0001047469-04-023801.txt : 20040721 0001047469-04-023801.hdr.sgml : 20040721 20040721151851 ACCESSION NUMBER: 0001047469-04-023801 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20040721 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIFY CORP CENTRAL INDEX KEY: 0000880562 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770427069 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11807 FILM NUMBER: 04924287 BUSINESS ADDRESS: STREET 1: 181 METRO DR STREET 2: 3RD FL CITY: SAN JOSE STATE: CA ZIP: 95110 BUSINESS PHONE: 4084674500 MAIL ADDRESS: STREET 1: 181 METRO DRIVE CITY: SAN JOSE STATE: CA ZIP: 95110 10-K 1 a2140130z10-k.htm FORM 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2004
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 001-11807

UNIFY CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

94-2710559
(I.R.S. Employer Identification
Number)

2101 Arena Blvd, Suite 100
Sacramento, California 95834
(Address of principal executive offices)

Telephone: (916) 928-6400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) YES o NO ý

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the common stock on May 28, 2004 as reported on the over-the-counter Bulletin Board market was approximately $21,248,891 ($0.97 per share). Shares of common stock held by each officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of May 28, 2004, the Registrant had 27,539,973 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Form 10-K is incorporated therein from our definitive Proxy Statement for our 2004 Annual Meeting of Stockholders ("Proxy Statement"), to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after our fiscal year ended April 30, 2004.

PART I

A Caution about Forward-Looking Statements:

The discussion in this Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about the software industry and certain assumptions made by the Company's management. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates, "projects," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include, but are not limited to, those set forth herein under "Risk Factors." Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents the Company files from time to time with the Securities and Exchange Commission (the "SEC"), particularly the Company's Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

ITEM 1. BUSINESS

The Company

Unify (the "Company", "we", "us" or "our") is a global provider of enterprise software solutions to mid-size and large organizations. For more than 24 years, we have provided our 2,000 customers and 300 ISV partners around the world with productive and cost-effective application platform, database and application development solutions for building and deploying applications. Our software products and services enable businesses to rapidly, efficiently and seamlessly build applications that deliver the right information to the right people at the right time. Our software platform today gives organizations the ability to connect multiple data sources, quickly build forms-based applications, automate business processes and integrate disparate information to run, manage and optimize their business. By deploying Unify software, customers can increase revenue, enrich customer and citizen relationships, increase supply chain efficiencies and enhance operational effectiveness.

Our flagship product, Unify NXJ™ is an easy-to-use, productive and standards-based application platform that enables organizations to effectively automate processes within and between organizations and consolidates multiple legacy systems into unified applications. Unify NXJ also provides advanced collaborative information systems for employees, suppliers and partners. Unify NXJ provides a comprehensive set of application services that include business process management, reporting, portal and portal integration, web services integration, forms processing, and enterprise application integration, as well as assembly and orchestration components, which can be delivered as a completely integrated suite or as an integrated services environment across leading Java 2 Enterprise Edition ("J2EE") technology infrastructure stacks.

Unify NXJ is used by customers to automate business process and deliver rich, actionable information through a Web portal. The platform has enabled customers to achieve a return on their investment by rapidly automating manual business processes, linking processes into a common application that is customized for the end user, seamlessly integrating enterprise and legacy applications and databases, and managing human workflows both within and across enterprises.

Our relational database management and application development solutions for host-based and client/server applications help companies build and deploy reliable, scalable mission critical applications that integrate into existing systems and use industry standard technologies such as Windows, UNIX and Linux.

Our software has been adopted in a variety of industries, including manufacturing, healthcare, government, finance, telecommunications, retail and insurance. Our customers include corporate information technology departments ("IT"), software value added resellers ("VARs"), solutions integrators ("SIs") and independent software vendors ("ISVs"). We are headquartered in Sacramento, California with sales and support offices in the United Kingdom ("UK"), France and Australia. We market and sell products directly in the United States, UK, France and Australia, and indirectly worldwide through distributors in Japan, Russia, South Africa, Italy, Brazil, Latin America, and Malaysia, with reach into more than 45 countries. Our customers include Administrative Systems Inc., AT&T, Boeing, Cast & Crew Entertainment, Inc., Credit Lyonnais, Citigroup, Documentum, Federal Express, Fox Racing, Fuji Electric, GE Healthcare, General Dynamics, GlaxoSmithKline, Layher SA, Lexis/Nexis, Pioneer Electronics, Sescoi, Travel Centers of America, University of Mississippi and Wells Fargo Bank.

Our mission is to continue to provide solutions that simplify complex technology for IT departments and business units within organizations. We intend to accomplish this by establishing Unify as a leading provider of comprehensive, productive and cross-platform software solutions and leverage the success of our customers and partners to grow and expand our technology leadership.

Industry Background

Organizations of all types and sizes are facing demands in today's economic environment to streamline, automate and optimize business processes and ensure that the right information gets to the right people at the right time. These requirements have placed growing demands within information technology departments to deliver new applications and systems that allow the business to better compete and operate more effectively.

The issue is not whether to deploy next generation, real-time solutions to better compete in today's connected economy. Rather, IT strategists must decide how to do it, whom to rely on, and what criteria should guide their decisions. For organizations of all sizes, a connected business implies more outwardly focused and automated business processes. Systems that were once used exclusively by employees are being exposed to and used by partners, suppliers and customers. These new systems must also be powerful enough to support the business, easy enough for all types of developers to use and maintain, and open enough to transcend different and changing technology environments.

Additionally, as Java and Web Services go mainstream, more IT organizations are using the J2EE platform and services-oriented architectures to deliver new applications that automate business processes, integrate with legacy applications and provide a customized view of information. However, building highly interactive, process-centric, event-driven solutions in J2EE is very difficult, especially for many of today's IT organizations.

To address this growing market need for productive solutions that can be easily created by an existing IT organization, Unify has delivered Unify NXJ, a comprehensive, easy-to-use, standards-based application platform for delivering solutions on the J2EE architecture.

Products

Unify develops and markets application platform, application development and relational database management products.

Application Platform Solution:

Unify NXJ accelerates the delivery of enterprise applications by enabling IT departments to productively build and deploy process-oriented applications. Organizations use Unify NXJ to productively and effectively automate business processes, consolidate multiple legacy systems into unified applications, and provide advanced collaborative information systems for employees, suppliers and partners. Unify NXJ's comprehensive set of application services includes business process management, reporting, portal and portal integration, web services, forms processing, and enterprise application integration, as well as assembly and orchestration components. Unify NXJ can be delivered as a completely integrated suite or as an integrated services platform for delivering solutions across all leading J2EE infrastructure stacks.

Unify NXJ was released during the third quarter of fiscal 2003. It is targeted at mid-size and large organizations that have requirements to implement applications that increase the speed at which they conduct business, allowing them to adapt as the business changes and provide increased visibility into all aspects of the business. As companies adopt the Java platform for mission critical applications and seek to leverage open, standards-based technology with write-once, cross-platform portability to generate savings and simplified management, more of these organizations have the requirement to build J2EE-based applications. However, the complexity of the J2EE platform raises significant development challenges in many IT organizations today. Unify NXJ is designed to meet the needs of those business application developers who are required to deliver J2EE applications without requiring extensive J2EE development expertise.

Unify NXJ enables all developers to work with the J2EE architecture in a development paradigm familiar to their current working environment. Unify NXJ replaces laborious J2EE coding with pre-built application functionality and a robust framework, which enables developers with minimal Java experience to create, deploy and manage complex, process-centric, Web applications.

Rapid Application Development Product Solution:

Unify's ACCELL® development products facilitate the productive, cost-effective development of mission-critical, host-based applications. The ACCELL products support native interfaces to leading database products including Unify DataServer, Informix, Oracle and Sybase. The ACCELL product suite includes ACCELL/Web, ACCELL/SQL and ACCELL/IDS.

•: ACCELL/Web™—quickly transforms existing ACCELL/SQL applications into fully featured graphical Web-browser based applications without the requirement for any source code modifications.
•: ACCELL/SQL™—powerful 4GL-based rapid application development software for the cost-effective development of character-based client/server applications. ACCELL/SQL utilizes native optimized connectivity for Unify, Oracle, Sybase and Informix databases creating one of the fastest application performance environments in the market.
•: ACCELL/IDS™—powerful 4GL-based rapid application development software for applications that utilize Unify's DataServer ELS database.

Graphical Client/Server Product Solution

Unify VISION® is a powerful graphical, client/server application development and deployment system that allows for rapid creation and easy modification of complex business applications based on 4GL technology. Unify VISION consists of an object oriented, repository-based component framework designed to enable developers to rapidly create and easily modify application components. Its powerful pre-built components enable developers to focus on the business components and processes that make up the heart of their applications. VISION also contains an application server to allow organizations to integrate custom-built and packaged applications with the Internet. Unify VISION's scalable architecture delivers a high level of performance, availability and reliability by offering server replication, load balancing, fail-over and recovery, and publish-and-subscribe capabilities.

Database Management Product Line

•: DataServer®—A high performance enterprise relational database management system with minimal maintenance and memory requirements. It can quickly accommodate the growth of user requirements over time, making it an attractive choice for mission critical applications. DataServer makes it easy for developers to create graphical applications and migrate existing database applications to enterprise network and Internet environments.
•: DataServer® ELS—A high performance, easily embeddable relational database management system. Its small footprint and proven reliability make it an industry favorite for embedded applications that require relational databases

Customers

Unify has a broad customer base of more than 2,000 active customers, including 300 ISV partners, located in over 45 countries and representing a broad range of industries. No customer accounted for more than 10% of the Company's revenues for fiscal 2004, 2003 or 2002.

Our customers include BMW Lease BV, Boeing, Business Console Limited, Canon, Cast & Crew Entertainment, Inc., Citigroup, Contractors Warehouse, Credit Lyonnais, Documentum, Federal Express, Fuji Electric Co., Ltd, General Dynamics, GlaxoSmithKline, GMAC Lease BV, GE Healthcare, Grolier Inc., Lexis/Nexis, Linea Informatica S.R.L., Medstat Group, Mitsubishi Denki Co., Ltd., Oregon Department of Agriculture, Pioneer Electronics, Portland State University, Prime Clinical Systems, Procura, BV, Reuters, Savings Bank of the Russian Federation, Sescoi France SAS, Sherwood International Systems, Sofico, Star Computers Ltd, Texas State Library and TravelCenters of America.

Sales, Marketing and Distribution

Unify's products and professional services are marketed and distributed to customers globally using a combination of direct and indirect distribution channels, including a corporate sales force, ISVs, VARs, SIs and worldwide distributors. The indirect sales channels leverage Unify's sales, support and consulting resources to provide complete solutions to our customers.

Our direct sales organization consists of sales representatives and pre-sales consultants. Our North America sales representatives are located in our headquarters as well as in various geographic territories throughout the U.S. We market our products internationally through offices in the UK and France, and beginning this year in Australia. We have distributors in Asia Pacific, Europe, Japan, Latin America, Russia and South Africa. During fiscal 2004, we added a master co-distributor in Japan and transitioned to direct sales representation in Australia to capitalize on the growing marketing opportunities within those regions.

Our marketing is focused on generating demand and marketing awareness for Unify products, primarily Unify NXJ, including efforts to support the direct and indirect sales channels. Marketing activities include strategic lead generation, public relations, industry analyst relations, customer communications, product launches, direct mail, product datasheets, trade shows, business development, product marketing and our web site.

Business development is focused on securing strategic distribution and technology partners in the U.S. and Japan. In fiscal 2004, we entered into partnerships with regional resellers and solution integrators and signed Air Company limited as a new master co-distributor in Japan.

International revenues accounted for 68%, 54%, and 63% of total revenues in fiscal 2004, 2003, and 2002 respectively.

As of April 30, 2004, we had 26 employees engaged in sales and marketing activities, 18 in North America and 8 in Europe. We expect to continue expanding our sales and marketing group as needed through targeted recruitment of qualified individuals.

Customer Support and Professional Services

Unify's customer support and professional services organizations play an important role in maintaining customer satisfaction, facilitating license sales and enabling customers to successfully architect, design, develop, deploy and manage business and Web applications.

Customer Support and Maintenance

Unify provides customer support via telephone, Web, e-mail and fax from its support centers located in Sacramento, California, the UK, France and Australia. Distribution partners provide telephone support to international customers with technical assistance from the U.S.-based support personnel who also respond to e-mail inquiries. Customers are offered tailored support service levels including response time, information reporting, and other features, such as 24-hour a day, seven-day a week support. During each of the past three fiscal years, over 75% of our support and maintenance customers have renewed their annual support contracts.

Consulting

Unify offers a full range of consulting services ranging from delivering proof of concepts to completed applications to allow companies to maximize return on investment, get to market quickly or be more efficient. Consulting services include: business process-centric application development, Web-enablement, technology/knowledge transfer, application architecture audits, database tuning, and client server application development. The level of consulting services is tailored to customer-defined needs and includes development plans, hands-on development tasks and project management.

Education

Unify offers introductory and advance education courses provided on a regularly scheduled basis at Unify training centers located in Sacramento, California and Paris, France. We also offer on-site training at customer facilities.

As of April 30, 2004, we had a total of 9 employees engaged in providing professional services, 7 in support and 2 in consulting and training. Of those employees, 7 were located in the United States and 2 were located in Europe.

Product Development

We focus our product development efforts on a combination of new development for the Unify NXJ platform as well as enhancing and broadening the functionality and ports of our database and tools products. During fiscal 2004, we developed and released Unify NXJ Version 10, a comprehensive application platform, as well as additional versions of our database and tools products.

Our product development expenses for fiscal 2004, 2003, and 2002, were $3.0 million, $4.1 million, and $4.1 million. During fiscal 2004, we made a strategic decision to focus more resources on sales and marketing initiatives to launch and penetrate the market with Unify NXJ. As a result, product development expenditures for fiscal 2004 were reduced 27% compared to fiscal 2003.

Most of our current software products have been developed internally; however, we have licensed certain software components from third parties and we may do so again in the future. We are committed to delivering products that meet customer and market needs today and in future periods.

Our product development activities are conducted at the Sacramento, California headquarters facility. As of April 30, 2004, we had a total of 17 employees in product development, including 15 software development engineers.

Competition

The market for our software is intensely competitive, subject to rapid change and significantly affected by new product introductions and other activities of market participants. We compete in the market with our Unify NXJ application platform primarily with providers of application platform suites, integrated services environments and business process management software. We are not aware of a direct competitor to Unify NXJ with its unique combination of business process automation combined with information management and delivery. Competitors to Unify include BEA Systems, ("BEA"), International Business Machines ("IBM"), Microsoft Corporation ("Microsoft") and Oracle Corporation ("Oracle").

The Company generally derives sales from new development projects, additional deployment of existing applications and product upgrades. As a result, the key competitive factor is generally the decision by a customer as to whether to develop a new application with a competitor's products which could replace the existing application built using our products.

As new products and technologies are introduced, increased competition could result in price reductions, fewer customer orders and reduced gross margins, any one of which could adversely affect our 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 our prospective customers. Accordingly, it is possible that new competitors or alliances among current and new competitors may emerge and gain significant market share. Such competition could adversely affect our ability to sell additional licenses and maintenance and support renewals on favorable terms.

We believe we compare favorably with respect to competitive factors including productivity and speed, ease of use and time to market for application development and deployment; management of deployed applications; product performance and quality; product architecture and scalability; customer support; professional services; and price.

We must continue to sufficiently differentiate our products based on ability for organizations to deliver solutions, functionality, reliability, ease of use, performance, return on investment and total cost of ownership, otherwise these competitive pressures could require us to reduce the price of our products and related services, which could adversely affect our business, operating results, and financial condition.

Intellectual Property

We rely on a combination of copyright, trademark and trade-secret laws, non-disclosure agreements and other methods to protect our proprietary technology. Despite efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries in which we sell products do not protect our proprietary rights as fully as do the laws of the United States. There can be no assurance that our means of protecting our proprietary rights in the United States or abroad will be adequate or that competition will not independently develop similar technology.

Although there are no pending lawsuits against Unify regarding infringement of any existing patents or other intellectual property rights and we have not received any notices that we are infringing or allegedly infringing the intellectual property rights of others, there can be no assurance that infringement claims will not be asserted by third parties in the future. If any such claims are asserted, there can be no assurance that we will be able to defend such claim or obtain licenses on reasonable terms. Our involvement in any patent dispute or any other intellectual property dispute or action to protect trade secrets and know-how may have an adverse effect on our business, operating results, and financial condition. Adverse determinations in any litigation may subject us to significant liabilities to third parties, require us to seek licenses from third parties, and prevent us from developing and selling its products. Any of these situations could have an adverse effect on our business, operating results and financial condition.

We are dependent on third-party suppliers for certain software which is embedded in some of our products. Although we believe that the functionality provided by software which is licensed from third parties is obtainable from multiple sources or could be developed by us 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, we could be required to develop an alternative approach to developing its products, which could require payment of additional 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 adversely affect our business, operating results, and financial condition.

Employees

As of April 30, 2004, we had a total of 67 employees, including 17 in product development, 26 in sales and marketing, 13 in customer service, support, consulting, and training, and 11 in finance, information systems, operations and general administration. Of these employees, 54 were located in the United States and 13 were located in Europe. On June 18, 2003, we eliminated 15 positions to align our business model to support a heightened focus on customers and to become a more sales and marketing driven organization. As of June 30, 2003, we had a total of 60 employees, including 15 in product development, 18 in sales and marketing, 13 in support, consulting, and training, and 14 in finance, information systems, operations and general administration. Of these employees, 47 were located in the United States and 13 were located in Europe.

Our success depends in large part on our ability to attract and retain qualified employees, particularly senior management, engineering, direct sales and support personnel. The competition for such employees is intense. There can be no assurance that we will be successful in attracting or retaining key employees. Any failure we have in attracting and retaining qualified senior management, engineering, direct sales, and support personnel could adversely affect our business, operating results, and financial condition. None of our employees are represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good.

WHERE YOU CAN FIND MORE INFORMATION

You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K that we may file from time to time. You may obtain copies of these reports directly from us or from the SEC and the SEC's Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549. In addition, the SEC maintains information for electronic filers (including Unify) at its website at www.sec.gov. We make available free of charge on or through our Internet website located at www.unify.com our SEC filings on Form 10-K, 10-Q and 8-K and any amendments to those filings as soon as reasonably practicable after electronic filing with the SEC.

Executive Officers

The following table sets forth certain information concerning our executive officers:

Name	Age	Position with the Company
Todd Wille	41	Chairman, President and Chief Executive Officer
Pete DiCorti	53	Vice President, Finance & Administration and Chief Financial Officer
Jim Kanir	46	Vice President, Worldwide Sales & Marketing
Frank Verardi	55	Vice President, Technical Services
Dave Glende	44	Vice President, Strategy and Chief Technology Officer
Greg Tsutaoka	36	Vice President, Business Development

Todd Wille joined the Company in October 2000 as the chief operating officer and acting chief financial officer. In November 2000, Mr. Wille was appointed president and chief executive officer and in 2001 appointed Chairman of the board. Mr. Wille originally joined the Company in August 1995 as the corporate controller. In September 1997, Mr. Wille was promoted to vice president, finance and chief financial officer. In March 1998, Mr. Wille left the Company and joined FRx Software Corporation ("FRx") as the vice president of finance and chief financial officer. Subsequently, Mr. Wille was promoted to senior vice president of operations. Mr. Wille received a B.A. in business administration with concentrations in accounting and finance and management information systems from Wartburg College.

Pete DiCorti joined the Company in October 2002 as vice president of finance & administration and chief financial officer. Before joining Unify, Mr. DiCorti served as the business development officer for JMW Capital Partners. Prior to that, Mr. DiCorti was the vice president and CFO of the Grass Valley Group. Mr. DiCorti received a B.S. in finance from Santa Clara University.

Jim Kanir joined Unify in June 2003 as the vice president of worldwide sales and marketing. Mr. Kanir most recently served as the vice president of worldwide sales and channel relations for CrossAccess Corporation, a provider of legacy data integration for enterprise-wide e-business initiatives, based in Santa Clara, Calif. Prior to CrossAccess, Mr. Kanir worked for Pentawave and prior to that, Bell & Howell Imaging Solutions as vice president of sales. Mr. Kanir graduated from Wilmington College with a degree in business management.

Frank Verardi joined the Company in August 1988 as manager of consulting services and was named director of client services in 1989. In November 1995, Mr. Verardi was appointed vice president of worldwide product delivery and customer support, and in May 1999 he was appointed vice president of worldwide professional services. In May 2001, he was appointed vice president of worldwide sales and marketing and in June 2003, he was appointed vice president of technical services. Before joining Unify, Mr. Verardi held various positions with Computer Sciences Corporation where his most recent assignment was director of commercial professional services. Mr. Verardi received a B.S. in computer science from California State University, Chico.

David Glende joined the Company in 1985 and has held various management positions in product development and marketing before being appointed chief technology officer in February 2000. In May 2001, Mr. Glende was appointed vice president, products and chief technology officer and in June 2003, he was appointed vice president of strategy and CTO. Mr. Glende oversees the Company's corporate and product strategy activities. Prior to joining Unify, Mr. Glende served as the manager of engineering for Advanced Data Institute. Mr. Glende holds a B.S. in computer science from California State University, Sacramento.

Greg Tsutaoka joined the Company in March 2003 as vice president of business development. Mr. Tsutaoka has 10 years in the field of business development, corporate strategy and marketing. Before joining Unify, Mr. Tsutaoka was founder and president of New Millennium Management L.L.C. He has also designed and managed business development strategies and partnership programs for industry leading technology companies including Remedy Corporation, FusionStorm Inc., and Emanio Inc. Mr. Tsutaoka holds a B.S. in managerial economics from University of California, Davis and a JD from Whittier Law School.

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

RISK FACTORS

In evaluating the Company's business, readers should carefully consider the business risks discussed in this section in addition to the other information presented in this Annual Report on Form 10-K and in our other filings with the SEC.

We are dependent on acceptance of our Unify NXJ products and on the growth of the web application development market.

We expect Unify NXJ to account for an increasing percentage of future revenues and accordingly, we are devoting a substantial portion of our resources in the building of the sales model and marketing programs to gain market acceptance for Unify NXJ. As a result, factors adversely affecting the pricing of or demand for Unify NXJ, such as, but not limited to, competition and technological change, would have an adverse effect on our business, operating results and financial condition. There can be no assurance that we will successfully market and sell this new product or enhanced versions of our existing products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview;" "Business—Products" and "—Product Development."

If our customers are not able to successfully develop and deploy process-oriented Web applications with Unify NXJ, the viability of our products could be questioned and our reputation could be damaged, which could have adverse effects on our business, operating results and financial condition. In addition, we expect that a significant percentage of future revenues will continue to be derived from sales to existing customers. If these existing customers purchase competitive products, or have difficulty deploying applications built with Unify's products, our relationships with these customers, revenues from sales of our products and other products and the Company's business, operating results and financial condition could be adversely affected. See "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

There can be no assurance that the market for Web application product solutions and the J2EE platform will continue to grow. If these markets fail to grow, or grow more slowly than we currently anticipate, our business, operating results, and financial condition could be adversely affected.

We are subject to intense competition.

We have experienced and expect to continue to experience intense competition from current and future competitors including BEA, IBM, Microsoft and Oracle.

These competitors have significantly greater financial, technical, marketing and other resources than Unify, in addition to having greater name recognition and more extensive customer bases. As a result, our 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 we can.

We expect to face additional competition as other established and emerging companies enter the application platform 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 adversely affect our 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 our 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 adversely affect our ability to sell additional licenses and maintenance and support renewals on terms favorable to us. Further, competitive pressures could require us to reduce the price of our products and related services, which could adversely affect our

business, operating results, and financial condition. There can be no assurance that we will be able to compete successfully against current and future competition, and the failure to do so would have an adverse effect upon our business, operating results and financial condition. See "Business—Competition."

The market in which we compete is subject to rapid technological change.

The software market in which we compete 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.

Our future success will depend in part upon our ability to address the increasingly sophisticated needs of customers by developing new product functionality and enhancements that keep pace with technological developments, emerging industry standards and customer requirements.

There can be no assurance that Unify NXJ will continue to be perceived by our customers as technologically advantageous or that we will not experience difficulties that delay or prevent the sale of enhancements to existing products that meet with a significant degree of market acceptance. If the release dates of any future product enhancements, or new products are delayed or if when released they fail to achieve market acceptance, our business, operating results, and financial condition would be adversely affected. See "Business—Product Development."

We are dependent on indirect sales channels.

A significant portion of our revenues are derived from indirect sales channels, including ISVs, VARs and distributors. ISVs, VARs and distributors accounted for approximately 62%, 54% and 64% of our software license revenues for fiscal 2004, 2003 and 2002, respectively. Our success therefore depends in part upon the performance of our indirect sales channels, over which we have limited influence. Our ability to achieve significant revenue growth in the future depends in part on maintaining and expanding our indirect sales channels worldwide. The loss of any major partners, either to competitive products offered by other companies or to products developed internally by those partners, or the failure to attract effective new partners could have an adverse effect our business, operating results, and financial condition. See "Business—Sales, Marketing and Distribution."

There are numerous risks associated with our international operations and sales.

Revenues derived from our international customers accounted for 68%, 54% and 63% of our total revenues, with the remainder from the United States, in fiscal 2004, 2003 and 2002 respectively. If the revenues generated by our international operations are not adequate to offset the expense of maintaining such operations, our overall business, operating results and financial condition will be adversely affected. There can be no assurance that we will continue to be able to successfully market, sell and deliver our products in these markets. Although we have had international operations for a number of years, there are certain unique business challenges and risks inherent in doing business outside of the United States, and such challenges and risks can vary from region to region. These include 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 other parts of the world; unfamiliar or unusual business practices; and potentially adverse tax consequences, any of which could adversely impact the success of our international operations. There can be no assurance that one or more of these factors will not have an adverse effect on our future international operations and, consequently, on our business, operating results and financial condition. In addition, the Company's

subsidiaries and distributors in Europe and Japan operate in local currencies. If the value of the U.S. dollar increases relative to foreign currencies, our business, operating results and financial condition could be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business—Sales, Marketing and Distribution."

