: computer systems that incorporate a significant
number of data processing units to simultaneously process discrete portions of a
data processing task.

OBJECT-ORIENTED PROGRAMMING: a type of software programming in which a
program is viewed as a collection of discrete software objects, each of which is
a self-contained collection of common data structures and data processing
routines.

ODBC -- OPEN DATABASE CONNECTIVITY: an industry standard for accessing
different database systems.

OLE -- OBJECT LINKING AND EMBEDDING: an industry standard that allows users
to embed objects such as text, graphics or spreadsheets in other documents.

RADD -- RAPID APPLICATION DEVELOPMENT AND DEPLOYMENT: a programming
architecture that is designed to enable developers to quickly and easily produce
complex, business-critical applications.

SQL -- STRUCTURED QUERY LANGUAGE: an industry standard database language
used in querying, updating and managing relational databases.

VAR -- VALUE-ADDED RESELLER: a company that distributes hardware or
software products made by others, adding value through the combination of other
products, user support, and service.
<PAGE>
UNIFY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Financial Statements:
Balance Sheets as of April 30, 1995 and 1996............................ F-3
Statements of Operations for the years ended April 30, 1994, 1995 and
1996................................................................... F-4
Statements of Stockholders' Deficit for the years ended April 30, 1994,
1995 and 1996.......................................................... F-5
Statements of Cash Flows for the years ended April 30, 1994, 1995 and
1996................................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Unify Corporation:

We have audited the accompanying consolidated balance sheets of Unify
Corporation and subsidiaries as of April 30, 1995 and 1996, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
each of the years in the three-year period ended April 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Unify
Corporation and subsidiaries as of April 30, 1995 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended April 30, 1996, in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP
San Jose, California
May 17, 1996

F-2
<PAGE>
UNIFY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
APRIL 30, APRIL 30, 1996
--------- -------------------
1995 ACTUAL PRO FORMA
--------- -------- ---------
ASSETS (NOTE 12)
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents....................... $ 3,776 $ 3,028 $ 3,095
Accounts receivable, net of allowances of $1,043
in 1995 and $483 in 1996....................... 3,667 4,745 4,745
Amounts due from minority interest stockholders,
net of allowances of $492 in 1995 and $382 in
1996........................................... 1,091 525 525
Prepaid expenses................................ 520 893 893
Other current assets............................ 408 119 119
--------- -------- ---------
Total current assets.......................... 9,462 9,310 9,377
Property and equipment, net....................... 2,226 3,358 3,358
Capitalized software, net of accumulated
amortization of $914 in 1995..................... 582 -- --
Other assets...................................... 411 329 329
--------- -------- ---------
Total assets.................................. $ 12,681 $ 12,997 $ 13,064
--------- -------- ---------
--------- -------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt............... $ 189 $ 255 $ 255
Accounts payable................................ 833 1,866 1,866
Amounts due to minority interest stockholders... 2,155 1,392 1,392
Accrued compensation and related expenses....... 1,409 1,655 1,655
Taxes payable................................... 690 542 542
Litigation settlements.......................... 443 217 217
Other accrued liabilities....................... 2,347 1,916 1,916
Deferred revenue................................ 4,512 4,650 4,650
--------- -------- ---------
Total current liabilities..................... 12,578 12,493 12,493
Long-term debt, net of current portion............ 1,488 2,456 2,456
Minority interest................................. 270 495 495
Commitments and contingencies.....................
Redeemable preferred stock, $0.001 par value;
2,931,370 shares designated; 2,876,136 shares
issued and outstanding; aggregate liquidation
preference of $25,424 and $27,177 in 1995 and
1996, respectively; no shares authorized, issued
or outstanding pro forma......................... 24,973 26,726 --
Stockholders' deficit:
Preferred stock, $0.001 par value; 7,931,370
shares authorized; no shares issued or
outstanding pro forma.......................... -- -- --
Common stock, $0.001 par value; 40,000,000
shares authorized; 1,340,344 and 1,884,075
shares issued and outstanding in 1995 and 1996,
respectively; 5,640,831 shares outstanding pro
forma.......................................... 1 2 6
Additional paid-in capital...................... 2,159 2,188 28,977
Notes receivable from stockholders.............. (515) (265) (265)
Cumulative translation adjustments.............. (682) (816) (816)
Accumulated deficit............................. (27,591) (30,282) (30,282)
--------- -------- ---------
Total stockholders' deficit................... (26,628) (29,173) (2,380)
--------- -------- ---------
Total liabilities and stockholders' deficit... $ 12,681 $ 12,997 $ 13,064
--------- -------- ---------
--------- -------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software licenses............................................................ $ 19,048 $ 17,995 $ 20,444
Services..................................................................... 11,501 10,854 9,721
--------- --------- ---------
Total revenues............................................................. 30,549 28,849 30,165
--------- --------- ---------
Cost of revenues:
Software licenses............................................................ 3,262 2,787 2,059
Services..................................................................... 6,215 5,786 4,332
--------- --------- ---------
Total cost of revenues..................................................... 9,477 8,573 6,391
--------- --------- ---------
Gross margin................................................................... 21,072 20,276 23,774
--------- --------- ---------
Operating expenses:
Product development.......................................................... 5,598 5,324 5,805
Selling, general and administrative.......................................... 19,795 15,000 18,920
Restructuring charges........................................................ 570 431 --
--------- --------- ---------
Total operating expenses................................................... 25,963 20,755 24,725
--------- --------- ---------
Loss from operations....................................................... (4,891) (479) (951)
Other income (expense), net.................................................... (1,830) 392 176
--------- --------- ---------
Loss before income taxes..................................................... (6,721) (87) (775)
Provision for income taxes..................................................... (342) (392) (163)
--------- --------- ---------
Net loss..................................................................... $ (7,063) $ (479) $ (938)
--------- --------- ---------
--------- --------- ---------
Pro forma net loss per share................................................... $ (0.08) $ (0.18)
--------- ---------
--------- ---------
Shares used in computing pro forma net loss per share.......................... 5,639 5,327
--------- ---------
--------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE CUMULATIVE TOTAL
----------------- PAID-IN FROM TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS ADJUSTMENTS DEFICIT DEFICIT
--------- ------ ---------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 30, 1993.............. 940,855 $ 1 $1,592 $-- $(416) $(16,542) $(15,365)
Exercise of stock options............. 379,906 -- 665 (621) -- -- 44
Dividend accrual...................... -- -- -- -- -- (1,753) (1,753)
Translation adjustments............... -- -- -- -- (150) -- (150)
Net loss.............................. -- -- -- -- -- (7,063) (7,063)
--------- ------ ---------- ------ ----------- ----------- --------------
Balances at April 30, 1994.............. 1,320,761 1 2,257 (621) (566) (25,358) (24,287)
Exercise of stock options............. 19,583 -- 8 -- -- -- 8
Cancellation and reissuance of common
stock................................ -- -- (106) 106 -- -- --
Dividend accrual...................... -- -- -- -- -- (1,754) (1,754)
Translation adjustments............... -- -- -- -- (116) -- (116)
Net loss.............................. -- -- -- -- -- (479) (479)
--------- ------ ---------- ------ ----------- ----------- --------------
Balances at April 30, 1995.............. 1,340,344 1 2,159 (515) (682) (27,591) (26,628)
Exercise of stock options............. 776,897 1 341 (182) -- -- 160
Exercise of warrants.................. 13,571 -- 48 -- -- -- 48
Repurchase of common stock............ (246,737) -- (432) 432 -- -- --
Dividend accrual...................... -- -- -- -- -- (1,753) (1,753)
Imputed interest on note payable to
preferred stockholders............... -- -- 72 -- -- -- 72
Translation adjustments............... -- -- -- -- (134) -- (134)
Net loss.............................. -- -- -- -- -- (938) (938)
--------- ------ ---------- ------ ----------- ----------- --------------
Balances at April 30, 1996.............. 1,884,075 $ 2 $2,188 $(265) $(816) $(30,282) $(29,173)
--------- ------ ---------- ------ ----------- ----------- --------------
--------- ------ ---------- ------ ----------- ----------- --------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................................... $ (7,063) $ (479) $ (938)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation..................................................................... 1,305 1,086 979
Amortization of capitalized software............................................. 1,422 1,149 582
Provision for losses on accounts receivable...................................... 149 35 (42)
Noncash restructuring charges.................................................... 570 431 --
Minority interest................................................................ (378) (493) (366)
Provision for litigation settlements............................................. 2,154 300 --
Forgiveness of amounts due to minority interest stockholders..................... -- (305) --
Imputed interest on note payable to preferred stockholders....................... -- -- 72
Changes in operating assets and liabilitites:
Accounts receivable............................................................ 2,428 1,711 (1,364)
Amounts due from minority interest stockholders................................ (69) (729) 356
Prepaid expenses and other current assets...................................... 303 250 (184)
Accounts payable............................................................... (1,262) 129 1,068
Amounts due to minority interest stockholders.................................. (81) 997 (336)
Accrued compensation and related expenses...................................... (309) (553) 292
Taxes payable.................................................................. 7 32 (85)
Litigation settlements......................................................... -- (2,702) (226)
Other accrued liabilities...................................................... (379) 295 (387)
Deferred revenue............................................................... 352 156 (491)
--------- --------- ---------
Net cash (used in) provided by operating activities.................................. (851) 1,310 (1,070)
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment................................................. (849) (811) (784)
Capitalized software............................................................... (750) (420) --
Other assets....................................................................... 384 330 8
--------- --------- ---------
Net cash used in investing activities................................................ (1,215) (901) (776)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from debt obligations..................................................... 198 1,250 1,000
Principal payments under debt obligations.......................................... (279) (483) (428)
Proceeds from issuance of common stock............................................. 44 8 208
Additional investment in subsidiary by minority interest stockholders.............. -- -- 591
--------- --------- ---------
Net cash (used in) provided by financing activities.................................. (37) 775 1,371
--------- --------- ---------
Effect of exchange rate changes on cash.............................................. (132) 97 (273)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents................................. (2,235) 1,281 (748)
Cash and cash equivalents, beginning of year......................................... 4,730 2,495 3,776
--------- --------- ---------
Cash and cash equivalents, end of year............................................... $ 2,495 $ 3,776 $ 3,028
--------- --------- ---------
--------- --------- ---------