Our quarterly operating results are subject to fluctuations and seasonal variability and are therefore difficult to forecast.

Unify's quarterly operating results have varied significantly in the past and we expect that they could vary significantly in the future. Such variations could result from the following factors: the size and timing of significant orders and their fulfillment; demand for our products; the quantity, timing and significance of our product enhancements and new product announcements or those of our competitors; our ability to attract and retain key employees; seasonality; changes in our pricing or our competitors'; realignments of our organizational structure; changes in the level of our operating expenses; changes in our sales incentive plans; budgeting cycles of our customers; customer order deferrals in anticipation of enhancements or new products offered by us or our competitors; product life cycles; product defects and other product quality problems; currency fluctuations; and general domestic and international economic and political conditions.

Due to the foregoing factors, quarterly revenues and operating results are difficult to forecast. Revenues are also difficult to forecast because software technology is rapidly evolving, and our sales cycle, from initial evaluation to purchase and the providing of maintenance services, can be lengthy and varies substantially from customer to customer. Because we normally deliver products within a short time of receiving an order, we typically do not have a backlog of orders. As a result, to achieve our quarterly revenue objectives, we are dependent upon obtaining orders in any given quarter for shipment in that quarter. Furthermore, because many customers place orders toward the end of a fiscal quarter, we generally recognize a substantial portion of our revenues at the end of a quarter. Our expense levels largely reflect our expectations for future revenue and are therefore relatively fixed in the short term; if revenue levels fall below expectations our operating results are likely to be disproportionately adversely affected.

We expect that our operating results will continue to be affected by the difficult IT economic environment as well as by seasonal trends. In particular, we anticipate relatively weak demand in the fiscal quarters ending July 31 and October 31 as a result of reduced business activity in Europe during the summer months.

Our continued financial success is dependent on our ability to sustain profitability and generate significant cash flows.

Unify's continued financial success is dependent upon its ability to sustain profitability and generate significant cash flows. During fiscal years 2002, management realigned the Company's operations, aggressively controlled costs, including a reduction in force, re-focused on selling existing products to the customer base and worked to resolve the Company's pending lawsuits relating to the special investigation discussed elsewhere in this report. During fiscal 2003, management resolved all lawsuits relating to the special investigation, addressed issues resulting from resizing the organization, aggressively marketed ACCELL/Web to existing customers and completed development of its strategic flagship product (Unify NXJ). In fiscal 2004, the Company refocused its business model by allocating more resources to sales and marketing, including building a new direct sales force in North America to drive revenue growth and penetrate the market with Unify NXJ. There is no assurance that management's plans will be successful.

If our revenue growth and market penetration strategies are not as successful or do not occur as quickly as we anticipate, we may be required to raise additional funding.

If required, our ability to obtain additional financing on acceptable terms may be adversely affected because our common stock trades on the over-the-counter bulletin board as opposed to more liquid markets such as the NASDAQ National Market. Additionally, the sale of additional equity or other securities will result in dilution of the Company's stockholders. If adequate funds are not available to satisfy our short-term or long-term capital requirements, we may be required to significantly reduce operations.

Our products are subject to lengthy sales cycles.

Our products are used to develop process-centric, information rich Web applications that are critical to a customer and are often purchased as part of a larger set of IT initiatives. As a result, the licensing and implementation of applications built using our products generally involve a significant commitment of management attention and resources by prospective customers. Accordingly, our sales cycle is subject to delays associated with the long approval process that typically accompany significant initiatives or capital expenditures. Our business, operating results, and financial condition could be adversely affected if customers reduce or delay orders. There can be no assurance that we 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 those results.

Our software products could contain defects and could be subject to potential release delays.

Software products frequently contain errors or defects, especially when first introduced or when new versions or enhancements are released. Although we have not experienced adverse effects resulting from any such defects or errors to date, there can be no assurance that, despite testing by us and 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 an adverse effect upon our business, operating results and financial condition. Additionally, if the release dates of any future Unify product line additions or enhancements are delayed or if when released they fail to achieve market acceptance, our business, operating results, financial condition and cash flows would be adversely affected. See "Business—Product Development."

Our license agreements may not protect us from product liability claims.

The license agreements we have with our customers typically contain provisions designed to limit our exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in these license agreements may not be effective as a result of existing or future federal, state or local laws or ordinances or unfavorable judicial decisions. The sale and support of current and future products may involve the risk of such claims, any of which are likely to be substantial in light of the use of these products in the development of core business applications. A successful product liability claim brought against the Company could have an adverse effect upon our business, operating results, and financial condition.

Our success is dependent upon the retention of key personnel and we may be unable to retain key employees.

Our future performance depends on the continued service of key technical, sales and senior management personnel. With the exception of Unify's president and chief executive officer, there are no other Unify technical, sales, executive or senior management personnel bound by an employment

agreement. The loss of the services of one or more of our officers or other key employees could seriously harm our business, operating results and financial condition. Future success also depends on our continuing ability to attract and retain highly qualified technical, sales and managerial personnel. Competition for such personnel is intense, and we may fail to retain its key technical, sales and managerial employees, or attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future.

Rapid growth may significantly strain the resources of the Company.

If we are able to achieve rapid and successful market acceptance of our current and future products, we may undergo a period of rapid growth. This expansion may significantly strain management, financial, customer support, operational and other resources. To accommodate this anticipated growth, we are continuing to implement a variety of new and upgraded operating and financial systems, procedures and controls, including the improvement of our 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 an adverse effect on our business, operating results, and financial condition. Moreover, there can be no assurance that our systems, procedures and controls will be adequate to support our future operations.

We rely upon technology from certain third-party suppliers.

Unify is dependent on third-party suppliers for software which is embedded in some of its products. Although we believe 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, we could be required to develop an alternative approach to developing such products, which could require payment of additional 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 adversely affect our business, operating results and financial condition. See "Business—Intellectual Property."

We may be subject to violations of our intellectual property rights.

Unify 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 our efforts to protect proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our technology exists, piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States. There can be no assurance that our means of protecting our proprietary rights will be adequate and, to the extent such rights are not adequate, other companies could independently develop similar products using similar technology.

Although there are no pending lawsuits against us regarding infringement of any existing patents or other intellectual property rights, and we have received no notices that we are infringing or allegedly 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 we will be able to defend such claim or if necessary obtain licenses on reasonable terms. Our involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets and know-how may have an adverse effect on our business, operating results, and financial condition. Adverse determinations in any litigation may subject us to significant liabilities to third parties, require that we seek licenses from third parties and prevent us from developing and selling our

products. Any of these situations could have an adverse effect on our business, operating results, and financial condition. See "Business—Intellectual Property."

Our stock price may be subject to volatility.

Unify's common stock price has been and is likely to continue to be subject to significant volatility. A variety of factors could cause the price of the common stock to fluctuate, perhaps substantially, including: announcements of developments related to our business; fluctuations in the operating results and order levels of Unify or its competitors'; general conditions in the computer industry or the worldwide economy; announcements of technological innovations; new products or product enhancements from us or our competitors; changes in financial estimates by securities analysts; developments in patent, copyright or other intellectual property rights; and developments in our relationships with our customers, distributors and suppliers; legal proceedings brought against the Company or its officers; and significant changes in our senior management team. 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 those companies. Such fluctuations may adversely affect the market price of our common stock.

Unify's stock trades over the counter on the "bulletin board." Companies whose shares trade over-the-counter generally receive less analyst coverage and their shares are more thinly traded than stock that is traded on the Nasdaq National Market System or a major stock exchange. Our stock is therefore subject to greater price volatility than stock trading on national market systems or major exchanges.

ITEM 2. PROPERTIES

Unify's principal administrative offices and headquarters are in Sacramento, California where we lease a 38,000 square foot facility. In fiscal 2004 and 2003, we subleased zero and 1,530 square feet, respectively that were not required for operations. We collected sublease income of approximately $15,000 in fiscal 2003. In fiscal 2003, we terminated the sublease on our former administrative headquarters in San Jose, California and recognized expense of $114,000. We also lease sales and support offices in the United Kingdom and France. We believe that our existing facilities are adequate for our needs and that suitable additional or alternative space will be available on commercially reasonable terms as needed.

ITEM 3. LEGAL PROCEEDINGS

SEC and United States Attorney's Office Actions: In May 2002, the SEC brought an action against the Company and two of its former officers. The SEC charged the Company with books and records violations only and did not seek disgorgement or civil penalties against the Company. In May 2002, the Company consented to the entry of a permanent injunction without admitting or denying the allegations in the SEC's complaint.

In May 2002, the United States Attorney for the Northern District of California announced the indictment of a former officer of the Company and the guilty plea of another former officer for violations of federal securities laws. The trial of the indicted former officer commenced on September 15, 2003 and, according to published reports, on November 20, 2003, the former officer was convicted of 10 counts of securities fraud and one count of conspiracy. The Company has been advised by the United States Attorney's Office that it will not seek to indict the Company for violations of federal securities laws. The Company will continue to cooperate with the SEC and United States Attorney's Office, as necessary, in connection with any actions pending against any former executive officers of the Company, and cannot predict the outcome of any such matters.

The Company is subject to legal proceedings and claims that arise in the normal course of business. If such matters arise, the Company cannot assure that it would prevail in such matters, nor can it assure that any remedy could be reached on mutually agreeable terms, if at all. Due to the inherent uncertainties of litigation, were there any such matters, the Company would not be able to accurately predict their ultimate outcome. As of April 30, 2004, there were no current proceedings or litigation involving the Company that management believes would have a material adverse impact on its financial position, results of operations, or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the Company's stockholders during the fourth quarter of fiscal 2004.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information for Common Stock

During fiscal 2004, Unify's common stock was traded on the Over-The-Counter Bulletin Board (OTC BB) under the symbol UNFY.BB. The following table sets forth the high and low sales prices as reported on the over-the counter market for shares of our common stock for the periods indicated. Such prices represent prices between dealers, do not include retail mark-ups, mark-downs or commissions and may not represent actual transactions.

	High		Low
Fiscal 2004
Fourth Quarter	$	1.36	$	0.90
Third Quarter		1.39		0.67
Second Quarter		0.84		0.30
First Quarter		0.43		0.27
Fiscal 2003
Fourth Quarter	$	0.43	$	0.25
Third Quarter		0.65		0.25
Second Quarter		0.75		0.20
First Quarter		1.05		0.45

Common Stockholders of Record

At June 30, 2004, there were approximately 289 stockholders of record of the Company's common stock, as shown in the records of our transfer agent, excluding stockholders whose stock was held in nominee or street name by brokers.

Dividends

We have never paid dividends on our common stock and our present policy is to retain anticipated future earnings for use in our business.

Recent Sales of Unregistered Securities

On April 26, 2004 the Company issued through a private placement 5,633,900 shares of our common stock to a group of institutional investors at a price of $0.71 per share and 5-year warrants to purchase an aggregate of 2,253,560 shares of our common stock initially exercisable at $0.90 per share. These securities were issued in reliance upon the exemption from securities registration afforded by the provisions of Regulation D, as promulgated by the SEC under the Securities Act of 1933, as amended.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto in Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7.

				Years Ended April 30,
				2004			2003			2002			2001			2000
				(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues:
	Software licenses			$	6,111		$	5,895		$	7,303		$	7,229		$	12,576
	Services				5,814			6,278			6,297			7,074			8,475

		Total revenues			11,925			12,173			13,600			14,303			21,051

Cost of revenues:
	Software licenses				595			263			498			662			1,342
	Services				1,299			1,133			1,442			3,085			4,037

		Total cost of revenues			1,894			1,396			1,940			3,747			5,379

Gross profit					10,031			10,777			11,660			10,556			15,672

Operating expenses:
	Product development				2,996			4,108			4,099			4,912			6,696
	Selling, general and administrative				7,730			6,523			6,016			10,697			16,835
	Write-down of other investments				175			200			1,300			3,650			—
	Special charges (recovery)				110			(132	)		(1,276	)		3,356			—

	Total operating expenses				11,011			10,699			10,139			22,615			23,531

		Income (loss) from operations			(980	)		78			1,521			(12,059	)		(7,859	)
Other income (expense), net					(27	)		3			36			(213	)		367

		Income (loss) before income taxes			(1,007	)		81			1,557			(12,272	)		(7,492	)
Provision (benefit) for income taxes					3			(38	)		(10	)		59			192

			Net income (loss)	$	(1,010	)	$	119		$	1,567		$	(12,331	)	$	(7,684	)

Net income (loss) per share:
	Basic			$	(0.05	)	$	0.01		$	0.08		$	(0.65	)	$	(0.42	)

	Diluted			$	(0.05	)	$	0.01		$	0.08		$	(0.65	)	$	(0.42	)

Shares used in computing net income (loss) per share:
	Basic				21,558			20,939			20,232			18,979			18,127

	Diluted				21,558			21,693			20,779			18,979			18,127

	April 30, 2004		2003		2002		2001			2000
	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments	$	6,606	$	3,030	$	2,993	$	3,084		$	11,076
Restricted cash		—		—		—		118			118
Working capital (deficit)		3,816		658		65		(3,929	)		5,835
Total assets		10,743		6,675		7,717		9,344			21,792
Long-term debt, net of current portion				—		200		—			—
Total stockholders' equity (deficit)		4,492		1,509		971		(1,202	)		10,286

ITEM 7. 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 contains forward-looking statements that involve risks and uncertainties and should be read in conjunction with the cautionary language applicable to such forward-looking statements described above in "A Caution About Forward-Looking Statements" found before Item 1 of this Form 10-K. You should not place undue reliance on these forward-looking statements which speak only as of the date of this Annual Report on Form 10-K. The following discussion should also be read in conjunction with the Consolidated Financial Statements and Notes thereto in Item 8. 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, the Risk Factors discussed in this Annual Report and in the Company's other filings with the SEC.

Overview

Unify is a global provider of enterprise software solutions to mid-size and large organizations. For more than 24 years, we have provided our 2,000 customers and 300 ISV partners around the world with productive and cost-effective application platform, database and application development solutions for building and deploying applications. Our software products and services enable businesses to rapidly, efficiently and seamlessly deliver applications that deliver the right information to the right people at the right time. Our software platform today gives organizations the ability to connect multiple data sources, quickly build forms-based applications, automate business processes and integrate disparate information to run, manage and optimize their business. By deploying Unify software, customers can increase revenue, enrich customer and citizen relationships, increase supply chain efficiencies and enhance operational effectiveness. Our customers are leaders in their respective industries including, healthcare, financial services, government and manufacturing among others.

Our flagship product, Unify NXJ is easy-to-use, productive and standards-based application platform that enables organizations to effectively automate processes within and between organizations, consolidate multiple legacy systems into unified applications, and provide advanced collaborative information systems for employees, suppliers and partners. Unify NXJ provides a comprehensive set of application services that include business process management, reporting, portal and portal integration, web services integration, forms processing, and enterprise application integration, as well as assembly and orchestration components, which can be delivered as a completely integrated suite or as an integrated services environment across leading Java 2 Enterprise Edition ("J2EE") technology infrastructure stacks.

Over the past five years the Company has adjusted to significant changes in its market. At $11.9 million, fiscal 2004 revenue was approximately 41% of what it was in fiscal 1999 when companies were spending heavily to bring applications to the Web, adopt distributed computing platforms and prepare for Y2K compliance. Beginning in fiscal 2000, the Company experienced weakening demand for new licenses of its legacy application and database products, a phenomenon that has been experienced by many software companies that service the enterprise market. The cooling of the economic climate, coupled with the desire for a better return on investment, has prompted organizations around the world to reexamine their IT needs and priorities in a substantial and fundamental manner.

The Company responded in a variety of ways and on a number of fronts. For example, it maintained a substantial investment in product development throughout each of the past five years. In addition to creating customer driven enhancements in features and usability, this effort resulted in new Web-centric capabilities that have been integrated throughout our product line. Strategically, this commitment to delivering competitive products has produced Unify NXJ. We believe the next increase in IT spending, when it begins, will be driven by the desire to make business applications Web-enabled

and capable of operating in heterogeneous computing environments. Furthermore, we believe that the challenging IT environment of the past four years has created a backlog of projects for IT organizations that are now facing pressures to get those projects done quickly. Additionally, with the advent of services-oriented architectures and Web services, these organizations must build applications upon those infrastructures and technologies. Our Unify NXJ platform enables application developers within these IT organizations to productively build process-centric Web applications that meet today's architectural requirements.

Over the past two fiscal years, our management team has dramatically reduced the Company's cost structure, producing the breakeven point required to respond to the challenging environment in which the worldwide software industry continues to find itself. Operating expenses for fiscal 2004 and 2003 were approximately half of what they were in fiscal 1999. Other important but somewhat less prominent adjustments have been made and are expected to result in new Unify NXJ revenue and drive top-line overall revenues. For instance, management intends to increase its emphasis on marketing and aggressively pursue emerging opportunities for Unify NXJ in order to increase revenue growth. As part of such plan, in June, 2003 management eliminated 15 positions to better align its business model to support a heightened focus on customers and to become a more sales driven organization. Additionally, the Company closed a $3.7 million private equity placement in April 2004 to help fund marketing plans to generate new Unify NXJ customers, build visibility and enhance credibility.

Critical Accounting Policies

The following discussion and analysis of the Company's financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The areas that require significant judgment are as follows.

Revenue Recognition.

The Company generates revenue from software license sales and related services, including maintenance and support, and consulting services. The Company licenses its products to end user customers, independent software vendors and value added resellers. While the Company recognizes revenue for software license sales in accordance with Statement of Position 97-2, "Software Revenue Recognition" as effected by Statement of Position 98-4 "Deferral of the Effective Date of a Provision of SOP 97-2" and Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", we exercise judgment in connection with the determination of the amount of software and services revenue to be recognized in each accounting period. The nature of each licensing arrangement determines how revenues and related costs are recognized.

The Company's customer contracts include multi-element arrangements that include a delivered element, software license, and undelivered elements, maintenance and support and/or consulting. The value allocated to the undelivered elements is unbundled from the delivered element based on vendor-specific objective evidence (VSOE) of the relative fair value of the maintenance and support and/or consulting, regardless of any separate prices stated within the contract. We recognize revenue for delivered elements only when the fair values of undelivered elements are known, uncertainties regarding customer acceptance are resolved, and there are no customer-negotiated refund or return rights affecting the revenue recognized for delivered elements. Changes in the allocation of the sales

price between the deliverable elements might impact the timing of revenue recognition, but would not change the total revenue recognized on the contract. We may modify our pricing practices in the future, which could result in changes in our VSOE of fair value for these undelivered elements. As a result, our future revenue recognition for multi-element arrangements could differ significantly from our historical results.

We defer revenue for any undelivered elements, and recognize revenue when the product is delivered or over the period in which the service is performed, in accordance with our revenue recognition policy for such element. If we cannot objectively determine the fair value of any undelivered element included in bundled software and service arrangements, we defer revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. When the fair value of a delivered element has not been established, we use the residual method to record revenue if the fair value of all undelivered elements is determinable. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue.

An assessment of the ability of the Company's customers to pay is another consideration that affects revenue recognition. In some cases, the Company sells to undercapitalized customers. In those circumstances, revenue recognition is deferred until cash is received, the customer has established a history of making timely payments or the customer's financial condition has improved. Furthermore, once revenue has been recognized, the Company evaluates the related accounts receivable balance at each period end for amounts that we believe may no longer be collectible. This evaluation is largely done based on a review of the financial condition via credit agencies and historical experience with the customer. Any deterioration in credit worthiness of a customer may impact the Company's evaluation of accounts receivable in any given period.

Valuation of Long-Lived Assets

Our long-lived assets are comprised of long-term investments. At April 30, 2004, we had $214,000 in long-term investments, which are accounted for under the cost method. We assess the valuation of long-lived assets whenever circumstances indicate that there is a decline in carrying value below cost that is other-than temporary. Several factors can trigger an impairment review such as significant underperformance relative to expected historical or projected future operating results and significant negative industry or economic trends. In assessing potential impairment for such investments, we consider these factors as well as the forecasted financial performance. When such decline in value is deemed to be other-than-temporary, we recognize an impairment loss in the current period operating results to the extent of the decline. We recognized $175,000 in impairment losses related to long-term investments in fiscal 2004. Future adverse changes in market conditions or poor operating results could result in losses or an inability to recover the carrying value of the long-term investments that is not currently reflected in the investments carrying value, thereby, possibly requiring additional impairment charges in the future.

Deferred Tax Asset Valuation Allowance

As of April 30, 2004, we have approximately $19.1 million of deferred tax assets related principally to net operating loss carry forwards, reserves and other accruals, deferred revenue, and foreign tax credits. A valuation allowance has been recorded to offset these deferred tax assets. The ability of the Company to ultimately realize its deferred tax assets will be contingent upon the Company achieving taxable income. There can be no assurance that this will occur in amounts sufficient to utilize the deferred tax assets. Should we determine that we would be able to realize the deferred tax assets in the future in excess of the recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.

Results of Operations

The following table sets forth our consolidated statement of operations expressed as a percentage of total revenues for the periods indicated:

	Years Ended April 30,
	2004		2003		2002
Revenues:
Software licenses	51.2	%	48.4	%	53.7	%
Services	48.8		51.6		46.3

Total revenues	100.0		100.0		100.0

Cost of revenues:
Software licenses	5.0		2.2		3.7
Services	10.9		9.3		10.6

Total cost of revenues	15.9		11.5		14.3

Gross profit	84.1		88.5		85.7

Operating expenses:
Product development	25.1		33.7		30.1
Selling, general and administrative	64.8		53.6		44.2
Write-down of other investments	1.5		1.6		9.6
Special charges (recovery)	0.9		(1.0	)	(9.4	)

Total operating expenses	92.3		87.9		74.5

Income (loss) from operations	(8.2	)	0.6		11.2
Other income (expense), net	(0.2	)	0.1		0.2

Income (loss) before income taxes	(8.4	)	0.7		11.4
Provision (benefit) for income taxes	0.1		(0.3	)	(0.1	)

Net income (loss)	(8.5	)%	1.0	%	11.5	%

Total Revenues

The Company generates revenue from software license sales and related services, including maintenance and support, and consulting services.

We license our software through our direct sales force in the United States and Europe, and through indirect channels comprised of distributors, ISVs, VARs, and other partners worldwide. Revenues from distributors, ISVs, VARs and partners accounted for approximately 62%, 54%, and 64% of our software license revenues, with the remainder from end users, for fiscal 2004, 2003 and 2002, respectively.

We expect that our future revenue growth will depend upon the market acceptance of Unify NXJ, our recently released product solution for delivering business process-centric applications, which we believe is the principal means by which we will attract new customers as well as generate new opportunities for license revenue from existing customers. Revenues from our database and client/server products are not expected to show significant growth. Therefore, factors adversely affecting the IT spending climate for new application development and general acceptance of services oriented architectures and the J2EE platform, or particular acceptance of Unify NXJ may have an adverse effect on our business, operating results and financial condition.

Our total revenues in fiscal year 2004 were $11.9 million, a decrease of 2% or $0.2 million from fiscal 2003 revenues of $12.2 million. While total revenues fell by 2%, revenues from product licenses

increased by 4% or $0.2 million from 2003. The maintenance and support portion of service revenues remained constant in dollars. As a result, the dollar decline was primarily due to the decrease in the consulting portion of service revenues which declined by $0.4 million from 2003 because the Company benefited from a large consulting services contract in 2003 which was not replicated this year.

In fiscal 2004, we renewed approximately 79% of our maintenance agreements. Consulting revenues for fiscal 2004 decreased to $0.3 million from $0.7 million in fiscal 2003. Maintenance revenues for fiscal 2004 remained at $5.5 million from fiscal 2003. Although there were minor year-to-year changes in the consulting and maintenance revenues mix, the total services revenue for fiscal years 2003 and 2002 remained constant at $6.3 million.

Our software license revenues increased $0.2 million or 4% to $6.1 million in fiscal 2004 from $5.9 million in fiscal 2003. Software license revenues in North America decreased 38% to $1.8 million, which represented a decrease as a percent of total software license revenues from 49% to 29% in fiscal 2003 and 2004, respectively. These decreases in software license revenues in North America were from the decline in database and tools product licenses year over year as those revenues are subject to the timing of product upgrades and customers purchasing additional runtime licenses. Sales of Unify NXJ in North America substantially increased in fiscal 2004 over 2003, but the absolute dollars did not offset the decrease in database and tools product licenses during the year. Outside North America software license revenues increased as a percentage of total revenues from 51% to 71% during fiscal 2004, compared to fiscal 2003. These increases in software license revenues outside North America result from increased sales of database and tools products combined with increases in Unify NXJ product license revenues during the year. Our software license revenues decreased $1.4 million or 19% in fiscal 2003 from $7.3 million in fiscal 2002 as a result of declines in sales of the database and tools products. Based upon the performance of the database and tools products for the last three years, we anticipate that those revenues will continue to decline, but we believe that the revenues generated by Unify NXJ will offset those declines to some degree.

International revenues include all our software license and service revenues from customers located outside the United States. International revenues from our direct sales organization, indirect sales channels (ISVs, VARs, distributors and other partners outside the U.S.) accounted for 68%, 54%, and 63% of total revenues, with the remainder from the United States, in fiscal years 2004, 2003 and 2002, respectively.

Cost of Revenues

Cost of Software Licenses. Cost of software licenses consists primarily of product packaging and production costs as well as the amortization of royalties and license fees paid for licensed technology. Cost of software licenses was $0.6 million for fiscal year 2004, $0.3 million for fiscal 2003, and $0.5 million in fiscal 2002. Costs associated with royalties and other direct production costs are expensed as incurred at the time of the sale and royalties paid to third parties are amortized ratably over their expected useful lives.