Interest paid........................................................................ $ 190 $ 164 $ 167
--------- --------- ---------
--------- --------- ---------
Income taxes paid.................................................................... $ 310 $ 304 $ 232
--------- --------- ---------
--------- --------- ---------
Noncash investing and financing activities:
Common stock issued (canceled) in return for notes receivable from stockholders.... $ 621 $ (106) $ (250)
--------- --------- ---------
--------- --------- ---------
Unify VISION software, maintenance and training exchanged for financial
applications software, support and training....................................... $ 1,050
---------
---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Unify Corporation (the "Company") develops, markets and supports Unify
VISION, an advanced client/server application development environment for
development, deployment and management of high-end scalable applications. The
Company also enhances, markets and supports Unify ACCELL, a family of fourth
generation language application development tools and Unify DataServer, a family
of database management system products.

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries and Unify Japan KK, which is 51%
owned by the Company. All significant intercompany balances and transactions
have been eliminated.

The functional currencies of the Company's foreign subsidiaries are the
local currencies. Assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at period-end exchange rates. Income and expense
accounts are translated at average rates of exchange in effect during the
respective period. Translation adjustments are excluded from net income and
accumulated in a separate component of stockholders' deficit. Foreign currency
translation gains or losses resulting from the sale of products in other than
the functional currency are reported in results of operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates made in preparing these consolidated financial
statements include the degree of certainty of collection for revenue recognition
and allowances for potential credit losses.

CASH EQUIVALENTS

Cash equivalents are highly liquid investments with original maturities of
three months or less and are stated at cost, which approximates fair value. Cash
equivalents consist primarily of demand deposits with banks, certificates of
deposit and money market funds.

CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS

Financial instruments potentially subjecting the Company to concentrations
of credit risk consist primarily of temporary cash investments, including
certificates of deposit and money market funds. The Company places its temporary
cash investments primarily with two financial institutions.

The Company licenses its products principally to companies in North America,
Europe and Japan and no customer accounted for more than 10% of consolidated
revenues in the years ended April 30, 1994, 1995 and 1996. The Company performs
periodic credit evaluations of its customers and generally does not require
collateral. Allowances are maintained for potential credit losses.

REVENUE RECOGNITION

Software license revenue is recognized when a noncancelable license
agreement has been executed, the product has been shipped, all significant
contractual obligations have been satisfied and collection of the resulting
receivable is probable. Services revenue includes maintenance revenue, which is
recognized ratably over the maintenance period, and revenue from consulting and
training services, which is recognized as services are performed. Fees for
maintenance are billed in advance and included in

F-7
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred revenue until recognized. See also Note 2 to Consolidated Financial
Statements. The Company's revenue recognition policies are in compliance with
the provisions of the American Institute of Certified Public Accountants'
Statement of Position No. 91-1, SOFTWARE REVENUE RECOGNITION.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is recorded on a
straight-line basis over the estimated useful lives of the related assets,
generally five years.

CAPITALIZED SOFTWARE

Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED. Under this
standard, capitalization of software development costs begins upon the
establishment of technological feasibility. The Company begins capitalization
upon completion of a working model. Amortization of capitalized software
development costs is computed on a product-by-product basis as the greater of
the ratio of current product revenue to the total of current and anticipated
product revenue or the straight-line method over the software's estimated
economic life, generally one to three years. Unamortized capitalized software
development costs are periodically compared to their net realizable value and a
loss is recorded for any excess.

INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes pursuant to SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under the asset and
liability method, deferred taxes are recorded for the difference between the
financial statement and tax bases of the Company's assets and liabilities. A
valuation allowance is recorded to reduce deferred tax assets to an amount whose
realization is more likely than not. U.S. income taxes are not provided on the
undistributed earnings of foreign subsidiaries as they are considered to be
permanently invested.

PRO FORMA NET LOSS PER SHARE

Pro forma net loss per common and common equivalent share is based upon the
weighted average number of outstanding shares of common stock and common
equivalent shares from stock options and warrants (under the treasury stock
method, if dilutive) and redeemable preferred stock (using the as-if-converted
method, even if antidilutive). Pursuant to certain Securities and Exchange
Commission (SEC) Staff Accounting Bulletins, common and common equivalent shares
issued at prices below the anticipated initial public offering (IPO) price
during the twelve-month period prior to the offering have been included in the
calculation, even if antidilutive, as if they were outstanding for all periods
presented using the treasury stock method and the anticipated IPO price.