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 services. Total cost of services in fiscal 2004 increased 15% to $1.3 million from $1.1 million in fiscal 2003 and $1.4 million in fiscal 2002. The increase in fiscal 2004 from fiscal 2003 was the result of additional costs to support NXJ customers. The reduction in the cost of services in fiscal 2003 from fiscal 2002 resulted from the liquidation of the Company's Japanese subsidiary and the reduction in the use of outsourced contract labor for consulting engagements. The cost of services generally has a high component of fixed costs and therefore does not fluctuate directly with changes in services revenues. Our cost of services as a percent of services revenues in fiscal 2004 was 22% as compared to 18% in fiscal 2003 and 23% in fiscal 2002. We continue to evaluate the efficiency of our support, consulting and training operations

and plan to expand our expertise in fiscal 2005 in order to capitalize on opportunities that arise. As a result, our service costs may increase and, as there is generally a period of time between when additional consulting personnel are hired and when they become fully productive, our results of operations may be adversely affected by the expansion of our services offering.

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 costs were $3.0 million in fiscal 2004, down 27% from the $4.1 million spent in both fiscal 2003 and 2002. The decrease in fiscal 2004 was primarily the result of a reduction in the work force in June 2003 as the Company reduced its product development costs as part of a restructuring designed to afford increased investments in sales and marketing, particularly for Unify NXJ. Product development costs as a percentage of total revenues were 25% in fiscal 2004, 34% in fiscal 2003 and 30% in fiscal 2002. The Company believes that investments in product development are critical to maintaining technological leadership and therefore intends to continue to devote significant resources to product development in line with typical software industry averages.

Selling, General and Administrative. Selling, general and administrative ("SG&A") expenses consist primarily of salaries and incentive pay, marketing programs, travel expenses, professional services, facilities expenses and bad debt expense or recoveries. SG&A expenses were $7.7 million for 2004, $6.5 million for 2003 and $6.0 million for 2002. As a percentage of total revenue, SG&A expenses were 65% in fiscal 2004, 54% in fiscal 2003 and 44% in fiscal 2002. The major components of SG&A for fiscal 2004 were sales expenses of $4.5 million, marketing expenses of $0.7 million, and general and administrative expenses of $2.7 million. General and administrative expenses include bad debt provisions and recoveries. Sales expenses increased $1.0 million from fiscal 2003 as the Company increased its business development activities, hired a new Vice President of sales and marketing, and increased its direct sales force and telemarketing staff to focus on increasing sales of Unify NXJ. Marketing expenses were flat during the same period. General and administrative expenses increased by $0.4 million fiscal 2004 compared to fiscal 2003, primarily due to increases in professional fees associated with legal and accounting. Bad debt recoveries remained constant at $0.1 million during fiscal 2004 compared to fiscal 2003. In fiscal 2003 SG&A expenses increased $0.5 million over fiscal 2002 as the Company funded the launch of its new product, Unify NXJ.

Write-down of Other Investments. We continue to periodically review the recorded value of our investments. In fiscal 2004, we reduced the carrying value of our investment in Arrango Software International, Inc. from $350,000 to its estimated fair value of $175,000. During fiscal 2003 and 2002, we recorded impairment charges of $0.2 million and $1.3 million, respectively, related to Arango and Evergreen Internet, Inc. We record an investment impairment charge if and when we believe an investment has experienced a decline in market value that is other than temporary. Future adverse changes in market conditions or poor operating results of Arrango could result in losses or an inability to recover the carrying value of the investment, thereby possibly requiring additional impairment charges in the future.

Special Charges. In July 2000, we announced that certain matters had come to the attention of our Board of Directors that indicated that former officers of the Company had engaged in improper accounting practices. Accordingly, the Board of Directors authorized its Audit Committee to conduct an investigation of the Company's accounting and financial reporting practices and to recommend remedial action, if any. During fiscal 2002, we received recoveries of special charges which had originally been incurred, primarily in fiscal 2001, relating to legal expenses, additional auditing costs and other litigation related costs related to the investigation. These recoveries totaled $1.3 million in

fiscal 2002. These recoveries came about primarily as a result of the settlement of the class action lawsuit filed against the Company and resolution of additional audit billings incurred during the restatement. During fiscal 2003, we recorded an additional recovery of $0.1 million for legal costs from our insurance carrier. During fiscal 2004, we recorded special charges of $0.1 million which were attributable to the costs related to the Company's cooperation with the United States Attorney office's prosecution of a former officer of the Company. According to published reports, on November 20, 2003, the Company's former chief executive officer was convicted of 10 counts of securities fraud and one count of conspiracy.

Other Income (Expense). Other income (expense), net consists primarily of foreign exchange gains and losses, interest earned by the Company on our cash, cash equivalents and short-term investments offset by interest expense incurred on debt. Other income (expense) also includes gains or losses on the liquidation of our assets, including the dissolution of the Japan subsidiary. Other income (expense) was ($27,000), $3,000, $36,000 in fiscal 2004, 2003, and 2002, respectively.

Provision for Income Taxes. We recorded a foreign income tax expense of $9,000 for fiscal 2004. A Federal tax benefit of $6,000 was recorded with respect to federal income tax refunds from prior periods related to NOL carry backs. We recorded a foreign income tax benefit for fiscal 2003 as a result of refunds applied for. A minimal state and federal tax benefit was recorded in 2003. We recorded a federal income tax benefit for fiscal 2002 as the result of refunds received. No state tax provisions were recorded for fiscal 2002 due to the use of operating loss carry forwards. The 2002 tax provision relates primarily to foreign withholding on software license royalties paid to the Company by certain licensees. At April 30, 2004, we had net operating losses for federal tax purposes of approximately $42,400,000.

Liquidity and Capital Resources

At April 30, 2004, the Company had cash, cash equivalents and short-term investments of $6.6 million, compared to $3.0 million at April 30, 2003. Working capital increased by $3.1 million to $3.8 million at April 30, 2004 from $0.7 million at April 30, 2003.

The Company completed a private financing on April 28, 2004, in which it received $3,696,000, net of expenses. The proceeds from the offering were received from the sale of 5,633,900 shares of common stock and warrants representing the right to acquire an additional 2,253,560 shares of the Company's common stock at an exercise price of $.90 per share. The warrants vested immediately upon issuance. There were no warrants exercised as of April 30, 2004.

The Company has a line of credit arrangement with Silicon Valley Bank, which was put in place during the first quarter of fiscal 2004. As of April 30, 2004 the Company had no outstanding debt balance under the line of credit. The line of credit has a borrowing limit of $1.5 million; as of April 30, 2004, based upon the amount of its eligible assets at that time, the Company had available for borrowing up to $1.1 million. This line of credit expired on June 6, 2004. In addition, as of April 30, 2004 the Company had a term loan, also with Silicon Valley Bank, with a balance of $146,000 which was due on June 6, 2004. On June 3, 2004, the Company replaced its previous line of credit and term loan with a new $1.0 million revolving line of credit and a $500,000 term loan with Silicon Valley Bank (see Note 14 in footnotes to Consolidated Financial Statements). This line of credit is secured by qualifying domestic accounts receivable and has a one-year term. The term loan is secured by purchased assets and has a one-year term. The Company will incur interest expense on the line of credit and the term loan at the prevailing prime rate plus 2.0% and 2.5%, respectively. The prime rate used to calculated interest shall not be less than 4.0%.

We currently believe that existing cash ($6.6 million as of April 30, 2004), forecasted operating cash flows for fiscal year 2005, and the credit facility agreement, will provide us with sufficient working capital for us to meet our operating plan for fiscal year 2005. The operating plan assumes normal

operations for the Company, capital expenditures of approximately $250,000 and required interest and principal payments on debt.

In fiscal 2004, the cost structure of the Company was changed to reflect lower investments in product development and higher investments in sales and marketing. Also, in fiscal 2004, Unify NXJ was enhanced and relaunched into the market, and existing products including ACCELL/Web were upgraded and marketed to the installed base.

In fiscal 2005, we plan to make further strategic investments in sales and marketing, including hiring additional field sales representatives and engineers, to drive revenue growth and market acceptance of Unify NXJ. There is no assurance our plans will be successful. We believe that the $1.0 million secured line of credit obtained from Silicon Valley Bank in June 2004 and the equity infusion of $3.7 million raised in April, 2004 will be adequate to meet our needs over the next twelve months.

Operating Cash Flows. In fiscal 2004, we had negative cash flows from operations totaling $0.1 million. This compares to fiscal 2003 and 2002 where cash flows from operations were positive $0.4 million and negative $0.4 million, respectively. The negative operating cash flow for fiscal 2004 principally resulted from $1.0 million in net loss, offset by both a $0.6 million increase in other accrued liabilities, and a $0.3 million increase in deferred revenue. Other factors include $0.2 million in depreciation, $0.2 million write-down of other investments, $0.1million in stock based expense, together with a $0.2 million increase in accounts receivable, a $0.2 million increase in prepaid expenses and offset by a net $0.1 million increase in accounts payable and accrued compensation.

In fiscal 2003, we had positive cash flows from operations totaling $0.4 million. The positive operating cash flow for fiscal 2003 principally resulted from $0.1 million in net income, a $1.1 million decrease in amounts owed by customers, net of a $0.6 million decrease in accrued liabilities and a $0.6 decrease in deferred revenue. Other factors include $0.2 million in depreciation, $0.2 million write-down of other investments, $0.1 in stock compensation, together with a $0.1 million decrease in prepaid expenses and offset by a $0.1 million decrease in accounts payable and a $0.1 million decrease in accrued compensation.

For fiscal 2002, negative operating cash flow of $0.4 million resulted from net income of $1.6 million and decreases of $1.5 million in other accrued liabilities, which were primarily as the result of settlements of class action and derivative suits, $1.3 million in accounts payable, $0.4 million in deferred revenue and $0.3 million in accrued compensation and related expenses, primarily as the result of the liquidation of Japan, and an increase in accounts receivable of $0.5 million. These amounts were partially offset by a decrease of $0.2 million in prepaid expenses, the non-cash write-down of other investments of $1.3 million, the elimination of cumulative translation adjustments upon the liquidation of our Japan subsidiary of $0.1 million and depreciation of $0.4 million.

Investing Cash Flows. Net cash and cash equivalents used by investing activities approximated $0.2 million for fiscal 2004. Net cash and cash equivalents used by investing activities approximated $0.2 million in fiscal 2003 while net cash and cash equivalents provided by investing activities approximated $0.2 million in fiscal 2002. The use of cash by investing activities in fiscal 2004 and 2003 was due to capital purchases. In fiscal 2002, net cash provided by investing activities of $0.2 million consisted primarily of the sale of available for sale securities and other assets of $0.1 million and decreases in restricted cash of $0.1 million, partially offset by purchases of property and equipment and other investments of $0.1 million.

Financing Cash Flows. Cash provided by financing activities was $3.8 million in fiscal 2004. Cash used in financing activities was $0.4 million in fiscal 2003 and $0.1 million in fiscal 2002. The cash provided in 2004 was the result of $3.8 million from the proceeds from the issuance of common stock from a private financing closed in April, 2004, the issuance of common stock from stock options

exercises, and purchases under the employee stock purchase plan. Cash was also provided by the collection of notes receivable from stockholder of $0.1 million with principal payments and borrowings under debt obligations offsetting each other. The cash used in 2003 was the result of $0.3 million decrease in amounts payable to minority stockholders, a $0.2 million repayment of debt obligations and $0.1 million received for the issuance of our common stock. The cash used in financing activities in 2002 was the result of principal payments under debt obligations and amounts payable to minority interest stockholders of $0.3 million reduced by proceeds from issuance of common stock from stock options exercises and purchases under the employee stock purchase plan of $0.2 million.

A summary of certain contractual obligations as April 30, 2004 is as follows:

	Payments Due by Period
Contractual Obligations	Total		1 year or less		2-3 years		4-5 years		After 5 years
Long-Term Debt	$	145,833	$	145,833		0		0		0
Other Long-Term Liabilities		70,283		0		0		0	$	70,283
Operating Leases		3,880,083		1,050,483		1,974,793		854,807		0

Total Contractual Cash Obligations	$	4,096,199	$	1,196,316	$	1,974,793	$	854,807	$	70,283

Recently Issued Accounting Standards

In January 2003, the FASB issued Interpretation Number 46, "Consolidation of Variable Interest Entities—an interpretation of ARB No. 51" (FIN 46). FIN 46 establishes accounting guidance for consolidation of a variable interest entity ("VIE"), formerly referred to as special purpose entities. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a VIE. FIN 46 provides guidance for determining when an entity, the Primary Beneficiary, should consolidate another entity, a VIE. This statement is effective immediately for variable interest entities created after January 31, 2003 and by the first interim or annual reporting period commencing after March 15, 2004, for variable interest entities created prior to February 1, 2003. The Company adopted the provisions of FIN 46 for fiscal 2004, which did not result in a material impact to our financial position, cash flows or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. The Company's exposure to market rate risk for changes in interest rates relates primarily to its investment portfolio, which consists of cash equivalents and short-term investments. Cash equivalents are highly liquid investments with original maturities of three months or less and are stated at cost. Cash equivalents are generally maintained in money market accounts which have as their objective preservation of principal and which hold investments with maturity dates of less than 90 days. The Company does not believe its exposure to interest rate risk is material for cash and investments, which totaled $6.6 million at April 30, 2004. Unify had no short-term investments at April 30 in fiscal 2003 or 2002. Additionally, the Company has no interest rate risk on its long-term debt.

Unify does not use derivative financial instruments in its short-term investment portfolio, and places its investments with high quality issuers only and, by policy, limits the amount of credit exposure to any one issuer. The Company is averse to principal loss and attempts to ensure the safety of its invested funds by limiting default, market and reinvestment risk.

Foreign Currency Exchange Rate Risk. As a global concern, the Company faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have an adverse impact on the Company's business, operating

results and financial position. Historically, the Company's primary exposures have related to local currency denominated sales and expenses in Europe, Japan and Australia. For example, when the U.S. dollar strengthens against the major European currencies, it results in lower revenues and expenses recorded for those regions when translated into U.S. dollars.

Due to the substantial volatility of currency exchange rates, among other factors, the Company cannot predict the effect of exchange rate fluctuations on its future operating results. Although Unify takes into account changes in exchange rates over time in its pricing strategy, it does so only on an annual basis, resulting in substantial pricing exposure as a result of foreign exchange volatility during the period between annual pricing reviews. The Company also has currency exchange rate exposures on intercompany accounts receivable owed to the Company as a result of local currency sales of software licenses by the Company's international subsidiaries in the United Kingdom and France. At April 30, 2004, the Company had $0.2 million and $0.1 million in such receivables denominated in British Pounds and Euros, respectively. The Company encourages prompt payment of these intercompany balances in order to minimize its exposure to currency fluctuations, but it engages in no hedging activities to reduce the risk of such fluctuations. A hypothetical ten percent change in foreign currency rates would have an insignificant impact on the Company's business, operating results and financial position. The Company has not experienced material exchange losses on intercompany balances in the past; however, due to the substantial volatility of currency exchange rates, among other factors, it cannot predict the effect of exchange rate fluctuations on its future business, operating results and financial position.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Part IV, Item 15 (a) for an index to the financial statements and supplementary financial information, which are filed, as part of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On December 16, 2002, we dismissed Deloitte & Touche LLP ("D&T") as our independent certified public accountants. The Audit Committee of our Board of Directors approved the decision to change accountants. During the fiscal year ended April 30, 2002, D&T's report on our financial statements did not contain an adverse opinion or a disclaimer of opinion, and was not qualified as to audit scope or accounting principles. This report contained an explanatory paragraph with respect to uncertainties that raised substantial doubt as to our ability to continue as a going concern. During that fiscal year and the subsequent period up to December 16, 2002, other than the matters discussed in the following two paragraphs, there were no disagreements (as defined under Item 304 of Regulation S-K) with D&T on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure, which disagreements if not resolved to their satisfaction would have caused them to make reference to the subject matter of the disagreement in connection with their report.

During the quarter ended July 31, 2002, we received restricted shares of common stock of a privately-held customer in settlement of an outstanding claim that we had asserted against the customer. In making our initial assessment of the estimated fair value of the common stock received, we considered, among other things, the historical and projected operating results of the customer. However, D&T advised us that, in light of the uncertainties regarding the realizability of the common stock received, it believed the use of valuation methodologies which additionally considered liquidation preferences would be more appropriate. After discussion with D&T, we concluded it was more appropriate to use the valuation methodology proposed by D&T.

During the quarter ended July 31, 2002, we were informed by one of our foreign distributors that the distributor did not intend to pay us $250,000 in license fees until the distributor re-sold the license

to an end-user. As a result, we determined that the distributor could not demonstrate an ability to honor payment commitments until the distributor subsequently sold the license to an end-user. We had previously recorded these fees as revenue upon the sale of the license to the distributor in the fourth quarter of our fiscal year ended April 30, 2002. We initially believed that, during the quarter ended July 31, 2002; a reserve for the receivable should be established, resulting in a charge to bad debt expense. D&T believed that the distributor's unwillingness to pay us should be accounted for as a product return until the license was re-sold by the distributor and, as such, that the appropriate accounting would be to reverse the original sale, thereby reducing revenues for the quarter ended July 31, 2002. After discussions with D&T, we concluded that it was appropriate to reverse the revenue from this transaction in the quarter ended July 31, 2002.

D&T discussed both of these matters with our Audit Committee of the Board of Directors and advised the Audit Committee that it believed the above items constituted disagreements with Management pursuant to Item 304 of Regulation S-K.

On December 20, 2002, pursuant to the approval of the Audit Committee of our Board of Directors, we engaged Ernst & Young LLP ("E&Y") to serve as our independent auditors. During the fiscal year ended April 30, 2002 and during the subsequent period through December 20, 2002, we did not consult with E&Y on any accounting or auditing issues.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

(b) Changes in Internal Controls. There have not been any significant changes in our internal controls or in other factors that could significantly affect such controls subsequent to the date of the evaluation referenced in paragraph (a) above.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item which relates to the Company's directors and disclosure relating to compliance with Section 16(a) of the Securities Exchange Act of 1934 is included under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy statement for the 2004 Annual Meeting of Stockholders (the "2004 Annual Meeting of Stockholders") and is incorporated herein by reference. The information required by this item which relates to the Company's executive officers and key employees is included under the caption "Executive Officers" in Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is included under the caption "Executive Compensation and Other Matters" in the Company's proxy statement for the 2004 Annual Meeting of Stockholders and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is included under the caption "Principal Accounting Fees and Services" in the Company's proxy statement for the 2004 Annual Meeting of Stockholders and is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a): The following documents are filed as part of this Annual Report on Form 10-K:

1. Consolidated Financial Statements

					Page Number
			Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		35
			Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm		36
			Consolidated Balance Sheets as of April 30, 2004 and 2003		37
			Consolidated Statements of Operations for the years ended April 30, 2004, 2003 and 2002		38
			Consolidated Statements of Stockholders' Equity for the years ended April 30, 2004, 2003 and 2002		39
			Consolidated Statements of Cash Flows for the years ended April 30, 2004, 2003 and 2002		40
			Notes to Consolidated Financial Statements		41
			2. Financial Statement Schedules
			Schedule II—Valuation and Qualifying Accounts		59
			All other schedules are omitted because they are not applicable, or the required information is shown in the Consolidated Financial Statements or Notes thereto.
			3. Exhibits—See Item 15(c) below.

(b): Reports on Form 8-K

Form 8-K filed on June 10, 2004, announcing the Company's financial results for its fourth fiscal quarter and year ended April 30, 2004.

(c): Exhibits

Exhibit No.		Description
3.1		Restated Certificate of Incorporation of the Company (1)
3.2		Bylaws of the Registrant (1)
4.1		Form of Stock Certificate (1)
4.2		Form of Warrant
10.2*		1991 Stock Option Plan, as amended (1)
10.3*		1996 Employee Stock Purchase Plan (1), (3)
10.4		Form of Indemnification Agreement (1)
10.6		Office Building Lease for Sacramento Facility, Dated December 17, 1999 (2)
10.8*		Employment Agreement by and between Todd Wille and the Registrant dated December 29, 2000 (4)
10.9*		2001 Stock Plan (3)

10.10		Silicon Valley Bank Loan and Security Agreement dated June 6, 2003 (5), as amended by Silicon Valley Bank Amendment to Loan Documents dated June 3, 2004 and Amended Schedule to Loan and Security Agreement dated June 3, 2004
10.11		Purchase Agreement dated April 23, 2004
10.12		Registration Rights Agreement dated April 26, 2004
10.13		Fourth Amendment Effective January 1, 2002 to Office Building Lease Dated December 17, 1999
10.14		Fifth Amendment to Lease and Termination of Stock Pledge Agreement dated September 18, 2003
14		Code of Ethics for Senior Officers
21.1		Subsidiaries of the Registrant (1)
23.1		Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
23.2		Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Todd Wille, Chief Executive Officer of Unify Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Pete DiCorti, Chief Financial Officer of Unify Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1): Incorporated by reference to the exhibit of the same number filed with Registrant's Form S-2 Registration Statement (No. 333-3834) declared effective by the Securities and Exchange Commission on June 14, 1996.
(2): Incorporated by reference to the exhibit of the same number filed with Registrant's Form 10-K on December 22, 2000.
(3): Incorporated by reference to the exhibit of the same number filed with Registrant's Form 10-Q on March 14, 2002.
(4): Incorporated by reference to the exhibit of the same number filed with Registrant's Form 10-K on July 30, 2001.
(5): Incorporated by reference to the exhibit of the same number filed with Registrant's Form 10-K on July 17, 2003.
*: Exhibit pertains to a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	UNIFY CORPORATION
	By:	/s/ TODD E. WILLE Todd E. Wille Chairman, President and Chief Executive Officer
Dated: July 21, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities on the dates indicated.

/s/ TODD E. WILLE Todd E. Wille	Chairman, President and Chief Executive Officer (Principal Executive Officer)	July 21, 2004
/s/ PETER J. DICORTI Peter J. DiCorti	Chief Financial Officer (Principal Financial and Accounting Officer)	July 21, 2004
/s/ KURT M. GARBE Kurt M. Garbe	Director	July 21, 2004
/s/ TERY R. LARREW Tery R. Larrew	Director	July 21, 2004
/s/ ROBERT J. MAJTELES Robert J. Majteles	Director	July 21, 2004
/s/ STEVEN D. WHITEMAN Steven D. Whiteman	Director	July 21, 2004

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Unify Corporation:

We have audited the accompanying consolidated balance sheets of Unify Corporation as of April 30, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. Our audit also included the financial statement schedule listed in the Index at Item 15(a) 2. for the years ended April 30, 2004 and 2003. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The financial statements of Unify Corporation for the year ended April 30, 2002 were audited by other auditors whose report dated May 23, 2002, expressed an unqualified opinion on those statements and included an explanatory paragraph that describes substantial doubt about Unify Corporation's ability to continue as a going concern.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unify Corporation at April 30, 2004 and 2003, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the years ended April 30, 2004 and 2003, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Sacramento, California
June 3, 2004

Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Unify Corporation:

We have audited the consolidated statements of operations, stockholders' equity (deficit) and cash flows of Unify Corporation and subsidiaries (the "Company") for the year ended April 30, 2002. Our audit also included the Company's financial statement schedule listed in Item 15(a) 2 for the year ended April 30, 2002. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Unify Corporation and subsidiaries for the year ended April 30, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule for the year ended April 30, 2002, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company's net losses during the years ended April 30, 2001 and 2000, its accumulated deficit as of April 30, 2002, and the decline in the Company's revenues during fiscal 2002, 2001 and 2000, raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

DELOITTE & TOUCHE LLP
San Jose, California
May 23, 2002

UNIFY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

		April 30, 2004			April 30, 2003
ASSETS
Current assets:
	Cash and cash equivalents	$	6,606		$	3,030
	Accounts receivable, net of allowances of $175 in 2004, and $252 in 2003		2,848			2,504
	Prepaid expenses and other current assets		543			290

	Total current assets		9,997			5,824
Property and equipment, net			338			345
Other investments			214			392
Other assets			194			114

	Total assets	$	10,743		$	6,675

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable	$	523		$	556
	Current portion of long term debt		146			200
	Other accrued liabilities		1,340			822
	Accrued compensation and related expenses		812			652
	Deferred revenue		3,360			2,936

	Total current liabilities		6,181			5,166
Other long term liabilities			70			—
Commitments and contingencies (Note 16)			—			—
Stockholders' equity:
	Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding		—			—
	Common stock, $0.001 par value; 40,000,000 shares authorized; 27,273,920 and 21,166,016 shares outstanding in 2004 and 2003		27			21
	Additional paid-in capital		63,205			59,339
	Note receivable from stockholder		—			(60	)
	Accumulated other comprehensive income (loss)		18			(43	)
	Accumulated deficit		(58,758	)		(57,748	)

	Total stockholders' equity		4,492			1,509

	Total liabilities and stockholders' equity	$	10,743		$	6,675

See accompanying notes

UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, eept per share data)

		Years Ended April 30,
		2004			2003			2002
Revenues:
	Software licenses	$	6,111		$	5,895		$	7,303
	Services		5,814			6,278			6,297

	Total revenues		11,925			12,173			13,600

Cost of revenues:
	Software licenses		595			263			498
	Services		1,299			1,133			1,442

	Total cost of revenues		1,894			1,396			1,940

Gross profit			10,031			10,777			11,660

Operating expenses:
	Product development		2,996			4,108			4,099
	Selling, general and administrative		7,730			6,523			6,016
	Write-down of other investments		175			200			1,300
	Special charges (recoveries)		110			(132	)		(1,276	)

	Total operating expenses		11,011			10,699			10,139

	Income (loss) from operations		(980	)		78			1,521
Other income (expense), net			(27	)		3			36

	Income (loss) before income taxes		(1,007	)		81			1,557
Provision (benefit) for income taxes			3			(38	)		(10	)

	Net income (loss)	$	(1,010	)	$	119		$	1,567

Net income (loss) per share:
	Basic	$	(0.05	)	$	0.01		$	0.08

	Diluted	$	(0.05	)	$	0.01		$	0.08

Shares used in computing net income (loss) per share:
	Basic		21,558			20,939			20,232

	Diluted		21,558			21,693			20,779

See accompanying notes.

UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)

	Common Stock					Note Receivable from Stockholder			Accumulated Other Comprehensive Income (loss)						Total Stockholders' Equity (deficit)
	Common Stock			Additional Paid-In Capital								Accumulated Deficit						Comprehensive Income (Loss)
	Shares	Amount		Additional Paid-In Capital								Accumulated Deficit						Comprehensive Income (Loss)
Balances at April 30, 2001	19,604,548	$	18	$	58,925	$	(60	)	$	(651	)	$	(59,434	)	$	(1,202	)
Comprehensive income
Net income	—		—		—		—			—			1,567			1,567		$	1,567
Translation adjustments	—		—		—		—			302			—			302			302
Elimination of cumulative translation adjustments upon liquidation of Unify Japan										139			—			139			139
Total comprehensive income																		$	2,008

Exercise of stock options	138,169		—		40		—			—			—			40
Issuance of common stock under employee stock purchase plan	595,946		2		119		—			—			—			121
Stock-based compensation	—		—		4		—			—			—			4

Balances at April 30, 2002	20,338,663		20		59,088		(60	)		(210	)		(57,867	)		971
Comprehensive income
Net income	—		—		—		—			—			119			119		$	119
Translation adjustments	—		—		—		—			167			—			167			167

Total comprehensive income																		$	286

Exercise of stock options	90,849		—		17		—			—			—			17
Issuance of common stock under employee stock purchase plan	478,308		1		104		—			—			—			105
Stock-based compensation	258,196		—		130		—			—			—			130

Balances at April 30, 2003	21,166,016		21		59,339		(60	)		(43	)		(57,748	)		1,509
Comprehensive loss
Net loss	—		—		—		—			—			(1,010	)		(1,010	)	$	(1,010	)
Translation adjustments	—		—		—		—			61			—			61			61

Total comprehensive loss																		$	(949	)

Issuance of common stock	5,665,500		6		3,702											3,708
Issuance of common stock warrants	—		—		32		—			—			—			32
Exercise of stock options	114,308		—		28		—			—			—			28
Issuance of common stock under employee stock purchase plan	228,096		—		64		—			—			—			64
Stock-based compensation	100,000		—		40		—			—			—			40
Repayment of note receivable from stockholder							60									60

Balances at April 30, 2004	27,273,920	$	27	$	63,205	$	—		$	18		$	(58,758	)		4,492

See accompanying notes.

UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

				Years Ended April 30,
				2004			2003			2002
Cash flows from operating activities:
	Net income (loss)			$	(1,010	)	$	119		$	1,567
	Reconciliation of net income (loss) to cash provided by (used in) operating activities:
		Depreciation			165			233			365
		Write-down of other investments			178			200			1,300
		Elimination of cumulative translation adjustments upon liquidation of Unify Japan			—			—			139
		Employee stock based expense			40			130			4
		Non employee stock based expense			44			—			—
		Changes in operating assets and liabilities:
			Accounts receivable		(240	)		1,092			(455	)
			Prepaid expenses and other current assets		(244	)		66			206
			Accounts payable		(35	)		(79	)		(1,250	)
			Accrued compensation and related expenses		134			(79	)		(321	)
			Other accrued liabilities		588			(632	)		(1,533	)
			Deferred revenue		299			(608	)		(401	)

Net cash provided by (used in) operating activities					(81	)		442			(379	)

Cash flows from investing activities:
	Maturities/sale of available-for-sale securities				—			—			121
	Decrease in restricted cash				—			—			75
	Purchases of property and equipment				(210	)		(178	)		(38	)
	Increase in other investments				—			(3	)		(39	)
	Decrease in other assets				(19	)		15			107

Net cash provided by (used in) investing activities					(229	)		(166	)		226

Cash flows from financing activities:
	Proceeds from issuance of common stock, net				3,788			122			161
	Borrowings under debt obligations				295			—			—
	Principal payments under debt obligations				(349	)		(240	)		(60	)
	Payable to minority interest stockholders				—			(309	)		(222	)
	Collection of notes receivable from stockholder				60			—			—

Net cash provided by (used in) financing activities					3,794			(427	)		(121	)

Effect of exchange rate changes on cash					92			188			283

Net increase in cash and cash equivalents					3,576			37			9
Cash and cash equivalents, beginning of year					3,030			2,993			2,984

Cash and cash equivalents, end of year				$	6,606		$	3,030		$	2,993

Supplemental noncash investing and financing activities:
	Conversion of other accrued liabilities to long-term debt			$	—		$	—		$	500
Supplemental cash flow information:
	Cash paid (received) during the year for:
		Interest			2			3			18
		Income taxes		$	(112	)	$	(52	)	$	(286	)

See accompanying notes

UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. The Company and Summary of Significant Accounting Policies

The Company

Unify Corporation is a global provider of enterprise software solutions to mid-size and large organizations. Founded in 1980, the Company's product lines include Unify NXJ, an application platform for automating business processes and delivering information, as well as a relational database management system and application development tools. The Company's software platform today gives organizations the ability to connect multiple data sources, build forms-based applications, automate business processes and integrate disparate information to manage their business. The Company's customers are in a variety of industries, including healthcare, finance, telecommunications, retail, manufacturing, insurance and government. Unify is headquartered in Sacramento, California and has sales and subsidiaries in the United Kingdom, France and Australia.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. At the end of fiscal 2002, the Company liquidated Unify Japan KK, in which the Company had an ownership interest of 66%. The Company did not allocate any of the Unify Japan KK net loss in fiscal 2002 to the minority interest stockholders as Unify Japan KK was in a negative equity position. At the end of fiscal 2002, the Company sold the assets and the trade rights to a newly formed Japanese corporation who represents Unify as its distributor in Japan. The Company currently has an investment of less than 15% in the new entity that it reports in "Other Investments" (Note 4).

The functional currencies of the Company's foreign subsidiaries are their 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 reporting period. Foreign currency transaction gains or losses are included in other income, net. Foreign currency adjustments resulting from the translation process are excluded from net income (loss) and recorded in other comprehensive income (loss).

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses in fiscal 2001 and 2000, and had an accumulated deficit of $57,867,000 as of April 30, 2002. In addition, the Company experienced a decline in annual revenues and negative cash flows during the previous three fiscal years. As a result, at April 30, 2002, substantial doubt existed as to the Company's ability to continue as a going concern.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company's continuation as a going concern is dependent upon its ability to sustain profitability and generate significant cash flows. During fiscal 2001 and 2002, management realigned the Company's operations, aggressively controlled costs, including a reduction in force, re-focused on selling existing products to the customer base and worked to resolve various lawsuits. In fiscal 2003, cost and cash management controls were maintained, Unify NXJ was developed and launched to the market, and existing products including ACCELL/Web were further marketed into the installed base. In fiscal 2004, the cost structure of the Company was changed to reflect lower investments in product development and higher investments in sales and marketing. Also, in fiscal 2004, Unify NXJ was

enhanced and relaunched into the market, and existing products including ACCELL/Web were upgraded and marketed to the installed base. Additionally, in fiscal 2004 the Company raised $3.7 million through a private financing and entered into a new $1.0 million line of credit with its bank.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Cash Equivalents

Cash equivalents are highly liquid investments with original maturities of three months or less when purchased and are stated at cost. Cash equivalents consist primarily of demand deposits with banks and money market funds.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, notes receivable and accounts payable approximate fair value because of the short-term maturity of these instruments.

Concentrations of Credit Risk and Credit Evaluations

Financial instruments potentially subjecting the Company to concentrations of credit risk consist primarily of cash, cash equivalents, accounts receivable and investments. The Company places its cash, cash equivalents and investments primarily with three financial institutions. The Company licenses its products principally to companies in the United States, Europe, and Japan and no single customer accounted for 10% or more of consolidated revenues in the years ended April 30, 2004, 2003 and 2002. The Company performs periodic credit evaluations of its customers and generally does not require collateral. Allowances are maintained for potential credit losses. International revenues include all our software license and service revenues from customers located outside the United States. International revenues from our direct sales organization and indirect sales channels (ISVs, VARs, distributors and other partners outside the U.S.) accounted for 68%, 54% and 63% of total revenues, with the remainder from the United States, in fiscal years 2004, 2003 and 2002, respectively.

Allowance for Doubtful Accounts

An allowance for doubtful accounts is established to ensure trade receivables are not overstated due to uncollectibility. Bad debt reserves are maintained for all customers based on a variety of factors, including the length of time receivables are past due, significant one-time events and historical experience. Additional reserves for individual accounts are recorded when the Company becomes aware of a customer's inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.

Other Investments

The Company carries other investments at the lower of cost or estimated fair value (Note 4).

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 three to five years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term.

Capitalized Software

Under the criteria set forth in Statement of Financial Accounting Standard No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," capitalization of software development costs begins upon the establishment of technological feasibility of the product. With respect to the Company's software development process, technological feasibility is established upon completion of a working model. To date, the Company's products have been released shortly after reaching technological feasibility. Therefore, development costs incurred after completion of a working model and prior to general release have not been significant. Accordingly, no software development costs have been capitalized by the Company to date.

Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may be in excess of fair value or not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

The Company periodically reevaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated useful lives of the long-lived assets. The criteria used for these evaluations include management's estimate of the asset's continuing ability to generate income from operations and positive cash flows in future periods.

Revenue Recognition

The Company generates revenue from software license sales and related services, including maintenance and support, and consulting services. The Company licenses its products to end user customers, independent software vendors and value added resellers. The Company recognizes revenue for software license sales in accordance with Statement of Position 97-2, "Software Revenue Recognition" as affected by Statement of Position 98-4 "Deferral of the Effective Date of a Provision of SOP 97-2" and Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The nature of each licensing arrangement determines how revenues and related costs are recognized.

The Company's customer contracts include multi-element arrangements that include a delivered element, software license, and undelivered elements, maintenance and support and/or consulting. The value allocated to the undelivered elements is unbundled from the delivered element based on vendor-specific objective evidence (VSOE) of the fair value of the maintenance and support and/or consulting, regardless of any separate prices stated within the contract. VSOE of fair value is defined as (i) the price charged when the same element is sold separately, or (ii) if the element has not yet been sold separately, the price for the element established by management having the relevant authority when it is probable that the price will not change before the introduction of the element into the marketplace. The Company then allocates the remaining balance to the delivered element, software license, regardless of any separate prices stated within the contract. The Company's customer contracts do not require the Company to perform significant production, modification or customization of the software.

Revenue is recognized when a noncancelable license agreement has been signed or other persuasive evidence of an arrangement exists, the software product or service has been shipped or electronically delivered, the license fees are fixed and determinable and collectibility is probable.

Revenue from support and maintenance activities, which consist of fees for ongoing support and unspecified product updates, are recognized ratably over the term of the maintenance contract, typically one year, and the associated costs are expensed as incurred. Consulting service arrangements are performed on a "best efforts" basis and are generally billed under time-and-materials arrangements. Revenues and expenses relating to providing consulting services are recognized as the services are performed.

Warranties and indemnification

The Company offers a limited warranty for product and service sales that generally provide the customer a sixty-day warranty period against defects. To date, the Company has not incurred any material costs as a result of such warranties and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.

The Company's license agreements generally include certain provisions for indemnifying customers against liabilities if its product or services infringe a third-party's intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.

Stock-Based Compensation

As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) and Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure" (SFAS 148), the Company accounts for stock-based awards using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued To Employees" and related interpretations. As such, compensation is recorded on the measurement date, generally the date of issuance or grant, as the excess of the current estimated fair value of the underlying stock over the purchase or exercise price. Any deferred compensation is amortized over the respective vesting periods of the equity instruments, if any.

SFAS 123 requires the disclosure of pro forma net income (loss) and net income (loss) per share had the Company adopted the fair value method to account for its stock-based awards. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models which were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions. Such options differ significantly from the Company's stock-based awards. These models require subjective assumptions, including future stock price volatility and

expected time to exercise, which greatly affect the calculated values. The Company's calculations are made using the Black-Scholes option pricing model, with the following weighted average assumptions: expected option life, 12 months following vesting; stock volatility, 117% in fiscal 2004, 128% in fiscal 2003 and 118% in fiscal 2002; risk-free interest rates, 1.7% in fiscal 2004, 2.1% in fiscal 2003 and 4.0% in fiscal 2002; and no dividends during the expected term. The Company's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur.

The following table illustrates the effect on net income (loss) and net income (loss) per share if Unify had applied the fair value recognition provisions of SFAS 123, to stock-based employee compensation (in thousands, except per share amounts):

	Year Ended April 30,
	2004			2003			2002
Net income (loss) as reported	$	(1,010	)	$	119		$	1,567
Add: stock-based employee compensation included in reported net loss		40			130			4
Less: stock-based employee compensation expense, determined under fair value method for all awards		(288	)		(519	)		(417	)

Proforma net income (loss)	$	(1,258	)	$	(270	)	$	1,154

Net income(loss) per share (basic and diluted), as reported	$	(0.05	)	$	0.01		$	0.08
Net income/(loss) per share (basic and diluted), proforma	$	(0.06	)	$	(0.01	)	$	0.06

Income Taxes

Deferred taxes are recorded for the difference between the financial statement and tax basis of the Company's assets and liabilities and net operating loss carryforwards. 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.

Earnings (Loss) Per Share

Statement of Financial Accounting Standards No. 128, "Earnings per Share", requires a dual presentation of basic and diluted income (loss) per share ("EPS"). Basic EPS excludes dilution and is computed by dividing net income attributable to common stockholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (e.g. convertible preferred stock, warrants, and common stock options) were exercised or converted into common stock. Potential common shares in the diluted EPS computation are excluded for fiscal year 2004 as their effect would be antidilutive.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income and comprehensive income (loss). The Company's components of other comprehensive income (loss) are gains and losses on foreign currency translation.

Segment Reporting

For fiscal 2004 and 2003, the Company had two reportable segments, the Americas and Europe, which are organized, managed and analyzed geographically and operate in one industry segment: the development and marketing of business application software and related services. In fiscal 2002, there were three reportable segments, Americas, Europe and Japan. At the end of fiscal 2002, the Company sold the assets of its Japan subsidiary. The Company evaluates operating segment performance primarily based on net revenues and certain operating expenses. The Company's products and services are marketed internationally through the Company's subsidiaries in the UK and France and through distributors, independent software vendors, value added resellers and solutions integrators.

Recently Issued Accounting Standards

In January 2003, the FASB issued Interpretation Number 46, "Consolidation of Variable Interest Entities—an interpretation of ARB No. 51" (FIN46). FIN 46 establishes accounting guidance for consolidation of a variable interest entity ("VIE"), formerly referred to as special purpose entities. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a VIE. FIN 46 provides guidance for determining when an entity, the Primary Beneficiary, should consolidate another entity, a VIE. This statement is effective immediately for variable interest entities created after January 31, 2003 and by the first interim or annual reporting period commencing after March 15, 2004, for variable interest entities created prior to February 1, 2003. The Company adopted the provisions of FIN 46 for fiscal 2004, which did not result in a material impact to our financial position, cash flows or results of operations.

Reclassifications

Certain items in the fiscal 2003 and 2002 consolidated financial statements have been reclassified to conform to the fiscal 2004 presentation. These reclassifications had no effect on operating results or stockholders' equity.

Note 2. Divestitures

At the end of fiscal 2002, the Company sold the assets and the trade rights of Unify Japan KK to a newly formed Japanese corporation who represents Unify as its master distributor in Japan. Unify has an investment of less than 15% in the new entity and carries the investment in "Other Investments". In connection with the liquidation of this subsidiary, the Company recognized $178,000 of other income in fiscal 2002, consisting of the reversal of Japanese royalty withholding taxes totaling $317,000, which had been accrued assuming repatriation of amounts from the Japanese subsidiary, offset by a $139,000 charge to operations associated with the elimination of cumulative translation adjustments for the subsidiary. The royalty withholding taxes were no longer be payable as a result of the liquidation.

Note 3. Property and Equipment

Property and equipment at April 30, 2004 and 2003 consisted of the following (in thousands):

		2004			2003
Equipment		$	3,001		$	3,249
Furniture and leasehold improvements			846			884

			3,847			4,133
Less accumulated depreciation and amortization			(3,509	)		(3,788	)

	Property and equipment, net	$	338		$	345

Note 4. Other Investments

Other investments represent stock in closely held companies, which are accounted for under the cost method. The Company's ownership interest in Arango Software International, Inc. ("Arango") and the ownership interest in Unify Japan KK, a Japanese corporation that is a master distributor for the Company in Japan, is less than 15%. Sales to Unify Japan KK in fiscal 2004 and 2003 were $0.5 million and $0.4 million, respectively. At April 30, 2004 and 2003 other investments consisted of the following (in thousands):

	2004		2003
Arango Software International, Inc.	$	175	$	350
Unify Japan KK		39		39
Other		—		3

	$	214	$	392

The Company holds a minority interest in Arango, a privately held corporation. During the fourth quarter of fiscal 2003, the Company re-evaluated the $500,000 carrying value of this investment and recorded a non-cash charge of $150,000 to bring the carrying amount to $350,000. During the first quarter of fiscal 2004, the Company re-evaluated the $350,000 carrying value of this investment and recorded a non-cash charge of $175,000 to bring the carrying amount to $175,000. The Company records an investment impairment charge if and when the Company believes an investment has experienced a decline in market value that is other than temporary. Future adverse changes in market conditions or poor operating results of Arango could result in losses or an inability to recover the carrying value of the investment that is not currently reflected in the investment's carrying value, thereby possibly requiring additional impairment charges in the future.

Note 5. Credit Facility

On June 6, 2003, the Company executed a $1.5 million revolving line of credit with Silicon Valley Bank. The line is secured by qualifying foreign and domestic accounts receivable and has a one-year term. The Company incurs interest expense on funds used at the prevailing prime rate plus two percent per annum. The prime rate used in the determination of interest shall not be less than 4.25%. The line of credit has a borrowing limit of $1.5 million; as of April 30, 2004, based upon the amount of its eligible assets at that time, the Company had available for borrowing up to $1.1 million. There was no amount outstanding under the line as of April 30, 2004. This credit facility expired in June 2004; however, it was replaced on June 3, 2004 (Note 17).

In connection with the $1.5 million revolving line of credit, the Company issued warrants to Silicon Valley Bank to purchase 115,385 shares of Company stock at a per share price of $0.39 exercisable through June 6, 2010. The Company recorded the fair value of the warrants as debt issuance costs and an increase in additional-paid-in-capital in the accompanying financial statements. The Company determined the fair value of the warrants using the Black-Scholes option pricing model with the following assumptions: volatility factor of 70%, risk free-interest rate of 2.1%, expected life of 10 years and no dividend yield. This amount totaling $34,600 is being amortized over the original term of the debt, June 2004, through interest expense.

Note 6. Long-term Debt

The Company's debt consists of the following at April 30, 2004 and April 30, 2003 (in thousands):

	April 30, 2004			April 30, 2003
Unsecured note payable to a third party, payable in monthly installments of $20 through February 2004	$	—		$	200
Note payable to a financial institution, accruing interest at prime plus 2.0%, not to be less than 4.25% per annum (actual interest rate at April 30, 2004 was 6.75%), and payable in monthly installments through October 2006 but all due and paid in June, 2004 due to expiration of credit facility with Bank.		146			—

		146			200
Less current portion		(146	)		(200	)

	$	—		$	—

Note 7. Other Long Term Liabilities

In France, the Company is subject to mandatory employee severance costs associated with a statutory government regulated plan covering all employees. The plan provides for one month of severance for the first five years of service with an employer and one fifth of one year of severance for every one year of service thereafter. In order to receive their severance payment the employee may not retire before age 65 and must be employed at the time of retirement.

Note 8. Maintenance Contracts

The Company offers maintenance contracts to its customers at the time they enter into a product license agreement and renew those contracts, at the customers' option, annually thereafter. These maintenance contracts are priced as a percentage of the value of the related license agreement. The specific terms and conditions of these initial maintenance contracts and subsequent renewals vary depending upon the product licensed and the country in which the Company does business. Generally, maintenance contracts provide the customer with unspecified product maintenance updates and customer support services. Revenue from maintenance contracts is initially deferred and then recognized ratably over the term of the agreements.

Changes in the Company's deferred maintenance revenue during the periods are as follows (in thousands):

	Year Ended April 30,			Year Ended April 30,			Year Ended April 30,
	2004			2003			2002
Deferred maintenance revenue beginning balance	$	2,846		$	2,932		$	3,208
Deferred maintenance revenue recognized during period		(5,497	)		(5,547	)		(5,805	)
Deferred maintenance revenue of new maintenance contracts		5,732			5,461			5,529

Deferred maintenance revenue ending balance	$	3,081		$	2,846		$	2,932

Note 9. Stockholders' Equity

Preferred Stock

The Company may issue up to 5,000,000 shares of preferred stock in one or more series upon authorization by its 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.

Stock Option Plan

Under the 2001 Stock Option Plan (the "2001 Option Plan"), the Company may grant options to purchase up to 2,975,000 shares of common stock to eligible employees, directors, and consultants at prices not less than the fair market value at the date of grant for incentive stock options and not less than 85% of the fair market value at the date of grant for non-statutory stock options. Options granted under the 2001 Stock Option Plan generally vest over four years, are exercisable to the extent vested, and expire 10 years from the date of grant. In fiscal year 2004 we granted 425,000 option shares on a four-year vesting schedule to the management team outside of the 2001 Stock Option Plan. Under the 1991 Stock Option Plan (the "1991 Option Plan") which expired as of March 2001, the Company was able to grant options to eligible employees, directors and consultants at prices not less than the fair market value at the date of grant for incentive stock options and not less than 85% of the fair market value at the date of grant for non-statutory stock options. Options granted under the 1991 Option Plan generally vest over four years, are exercisable to the extent vested, and expire 10 years from the date of grant.

A summary of stock option activity under the 1991 Option Plan and 2001 Option Plan is as follows:

		Number of Shares		Weighted Average Exercise Price
Outstanding at April 30, 2001		1,337,783		2.46
	Granted (weighted average fair value of $0.22)	1,189,850		0.27
	Exercised	(138,169	)	0.28
	Cancelled/expired	(276,862	)	2.41

Outstanding at April 30, 2002		2,112,602		1.38
	Granted (weighted average fair value of $0.27)	922,000		0.46
	Exercised	(90,849	)	0.19
	Cancelled/expired	(269,285	)	1.87

Outstanding at April 30, 2003		2,674,468		1.05
	Granted (weighted average fair value of $0.46)	620,500		0.51
	Exercised	(114,308	)	0.24
	Cancelled/expired	(208,105	)	1.81

Outstanding at April 30, 2004		2,972,555		0.92

Additional information regarding options outstanding at April 30, 2004 is as follows:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Outstanding	Weighted Average Exercise Price
$0.12 - 0.18	268,810	1.85	$	0.12	267,560	$	0.12
0.25 - 0.25	405,000	7.75		0.25	248,436		0.25
0.26 - 0.26	471,146	7.55		0.26	285,579		0.26
0.27 - 0.43	720,013	8.91		0.37	200,967		0.36
0.55 - 0.55	529,000	8.04		0.55	275,030		0.55
0.64 - 5.88	417,203	5.99		1.92	260,890		2.59
6.03 - 19.69	161,383	5.34		6.92	161,037		6.91

0.12 - 19.69	2,972,555	7.14		0.92	1,699,499		1.28

Options to purchase 1,309,187 and 937,190 shares at weighted average prices of $1.65 and $2.14 were exercisable at April 30, 2003 and 2002. At April 30, 2004, there were 1,085,248 shares reserved for future grants under the Stock Option Plan.

Stock Purchase Plan

Under the 1996 Employee Stock Purchase Plan (the "Purchase Plan"), as Amended effective November 15, 2001, eligible employees may purchase the Company's common stock through payroll deductions of up to 15% of their base compensation. Offering periods under the Purchase Plan are of 24 months' duration with purchases occurring every six months. Common stock is purchased for the accounts of participating employees at a price per share equal to the lower of (i) 85% of the fair market value of a share of common stock at the beginning of the offering period or (ii) 85% of the fair market value of a share of common stock on the date of purchase. Compensation cost is recognized for the fair value of the employees' purchase rights, which was estimated using the Black-Scholes model with the following assumptions for 2004, 2003, and 2002, respectively: dividend yield of 0 percent for all years; an expected life of ..75 year, 1 year, and 1 year; expected volatility of 96%, 93%, and 118%; and risk-free interest rates of 1.5%, 2.7%, and 3.5%. Common stock issued under the Purchase Plan during fiscal 2004, 2003 and 2002 totaled 228,096, 478,308, and 595,946 shares at weighted average prices of $0.28, $0.22, and $.20, respectively. The weighted average fair values of the fiscal 2004, 2003 and 2002 awards were $0.40, $0.29, and $0.15 per share, respectively. At April 30, 2004, 264,538 shares were reserved for future issuance under the Purchase Plan.

Restricted Stock

On May 1, 2002 the Company established the 2002 Director Restricted Stock Plan ("Director Restricted Stock Plan") as part of a compensation program designed to attract and retain independent members for our board of directors. The maximum aggregate number of shares of common stock that may be issued under the Director Restricted Stock Plan is 500,000. In May, each independent director shall be granted a fully vested restricted stock award for the number of shares which is equal to $10,000 divided by the fair market value of a share of stock at the award date. There were 100,000 and 222,728 shares awarded in fiscal 2004 and 2003 under this plan, respectively, leaving a balance of 177,272 shares reserved for future awards at April 30, 2004.

Private Placement

On April 26, 2004 the Company issued through a private placement 5,633,900 shares of common stock to a group of institutional investors at a price of $0.71 per share and 5-year warrants to purchase an aggregate of 2,253,560 shares of common stock at an exercise price of $0.90 per share. Net proceeds from the private placement were $3,696,000.

Under certain circumstances, where the closing bid price of a share of common stock equals or exceeds $1.80, appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of common stock, for 20 consecutive trading days commencing after the registration statement covering the warrants shares has been declared effective, the Company, upon 20 days' prior written notice to the warrant holders within one business day immediately following the end of such 20 day trading period, may call the warrants for 25% of the shares of the common stock initially purchasable pursuant to the warrants at a redemption price equal to $0.01 per share of common stock then purchasable pursuant to the warrants. If the call conditions are met again during the 30 day period immediately after consummation of a previous call, the Company may once again call the warrants for an additional increment of 25% of the shares of common stock initially purchasable pursuant to the warrants or such less amount as shall then remain purchasable and in the same manner and subject to the same notice requirements as the initial call, until all of the shares have been called.

Note Receivable from Stockholder

Note receivable from stockholder at April 30, 2003 consisted of the principal balance due on a $60,000 full recourse note from one of the Company's officers. The note had an interest rate of 5% annually, and was secured by 250,000 shares of common stock. The note was paid when due on October 1, 2003.

Note 10. Income Taxes

The Company recorded foreign income tax expense for fiscal 2004. A Federal tax benefit was recorded with respect to federal income tax refunds from prior periods related to net operating loss carry backs. The Company recorded a foreign income tax benefit for fiscal 2003 as a result of refunds applied for. A minimal state and federal tax benefit was recorded in 2003. The Company recorded a federal income tax benefit for fiscal 2002 as the result of refunds received. No state tax provisions were recorded for fiscal 2002 due to the use of operating loss carry forwards. The Company's 2002 tax provision relates primarily to foreign income tax withholding on software license royalties paid to the Company by certain licensees. Income (loss) before income taxes and provision for income taxes, which consisted solely of current tax expense, for the years ended April 30 were as follows (in thousands):

		2004			2003			2002
Domestic		$	(1,334	)	$	(292	)	$	(183	)
Foreign			327			373			1,740

	Total income (loss) before income taxes	$	(1,007	)	$	81		$	1,557

Foreign taxes		$	9		$	(37	)	$	182
Federal and state income taxes			(6	)		(1	)		(192	)

	Provision (benefit) for income taxes	$	3		$	(38	)	$	(10	)

The provision for income taxes for the years ended April 30, 2004, 2003 and 2002 differs from the amounts computed by applying the statutory U.S. federal income tax rate to pretax income (loss) as a result of the following (in thousands):

		2004			2003			2002
Computed tax expense (benefit)		$	(352	)	$	28		$	544
Increases (reductions) in tax expense resulting from:
	Foreign taxes		(105	)		(168	)		46
	Increase (decrease) in valuation allowance for deferred tax assets		573			279			(1,261	)
	Expiration of net operating loss carryforwards		—			—			587
	Other		(113	)		(177	)		74

Provision (benefit) for income taxes		$	3		$	(38	)	$	(10	)

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 at April 30 were as follows (in thousands):

		2004			2003
Deferred tax assets:
	Net operating loss carryforwards	$	15,635		$	15,130
	Foreign tax credits		360			360
	Deferred revenue		990			670
	Reserves and other accruals		1,905			2,120
	Allowance for losses on accounts receivable		150			160
	Other		103			130

	Total deferred tax assets		19,143			18,570
	Valuation allowance		(19,143	)		(18,570	)

Net deferred tax assets		$	—		$	—

Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased (decreased) by $573,000, $279,000, and $(1,261,000) during fiscal 2004, 2003, and 2002 respectively. At April 30, 2004, the Company had approximately $42.6 million in federal net operating loss carryforwards, approximately $5.1 million in state net operating loss carryforwards, approximately $1.8 million in foreign net operating loss carryforwards, and approximately $360,000 in foreign tax credit carryforwards. The Company's federal net operating loss carryforwards expire beginning in fiscal 2006. The Company's other net operating loss and tax credit carryforwards have various expiration dates beginning in fiscal year 2010. The Company's ability to utilize these net operating loss carryforwards and credits may be subject to certain limitations in the event of a change in ownership.

Note 11. Special Charges

In July 2000, the Company announced that certain matters had come to the attention of its Board of Directors that indicated that certain former officers of the Company had engaged in improper accounting practices. Accordingly, the Board of Directors authorized its Audit Committee to conduct an investigation of the Company's accounting and financial reporting practices and to recommend remedial action, if any. During fiscal 2002, the Company received recoveries of special charges which had originally been incurred, primarily in fiscal 2001, relating to legal expenses, additional auditing costs and other litigation related costs related to the investigation. These recoveries totaled $1.3 million in fiscal 2002. These recoveries came about primarily as a result of the settlement of the class action lawsuit filed against the Company and resolution of additional audit billings incurred during the restatement. During fiscal 2003, the Company recorded an additional recovery of $0.1 million for legal costs from their insurance carrier. During fiscal 2004, the Company recorded special charges of $0.1 million which were attributable to the costs related to the Company's cooperation with the United States Attorney office's prosecution of a former officer of the Company. According to published reports, on November 20, 2003, the Company's former chief executive officer was convicted of 10 counts of securities fraud and one count of conspiracy.

Note 12. Other Income (Expenses)

Other income (expenses), net for the years ended April 30, consisted of the following (in thousands):

		2004			2003			2002
Interest income		$	16		$	28		$	42
Interest expense			(68	)		(27	)		6
Foreign currency exchange loss			22			(5	)		(188	)
Loss on asset disposition			—			—			5
Liquidation of Unify Japan KK (former subsidiary) (Note 2)			—			—			178
Other			3			7			(7	)

	Other income (expenses), net	$	(27	)	$	3		$	36

Note 13. Earnings Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended April 30 (in thousands except per share amounts):

	2004			2003		2002
Net Income (Loss) (Numerator):
Net income (Loss), basic and diluted	$	(1,010	)	$	119	$	1,567

Shares (Denominator):
Weighted average shares of common stock outstanding, basic		21,558			20,939		20,232
Effect of dilutive securities (stock options)		—			754		547

Weighted average shares of common stock outstanding, diluted		21,558			21,693		20,779

Per Share Amount:
Net income (loss) per share, basic	$	(0.05	)	$	0.01	$	0.08
Effect of dilutive securities		—			—		—

Net income (loss) per share, diluted	$	(0.05	)	$	0.01	$	0.08

Potentially dilutive securities that are not included in the diluted income (loss) calculation because they would be antidilutive are employee stock options of 2,973,000, 1,192,000, and 1,155,000 as of April 30, 2004, 2003 and 2002, respectively, and common stock warrants of 2,369,000 as of April 30, 2004.

Note 14. Related Party Transactions

In fiscal 2002, the Company and Sumitomo Metals Industries, Ltd. ("SMI") owned 34% and 66% of Unify Japan KK, respectively. On April 30, 2002, the Company and SMI sold the assets and the trade rights of Unify Japan KK to a newly formed Japanese corporation that represents Unify as its master distributor in Japan and the subsidiary was liquidated. Unify has an investment of less than 15% in the new entity and carries the investment using the cost method in "Other Investments." Sales to Unify Japan KK were $0.5 million in fiscal 2004.

Transactions with SMI

Total revenues include revenues from SMI of $124,000 for fiscal, 2002. Unify Japan KK leased office space from SMI; rent expense for this office space totaled approximately $70,000 in fiscal 2002. Unify Japan KK also paid SMI approximately $95,000 for the services of SMI employees in fiscal 2002.

In September 1995, Unify Japan KK entered into a 100 million yen loan agreement with a bank affiliated with SMI. The loan bears interest at the Tokyo International Bank Offered Rate ("TIBOR") plus 50 basis points (approximately 1% at April 30, 2002), and was secured by the assets of Unify Japan KK. The agreement due date was extended to September 2002. As part of the April 30, 2002 liquidation of Unify Japan KK, the obligation to the bank was transferred to SMI, with a remaining balance of $291,000 at April 30, 2002. This balance was subsequently paid in full in fiscal 2003.

Transactions with Directors

Included as a component of stockholders' equity at April 30, 2003 and 2002, is a note receivable from the Company's present chief executive officer executed in fiscal 2001 in the amount of $60,000 for the purchase of the Company's common stock, upon the exercise of stock options. This full recourse note was paid when due on October 1, 2003. The note bore interest at 5% per annum.

Note 15. Employee Retirement Plan

The Company maintains a 401(k) profit sharing plan (the "401(k) Plan"). Eligible employees may contribute up to 15% of their pre-tax annual compensation to the 401(k) Plan, subject to certain statutory limitations. The Company can, at its discretion, voluntarily match the participating employees' contributions not to exceed 6% of each employee's annual compensation. In fiscal years 2004, 2003 and 2002, the Company contributed $51,000, $52,000 and $37,000, respectively, to the 401(k) Plan.

Note 16. Commitments and Contingencies

Operating Leases

The Company leases office space and equipment under non-cancelable operating lease arrangements. Future minimum rental payments under these leases as of April 30, 2004 were as follows (in thousands):

Years Ending April 30,
2005	$	1,051
2006		1,042
2007		933
2008		851
2009		3
Thereafter		—

	$	3,880

Rent expense under operating leases was $1,034,000, $1,267,000, and $1,037,000 for the years ended April 30, 2004, 2003 and 2002, respectively.

Litigation

Note 17. Subsequent Events

On June 3, 2004, the Company replaced its previous line of credit and term loan with a new $1.0 million revolving line of credit and a $500,000 term loan with Silicon Valley Bank (see Note 5). The line of credit is secured by qualifying domestic accounts receivable and has a one-year term. The term loan is secured by purchased assets and has a one-year term. The Company will incur interest expense on the line of credit and the term loan at the prevailing prime rate plus 2.0% and 2.5% per annum, respectively. The prime rate used to determine the interest shall not be less than 4.0%.

Note 18. Segment Information

For fiscal 2004 and 2003, the Company had two reportable segments, the Americas (which includes Australia and Japan) and Europe, which are organized, managed and analyzed geographically and operate in one industry segment: the development and marketing of business application platform software and related services. In fiscal 2002 there were three reportable segments, the Americas, Europe and Japan. This change occurred because at the close of fiscal 2002 the Company liquidated its subsidiary and the Japan territory is now represented by an independent distributor.

The Company evaluates operating segment performance primarily based on net revenues and certain operating expenses. The Company's products and services are marketed internationally through the Company's subsidiaries in the UK, France and through distributors, value added resellers and OEMs. No single customer accounted for 10% or more of the consolidated revenues of the Company in fiscal 2004, 2003, or 2002

Financial information for the Company's reportable segments is summarized below (in thousands):

			2004			2003			2002
Total net revenues:(1)
	Americas (includes Japan in 2004 and 2003)		$	7,264		$	7,726		$	5,938
	Europe			4,661			4,447			6,142
	Japan			—			—			1,520

		Total net revenues	$	11,925		$	12,173		$	13,600

Operating income (loss):
	Americas (includes Japan in 2004 and 2003)(2)		$	(1,133	)	$	(300	)	$	(94	)
	Europe			153			378			1,733
	Japan			—			—			(118	)

		Total operating income (loss)		(980	)		78			1,521

Interest income(3)				16			28			42

Interest expense(3)			$	68		$	27		$	6

Identifiable assets:
	Americas (includes Japan in 2004 and 2003)		$	3,198		$	3,556		$	2,115
	Europe			2,875			2,609			3,828
	Japan			—			—			656

		Subtotal identifiable assets		6,073			6,165			6,599
	Corporate assets(4)			5,582			2,119			1,984
	Elimination of inter-company balances			(912	)		(1,609	)		(866	)

		Total assets	$	10,743		$	6,675		$	7,717

Depreciation expense(5)			$	165		$	233		$	365

Capital expenditures(5)			$	210		$	178		$	38

(1): The Company allocates revenues to operating segments based on the location of the country where the license is installed or service is delivered. There were no transfers between segments during the periods presented. The accounting policies of the segments are the same as those described in Note 1.
(2): Americas operating income (loss) is net of corporate product development and administrative expenses.
(3): Interest income and interest expense were primarily attributable to the United States in the periods presented. Interest income and interest expense in Europe and Japan were not significant in those periods.
(4): Corporate assets are located in the Americas and consist primarily of cash and cash equivalents, investments, purchased technology, and property and equipment.
(5): The majority of the Company's capital expenditures are incurred for product development (which occurs exclusively in the Americas) and for corporate infrastructure. Consequently, capital

expenditures and depreciation expense were primarily attributable to the Americas in the periods presented.

Ne revenues and long-lived assets by geographic area were as follows (in thousands):

		2004		2003		2002
Total net revenues:
	Americas	$	7,264	$	7,726	$	5,938
	United Kingdom		2,114		2,455		3,790
	France		2,547		1992		2,352

	Subtotal Europe		4,661		4,447		6,142

	Japan		—		—		1,520

	Total net revenues	$	11,925	$	12,173	$	13,600

Long-lived assets:
	Americas	$	646	$	749	$	1,026
	Foreign		100		102		37

	Total long-lived assets	$	746	$	851	$	1,063

Note 19. Quarterly Results of Operations (Unaudited)

The following interim financial information presents the fiscal 2004 and 2003 results of operation on a quarterly basis:

	Quarter Ended
	July 31,				October 31,				January 31,				April 30,
	(In thousands, except per share data)
Year ended 2004:
Total revenues	$	3,301			$	2,804			$	2,644			$	3,176
Gross margin	$	2,895			$	2,375			$	2,116			$	2,645
Net income (loss)	$	(144	)	(1)	$	61		(2)	$	(470	)	(3)	$	(457	)
Net income (loss) per share, basic	$	(0.01	)		$	0.00			$	(0.02	)		$	(0.02	)
Net income (loss) per share, diluted	$	(0.01	)		$	0.00			$	(0.02	)		$	(0.02	)
Year ended 2003:
Total revenues	$	2,638			$	2,931			$	3,434			$	3,170
Gross margin	$	2,336			$	2,560			$	3,038			$	2,843
Net income (loss)	$	(285	)	(4)	$	(85	)	(5)	$	306			$	183
Net income (loss) per share, basic	$	(0.01	)		$	(0.00	)		$	0.01			$	0.01
Net income (loss) per share, diluted	$	(0.01	)		$	(0.00	)		$	0.01			$	0.01

(1): Includes special charges of $49,000 (Note 11)
(2): Includes special charges of $53,000 (Note 11)
(3): Includes special charges of $8,000 (Note 11)
(4): Includes recovery of special charges of $106,000 (Note 11)
(5): Includes recovery of special charges of $26,000 (Note 11)

SCHEDULE II

UNIFY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)

	Balance at Beginning of Period		Additions Charged to Operating Expenses			Deductions: Write-offs of Accounts			Additions (Deductions): Transfers Between Accounts			Balance at End of Period
Allowance for doubtful accounts receivable:
Year ended April 30, 2002	$	902	$	(362	)	$	(319	)	$	97		$	318
Year ended April 30, 2003		318		44			(162	)		52			252
Year ended April 30, 2004		252		(79	)		1			1			175
Allowance for long-term accounts and notes receivable—other assets:
Year ended April 30, 2002	$	1,372	$	(3	)		—		$	(73	)	$	1,296
Year ended April 30, 2003		1,296		(117	)		(831	)		—			348
Year ended April 30, 2004		348		45			(36	)		—			357

Exhibit No.		Description
3.1		Restated Certificate of Incorporation of the Company (1)
3.2		Bylaws of the Registrant (1)
4.1		Form of Stock Certificate (1)
4.2		Form of Warrant
10.2*		1991 Stock Option Plan, as amended (1)
10.3*		1996 Employee Stock Purchase Plan (1), (3)
10.4		Form of Indemnification Agreement (1)
10.6		Office Building Lease for Sacramento Facility, Dated December 17, 1999 (2)
10.8*		Employment Agreement by and between Todd Wille and the Registrant dated December 29, 2000 (4)
10.9*		2001 Stock Plan (3)
10.10		Silicon Valley Bank Loan and Security Agreement dated June 6, 2003 (5), as amended by Silicon Valley Bank Amendment to Loan Documents dated June 3, 2004 and Amended Schedule to Loan and Security Agreement dated June 3, 2004
10.11		Purchase Agreement dated April 23, 2004
10.12		Registration Rights Agreement dated April 26, 2004
10.13		Fourth Amendment Effective January 1, 2002 to Office Building Lease Dated December 17, 1999
10.14		Fifth Amendment to Lease and Termination of Stock Pledge Agreement dated September 18, 2003
14		Code of Ethics for Senior Officers
21.1		Subsidiaries of the Registrant (1)
23.1		Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
23.2		Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Todd Wille, Chief Executive Officer of Unify Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Pete DiCorti, Chief Financial Officer of Unify Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1): Incorporated by reference to the exhibit of the same number filed with Registrant's Form S-1 Registration Statement (No. 333-3834) declared effective by the Securities and Exchange Commission on June 14, 1996.

(2): Incorporated by reference to the exhibit of the same number filed with Registrant's Form 10-K on December 22, 2000.
(3): Incorporated by reference to the exhibit of the same number filed with Registrant's Form 10-Q on March 14, 2002.
(4): Incorporated by reference to the exhibit of the same number filed with Registrant's Form 10-K on July 30, 2001.
(5): Incorporated by reference to the exhibit of the same number filed with Registrant's Form 10-K on July 17, 2003.
*: Exhibit pertains to a management contract or compensatory plan or arrangement.

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DOCUMENTS INCORPORATED BY REFERENCE
PART I

ITEM 1. BUSINESS

WHERE YOU CAN FIND MORE INFORMATION
RISK FACTORS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

SIGNATURES
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
UNIFY CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
UNIFY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, eept per share data)
UNIFY CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (In thousands, except share data)
UNIFY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
UNIFY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULE II
UNIFY CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands)
EX-4.2 2 a2140130zex-4_2.htm EXHIBIT 4.2

Exhibit 4.2

THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON APRIL 26, 2009 (the “EXPIRATION DATE”).

No.

UNIFY CORPORATION

WARRANT TO PURCHASE SHARES OF
COMMON STOCK, PAR VALUE $0.001 PER SHARE

For VALUE RECEIVED, (“Warrantholder”), is entitled to purchase, subject to the provisions of this Warrant, from Unify Corporation, a Delaware corporation (“Company”), at any time not later than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an initial exercise price per share equal to $0.90 (the exercise price in effect being herein called the “Warrant Price”), shares (“Warrant Shares”) of the Company’s Common Stock, par value $0.001 per share (“Common Stock”). The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein.

Section 1. Registration. The Company shall maintain books for the transfer and registration of the Warrant. Upon the initial issuance of this Warrant, the Company shall issue and register the Warrant in the name of the Warrantholder.

Section 2. Transfers. As provided herein, this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”), or an exemption from such registration. Subject to such restrictions, the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Company, including, if required by the Company, an opinion of its counsel to the effect that such transfer is exempt from the registration requirements of the Securities Act, to establish that such transfer is being made in accordance with the terms hereof,

and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company.

Section 3. Exercise of Warrant. Subject to the provisions hereof, the Warrantholder may exercise this Warrant in whole or in part at any time prior to its expiration upon surrender of the Warrant, together with delivery of the duly executed Warrant exercise form attached hereto as Appendix A (the “Exercise Agreement”) and payment by cash, certified check or wire transfer of funds for the aggregate Warrant Price for that number of Warrant Shares then being purchased, to the Company during normal business hours on any business day at the Company’s principal executive offices (or such other office or agency of the Company as it may designate by notice to the Warrantholder). The Warrant Shares so purchased shall be deemed to be issued to the Warrantholder or the Warrantholder’s designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered (or evidence of loss, theft or destruction thereof and security or indemnity satisfactory to the Company), the Warrant Price shall have been paid and the completed Exercise Agreement shall have been delivered. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the Warrantholder within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the Warrantholder and shall be registered in the name of the Warrantholder or such other name as shall be designated by the Warrantholder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the Warrantholder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. As used herein, “business day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business. Each exercise hereof shall constitute the re-affirmation by the Warrantholder that the representations and warranties contained in Section 5 of the Purchase Agreement (as defined below) are true and correct in all material respects with respect to the Warrantholder as of the time of such exercise.

Section 4. Compliance with the Securities Act of 1933. Except as provided in the Purchase Agreement (as defined below), the Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary.

Section 5. Payment of Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the Warrantholder in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company’s reasonable satisfaction that such tax has been paid. The Warrantholder shall be responsible for income taxes due under federal, state or other law, if any such tax is due.

Section 6. Mutilated or Missing Warrants. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company.

Section 7. Reservation of Common Stock. The Company hereby represents and warrants that there have been reserved, and the Company shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued shares of Common Stock, sufficient shares to provide for the exercise of the rights of purchase represented by this Warrant. The Company agrees that all Warrant Shares issued upon due exercise of the Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company.

Section 8. Adjustments. Subject and pursuant to the provisions of this Section 8, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter.

(a) If the Company shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Warrantholder thereafter exercising the Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Warrantholder would have received if the Warrant had been exercised immediately prior to such event upon payment of a Warrant Price that has been adjusted to reflect a fair allocation of the economics of such event to the Warrantholder. Such adjustments shall be made successively whenever any event listed above shall occur.

(b) If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in

exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrantholder, at the last address of the Warrantholder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrantholder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions.

(c) In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price (as defined below) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date. “Market Price” as of a particular date (the “Valuation Date”) shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc. (“Nasdaq”) or the Over-the-Counter Bulletin Board (“OTC/BB”), the closing sale price of one share of Common Stock on Nasdaq on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted on Nasdaq or OTC/BB on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on Nasdaq, the fair market value of one share of Common Stock as of the Valuation Date, shall be determined in good faith by the Board of Directors of the Company and the Warrantholder. If the Common Stock is not then listed on a national securities exchange or quoted on Nasdaq, the Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company. In the event

that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value in respect of subpart (c) hereof, the Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by the Company and the Warrantholder. Such adjustment shall be made successively whenever such a payment date is fixed.

(d) An adjustment to the Warrant Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

(e) In the event that, as a result of an adjustment made pursuant to this Section 8, the Warrantholder shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.

(f) Except as provided in subsection (g) hereof, if and whenever the Company shall issue or sell, or is, in accordance with any of subsections (f)(l) through (f)(7) hereof, deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share less than the Warrant Price in effect immediately prior to the time of such issue or sale, then and in each such case (a “Trigger Issuance”) the then-existing Warrant Price, shall be reduced, as of the close of business on the effective date of the Trigger Issuance, to a price determined as follows:

Adjusted Warrant Price =	(A x B) + D
	A+C

where

“A” equals the number of shares of Common Stock outstanding, including Additional Shares of Common Stock (as defined below) deemed to be issued hereunder, immediately preceding such Trigger Issuance;

“B” equals the Warrant Price in effect immediately preceding such Trigger Issuance;

“C” equals the number of Additional Shares of Common Stock issued or deemed issued hereunder as a result of the Trigger Issuance; and

“D” equals the aggregate consideration, if any, received or deemed to be received by the Company upon such Trigger Issuance;

provided, however, that in no event shall the Warrant Price after giving effect to such Trigger Issuance be greater than the Warrant Price in effect prior to such Trigger Issuance.

For purposes of this subsection (f), “Additional Shares of Common Stock” shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this subsection (f), other than Excluded Issuances (as defined in subsection (g) hereof).

For purposes of this subsection (f), the following subsections (f)(l) to (f)(7) shall also be applicable:

(f)(1) Issuance of Rights or Options. In case at any time the Company shall in any manner grant (directly and not by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called “Options” and such convertible or exchangeable stock or securities being called “Convertible Securities”) whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus (y) the aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Warrant Price in effect immediately prior to the time of the granting of such Options, then the total number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Price. Except as otherwise provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities.

(f)(2) Issuance of Convertible Securities. In case the Company shall in any manner issue (directly and not by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange

(determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Warrant Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Price, provided that (a) except as otherwise provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (b) no further adjustment of the Warrant Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Warrant Price have been made pursuant to the other provisions of subsection 8(f).

(f)(3) Change in Option Price or Conversion Rate. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subsection 8(f)(l) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2), or the rate at which Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Warrant Price in effect at the time of such event shall forthwith be readjusted to the Warrant Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. On the termination of any Option for which any adjustment was made pursuant to this subsection 8(f) or any right to convert or exchange Convertible Securities for which any adjustment was made pursuant to this subsection 8(f) (including without limitation upon the redemption or purchase for consideration of such Convertible Securities by the Company), the Warrant Price then in effect hereunder shall forthwith be changed to the Warrant Price which would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination, never been issued.

(f)(4) Stock Dividends. Subject to the provisions of this Section 8(f), in case the Company shall declare a dividend or make any other distribution upon any stock of the Company (other than the Common Stock) payable in Common Stock, Options or Convertible Securities, then any Common Stock, Options or

Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration.

(f)(5) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor, before deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Company, before deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. In case any Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company. If Common Stock, Options or Convertible Securities shall be issued or sold by the Company and, in connection therewith, other Options or Convertible Securities (the “Additional Rights”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights (as determined using the Black-Scholes option pricing model or another method mutually agreed to by the Company and the Warrantholder). The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder as to the fair market value of the Additional Rights. In the event that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value of the Additional Rights, the Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne evenly by the Company and the Warrantholder.

(f)(6) Record Date. In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(f)(7) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the

disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of Common Stock for the purpose of this subsection (f).