2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Equipment............................................................... $ 5,961 $ 6,474
Furniture and leasehold improvements.................................... 1,526 1,776
Financial applications software......................................... -- 888
--------- ---------
7,487 9,138
Less accumulated depreciation........................................... 5,261 5,780
--------- ---------
Property and equipment, net............................................. $ 2,226 $ 3,358
--------- ---------
--------- ---------
</TABLE>

F-8
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. PROPERTY AND EQUIPMENT (CONTINUED)
In December 1995, the Company entered into an agreement with a customer
whereby the Company exchanged licenses for its Unify VISION software,
maintenance and training for licenses for the customer's financial applications
software, support and training. The Company recorded the transaction using the
fair value of the assets exchanged. During fiscal 1996, the Company recognized
$262,000 for the initial delivery of software development licenses to the
customer. The remaining $788,000 has been deferred because either the related
software licenses have not been delivered or the support and training have not
been provided.

3. LINE OF CREDIT
In March 1996, the Company established a $2.5 million revolving line of
credit with a bank. This line of credit permits borrowings up to 80% of eligible
accounts receivable and up to $500,000 of the line may also be used to finance
80% of equipment purchases with no receivable borrowing limitation. The line is
secured by all of the Company's assets, bears interest at 2.75% and 3.50% over
the bank's prime lending rate (11.00% and 11.75% as of April 30, 1996,
respectively) for receivable based and equipment borrowings, respectively, and
expires in March 1997. The agreement provides for minimum interest payments and
contains certain financial covenants, with which the Company was in compliance
at April 30, 1996.

4. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Unsecured note payable to preferred stockholders, interest at 3.75%, due
July 1997 (Note 5)...................................................... $ 1,250 $ 2,250
Note payable, secured by equipment, bearing interest at 8.70%, payable in
monthly installments of $7 through April 1997........................... 126 66
Other.................................................................... 301 395
--------- ---------
1,677 2,711
Less current portion..................................................... 189 255
--------- ---------
Long-term debt, net of current portion................................... $ 1,488 $ 2,456
--------- ---------
--------- ---------
</TABLE>

Future maturities of long-term debt as of April 30, 1996 were $255,000,
$2,410,000 and $46,000 for the years ending April 30, 1997, 1998 and 1999,
respectively.

5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

REDEEMABLE PREFERRED STOCK

Authorized and outstanding redeemable preferred stock and its principal
terms are as follows at April 30, 1996 (in thousands, except share data):

<TABLE>
<CAPTION>
SHARES SHARES AMOUNT DIVIDEND LIQUIDATION
SERIES AUTHORIZED OUTSTANDING PAID IN PREFERENCE PREFERENCE
- ----------- ----------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
A 571,428 571,421 $ 2,955 $ 720 $ 3,000
B 571,428 571,409 2,940 720 3,000
C 744,800 744,779 6,439 1,564 6,517
D 608,000 559,978 4,672 1,176 4,900
E 435,714 428,549 4,460 1,080 4,500
--------- ----------- -----------
$ 21,466 $ 5,260 $ 21,917
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

F-9
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT (CONTINUED)
Each share of preferred stock and all accumulated dividends are convertible,
at the holder's option, into common stock at an initial conversion price of
$5.25 per share for Series A and B, $8.75 per share for Series C and D and
$10.50 per share for Series E. In certain instances, the preferred stock
automatically converts to common stock upon completion of a public offering of
the Company's common stock. The holders of preferred stock are entitled to the
number of votes equal to the number of shares of common stock into which their
preferred stock is convertible.

Beginning in May 1993, the holders of the Series A, B, C, D and E preferred
stock became entitled to receive annual dividends at the rate of $0.42, $0.42,
$0.70, $0.70 and $0.84 per share, respectively. Accumulated dividends of
$3,507,000 and $5,260,000 are included in redeemable preferred stock as of April
30, 1995 and 1996, respectively. The Company is currently unable to pay cash
dividends under state law. No dividends or payments in liquidation may be made
with respect to common stock until all accumulated preferred stock dividends
have been paid in full and, in the event of liquidation, until the accumulated
dividends and the liquidation preferences of the preferred stock have been paid.

Beginning May 31, 1996 for the holders of Series A, B, C and D preferred
stock and May 31, 1997 for the holders of Series E preferred stock, each
preferred stockholder will have the option to require the Company to repurchase
up to 100% of their initial investment over five years at $5.25, $5.25, $8.75,
$8.75 and $10.50 per share, respectively, plus accrued but unpaid dividends.