(g) Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Warrant Price in the case of the issuance of (A) capital stock, Options or Convertible Securities issued to directors, officers, employees or consultants of the Company in connection with their service as directors of the Company, their employment by the Company or their retention as consultants by the Company pursuant to an equity compensation program approved by the Board of Directors of the Company or the compensation committee of the Board of Directors of the Company, (B) shares of Common Stock issued upon the conversion or exercise of Options or Convertible Securities issued prior to the date hereof, (C) securities issued pursuant to that certain Purchase Agreement dated April 23, 2004, among the Company and the Investors named therein (the “Purchase Agreement”) and securities issued upon the exercise or conversion of those securities, and (D) shares of Common Stock issued or issuable by reason of a dividend, stock split or other distribution on shares of Common Stock (but only to the extent that such a dividend, split or distribution results in an adjustment in the Warrant Price pursuant to the other provisions of this Warrant) (collectively, “Excluded Issuances”).

(h) Upon any adjustment to the Warrant Price pursuant to Section 8(f) above, the number of Warrant Shares purchasable hereunder shall be adjusted by multiplying such number by a fraction, the numerator of which shall be the Warrant Price in effect immediately prior to such adjustment and the denominator of which shall be the Warrant Price in effect immediately thereafter.

Section 9. Fractional Interest. The Company shall not be required to issue fractions of Warrant Shares upon the exercise of this Warrant. If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon such exercise, the Company, in lieu of delivering such fractional share, shall pay to the exercising Warrantholder an amount in cash equal to the Market Price of such fractional share of Common Stock on the date of exercise.

Section 10. Extension of Expiration Date. If the Company fails to cause any Registration Statement covering Registrable Securities (unless otherwise defined herein, capitalized terms are as defined in the Registration Rights Agreement relating to the Warrant Shares (the “Registration Rights Agreement”)) to be declared effective prior to the applicable dates set forth therein, or if any of the events specified in Section 2(c)(ii) of the Registration Rights Agreement occurs, and the Blackout Period or Allowed Delay (whether alone, or in combination with any other Blackout Period or Allowed Delay) continues for more than 60 days in any 12 month period, or for more than a total of 90 days, then the Expiration Date of this Warrant shall be extended one day for each day beyond the 60-day or 90-day limits, as the case may be, that the Blackout Period continues.

Section 11. Benefits. Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrantholder) any legal or equitable right,

remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrantholder.

Section 12. Notices to Warrantholder. Upon the happening of any event requiring an adjustment of the Warrant Price, the Company shall promptly give written notice thereof to the Warrantholder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the subject adjustment.

Section 13. Identity of Transfer Agent. The Transfer Agent for the Common Stock is American Stock Transfer & Trust Company. Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company’s capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will mail to the Warrantholder a statement setting forth the name and address of such transfer agent.

Section 14. Notices. Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or facsimile, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier. All notices shall be addressed as follows: if to the Warrantholder, at its address as set forth in the Company’s books and records and, if to the Company, at the address as follows, or at such other address as the Warrantholder or the Company may designate by ten days’ advance written notice to the other:

If to the Company:

Unify Corporation

201 Arena Blvd., Suite 100

Sacramento, CA 95834

Attention: Pete DiCorti

Fax: (916) 928-6408

With a copy to:

Gray Cary Ware & Freidenrich LLP

400 Capitol Mall, Suite 2400

Sacramento, CA 95814

Attention: Kevin A. Coyle, Esq.

Fax: (916) 930-3201

Section 15. Registration Rights. The initial Warrantholder is entitled to the benefit of certain registration rights with respect to the shares of Common Stock issuable upon the exercise of this Warrant as provided in the Registration Rights Agreement, and any subsequent Warrantholder may be entitled to such rights.

Section 16. Successors. All the covenants and provisions hereof by or for the benefit of the Warrantholder shall bind and inure to the benefit of its respective successors and assigns hereunder.

Section 17. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to the choice of law provisions thereof. The Company and, by accepting this Warrant, the Warrantholder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Warrantholder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Warrantholder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

Section 18. Call Provision. Notwithstanding any other provision contained herein to the contrary, in the event that the closing bid price of a share of Common Stock as reported by such exchange, stock market or over-the-counter quotation system on which the Common Stock may then be listed or by such reporting service on which such quotations may be published, equals or exceeds $1.80 (appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of the Common Stock occurring after the date hereof) for twenty (20) consecutive trading days commencing after the Registration Statement (as defined in the Registration Rights Agreement) has been declared effective (the “Call Conditions”), the Company, upon twenty (20) days’ prior written notice (the “Notice Period”) given to the Warrantholder within one business day immediately following the end of such twenty (20) trading day period, may call this Warrant for 25% of the shares of Common Stock initially purchasable pursuant hereto (appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of the Common Stock occurring after the date hereof), at a redemption price equal to $0.01 per share of Common Stock then purchasable pursuant to this Warrant; provided that (i) the Company simultaneously calls all Company Warrants (as defined below) on the same terms and on a pro rata basis and (ii) all of

the shares of Common Stock issuable hereunder either (A) are registered pursuant to an effective Registration Statement (as defined in the Registration Rights Agreement) which has not been suspended and for which no stop order is in effect, and pursuant to which the Warrantholder is able to sell such shares of Common Stock at all times during the Notice Period or (B) no longer constitute Registrable Securities (as defined in the Registration Rights Agreement). On each such occasion, if any, that the Call Conditions are once again met during the thirty (30) day period immediately after consummation of a previous call, the Company may once again call this Warrant for an additional increment of 25% of the shares of Common Stock initially purchasable pursuant to this Warrant (appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of the Common Stock occurring after the date hereof), or such lesser number as shall then remain purchasable hereunder, and in the same manner and subject to the same notice requirements as the initial call, until all of the shares purchasable hereunder have been called; provided that (i) the Company simultaneously calls all Company Warrants (as defined below) on the same terms and on a pro rata basis and (ii) all of the shares of Common Stock issuable hereunder either (A) are registered pursuant to an effective Registration Statement (as defined in the Registration Rights Agreement) which has not been suspended and for which no stop order is in effect, and pursuant to which the Warrantholder is able to sell such shares of Common Stock at all times during the Notice Period or (B) no longer constitute Registrable Securities (as defined in the Registration Rights Agreement). Notwithstanding any notice by the Company, the Warrantholder shall have the right to exercise this Warrant prior to the end of any Notice Period.

Section 19. No Rights as Stockholder. The Warrantholder shall not have or exercise any rights as a stockholder of the Company solely by virtue of its ownership of this Warrant.

Section 20. Amendment; Waiver. This Warrant is one of a series of Warrants of like tenor issued by the Company pursuant to the Purchase Agreement and initially covering an aggregate of 2,253,560 shares of Common Stock (collectively, the “Company Warrants”). Any term of this Warrant may be amended or waived (including the adjustment provisions included in Section 8 of this Warrant) upon the written consent of the Company and the holders of Company Warrants representing at least 50% of the number of shares of Common Stock then subject to all outstanding Company Warrants (the “Majority Holders”); provided, that (x) any such amendment or waiver must apply to all Company Warrants; and (y) the number of Warrant Shares subject to this Warrant, the Warrant Price and the Expiration Date may not be amended, and the right to exercise this Warrant may not be altered or waived, without the written consent of the Warrantholder.

Section 21. Section Headings. The section headings in this Warrant are for the convenience of the Company and the Warrantholder and in no way alter, modify, amend, limit or restrict the provisions hereof.

[signature page follows]

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the day of , 2004.

	UNIFY CORPORATION


	By:
	Name:
	Title:

APPENDIX A

UNIFY CORPORATION

WARRANT EXERCISE FORM

To Unify Corporation:

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant (“Warrant”) for, and to purchase thereunder by the payment of the Warrant Price and surrender of the Warrant, shares of Common Stock (“Warrant Shares”) provided for therein, and requests that certificates for the Warrant Shares be issued as follows:

Name

Address

Federal Tax ID or Social Security No.

	and delivered by	(certified mail to the above address, or
		(electronically (provide DWAC Instructions: ),
or		(other (specify): ).

and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of this Warrant be registered in the name of the undersigned Warrantholder or the undersigned’s Assignee as below indicated and delivered to the address stated below.

Dated: ,

Note:	The signature must correspond with
	Signature:

the name of the Warrantholder as written on the
first page of the Warrant in every particular,
without alteration or enlargement or any change		Name (please print)
whatever, unless the Warrant has been assigned.


		Address


		Federal Identification or Social Security No.

		Assignee:

EX-10.10 3 a2140130zex-10_10.htm EXHIBIT 10.10

Exhibit 10.10

Silicon Valley Bank

Amendment to Loan Documents

Borrower:		Unify Corporation

Date:		June 3, 2004

THIS AMENDMENT TO LOAN DOCUMENTS is entered into between Silicon Valley Bank (“Silicon”) and the borrower named above (“Borrower”).

The Parties agree to amend the Loan and Security Agreement between them, dated June 6, 2003 (as otherwise amended, if at all, the “Loan Agreement”), as follows, effective as of the date hereof. (Capitalized terms used but not defined in this Amendment, shall have the meanings set forth in the Loan Agreement.)

1. Amendment to Schedule. The Schedule to Loan and Security Agreement is hereby deleted and replaced with the Amended Schedule to Loan and Security Agreement being entered into concurrently herewith.

2. Fee. In consideration for Silicon entering into this Amendment, Borrower shall concurrently pay Silicon a fee in the amount of $10,000, which shall be non-refundable and in addition to all interest and other fees payable to Silicon under the Loan Documents. Silicon is authorized to charge said fee to Borrower’s loan account.

3. Representations True. Borrower represents and warrants to Silicon that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct.

4. General Provisions. This Amendment, the Loan Agreement, any prior written amendments to the Loan Agreement signed by Silicon and Borrower, and the other written documents and agreements between Silicon and Borrower set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the parties with respect to the subject hereof. Except as herein expressly amended, all of the terms and provisions of the Loan Agreement, and all other documents and agreements between Silicon and Borrower shall continue in full force and effect and the same are hereby ratified and confirmed.

Borrower:		Silicon:

UNIFY CORPORATION		SILICON VALLEY BANK


By		By
	President or Vice President	Title

By
	Secretary or Ass’t Secretary

Silicon Valley Bank

Amended Schedule to

Loan and Security Agreement

Borrower:		Unify Corporation

Address:		2101 Arena Blvd., Suite 100 Sacramento, California 95834

Date:		June 3, 2004

This Amended Schedule is executed and delivered pursuant to an Amendment to Loan Documents of even date between Silicon Valley Bank (“Silicon”) and the above-borrower (the “Borrower”), forms an integral part of the Loan and Security Agreement between Silicon and the Borrower dated June 6, 2003 (as amended from time to time, the “Loan Agreement”) and amends and restates the Schedule to the Loan Agreement (the “Original Schedule”). All reference to the “Loan Agreement” and to “this Agreement” shall be deemed to refer to the Loan Agreement and the Schedule to the Loan Agreement (including this Amended Schedule).

1. CREDIT LIMIT

(Section 1.1): An amount not to exceed the sum of 1 and 2 below:

1. Revolving Loans. An amount equal to: (A) the lesser of: (i) $1,000,000 at any one time outstanding (the “Maximum Credit Limit”), or (ii) the sum of (a) 75% (an “Advance Rate”) of the amount of Borrower’s Eligible Accounts (as defined in Section 8 above) plus (b) 30% (an “Advance Rate”) of the amount of Borrower’s unrestricted cash in investment accounts maintained at Silicon minus (B) the Term Loans (as defined below).

Silicon may, from time to time, modify the Advance Rate, in its good faith business judgment, upon notice to the Borrower, based on changes in collection experience with respect to Accounts or other issues or factors relating to the Accounts or other Collateral.

plus

2. Term Loans. An amount equal to the aggregate unpaid principal balance from time to time outstanding of the Loans (“Term Loans”)

made from time to time by Silicon to Borrower in a total amount not to exceed $500,000 for the purchase by Borrower of new or used Equipment acceptable to Silicon in its sole discretion, including computer equipment, office equipment, lab equipment, test equipment and furnishings. To evidence each of the Term Loans, Borrower shall deliver to Silicon, at the time of each Term Loan request, an invoice for the Equipment (a) to be purchased or (b) which was previously purchased by the Borrower. The Loan request with respect to any particular Equipment must be made within 90 days of the date such Equipment was purchased. The Term Loans shall be used only to (a) purchase Equipment or (b) reimburse the Borrower for previously purchased Equipment and shall not exceed 100% of the invoice amount of such Equipment approved from time to time by Silicon. Subject to and upon the terms and conditions of this Agreement, Term Loans shall be available through December 31, 2004. The Term Loans shall be repaid as provided for herein. Interest shall accrue from the date of each Term Loan at the rate provided for herein and is payable monthly as provided for herein. Term Loans shall be made in disbursements of not less than $100,000.

The Term Loans, once repaid, cannot be reborrowed. If an Overadvance results from any Term Loan, Borrower shall immediately provide Silicon with cash collateral in an amount equal to 100% of the such Overadvance, to secure all of the Obligations relating to such Overadvance, pursuant to Silicon’s then standard form cash pledge agreement.

As used in this Agreement, the term “Loans” includes the Revolving Loans and the Term Loans.

Letter of Credit Sublimit

(Section 1.6): 60; $750,000

Cash Management

Sublimit: &# 160; $250,000, provided that the total Cash Management Sublimit and the Foreign Exchange Contract Sublimit shall not, at any time, exceed $250,000.

Borrower may use Loans available hereunder, up to the above Cash Management Sublimit for Silicon’s Cash Management Services (as defined below), including, merchant services, business credit card, ACH and other services identified in the cash management services agreement related to such service (the “Cash Management Services”). Silicon may, in its sole discretion, reserve against Loans which would otherwise be available hereunder such sums as Silicon shall determine in its good faith business judgment in connection with the Cash Management Services (the “Cash Management Reserves”), and Silicon may charge to Borrower’s Loan account, any amounts that may become due or owing to Silicon in connection with the Cash

Management Services. Borrower agrees to execute and deliver to Silicon all standard form applications and agreements of Silicon in connection with the Cash Management Services, and, without limiting any of the terms of such applications and agreements, Borrower will pay all standard fees and charges of Silicon in connection with the Cash Management Services. The Cash Management Services shall terminate on the Maturity Date.

Foreign Exchange

Contract Sublimit: $250,000, provided that the total Cash Management Sublimit and the Foreign Exchange Contract Sublimit shall not, at any time, exceed $250,000.

Borrower may enter into foreign exchange forward contracts with Silicon, on its standard forms, under which Borrower commits to purchase from or sell to Silicon a set amount of foreign currency more than one business day after the contract date (the “FX Forward Contracts”); provided that (1) at the time the FX Forward Contract is entered into Borrower has Loans available to it under this Agreement in an amount at least equal to 10% of the amount of the FX Forward Contract; (2) the total FX Forward Contracts at any one time outstanding may not exceed 10 times the amount of the Foreign Exchange Contract Sublimit set forth above. Silicon shall have the right to withhold, from the Loans otherwise available to Borrower under this Agreement, a reserve (which shall be in addition to all other reserves) (the “FX Reserves”) in an amount equal to 10% of the total FX Forward Contracts from time to time outstanding, and in the event at any time there are insufficient Loans available to Borrower for such reserve, Borrower shall deposit and maintain with Silicon cash collateral in an amount at all times equal to such deficiency, which shall be held as Collateral for all purposes of this Agreement. Silicon may, in its discretion, terminate the FX Forward Contracts at any time that an Event of Default occurs and is continuing. Borrower shall execute all standard form applications and agreements of Silicon in connection with the FX Forward Contracts, and without limiting any of the terms of such applications and agreements, Borrower shall pay all standard fees and charges of Silicon in connection with the FX Forward Contracts.

2. INTEREST.

Interest Rate (Section 1.2):

A rate equal to the “Prime Rate” in effect from time to time, plus 2.0% per annum, provided that, for purposes of calculating interest

hereunder, the Prime Rate on each day shall not be less than 4.0% per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. “Prime Rate” means the rate announced from time to time by Silicon as its “prime rate;” it is a base rate upon which other rates charged by Silicon are based, and it is not necessarily the best rate available at Silicon. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate.

Notwithstanding the foregoing, with respect to the Term Loans:

A rate equal to the “Prime Rate” in effect from time to time, plus 2.50% per annum, provided that, for purposes of calculating interest hereunder, the Prime Rate on each day shall not be less than 4.0% per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. “Prime Rate” means the rate announced from time to time by Silicon as its “prime rate;” it is a base rate upon which other rates charged by Silicon are based, and it is not necessarily the best rate available at Silicon. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate.

3. FEES (Section 1.4):

Loan Fees: See Amendment to Loan Documents of even date herewith.

Collateral Monitoring

Fee: & #160; $1,250, per month, payable in arrears (prorated for any partial month at the beginning and at termination of this Agreement), provided that no Collateral Monitoring Fee shall be charged in a month in which the Streamline Period is in effect during the entire month.

4. MATURITY DATE

(Section 6.1): June 5, 2005.

Notwithstanding the foregoing, with respect to the Term Loans: The outstanding principal balance of each Term Loan shall be repaid by Borrower to Silicon in twenty-four (24) equal monthly payments of principal, commencing on the last day of the calendar month in which the applicable Term Loan is made and continuing on the same day of each subsequent month until the earlier of the following dates: (i) the date such Term Loan has been indefeasibly paid in full, or (ii) the date the Revolving Loans are terminated, or (iii) the date this Agreement terminates by its terms or is terminated by either party in accordance with its terms. On the earlier to occur of the foregoing dates, the entire

unpaid principal balance of the Term Loans, plus all accrued and unpaid interest thereon, shall be due and payable. Interest on each Term Loan shall be payable monthly as provided in Section 1.2 of this Agreement.

5. FINANCIAL COVENANTS

(Section 5.1): Borrower shall comply with each of the following covenants:

Minimum Tangible

Net Worth: Borrower shall maintain a Tangible Net Worth of not less than the following amounts as of the end of each of the following months:

As of end of:	Minimum Tangible Net Worth
May, 2004	$	2,250,000
June, 2004	$	2,250,000
July, 2004	$	3,000,000
August, 2004	$	2,250,000
September, 2004	$	2,250,000
October, 2004	$	3,000,000
November, 2004	$	2,250,000
December, 2004	$	2,250,000
January, 2005	$	3,000,000
February, 2005	$	2,250,000
March 2005	$	2,250,000
April, 2005	$	3,000,000
May, 2005	$	2,250,000

Definitions. For purposes of the foregoing financial covenants, the following term shall have the following meaning:

“Tangible Net Worth” shall mean the excess of total assets over total liabilities, determined in accordance with GAAP, with the following adjustments:

(A) there shall be excluded from assets: (i) notes, accounts receivable and other obligations owing to Borrower from its officers or other Affiliates, and (ii) all assets which would be

classified as intangible assets under GAAP, including without limitation goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software and organizational costs, licenses and franchises

(B) there shall be excluded from liabilities: all indebtedness which is subordinated to the Obligations under a subordination agreement in form specified by Silicon or by language in the instrument evidencing the indebtedness which Silicon agrees in writing is acceptable to Silicon in its good faith business judgment.

6. REPORTING.

(Section 5.3):

Borrower shall provide Silicon with the following:

1. Weekly (within five days after the end of each week), and on each request for a Loan, transaction reports and schedules of collections, on Silicon’s standard form.

2. Monthly accounts receivable agings, aged by invoice date, within fifteen days after the end of each month.

3. Monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, within fifteen days after the end of each month.

4. Monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports, and general ledger, within fifteen days after the end of each month.

5. Monthly unaudited financial statements, as soon as available, and in any event within thirty days after the end of each month.

6. Monthly Compliance Certificates, within thirty days after the end of each month, in such form as Silicon shall reasonably specify, signed by the Chief Financial Officer of Borrower, certifying that as of the end of such month Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Silicon shall reasonably request, including, without limitation, a statement that at the end of such month there were no held checks.

7. Quarterly unaudited financial statements, as soon as available, and in any event within forty-five days after the end of each fiscal quarter of Borrower.

8. Annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower within thirty days after the end of each fiscal year of Borrower.

9. Annual financial statements, as soon as available, and in any event within 120 days following the end of Borrower’s fiscal year, certified by, and with an unqualified opinion of, independent certified public accountants acceptable to Silicon.

7. BORROWER INFORMATION:

Borrower represents and warrants that the information set forth in the Representations and Warranties of the Borrower dated June 4, 2003, previously submitted to Silicon (the “Representations”) is true and correct as of the date hereof.

8. ADDITIONAL PROVISIONS

(a) Banking Relationship. Borrower shall at all times maintain its primary banking relationship with Silicon. Without limiting the generality of the foregoing, Borrower shall, at all times, maintain not less than 60% of its total cash and investments, as shown on Borrower’s consolidated balance sheet, on deposit with Silicon. As to any Deposit Accounts and investment accounts maintained with another institution, Borrower shall cause such institution, within 30 days after the date of this Agreement, to enter into a control agreement in form acceptable to Silicon in its good faith business judgment in order to perfect Silicon’s first-priority security interest in said Deposit Accounts and investment accounts.

(b) Subordination of Inside Debt. All present and future indebtedness of Borrower to its officers, directors and shareholders (“Inside Debt”) shall, at all times, be subordinated to the Obligations pursuant to a subordination agreement on Silicon’s standard form. Borrower represents and warrants that there is no Inside Debt presently outstanding. Prior to incurring any Inside Debt in the future, Borrower shall cause the person to whom such Inside Debt will be owed to execute and deliver to Silicon a subordination agreement on Silicon’s standard form.

(c) Streamline Provisions.

(1) Borrower may, at its option, elect not to have any Loans or Letters of Credit outstanding, except as provided for below, for specified periods of time (the “Streamline Periods”). At least 10 days prior to putting a Streamline Period into effect, Borrower will give Silicon written notice thereof, specifying the date the Streamline Period is to start.

(2) In order for a Streamline Period to go into effect, and at all times during the Streamline Period, no Revolving Loans may be outstanding or made, no Letters of Credit may be outstanding, the combined amount of the required FX Reserves and Cash Management Reserves may not exceed $250,000 and the amount of Obligations outstanding with respect to the Term Loans may not exceed $500,000.

(3) During the Streamline Period, provided no Event of Default has occurred and is continuing, Borrower will not be required to provide Silicon with weekly reporting of transactions, weekly schedules of Accounts or schedules of collections (as called for by Section 4.3 of this Agreement).

(4) Provided no Default or Event of Default has occurred and is continuing, Borrower may, at its option, terminate the Streamline Period, so that Borrower can thereafter request Loans and Letters of Credit under this Agreement, by giving Silicon written notice at least 30 days before the Streamline Period is to terminate, together with such information relating to the Accounts and other Collateral as Silicon shall specify.

(5) Upon Borrower giving notice that it wishes to terminate the Streamline Period, and thereafter, Borrower will, provide Silicon with the (at a minimum) weekly

reporting of transactions and related schedules and assignments of Accounts and schedules of collections, as called for by Section 4.3 of this Agreement.

(6) During the Streamline Period, Borrower shall provide a borrowing base certificate, accounts receivable aging, accounts payable aging and reconciliation to Silicon, on a monthly basis, all in such form as Silicon shall specify, within 30 days after the end of each month.

(d) Warrants. Borrower previously provided Silicon with a seven year warrant to purchase 115,385 shares of common stock of Borrower at an exercise of price of $0.39 per share, which warrant shall remain in full force and effect.

(e) UCC Termination. To the extent not yet completed, Borrower agrees to cause to be terminated that certain UCC-1 Financing Statement in favor of Imperial Bank (Financing Statement No. 9805460034) filed in the Office of the California Secretary of State on February 17, 1999 and shall provide evidence of such termination, satisfactory to Silicon in its discretion.

Borrower:			Silicon:

	UNIFY CORPORATION		SILICON VALLEY BANK


	By		By
		President or Vice President	Title

	By
		Secretary or Ass’t Secretary

EX-10.11 4 a2140130zex-10_11.htm EXHIBIT 10.11

Exhibit 10.11

PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 23rd day of April, 2004 by and among UNIFY CORPORATION, a Delaware corporation (the “Company”), and the Investors set forth on the signature pages affixed hereto (each an “Investor” and collectively the “Investors”).

Recitals

A. The Company and the Investors are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D (“Regulation D”), as promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended; and

B. The Investors wish to purchase from the Company, and the Company wishes to sell and issue to the Investors, upon the terms and conditions stated in this Agreement, (i) an aggregate of 5,633,900 shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), and (ii) warrants to purchase an aggregate of 2,253,560 shares of Common Stock in the form attached hereto as Exhibit A (the “Warrants”); and

C. Contemporaneous with the sale of the Common Stock and Warrants, the parties hereto will execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit B (the “Registration Rights Agreement”), pursuant to which the Company will agree to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, and applicable state securities laws.

In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions. In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth below:

“Affiliate” means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is controlled by, or is under common control with, such Person.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

“Common Stock” means the common stock, par value $0.001 per share, of the Company, and any securities into which the Common Stock may be reclassified.

“Company’s Knowledge” means the actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

“Confidential Information” means trade secrets, confidential information and know-how (including but not limited to ideas, formulae, compositions, processes, procedures and techniques, research and development information, computer program code, performance specifications, support documentation, drawings, specifications, designs, business and marketing plans, and customer and supplier lists and related information).

“Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Intellectual Property” means all of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and renewals for any of the foregoing; and (v) proprietary computer software (including but not limited to data, data bases and documentation).

“Material Adverse Effect” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), business, or prospects of the Company and its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform its obligations under the Transaction Documents.

“Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

“Purchase Price” means an aggregate of Four Million Sixty-Nine Dollars ($4,000,069), and with respect to each Investor, means the Purchase Price set forth opposite such Investor’s name on the signature pages hereto.

“SEC Filings” has the meaning set forth in Section 4.6.

“Securities” means the Shares, the Warrants and the Warrant Shares.

“Shares” means the shares of Common Stock being purchased by the Investors hereunder.

“Subsidiary” has the meaning set forth in Section 4.1.

“Transaction Documents” means this Agreement, the Warrants and the Registration Rights Agreement.

“Warrant Shares” means the shares of Common Stock issuable upon the exercise of the Warrants.