STOCK OPTIONS

Under the terms of the 1991 Stock Option Plan (the "1991 Option Plan"),
2,200,000 shares of common stock have been reserved for issuance to eligible
directors, officers and employees. Under the 1991 Option Plan, incentive stock
options or nonqualified stock options may be granted at prices not less than
100% of the fair market value of the Company's common stock at the date of
grant, as determined by the Company's Board of Directors. Options granted
generally vest over four years, are exercisable to the extent vested, and expire
10 years from the date of grant.

F-10
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT (CONTINUED)
A summary of stock option activity under the 1991 Option Plan is as follows:

<TABLE>
<CAPTION>
SHARES OUTSTANDING
SHARES --------------------------
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES PER SHARE
---------- ---------- --------------
<S> <C> <C> <C>
Outstanding at May 1, 1993...... 269,917 1,123,380 $0.07 to $5.25
Granted....................... (419,910) 419,910 0.35 to 1.75
Exercised..................... -- (379,906) 1.75 to 3.50
Expired/cancelled............. 385,547 (385,547) 1.75 to 5.25
---------- ----------
Outstanding at April 30, 1994... 235,554 777,837 0.07 to 3.50
Granted....................... (519,688) 519,688 0.35
Exercised..................... -- (19,583) 0.35 to 1.75
Expired/cancelled............. 452,152 (452,152) 0.35 to 3.50
---------- ----------
Outstanding at April 30, 1995... 168,018 825,790 0.07 to 1.75
Authorized.................... 821,429 --
Granted....................... (1,083,075) 1,083,075 0.35 to 7.00
Exercised..................... -- (776,897) 0.35 to 1.40
Expired/cancelled............. 500,248 (253,511) 0.35 to 1.75
---------- ----------
Outstanding at April 30, 1996... 406,620 878,457 $0.07 to $7.00
---------- ----------
---------- ----------
Vested at April 30, 1996........ 253,205 $0.07 to $4.20
----------
----------
Shares subject to repurchase at
April 30, 1996................. 544,884
----------
----------
</TABLE>

STOCK PURCHASE PLAN

In March 1996, the Company's Board of Directors adopted the 1996 Employee
Stock Purchase Plan (the "1996 Purchase Plan") which authorizes the issuance of
up to 400,000 shares of common stock. Under the 1996 Purchase Plan eligible
employees may purchase shares at 85% of the fair market value of the common
stock at the date of purchase. No shares of common stock had been purchased
under the 1996 Purchase Plan at April 30, 1996.

NOTES RECEIVABLE FOR COMMON STOCK

In fiscal 1994, four of the Company's officers exercised stock options to
purchase 354,764 shares of common stock at $1.75 per share for non recourse, non
interest bearing notes due upon the earlier of the sale of the related shares by
the officers or the year 2000. In fiscal 1995, a total of 75,600 shares owned by
two of the officers were cancelled and reissued at $0.35 per share and the notes
related to these shares were consequently reduced by a total of $106,000. In
fiscal 1996, 246,737 shares owned by another officer, who had left the Company,
were reacquired by the Company in exchange for cancellation of the related
$432,000 note.

During fiscal 1996, one of the Company's officers exercised stock options to
purchase 346,931 shares of common stock at prices ranging from $0.35 to $1.40
per share for a note receivable which bears interest at 5% annually and is
secured by the shares of common stock. The note and accrued interest are due
upon the earlier of the sale of the related shares by the officer or the year
1999. This note receivable also includes $13,000 for common shares originally
purchased in fiscal 1994 for a non-recourse note that has been cancelled.

F-11
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT (CONTINUED)
WARRANTS

In connection with a $3.0 million revolving credit facility provided in
November 1993 by certain preferred stockholders, the Company issued warrants
which are exercisable into 190,459 shares of common stock at an exercise price
of $1.75 per share. In December 1995, the exercise price for these warrants was
reduced to $0.35 per share in conjunction with a one year extension of the
revolving credit facility. These warrants were fully exercisable at April 30,
1996 and expire in November 1996 or upon completion of a public registration of
the Company's common stock which meets certain minimum criteria.

In connection with various other financings, the Company has issued warrants
which are exercisable into 28,412 shares of Series D preferred stock and 7,337
shares of Series E preferred stock at exercise prices of $8.54 and $10.22,
respectively. These warrants were exercisable at April 30, 1996 and expire in
December 1996 and September 1998, respectively.