“1933 Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“1934 Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

2. Purchase and Sale of the Shares and Warrants. Subject to the terms and conditions of this Agreement, on the Closing Date (as defined below), each of the Investors shall severally, and not jointly, purchase, and the Company shall sell and issue to the Investors, the Shares and Warrants in the respective amounts set forth opposite the Investors’ names on the signature pages attached hereto in exchange for the Purchase Price as specified in Section 3 below.

3. Closing. Upon confirmation that the other conditions to closing specified herein have been satisfied or duly waived by the Investors, the Company shall deliver to Lowenstein Sandler PC, in trust, a certificate or certificates, registered in such name or names as the Investors may designate, representing the Shares and Warrants, with instructions that such certificates are to be held for release to the Investors only upon payment in full of the Purchase Price to the Company by all the Investors. Upon such receipt by Lowenstein Sandler PC of the certificates, each Investor shall promptly, but no more than one Business Day thereafter, cause a wire transfer in same day funds to be sent to the account of the Company as instructed in writing by the Company, in an amount representing such Investor’s pro rata portion of the Purchase Price as set forth on the signature pages to this Agreement. On the date (the “Closing Date”) the Company receives the Purchase Price, the certificates evidencing the Shares and Warrants shall be released to the Investors (the “Closing”). The Closing of the purchase and sale of the Shares and Warrants shall take place at the offices of Lowenstein Sandler PC, 1330 Avenue of the Americas, 21st Floor, New York, New York, or at such other location and on such other date as the Company and the Investors shall mutually agree.

4. Representations and Warranties of the Company. The Company hereby represents and warrants to the Investors that, except as set forth in the schedules delivered herewith (collectively, the “Disclosure Schedules”):

4. 1 Organization, Good Standing and Qualification. Each of the Company and its Subsidiaries (as defined below) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own its properties. Each of the Company and its Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or leasing necessary

unless the failure to so qualify has not and could not reasonably be expected to have a Material Adverse Effect. The Company’s subsidiaries are reflected on Schedule 4.1 hereto (the “Subsidiaries”).

4.2 Authorization. The Company has full power and authority and has taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Transaction Documents, (ii) authorization of the performance of all obligations of the Company hereunder or thereunder, and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Securities. The Transaction Documents constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

4.3 Capitalization. Schedule 4.3 sets forth (a) the authorized capital stock of the Company on the date hereof; (b) the number of shares of capital stock issued and outstanding; (c) the number of shares of capital stock issuable pursuant to the Company’s stock plans; and (d) the number of shares of capital stock issuable and reserved for issuance pursuant to securities (other than the Shares and the Warrants) exercisable for, or convertible into or exchangeable for any shares of capital stock of the Company. All of the issued and outstanding shares of the Company’s capital stock have been duly authorized and validly issued and are fully paid, nonassessable and free of pre-emptive rights and were issued in full compliance with applicable state and federal securities law and any rights of third parties. Except as described on Schedule 4.3, all of the issued and outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid, nonassessable and free of pre-emptive rights, were issued in full compliance with applicable state and federal securities law and any rights of third parties and are owned by the Company, beneficially and of record, subject to no lien, encumbrance or other adverse claim. Except as described on Schedule 4.3, no Person is entitled to pre-emptive or similar statutory or contractual rights with respect to any securities of the Company. Except as described on Schedule 4.3, there are no outstanding warrants, options, convertible securities or other rights, agreements or arrangements of any character under which the Company or any of its Subsidiaries is or may be obligated to issue any equity securities of any kind and except as contemplated by this Agreement, neither the Company nor any of its Subsidiaries is currently in negotiations for the issuance of any equity securities of any kind. Except as described on Schedule 4.3 and except for the Registration Rights Agreement, there are no voting agreements, buy-sell agreements, option or right of first purchase agreements or other agreements of any kind among the Company and any of the securityholders of the Company relating to the securities of the Company held by them. Except as described on Schedule 4.3, no Person has the right to require the Company to register any securities of the Company under the 1933 Act, whether on a demand basis or in connection with the registration of securities of the Company for its own account or for the account of any other Person.

Except as described on Schedule 4.3, the issuance and sale of the Securities hereunder will not obligate the Company to issue shares of Common Stock or other securities to any other Person (other than the Investors) and will not result in the adjustment of the exercise, conversion, exchange or reset price of any outstanding security.

Except as described on Schedule 4.3, the Company does not have outstanding stockholder purchase rights or “poison pill” or any similar arrangement in effect giving any Person the right to purchase any equity interest in the Company upon the occurrence of certain events.

4.4 Valid Issuance. The Shares have been duly and validly authorized and, when issued and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and shall be free and clear of all encumbrances and restrictions (other than those created by the Investors), except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws. The Warrants have been duly and validly authorized. Upon the due exercise of the Warrants, the Warrant Shares will be validly issued, fully paid and non-assessable free and clear of all encumbrances and restrictions, except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws and except for those created by the Investors. The Company has reserved a sufficient number of shares of Common Stock for issuance upon the exercise of the Warrants, free and clear of all encumbrances and restrictions, except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws and except for those created by the Investors.

4.5 Consents. The execution, delivery and performance by the Company of the Transaction Documents and the offer, issuance and sale of the Securities require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods. Subject to the accuracy of the representations and warranties of each Investor set forth in Section 5 hereof, the Company has taken all action necessary to exempt (i) the issuance and sale of the Securities, (ii) the issuance of the Warrant Shares upon due exercise of the Warrants, and (iii) the other transactions contemplated by the Transaction Documents from the provisions of any shareholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control share law or statute binding on the Company or to which the Company or any of its assets and properties may be subject and any provision of the Company’s Certificate of Incorporation or By-laws that is or could reasonably be expected to become applicable to the Investors as a result of the transactions contemplated hereby, including without limitation, the issuance of the Securities and the ownership, disposition or voting of the Securities by the Investors or the exercise of any right granted to the Investors pursuant to this Agreement or the other Transaction Documents.

4.6 Delivery of SEC Filings; Business. The Company has made available to the Investors through the EDGAR system, true and complete copies of the Company’s most recent Annual Report on Form 10-K for the fiscal year ended April 30, 2003 (the “10-K”), and all other reports filed by the Company pursuant to the 1934 Act since the filing of the 10-K and prior to the date hereof (collectively, the “SEC Filings”). The SEC Filings are the only filings required of the Company pursuant to the 1934 Act for such period. The Company and its Subsidiaries are engaged in all material respects only in the business described in the SEC

Filings and the SEC Filings contain a complete and accurate description in all material respects of the business of the Company and its Subsidiaries, taken as a whole.

4.7 Use of Proceeds. The net proceeds of the sale of the Shares and the Warrants hereunder shall be used by the Company for working capital and general corporate purposes.

4.8 No Material Adverse Change. Since January 31, 2004, except as identified and described in the SEC Filings or as described on Schedule 4.8, there has not been:

(i) any change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2004, except for changes in the ordinary course of business which have not and could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate;

(ii) any declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the capital stock of the Company, or any redemption or repurchase of any securities of the Company;

(iii) any material damage, destruction or loss, whether or not covered by insurance to any assets or properties of the Company or its Subsidiaries;

(iv) any waiver, not in the ordinary course of business, by the Company or any Subsidiary of a material right or of a material debt owed to it;

(v) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company or a Subsidiary, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results or business of the Company and its Subsidiaries taken as a whole (as such business is presently conducted and as it is proposed to be conducted);

(vi) any change or amendment to the Company’s Certificate of Incorporation or by-laws, or material change to any material contract or arrangement by which the Company or any Subsidiary is bound or to which any of their respective assets or properties is subject;

(vii) any material labor difficulties or labor union organizing activities with respect to employees of the Company or any Subsidiary;

(viii) any material transaction entered into by the Company or a Subsidiary other than in the ordinary course of business;

(ix) the loss of the services of any key employee, or material change in the composition or duties of the senior management of the Company or any Subsidiary;

(x) the loss or threatened loss of any customer which has had or could reasonably be expected to have a Material Adverse Effect; or

(xi) any other event or condition of any character that has had or could reasonably be expected to have a Material Adverse Effect.

4.9 SEC Filings.

(a) At the time of filing thereof, the SEC Filings complied as to form in all material respects with the requirements of the 1934 Act and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

(b) Except as set forth on Schedule 4.9, each registration statement and any amendment thereto filed by the Company since January 1, 2001 pursuant to the 1933 Act and the rules and regulations thereunder, as of the date such statement or amendment became effective, complied as to form in all material respects with the 1933 Act and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein not misleading; and each prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of any sale of securities pursuant thereto did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

4.10 No Conflict, Breach, Violation or Default. The execution, delivery and performance of the Transaction Documents by the Company and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Certificate of Incorporation or the Company’s Bylaws, both as in effect on the date hereof (true and complete copies of which have been made available to the Investors through the EDGAR system), or (ii)(a) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company, any Subsidiary or any of their respective assets or properties, or (b) any agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or a Subsidiary is bound or to which any of their respective assets or properties is subject.

4.11 Tax Matters. The Company and each Subsidiary has timely prepared and filed all tax returns required to have been filed by the Company or such Subsidiary with all appropriate governmental agencies and timely paid all taxes shown thereon or otherwise owed by it. The charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid assessments against the Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any federal, state or local taxing authority except for any assessment which is not material to the

Company and its Subsidiaries, taken as a whole. All taxes and other assessments and levies that the Company or any Subsidiary is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due. There are no tax liens or claims pending or, to the Company’s Knowledge, threatened against the Company or any Subsidiary or any of their respective assets or property. Except as described on Schedule 4.11, there are no outstanding tax sharing agreements or other such arrangements between the Company or any Subsidiary, on the one hand, and any other corporation or entity, on the other hand.

4.12 Title to Properties. Except as disclosed in the SEC Filings, the Company and each Subsidiary has good and marketable title to all real properties and all other properties and assets owned by it, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or currently planned to be made thereof by them; and except as disclosed in the SEC Filings, the Company and each Subsidiary holds any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or currently planned to be made thereof by them.

4.13 Certificates, Authorities and Permits. The Company and each Subsidiary possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it, and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or such Subsidiary, could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.

4.14 No Labor Disputes. No material labor dispute with the employees of the Company or any Subsidiary exists or, to the Company’s Knowledge, is imminent.

4.15 Intellectual Property.

(a) All Intellectual Property of the Company and its Subsidiaries is currently in compliance with all legal requirements (including timely filings, proofs and payments of fees) and to the Company’s Knowledge is valid and enforceable. No Intellectual Property of the Company or its Subsidiaries which is necessary for the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted has been or is now involved in any cancellation, dispute or litigation, and, to the Company’s Knowledge, no such action is threatened. No patent of the Company or its Subsidiaries has been or is now involved in any interference, reissue, re-examination or opposition proceeding.

(b) All of the licenses and sublicenses and consent, royalty or other agreements concerning Intellectual Property which are necessary for the conduct of the Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted to which the Company or any Subsidiary is a party or by which any of their assets are bound (other than generally commercially available, non-custom,

off-the-shelf software application programs having a retail acquisition price of less than $10,000 per license) (collectively, “License Agreements”) are valid and binding obligations of the Company or its Subsidiaries that are parties thereto and, to the Company’s Knowledge, the other parties thereto, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally, and to the Company’s Knowledge there exists no event or condition which will result in a material violation or breach of or constitute (with or without due notice or lapse of time or both) a default by the Company or any of its Subsidiaries under any such License Agreement.

(c) The Company and its Subsidiaries own or to the Company’s Knowledge have the valid right to use all of the Intellectual Property that is necessary for the conduct of the Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted and for the ownership, maintenance and operation of the Company’s and its Subsidiaries’ properties and assets, free and clear of all liens, encumbrances, adverse claims or obligations to license all such owned Intellectual Property and Confidential Information, other than licenses entered into in the ordinary course of the Company’s and its Subsidiaries’ businesses. To the Company’s Knowledge, the Company and its Subsidiaries have a valid and enforceable right to use all third party Intellectual Property and Confidential Information used or held for use in the respective businesses of the Company and its Subsidiaries.

(d) To the Company’s Knowledge, the conduct of the Company’s and its Subsidiaries’ businesses as currently conducted does not infringe or otherwise impair or conflict with (collectively, “Infringe”) any Intellectual Property rights of any third party or any confidentiality obligation owed to a third party, and, to the Company’s Knowledge, the Intellectual Property and Confidential Information of the Company and its Subsidiaries which are necessary for the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted are not being Infringed by any third party. There is no litigation or order pending or outstanding or, to the Company’s Knowledge, threatened or imminent, that seeks to limit or challenge or that concerns the ownership, use, validity or enforceability of any Intellectual Property or Confidential Information of the Company and its Subsidiaries and the Company’s and its Subsidiaries’ use of any Intellectual Property or Confidential Information owned by a third party, and, to the Company’s Knowledge, there is no valid basis for the same.

(e) The consummation of the transactions contemplated hereby and by the other Transaction Documents will not result in the alteration, loss, impairment of or restriction on the Company’s or any of its Subsidiaries’ ownership or right to use any of the Intellectual Property or Confidential Information which is necessary for the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted.

(f) All software owned by the Company or any of its Subsidiaries, and, to the Company’s Knowledge, all software licensed from third parties by the Company or any of its Subsidiaries, (i) is free from any material defect, bug, virus, or programming, design or

documentation error; (ii) operates and runs in a reasonable and efficient business manner; and (iii) conforms in all material respects to the specifications and purposes thereof.

(g) The Company and its Subsidiaries have taken reasonable steps to protect the Company’s and its Subsidiaries’ rights in their Intellectual Property and Confidential Information. Each employee, consultant and contractor who has had access to Confidential Information which is necessary for the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted has executed an agreement to maintain the confidentiality of such Confidential Information and has executed appropriate agreements that are substantially consistent with the Company’s standard forms thereof. Except under confidentiality obligations, there has been no material disclosure of any of the Company’s or its Subsidiaries’ Confidential Information to any third party.

4.16 Environmental Matters. Neither the Company nor any Subsidiary is in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim has had or could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate; and there is no pending or, to the Company’s Knowledge, threatened investigation that might lead to such a claim.

4.17 Litigation. Except as described in the SEC Filings or on Schedule 4.17, there are no pending actions, suits or proceedings against or affecting the Company, its Subsidiaries or any of its or their properties; and to the Company’s Knowledge, no such actions, suits or proceedings are threatened or contemplated.

4.18 Financial Statements. The financial statements included in each SEC Filing present fairly, in all material respects, the consolidated financial position of the Company as of the dates shown and its consolidated results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with United States generally accepted accounting principles applied on a consistent basis (except as may be disclosed therein or in the notes thereto, and, in the case of quarterly financial statements, as permitted by Form 10-Q under the 1934 Act). Except as set forth in the financial statements of the Company included in the SEC Filings filed prior to the date hereof or as described on Schedule 4.18, neither the Company nor any of its Subsidiaries has incurred any liabilities, contingent or otherwise, except those incurred in the ordinary course of business, consistent (as to amount and nature) with past practices since the date of such financial statements, none of which, individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect.

4.19 Insurance Coverage. The Company and each Subsidiary maintains in full force and effect insurance coverage that is, to the Company’s Knowledge, customary for

comparably situated companies for the business being conducted and properties owned or leased by the Company and each Subsidiary, and the Company reasonably believes such insurance coverage to be adequate against all liabilities, claims and risks against which it is customary for comparably situated companies to insure.

4.20 Brokers and Finders. No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or an Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company, other than as described in Schedule 4.20.

4.21 No Directed Selling Efforts or General Solicitation. Neither the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.

4.22 No Integrated Offering. Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any Company security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Section 4(2) for the exemption from registration for the transactions contemplated hereby or would require registration of the Securities under the 1933 Act.

4.23 Private Placement. Assuming the accuracy of the representations and warranties of the Investors in Section 5 of this Agreement, the offer and sale of the Securities to the Investors as contemplated hereby is exempt from the registration requirements of the 1933 Act.

4.24 Questionable Payments. Except as described in Schedule 4.24, neither the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any of their respective current or former stockholders, directors, officers, employees, agents or other Persons acting on behalf of the Company or any Subsidiary, has on behalf of the Company or any Subsidiary or in connection with their respective businesses: (a) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payments to any governmental officials or employees from corporate funds; (c) established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (d) made any false or fictitious entries on the books and records of the Company or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

4.25 Transactions with Affiliates. Except as disclosed in the SEC Filings or as disclosed on Schedule 4.25, none of the officers or directors of the Company and, to the Company’s Knowledge, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than as holders of stock options and/or warrants, and for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for

rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the Company’s Knowledge, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

4.26 Internal Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including the Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed period report under the 1934 Act, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of a date within 90 days prior to the filing date of the most recently filed periodic report under the 1934 Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the 1934 Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K) or, to the Company’s Knowledge, in other factors that could significantly affect the Company’s internal controls. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP and the applicable requirements of the 1934 Act.

4.27 Disclosures. Neither the Company nor any Person acting on its behalf has provided the Investors or their agents or counsel with any information that constitutes or might constitute material, non-public information. The written materials delivered to the Investors in connection with the transactions contemplated by the Transaction Documents do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

5. Representations and Warranties of the Investors. Each of the Investors hereby severally, and not jointly, represents and warrants to the Company that:

5.1 Organization and Existence. The Investor is a validly existing corporation, limited partnership or limited liability company and has all requisite corporate, partnership or limited liability company power and authority to invest in the Securities pursuant to this Agreement. Each of the Investors is organized under the laws of the State of Delaware and has its principal place of business in the State of New York.

5.2 Authorization. The execution, delivery and performance by the Investor of the Transaction Documents to which such Investor is a party have been duly authorized and will each constitute the valid and legally binding obligation of the Investor, enforceable against the Investor in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

5.3 Purchase Entirely for Own Account. The Securities to be received by the Investor hereunder will be acquired for the Investor’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the 1933 Act, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the 1933 Act. The Investor is not a broker dealer registered with the SEC under the 1934 Act or an entity engaged in a business that would require it to be so registered.

5.4 Investment Experience. The Investor acknowledges that it can bear the economic risk and complete loss of its investment in the Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby.

5.5 Disclosure of Information. The Investor has had an opportunity to receive all additional information related to the Company requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities. The Investor acknowledges receipt of copies of the SEC Filings. Neither such inquiries nor any other due diligence investigation conducted by the Investor shall modify, amend or affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.

5.6 Restricted Securities. The Investor understands that the Securities are characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the 1933 Act only in certain limited circumstances.

5.7 Legends. It is understood that, except as provided below, certificates evidencing the Securities may bear the following or any similar legend:

(a) “The securities represented hereby may not be transferred unless (i) such securities have been registered for sale pursuant to the Securities Act of 1933, as amended, (ii) such securities may be sold pursuant to Rule 144(k), or (iii) the Company has received an opinion of counsel reasonably satisfactory to it that such transfer may lawfully be made without registration under the Securities Act of 1933 or qualification under applicable state securities laws.”

(b) If required by the authorities of any state in connection with the issuance of sale of the Securities, the legend required by such state authority.

5.8 Accredited Investor. The Investor is an accredited investor as defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.

5.9 No General Solicitation. The Investor did not learn of the investment in the Securities as a result of any public advertising or general solicitation.

5.10 Brokers and Finders. No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or an Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Investor.

5.11 Prohibited Transactions. During the last thirty (30) days prior to the date hereof, no Investor has, directly or indirectly, effected or agreed to effect any short sale, whether or not against the box, established any “put equivalent position” (as defined in Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any other right (including, without limitation, any put or call option) with respect to the Common Stock or with respect to any security that includes, relates to or derived any significant part of its value from the Common Stock or otherwise sought to hedge its position in the Securities (each, a “Prohibited Transaction”). Prior to the earlier of (i) the termination of this Agreement, or (ii) the Effectiveness Deadline (as defined in the Registration Rights Agreement), no Investor shall engage, directly or indirectly, in a Prohibited Transaction. Each Investor acknowledges that the representations and warranties contained in this Section 5.11 are being made for the benefit of the Investors as well as the Company and that each of the other Investors shall have an independent the right to assert any claims against any Investor arising out of any breach or violation of the provisions of this Section 5.11.

6. Conditions to Closing.

6.1 Conditions to the Investors’ Obligations. The obligation of the Investors to purchase the Shares and the Warrants at the Closing is subject to the fulfillment to the Investors’ satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived by an Investor (as to itself only):

(a) The representations and warranties made by the Company in Section 4 hereof qualified as to materiality shall be true and correct at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date, and, the representations and warranties made by the Company in Section 4 hereof not qualified as to materiality shall be true and correct in all material respects at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date. The Company shall have performed in all

material respects all obligations and conditions herein required to be performed or observed by it on or prior to the Closing Date.

(b) The Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase and sale of the Securities and the consummation of the other transactions contemplated by the Transaction Documents, all of which shall be in full force and effect.

(d) No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby or in the other Transaction Documents.

(e) The Company shall have delivered a Certificate, executed on behalf of the Company by its Chief Executive Officer or its Chief Financial Officer, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in subsections (a), (b), (d) and (h) of this Section 6.1.

(f) The Company shall have delivered a Certificate, executed on behalf of the Company by its Secretary, dated as of the Closing Date, certifying the resolutions adopted by the Board of Directors of the Company approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance of the Securities, certifying the current versions of the Certificate of Incorporation and Bylaws of the Company and certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company.

(g) The Investors shall have received an opinion from Gray Cary Ware & Freidenrich LLP, the Company’s counsel, dated as of the Closing Date, in form and substance reasonably acceptable to the Investors and addressing such legal matters as the Investors may reasonably request.

(h) No stop order or suspension of trading shall have been imposed by the SEC or any other governmental or regulatory body with respect to public trading in the Common Stock.

6.2 Conditions to Obligations of the Company. The Company’s obligation to sell and issue the Shares and the Warrants at the Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which may be waived by the Company:

(a) The representations and warranties made by the Investors in Section 5 hereof, other than the representations and warranties contained in Sections 5.3, 5.4,

5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. The Investment Representations shall be true and correct in all respects when made, and shall be true and correct in all respects on the Closing Date with the same force and effect as if they had been made on and as of said date. The Investors shall have performed in all material respects all obligations and conditions herein required to be performed or observed by them on or prior to the Closing Date.

(b) The Investors shall have executed and delivered the Registration Rights Agreement.

6.3 Termination of Obligations to Effect Closing; Effects.

(a) The obligations of the Company, on the one hand, and the Investors, on the other hand, to effect the Closing shall terminate as follows:

(i) Upon the mutual written consent of the Company and the Investors;

(ii) By the Company if any of the conditions set forth in Section 6.2 shall have become incapable of fulfillment, and shall not have been waived by the Company;

(iii) By an Investor (with respect to itself only) if any of the conditions set forth in Section 6.1 shall have become incapable of fulfillment, and shall not have been waived by the Investor; or

(iv) By either the Company or any Investor (with respect to itself only) if the Closing has not occurred on or prior to April 30, 2004;

provided, however, that, except in the case of clause (i) above, the party seeking to terminate its obligation to effect the Closing shall not then be in breach of any of its representations, warranties, covenants or agreements contained in this Agreement or the other Transaction Documents if such breach has resulted in the circumstances giving rise to such party’s seeking to terminate its obligation to effect the Closing.

(b) In the event of termination by the Company or any Investor of its obligations to effect the Closing pursuant to this Section 6.3, written notice thereof shall forthwith be given to the other Investors and the other Investors shall have the right to terminate their obligations to effect the Closing upon written notice to the Company and the other Investors. Nothing in this Section 6.3 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction

Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.

7. Covenants and Agreements of the Company.

7.1 Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of providing for the exercise of the Warrants, such number of shares of Common Stock as shall from time to time equal the number of shares sufficient to permit the exercise of the Warrants issued pursuant to this Agreement in accordance with their respective terms.

7.2 Reports. The Company will furnish to such Investors and/or their assignees such information relating to the Company and its Subsidiaries as from time to time may reasonably be requested by such Investors and/or their assignees; provided, however, that the Company shall not disclose material nonpublic information to the Investors, or to advisors to or representatives of the Investors, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Investors, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review and any Investor wishing to obtain such information enters into an appropriate confidentiality agreement with the Company with respect thereto.

7.3 No Conflicting Agreements. The Company will not take any action, enter into any agreement or make any commitment that would conflict or interfere in any material respect with the Company’s obligations to the Investors under the Transaction Documents.

7.4 Insurance. The Company shall not materially reduce the insurance coverages described in Section 4.19 unless the Company’s insurable risks are commensurately reduced.

7.5 Compliance with Laws. The Company will comply in all material respects with all applicable laws, rules, regulations, orders and decrees of all governmental authorities.

7.6 Listing of Underlying Shares and Related Matters. For so long as the Common Stock or other securities of the Company are traded on the Over the Counter Bulletin Board (the “OTCBB”), the Shares and the Warrant Shares will also be tradeable on the OTCBB. If the Company applies to have its Common Stock or other securities traded on any principal stock exchange or market, it shall include in such application the Shares and the Warrant Shares and will take such other action as is necessary to cause such Common Stock to be so listed.

7.7 Termination of Covenants. The provisions of Sections 7.2 through 7.5 shall terminate and be of no further force and effect upon the earlier of (i) the mutual consent of the Company and the Investors or (ii) the date on which the Company’s obligations under the Registration Rights Agreement to register or maintain the effectiveness of any registration covering the Registrable Securities (as such term is defined in the Registration Rights Agreement) shall terminate.