6. PROVISION FOR INCOME TAXES
The Company recorded no federal income tax provision for the years ended
April 30, 1994, 1995 and 1996 due to net losses in those periods. The Company
recorded a tax provision related primarily to foreign income tax withholding on
software license royalties paid to the Company by certain foreign licencees.
Income tax expense for the years ended April 30, 1994, 1995 and 1996 consisted
of current tax expense as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Foreign withholding taxes........................................................... $ 329 $ 370 $ 151
State............................................................................... 13 22 12
--------- --------- ---------
Total income tax expense.......................................................... $ 342 $ 392 $ 163
--------- --------- ---------
--------- --------- ---------
</TABLE>

Income tax expense for the years ended April 30, 1994, 1995 and 1996 differs
from the amounts computed by applying the U.S. federal income tax rate of 34% to
pretax loss as a result of the following (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)........................................... $ (2,285) $ (30) $ (264)
Increases (reductions) in tax expense resulting from:
Foreign (income) losses subject to foreign income tax expense (benefit) not
subject to U.S. tax.............................................................. 196 (240) 382
Foreign withholding taxes......................................................... 329 370 151
Benefit from utilization of federal net operating loss deduction.................. -- -- (136)
Increase in valuation allowance for deferred tax assets -- nonutilization of U.S.
tax loss......................................................................... 2,079 249 --
Other............................................................................. 23 43 30
--------- --------- ---------
Actual income tax expense....................................................... $ 342 $ 392 $ 163
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-12
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. PROVISION FOR INCOME TAXES (CONTINUED)
The Company provides deferred income taxes which reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows
(in thousands):

<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 5,870 $ 5,980
Reserves and other accruals........................................... 561 496
Deferred maintenance revenue.......................................... 1,345 1,036
Accounts receivable................................................... 522 348
Foreign tax credits................................................... 1,003 907
Other................................................................. 423 370
--------- ---------
Total deferred tax assets............................................. 9,724 9,137
Deferred tax liabilities -- principally software capitalization......... (283) (162)
Valuation allowance..................................................... (9,441) (8,975)
--------- ---------
Net deferred tax assets................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>

Due primarily to an increase in the deferred tax assets recorded for net
operating loss carry-forwards offset by a decrease in the deferred tax assets
recorded for reserves and other accruals, the valuation allowance increased by
$117,000 in the year ended April 30, 1995. Due primarily to decreases in the
deferred tax assets recorded for deferred maintenance revenue and accounts
receivable, the valuation allowance decreased by $466,000 in the year ended
April 30, 1996.

At April 30, 1996, the Company had approximately $10,658,000 in federal net
operating loss carryforwards, approximately $6,932,000 in foreign net operating
loss carryforwards and approximately $907,000 in foreign tax credit
carryforwards which expire in various years through 2008.

Due to the "change of ownership" provisions of the Tax Reform Act of 1986,
the availability of the Company's net operating loss and credit carryforwards
will be subject to an annual limitation in future periods if a change of
ownership of more than 50% should occur over a three-year period. Such a change
could substantially limit the eventual utilization of these tax carryforwards.

7. RESTRUCTURING CHARGES
In the third quarter of fiscal 1994, the Company recorded a charge of
$570,000 which included $407,000 for severance and other costs associated with a
reduction in force and $163,000 for facilities reorganization and professional
fees. The Company reduced its workforce by 15%, primarily in sales and product
development. The reserves for facilities reorganization related to the closing
of six small satellite sales offices and included future rent for those offices,
buyout payments for expected early termination of certain leases and equipment
moving expenses. These restructuring costs were paid out primarily during the
fourth quarter of fiscal 1994 and during fiscal 1995. There were no significant
reclassifications or reductions of the original reserves.

In the fourth quarter of fiscal 1995, the Company incurred a charge of
$431,000 which included $276,000 for severance and other costs associated with a
reduction in force and $155,000 for facilities reorganization and professional
fees. The reduction in force totaled 8% of the Company's employees and affected
every functional area. The reserves for facilities reorganization were for the
write off of leasehold improvements and the costs to remove portable
infrastructure in connection with the relocation of the Company's product
development, customer support, telesales and administrative functions

F-13
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. RESTRUCTURING CHARGES (CONTINUED)
to a smaller facility in Sacramento, California. These reserves also included
the costs of consolidating two smaller West Coast sales offices into the
Company's new corporate headquarters in San Jose, California. These
restructuring costs were paid out during fiscal 1996 and there were no
significant reclassifications or reductions of the original reserves.

8. OTHER INCOME (EXPENSE)
Other income (expense) for the years ended April 30, 1994, 1995 and 1996
consisted of the following (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest income..................................................................... $ 65 $ 107 $ 81
Interest expense.................................................................... (171) (225) (234)
Foreign currency gain (loss)........................................................ 52 12 (37)
Minority interest................................................................... 378 493 366
Litigation settlements.............................................................. (2,154) (300) --
Forgiveness of amounts due to minority interest stockholders (Note 9)............... -- 305 --
--------- --------- ---------
Other income (expense), net......................................................... $ (1,830) $ 392 $ 176
--------- --------- ---------
--------- --------- ---------
</TABLE>

9. RELATED PARTY TRANSACTIONS
The Company, Sumitomo Metals Industries, Ltd. ("SMI") and Artificial
Intelligence Research, Ltd. ("AIR") are related parties as they own 51%, 34% and
15% interests, respectively, in Unify Japan KK ("Unify Japan").

TRANSACTIONS WITH AIR

AIR distributed the Company's products in Japan prior to July 1990. In
conjunction with the formation of Unify Japan in July 1990, the Company
appointed AIR as exclusive distributor and master licensee for Unify products in
Japan. AIR then granted Unify Japan the exclusive right to subdistribute
products in the non-OEM market in Japan in return for approximately 185 million
yen, or $1,272,000, payable in five equal annual installments. From July 1990 to
July 1994, Unify Japan paid royalties on its non-OEM market revenue to AIR and
AIR paid royalties on all Unify products sold in Japan to the Company. In July
1994, the Company terminated AIR's exclusive distribution rights and appointed
Unify Japan exclusive distributor and master licensee for the Company's products
in Japan. The balance due AIR on the non-OEM subdistribution note was reduced by
53 million yen, or $595,000, in connection with this action, resulting in a
$305,000 credit to the consolidated statement of operations (net of 49% minority
interest). After July 1994, AIR purchased software licenses from Unify Japan as
a subdistributor and Unify Japan paid intercompany royalties on all Unify
products sold in Japan to the Company.

Total revenues include revenues from AIR of $2,202,000, $3,098,000 and
$1,870,000 in the years ended April 30, 1994, 1995 and 1996, respectively. Cost
of software licenses includes AIR royalty expense of $207,000 in fiscal 1994.
Cost of software licenses also includes charges from AIR to duplicate and ship
the Japanese versions of all Unify products sold in Japan totaling $88,000,
$207,000 and $384,000 in fiscal 1994, 1995 and 1996, respectively. Cost of
services includes contract labor from AIR to provide customer support totaling
$430,000 and $333,000 for the years ended April 30, 1995 and 1996, respectively.
Product development expense includes contract labor from AIR to provide software
porting and translation services totaling $300,000, $463,000 and $1,160,000 in
the years ended April 30, 1994, 1995 and 1996, respectively.

F-14
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. RELATED PARTY TRANSACTIONS (CONTINUED)
Net amounts due from minority interest stockholders at April 30, 1995 and
1996 represent amounts payable by AIR to Unify Japan for the purchase of
software licenses and related services and amounts payable by AIR to the Company
for royalties.

TRANSACTIONS WITH SMI

In fiscal 1995, SMI advanced Unify Japan 45 million yen, or $543,000, for
the translation of Unify VISION software and related documentation from English
to Japanese. Under the terms of the joint development agreement, SMI will
receive a 40% discount from list price on purchases of the translated software
for its internal use. The agreement also grants SMI a 10% royalty on sales of
the Japanese version of Unify VISION from its release for shipment to regular
customers, which occurred in August 1995, through December 1996. Software
licenses revenue for fiscal 1996 includes approximately $450,000 in funded
development revenue relating to this translation project, recognized ratably as
the related product development expenses of approximately $880,000 were
incurred. Royalties due SMI during the same period were not significant. In
fiscal 1995 SMI also made a refundable prepayment of 72 million yen, or
$870,000, to Unify Japan for the purchase of software licenses for the Japanese
version of Unify VISION; revenue for this prepayment was deferred until shipment
of product. During fiscal 1996, Unify Japan shipped SMI approximately 24 million
yen, or $236,000, of Japanese product against this prepayment.

In September 1995, Unify Japan entered into a 100 million yen, or $935,000,
loan agreement with a bank affiliated with SMI. The loan bears interest at the
prime rate (approximately 2% at April 30, 1996), is secured by the assets of
Unify Japan and is due in September 1996. As of April 30, 1996, 50 million yen,
or $467,000, was outstanding on this line of credit. Under a separate agreement
which expires on May 31, 1996, Unify Japan also owes Sumitomo Bank $280,000.

Finally, Unify Japan leased office space from SMI under a renewable one-year
lease beginning in August 1994; rent expense paid to SMI totaled approximately
$130,000 in fiscal 1995 and $150,000 in fiscal 1996.

Amounts due to minority interest stockholders consisted of the following (in
thousands):

<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Notes payable to SMI banking affiliates.................................. $ -- $ 747
Non-OEM subdistribution note due AIR..................................... 169 --
Other amounts due AIR.................................................... 573 199
Product development advances from SMI.................................... 543 --
Refundable prepayment from SMI........................................... 870 446
--------- ---------
Total amounts due...................................................... $ 2,155 $ 1,392
--------- ---------
--------- ---------
</TABLE>

F-15
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases office space and equipment under noncancelable operating
lease arrangements. Future minimum rental payments under these leases as of
April 30, 1996 were as follows (in thousands):

<TABLE>
<S> <C>
YEARS ENDING APRIL 30,
- --------------------------------------------------------------------------
1997...................................................................... $ 1,179
1998...................................................................... 839
1999...................................................................... 754
2000...................................................................... 756
2001...................................................................... 357
---------
$ 3,885
---------
---------
</TABLE>

Rent expense under operating leases was $2,425,000, $2,110,000 and
$1,622,000 for the years ended April 30, 1994, 1995 and 1996, respectively.

LITIGATION

In November 1994, the Company paid $2,650,000 in full and final settlement
of a dispute with two former customers which related to software sold by the
Company in 1989. In October 1994, the Company also settled a dispute with a
former French customer for approximately $467,000, to be paid over three years.
The Company increased existing reserves by $2,154,000 in fiscal 1994 for these
litigation settlements. Finally, the Company recorded a charge of $300,000 in
fiscal 1995 for the settlement of an employment dispute with a former officer of
the Company which arose in that year.

The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, after
consulting with legal counsel, the amount of ultimate liability with respect to
these actions will not materially affect the consolidated financial position of
the Company.

F-16
<PAGE>
UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SEGMENT INFORMATION
The Company operates in one industry segment: developing, marketing and
supporting client/ server products for developing, deploying and managing
high-end scalable software applications. The distribution of revenues, operating
income (loss) and assets by geographic area for the years ended April 30, 1994,
1995 and 1996 is as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
United States............................................ $ 22,806 $ 21,233 $ 21,696
Japan.................................................... 1,459 3,404 4,913
Europe................................................... 10,880 9,942 9,394
Eliminations............................................. (4,596) (5,730) (5,838)
--------- --------- ---------
Total revenues......................................... $ 30,549 $ 28,849 $ 30,165
--------- --------- ---------
--------- --------- ---------
Operating income (loss):
United States............................................ $ (3,770) $ 320 $ 965
Japan.................................................... (233) (988) (543)
Europe................................................... (888) 189 (1,373)
--------- --------- ---------
Total operating income (loss).......................... $ (4,891) $ (479) $ (951)
--------- --------- ---------
--------- --------- ---------
Identifiable assets:
United States............................................ $ 3,294 $ (3,169) $ 7,686
Japan.................................................... 1,071 2,796 1,692
Europe................................................... 4,233 2,610 3,660
--------- --------- ---------
Subtotal identifiable assets............................. 8,598 2,237 13,038
Corporate assets......................................... 4,424 5,469 4,784
Eliminations............................................. 59 4,975 (4,825)
--------- --------- ---------
Total assets........................................... $ 13,081 $ 12,681 $ 12,997
--------- --------- ---------
--------- --------- ---------
</TABLE>

United States revenue includes export sales of approximately $3,300,000,
$2,900,000 and $2,700,000 in the years ended April 30, 1994, 1995 and 1996,
respectively. Export sales have been made primarily to customers in Australia,
the Pacific Rim, Latin America, and Canada. Intercompany sales are at prices
intended to provide a profit after marketing, support and general and
administrative costs. United States operating income (loss) is net of corporate
product development and administrative expenses. Corporate assets consist
primarily of cash and cash equivalents, property and equipment, and capitalized
software.

12. PUBLIC STOCK OFFERING
On March 26, 1996, the Company's Board of Directors authorized management of
the Company to file a Registration Statement with the SEC permitting the Company
to sell shares of its common stock to the public. The Company's Board of
Directors also approved the reincorporation of the Company in Delaware and a
one-for-seven reverse stock split. Common share and per share data in these
consolidated financial statements have been retroactively adjusted to reflect
the reincorporation and reverse stock split. If the offering is consummated
under the terms presently anticipated, all of the currently outstanding
preferred stock and accrued dividends will automatically convert to 2,876,136
and 690,161 shares of common stock, respectively, upon the closing of the IPO.
The conversion of the preferred stock and accrued dividends, along with the
anticipated exercise of warrants to purchase 190,459 shares of common stock,
have been reflected in the accompanying unaudited pro forma consolidated balance
sheet as of April 30, 1996.

F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS
----------------------

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY........................................ 3
THE COMPANY.................................... 3
RISK FACTORS................................... 5
USE OF PROCEEDS................................ 14
DIVIDEND POLICY................................ 14
CAPITALIZATION................................. 15
DILUTION....................................... 16
SELECTED CONSOLIDATED FINANCIAL DATA........... 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 18
BUSINESS....................................... 27
MANAGEMENT..................................... 42
CERTAIN TRANSACTIONS........................... 48
PRINCIPAL AND SELLING STOCKHOLDERS............. 50
DESCRIPTION OF CAPITAL STOCK................... 53
SHARES ELIGIBLE FOR FUTURE SALE................ 54
UNDERWRITING................................... 55
LEGAL MATTERS.................................. 56
EXPERTS........................................ 56
ADDITIONAL INFORMATION......................... 56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..... F-1
</TABLE>

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

UNTIL JULY 9, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

2,140,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS
------------

MONTGOMERY SECURITIES

NEEDHAM & COMPANY, INC.

BLACK & COMPANY

JUNE 14, 1996

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