7.8 Removal of Legends. Upon the earlier of (i) registration for resale pursuant to the Registration Rights Agreement and receipt by the Company of the Investor’s written confirmation that such Securities will not be disposed of except in compliance with the prospectus delivery requirements of the 1933 Act or (ii) Rule 144(k) becoming available the Company shall, upon an Investor’s written request, promptly cause certificates evidencing the Investor’s Securities to be replaced with certificates which do not bear such restrictive legends, and Warrant Shares subsequently issued upon due exercise of the Warrants shall not bear such restrictive legends provided the provisions of either clause (i) or clause (ii) above, as applicable, are satisfied with respect to such Warrant Shares. When the Company is required to cause unlegended certificates to replace previously issued legended certificates, if unlegended certificates are not delivered to an Investor within five (5) Business Days of submission by that Investor of legended certificate(s) to the Company’s transfer agent together with a representation letter in customary form, the Company shall be liable to the Investor for liquidated damages in an amount equal to 1% of the aggregate purchase price of the Securities evidenced by such certificate(s) for each thirty (30) day period (or portion thereof) beyond such five (5) Business Day that the unlegended certificates have not been so delivered.

7.9 Director Designee.

(a) So long as Special Situations Fund III, L.P. (“SSF”) and/or one or more of its Affiliates collectively are the beneficial owners of at least 25% of the Shares originally purchased by SSF and its Affiliates hereunder (as appropriately adjusted for any stock split, combinations, recapitalization or similar event), SSF shall have the right to designate one person for election to the board of directors of the Company (the “SSF Designee”). The Company shall use its commercially reasonable efforts to cause the SSF Designee to be elected to the Company’s board of directors. SSF shall have the right to remove or replace any SSF Designee by giving notice to such SSF Designee and the Company. The Company shall use its commercially reasonable efforts to effect the removal or replacement of any such SSF Designee.

(b) Subject to any limitations imposed by applicable law, the SSF Designee shall be entitled to the same perquisites, including stock options, reimbursement of expenses and other similar rights in connection with such person’s membership on the Board of Directors of the Company, as every other non-employee member of the Board of Directors of the Company.

8. Survival and Indemnification.

8.1 Survival. The representations, warranties, covenants and agreements contained in this Agreement shall survive the Closing of the transactions contemplated by this Agreement.

8.2 Indemnification. The Company agrees to indemnify and hold harmless each Investor and its Affiliates and their respective directors, officers, employees and agents from and against any and all losses, claims, damages, liabilities and expenses (including

without limitation reasonable attorney fees and disbursements and other expenses incurred in connection with investigating, preparing or defending any action, claim or proceeding, pending or threatened and the costs of enforcement thereof) (collectively, “Losses”) to which such Person may become subject as a result of any breach of representation, warranty, covenant or agreement made by or to be performed on the part of the Company under the Transaction Documents, and will reimburse any such Person for all such amounts as they are incurred by such Person.

8.3 Conduct of Indemnification Proceedings. Promptly after receipt by any Person (the “Indemnified Person”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 8.2, such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the payment of all fees and expenses; provided, however, that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; or (ii) in the reasonable judgment of counsel to such Indemnified Person representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent, or if there be a final judgment for the plaintiff, the Company shall indemnify and hold harmless such Indemnified Person from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such proceeding.

9. Miscellaneous.

9.1 Successors and Assigns. This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Investors, as applicable, provided, however, that an Investor may assign its rights and delegate its duties hereunder in whole or in part to an Affiliate or to a third party acquiring some or all of its Securities in a private transaction without the prior written consent of the Company or the other Investors, after notice duly given by such Investor to the Company and the other Investors, provided, that no such assignment or obligation shall affect the obligations of such Investor hereunder and, provided further, that the right to designate a director set forth in Section 7.9 may not be delegated or assigned by SSF without the prior written consent of the Company. The provisions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended

to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

9.2 Counterparts; Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed via facsimile, which shall be deemed an original.

9.3 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

9.4 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier. All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ advance written notice to the other party:

If to the Company:

Unify Corporation

2101 Arena Blvd., Suite 100

Sacramento, CA 95834

Attention: : Pete DiCorti

Fax: 916-928-6408

With a copy to:

Gray Cary Ware & Freidenrich LLP

400 Capitol Mall, Suite 2400

Sacramento, CA 95814

Attention: Kevin A. Coyle, Esq.

Fax: 916-930-3201

If to the Investors:

to the addresses set forth on the signature pages hereto.

9.5 Expenses. The parties hereto shall pay their own costs and expenses in connection herewith, except that the Company shall pay the reasonable fees and expenses incurred by the Investors (including, but not limited to, legal fees and expenses), not to exceed $25,000. Such expenses shall be paid not later than the Closing. The Company shall reimburse the Investors upon demand for all reasonable out-of-pocket expenses incurred by the Investors, including without limitation reimbursement of attorneys’ fees and disbursements, in connection with any amendment, modification or waiver of this Agreement or the other Transaction Documents as may be requested by the Company. In the event that legal proceedings are commenced by any party to this Agreement against another party to this Agreement in connection with this Agreement or the other Transaction Documents, the party or parties which do not prevail in such proceedings shall severally, but not jointly, pay their pro rata share of the reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred by the prevailing party in such proceedings.

9.6 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding, each future holder of all such Securities, and the Company.

9.7 Publicity. Except as set forth below, no public release or announcement concerning the transactions contemplated hereby shall be issued by the Company or the Investors without the prior consent of the Company (in the case of a release or announcement by the Investors) or the Investors (in the case of a release or announcement by the Company) (which consents shall not be unreasonably withheld), except as such release or announcement may be required by law or the applicable rules or regulations of any securities exchange or securities market, in which case the Company or the Investors, as the case may be, shall allow the Investors or the Company, as applicable, to the extent reasonably practicable in the circumstances, reasonable time to comment on such release or announcement in advance of such issuance. By 8:30 a.m. (New York City time) on the trading day immediately following the Closing Date, the Company shall issue a press release disclosing the consummation of the transactions contemplated by this Agreement. No later than the third trading day following the Closing Date, the Company will file a Current Report on Form 8-K attaching the press release described in the foregoing sentence as well as copies of the Transaction Documents. In addition, the Company will make such other filings and notices in the manner and time required by the SEC. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Investor, or include the name of any Investor in any filing with the SEC (other than the Registration Statement and any exhibits to filings made in respect of this transaction in accordance with periodic filing requirements under the 1934 Act) or any regulatory agency or administrative body, without the prior written consent of such Investor, except to the extent such disclosure is required by law or trading market regulations, in which case the Company shall provide the Investors with prior notice of such disclosure.

9.8 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such

prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

9.9 Entire Agreement. This Agreement, including the Exhibits and the Disclosure Schedules, and the other Transaction Documents constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof.

9.10 Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

[signature page follows]

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.

The Company:	UNIFY CORPORATION


	By:
	Name:
	Title:

The Investors:	SPECIAL SITUATIONS FUND III, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

Aggregate Purchase Price: $1,649,969

Number of Shares: 2,323,900

Number of Warrants: 929,560

Address for Notice:

153 E. 53^rd Street

55^th Floor

New York, NY 10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attn: John D. Hogoboom, Esq.

Telephone: 973.597.2500

Facsimile: 973.597.2400

	SPECIAL SITUATIONS CAYMAN FUND, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

Aggregate Purchase Price: $550,037

Number of Shares: 774,700

Number of Warrants: 309,880

Address for Notice:

153 E. 53^rd Street

55^th Floor

New York, NY 10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attn: John D. Hogoboom, Esq.

Telephone: 973.597.2500

Facsimile: 973.597.2400

	SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

Aggregate Purchase Price: $900,067

Number of Shares: 1,267,700

Number of Warrants: 507,080

153 E. 53^rd Street

55^th Floor

New York, NY 10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attn: John D. Hogoboom, Esq.

Telephone: 973.597.2500

Facsimile: 973.597.2400

	SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

Aggregate Purchase Price: $150,023

Number of Shares: 211,300

Number of Warrants: 84,520

Address for Notice:

153 E. 53^rd Street

55^th Floor

New York, NY 10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attn: John D. Hogoboom, Esq.

Telephone: 973.597.2500

Facsimile: 973.597.2400

	SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

Aggregate Purchase Price: $749,973

Number of Shares: 1,056,300

Number of Warrants: 422,520

Address for Notice:

153 E. 53^rd Street

55^th Floor

New York, NY 10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attn: John D. Hogoboom, Esq.

Telephone: 973.597.2500

Facsimile: 973.597.2400

EX-10.12 5 a2140130zex-10_12.htm EXHIBIT 10.12

Exhibit 10.12

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the “Agreement”) is made and entered into as of this 26th day of April, 2004 by and among UNIFY CORPORATION, a Delaware corporation (the “Company”), and the “Investors” named in that certain Purchase Agreement by and among the Company and the Investors (the “Purchase Agreement”).

The parties hereby agree as follows:

1. Certain Definitions.

As used in this Agreement, the following terms shall have the following meanings:

“Affiliate” means, with respect to any person, any other person which directly or indirectly controls, is controlled by, or is under common control with, such person.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

“Common Stock” shall mean the Company’s common stock, par value $0.001 per share, and any securities into which such shares may hereinafter be reclassified.

“Investors” shall mean the Investors identified in the Purchase Agreement and any Affiliate or permitted transferee of any Investor who is a subsequent holder of any Warrants or Registrable Securities.

“Prospectus” shall mean the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus.

“Register,” “registered” and “registration” refer to a registration made by preparing and filing a Registration Statement or similar document in compliance with the 1933 Act (as defined below), and the declaration or ordering of effectiveness of such Registration Statement or document.

“Registrable Securities” shall mean the Shares and the shares of Common Stock issuable (i) upon the exercise of the Warrants, if any, and (ii) any other securities issued or issuable with respect to or in exchange for Registrable Securities; provided, that, a security shall cease to be a Registrable Security upon (A) sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible for sale by the Investors pursuant to Rule 144(k).

“Registration Statement” shall mean any registration statement of the Company filed under the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

“Required Investors” means the Investors holding a majority of the Registrable Securities.

“SEC” means the U.S. Securities and Exchange Commission.

“Shares” means the shares of Common Stock issued pursuant to the Purchase Agreement.

“1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Warrants” means, the warrants to purchase shares of Common Stock issued to the Investors pursuant to the Purchase Agreement, the form of which is attached to the Purchase Agreement as Exhibit A.

2. Registration.

(a) Registration Statements.

(i) Promptly following the closing of the purchase and sale of the securities contemplated by the Purchase Agreement (the “Closing Date”) and concurrent with the filing with the SEC by the Company of its Annual Report on Form 10-K for the fiscal year ended April 30, 2004, but no later July 31, 2004 (the “Filing Deadline”), the Company shall prepare and file with the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of the Registrable Securities, subject to the Required Investors’ consent), covering the resale of the Registrable Securities in an amount at least equal to the number of Shares plus the number of shares of Common Stock necessary to permit the exercise in full of the Warrants. Such Registration Statement shall include the plan of distribution attached hereto as Exhibit A. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. The Company shall use its reasonable best efforts to obtain from each person who now has piggyback registration rights a waiver of those rights with respect to the Registration Statement. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Investors and their counsel prior to its filing or other submission. If a Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, the Company will make pro rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to 1.0% of the aggregate amount invested by such Investor for each 30-day period (or pro rata for any portion thereof) following the date by which such Registration Statement should have been filed for which no Registration Statement is filed with respect to the Registrable Securities. Such payments shall be in partial compensation to the Investors, and shall not constitute the Investors’ exclusive remedy for such events. Such payments shall be made to each Investor in cash.

(ii) Additional Registrable Securities. Upon the written demand of any Investor and upon any change in the Warrant Price (as defined in the Warrant) such that additional shares of Common Stock become issuable upon the exercise of the Warrants, the Company shall prepare and file with the SEC one or more Registration Statements on Form S-3

or amend the Registration Statement filed pursuant to clause (i) above, if such Registration Statement has not previously been declared effective (or, if Form S-3 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of such additional shares of Common Stock (the “Additional Shares”), subject to the Required Investors’ consent) covering the resale of the Additional Shares, but only to the extent the Additional Shares are not at the time covered by an effective Registration Statement. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Additional Shares. The Company shall use its reasonable best efforts to obtain from each person who now has piggyback registration rights a waiver of those rights with respect to such Registration Statement. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Investors and their counsel prior to its filing or other submission. If a Registration Statement covering the Additional Shares is required to be filed under this Section 2(a)(ii) and is not filed with the SEC within ten Business Days of the request of any Investor or upon the occurrence of any of the events specified in this Section 2(a)(ii), the Company will make pro rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to 1.0% of the aggregate amount invested by such Investor for each 30-day period or pro rata for any portion thereof following the date by which such Registration Statement should have been filed for which no Registration Statement is filed with respect to the Additional Shares. Such payments shall be in partial compensation to the Investors, and shall not constitute the Investors’ exclusive remedy for such events. Such payments shall be made to each Investor in cash.

(b) Expenses. The Company will pay all expenses associated with each registration, including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated with clearing the Registrable Securities for sale under applicable state securities laws, listing fees, fees and expenses of one counsel to the Investors and the Investors’ reasonable expenses in connection with the registration, but excluding discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar securities industry professionals with respect to the Registrable Securities being sold.

(i) The Company shall use commercially reasonable efforts to have the Registration Statement declared effective as soon as practicable. The Company shall notify the Investors by facsimile or e-mail as promptly as practicable, and in any event, within twenty-four (24) hours, after any Registration Statement is declared effective and shall simultaneously provide the Investors with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby. If (A)(x) a Registration Statement covering the Registrable Securities is not declared effective by the SEC within seventy-five (75) days after the earlier of the date on which such Registration Statement is filed with the SEC and the Filing Deadline (the “Effectiveness Deadline”), or (y) a Registration Statement covering Additional Shares is not declared effective by the SEC within seventy-five (75) days following the time such Registration Statement was required to be filed pursuant to Section 2(a)(ii), or (B) after a Registration Statement has been declared effective by the SEC, sales cannot be made

pursuant to such Registration Statement for any reason (including without limitation by reason of a stop order, or the Company’s failure to update the Registration Statement), but excluding the inability of any Investor to sell the Registrable Securities covered thereby due to market conditions and except as excused pursuant to subparagraph (ii) below, then the Company will make pro rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to 1.0% of the aggregate amount invested by such Investor for each 30- day period or pro rata for any portion thereof following the date by which such Registration Statement should have been effective (the “Blackout Period”). Such payments shall be in partial compensation to the Investors, and shall not constitute the Investors’ exclusive remedy for such events. The amounts payable as liquidated damages pursuant to this paragraph shall be paid monthly within three (3) Business Days of the last day of each month following the commencement of the Blackout Period until the termination of the Blackout Period. Such payments shall be made to each Investor in cash.

(ii) For not more than twenty (20) consecutive days or for a total of not more than forty-five (45) days in any twelve (12) month period, the Company may delay the disclosure of material non-public information concerning the Company, by suspending the use of any Prospectus included in any registration contemplated by this Section containing such information, the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of the Company (an “Allowed Delay”); provided, that the Company shall promptly (a) notify the Investors in writing of the existence of (but in no event, without the prior written consent of an Investor, shall the Company disclose to such Investor any of the facts or circumstances regarding) material non-public information giving rise to an Allowed Delay, (b) advise the Investors in writing to cease all sales under the Registration Statement until the end of the Allowed Delay and (c) use commercially reasonable efforts to terminate an Allowed Delay as promptly as practicable.

(d) Underwritten Offering. If any offering pursuant to a Registration Statement pursuant to Section 2(a) hereof involves an underwritten offering, the Company shall have the right to select an investment banker and manager to administer the offering, which investment banker or manager shall be reasonably satisfactory to the Required Investors.

3. Company Obligations. The Company will use commercially reasonable efforts to effect the registration of the Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible:

(a) use commercially reasonable efforts to cause such Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities covered by such Registration Statement as amended from time to time, have been sold, and (ii) the date on which all Registrable Securities covered by such Registration Statement may be sold pursuant to Rule 144(k) (the “Effectiveness Period”) and advise the Investors in writing when the Effectiveness Period has expired;

(b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective for the period specified in Section 3(a) and to comply with the

provisions of the 1933 Act and the 1934 Act with respect to the distribution of all of the Registrable Securities covered thereby;

(c) provide copies to and permit counsel designated by the Investors to review each Registration Statement and all amendments and supplements thereto no fewer than seven (7) days prior to their filing with the SEC and not file any document to which such counsel reasonably objects;

(d) furnish to the Investors and their legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company (but not later than two (2) Business Days after the filing date, receipt date or sending date, as the case may be) one (1) copy of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as each Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor that are covered by the related Registration Statement;

(e) in the event the Company selects an underwriter for the offering, the Company shall enter into and perform its reasonable obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriter of such offering;

(f) if required by the underwriter, or if any Investor is described in the Registration Statement as an underwriter, the Company shall furnish, on the effective date of the Registration Statement (except with respect to clause (i) below) and on the date that Registrable Securities are delivered to an underwriter, if any, for sale in connection with the Registration Statement (including any Investor deemed to be an underwriter), (i) (A) in the case of an underwritten offering, an opinion, dated as of the closing date of the sale of Registrable Securities to the underwriters, from independent legal counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriters and the Investors participating in such underwritten offering or (B) in the case of an “at the market” offering, an opinion, dated as of or promptly after the effective date of the Registration Statement to the Investors, from independent legal counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in a public offering, addressed to the Investors, and (ii) a letter, dated as of the effective date of such Registration Statement and confirmed as of the applicable dates described above, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters (including any Investor deemed to be an underwriter);

(g) use commercially reasonable efforts to (i) prevent the issuance of any stop order or other suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such order at the earliest possible moment;

(h) prior to any public offering of Registrable Securities, use commercially reasonable efforts to register or qualify or cooperate with the Investors and their counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions requested by the Investors and do any and all other commercially reasonable acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(h), (ii) subject itself to general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 3(h), or (iii) file a general consent to service of process in any such jurisdiction;

(i) use commercially reasonable efforts to cause all Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed;

(j) immediately notify the Investors, at any time when a Prospectus relating to Registrable Securities is required to be delivered under the 1933 Act, upon discovery that, or upon the happening of any event as a result of which, the Prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and at the request of any such holder, promptly prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and

(k) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act, take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least twelve (12) months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act, including Rule 158 promulgated thereunder (for the purpose of this subsection 3(k), “Availability Date” means the 45th day following the end of the fourth fiscal quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth fiscal quarter).

(l) With a view to making available to the Investors the benefits of Rule 144 (or its successor rule) and any other rule or regulation of the SEC that may at any time permit the Investors to sell shares of Common Stock to the public without registration, the Company covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable Securities may be resold pursuant to Rule 144(k) or any other rule of similar effect or (B) such date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the 1934 Act; and (iii) furnish to each Investor upon request, as long as such Investor owns any Registrable Securities, (A) a written statement by the Company that it has complied with the reporting requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail such Investor of any rule or regulation of the SEC that permits the selling of any such Registrable Securities without registration.

4. Due Diligence Review; Information. The Company shall make available, during normal business hours, for inspection and review by the Investors, advisors to and representatives of the Investors (who may or may not be affiliated with the Investors and who are reasonably acceptable to the Company), any underwriter participating in any disposition of shares of Common Stock on behalf of the Investors pursuant to a Registration Statement or amendments or supplements thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Filings (as defined in the Purchase Agreement) and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company’s officers, directors and employees, within a reasonable time period, to supply all such information reasonably requested by the Investors or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investors and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of such Registration Statement.

The Company shall not disclose material nonpublic information to the Investors, or to advisors to or representatives of the Investors, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Investors, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review and any Investor wishing to obtain such information enters into an appropriate confidentiality agreement with the Company with respect thereto.

5. Obligations of the Investors.

(a) Each Investor shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and their qualification under applicable state securities laws, and shall execute such documents in connection with such registration, including

qualification under applicable state securities laws, as the Company may reasonably request. At least ten (10) Business Days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Investor of the information the Company requires from such Investor if such Investor elects to have any of the Registrable Securities included in the Registration Statement. An Investor shall use best efforts to provide such information to the Company promptly upon request if such Investor elects to have any of the Registrable Securities included in the Registration Statement. Each Investor shall comply at all times with all federal and state securities laws applicable to the distribution of the Registrable Securities by them.

(b) Each Investor, by its acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder, unless such Investor has notified the Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement.

(c) In the event the Company, at the request of the Investors, determines to engage the services of an underwriter, such Investor agrees to enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the dispositions of the Registrable Securities.

(d) Each Investor agrees that, upon receipt of any notice from the Company of either (i) the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event pursuant to Section 3(j) hereof, such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities, until the Investor’s receipt of the copies of the supplemented or amended prospectus filed with the SEC and until any related post-effective amendment is declared effective and, if so directed by the Company, the Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in the Investor’s possession of the Prospectus covering the Registrable Securities current at the time of receipt of such notice.

(e) No Investor may participate in any third party underwritten registration hereunder unless it (i) agrees to sell the Registrable Securities on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions. Notwithstanding the foregoing, no Investor shall be required to make any representations to such underwriter, other than those with respect to itself and the Registrable Securities owned by it, including its right to sell the Registrable Securities, and any indemnification in favor of the underwriter by the Investors shall be several and not joint and limited in the case of any Investor, to the proceeds received by such Investor from the sale of its Registrable Securities. The scope of any such indemnification in favor of an underwriter shall be limited to the same extent as the indemnity provided in Section 6(b) hereof.

6. Indemnification.

(a) Indemnification by the Company. The Company will indemnify and hold harmless each Investor and its officers, directors, members, employees and agents, successors and assigns, and each other person, if any, who controls such Investor within the meaning of the 1933 Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document or information herein called a “Blue Sky Application”); (iii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated under the 1933 Act applicable to the Company or its agents and relating to action or inaction required of the Company in connection with such registration; or (v) any failure to register or qualify the Registrable Securities included in any such Registration in any state where the Company or its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification on an Investor’s behalf (the undertaking of any underwriter chosen by the Company being attributed to the Company) and will reimburse such Investor, and each such officer, director or member and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Investor or any such controlling person in writing specifically for use in such Registration Statement or Prospectus.

(b) Indemnification by the Investors. In connection with any registration pursuant to the terms of this Agreement, each Investor will furnish to the Company in writing such information as the Company reasonably requests concerning the holders of Registrable Securities or the proposed manner of distribution for use in connection with any Registration Statement or Prospectus and agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney fees) resulting from (i) any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Investor to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto or (ii) any violation by such Investor of any rule or regulation promulgated under the 1933 Act applicable to such Investor and relating to action or inaction required of such Investor in connection with

the distribution of Registrable Securities by it. In no event shall the liability of an Investor be greater in amount than the dollar amount of the proceeds (net of all expense paid by such Investor in connection with any claim relating to this Section 6 and the amount of any damages such Investor has otherwise been required to pay by reason of such untrue statement or omission) received by such Investor upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.

(c) Conduct of Indemnification Proceedings. Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation.

(d) Contribution. If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 6 and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

7. Miscellaneous.

(a) Amendments and Waivers. This Agreement may be amended only by a writing signed by the Company and the Required Investors. The Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the Required Investors.

(b) Notices. All notices and other communications provided for or permitted hereunder shall be made as set forth in Section 9.4 of the Purchase Agreement.

(c) Assignments and Transfers by Investors. The provisions of this Agreement shall be binding upon and inure to the benefit of the Investors and their respective successors and assigns. An Investor may transfer or assign, in whole or from time to time in part, to one or more persons its rights hereunder in connection with the transfer of Registrable Securities by such Investor to such person, provided that such Investor complies with all laws applicable thereto and provides written notice of assignment to the Company promptly after such assignment is effected.

(d) Assignments and Transfers by the Company. This Agreement may not be assigned by the Company (whether by operation of law or otherwise) without the prior written consent of the Required Investors, provided, however, that the Company may assign its rights and delegate its duties hereunder to any surviving or successor corporation in connection with a merger or consolidation of the Company with another corporation, or a sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation, without the prior written consent of the Required Investors, after notice duly given by the Company to each Investor.

(e) Benefits of the Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(f) Counterparts; Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed via facsimile, which shall be deemed an original.

(g) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(h) Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted

by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provisions hereof prohibited or unenforceable in any respect.

(i) Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

(j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

(k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

[signature page follows]

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.

The Company:	UNIFY CORPORATION


	By:
	Name:
	Title:

[SIGNATURE PAGE FOLLOWS]

The Investors:	SPECIAL SITUATIONS FUND III, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

	SPECIAL SITUATIONS CAYMAN FUND, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

	SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

	SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

	SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.


	By:
	Name: Austin W. Marxe
	Title: General Partner

Exhibit A

Plan of Distribution

The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.

The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

- ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

- block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

- purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

- an exchange distribution in accordance with the rules of the applicable exchange;

- privately negotiated transactions;

- short sales;

- through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

- broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

- a combination of any such methods of sale; and

- any other method permitted pursuant to applicable law.

The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the

list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering. Upon any exercise of the warrants by payment of cash, however, we will receive the exercise price of the warrants.

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.

The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or

qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which the shares may be sold pursuant to Rule 144(k) of the Securities Act.

EX-10.13 6 a2140130zex-10_13.htm EXHIBIT 10.13

Exhibit 10.13

January 8, 2002

FOURTH AMENDMENT TO OFFICE BUILDING LEASE DATED
DECEMBER 17, 1999 BY AND BETWEEN THE CAMBAY GROUP
INC., A CALIFORNIA CORPORATION, AS LANDLORD AND
UNIFY CORPORATION, AS TENANT.

This lease shall be hereby amended as follows:

In lieu of paragraph 42 of the lease referenced above, effective January 1, 2002 Tenant Improvements totaling $105,000.00 will be amortized over the remainder of the lease at a rate of 10% resulting in a current increase in the cost per square foot of rentable area from $1.60 to $1.65. Current rent will increase from $60,990.00 to $62,896.35

The balance of the lease payments will be as follows:

Months 1-2	Free of Rent
Months 3-6	$1.55 per rsf/mo., fully serviced	$	59,084.45
Months 7-13	$1.60 per rsf/mo., fully serviced	$	60,990.00
Months 14-18	$1.65 per rsf/mo., fully serviced	$	62,896.35
Months 19-30	$1.71 per rsf/mo., fully serviced	$	65,183.49
Months 31-42	$1.77 per rsf/mo., fully serviced	$	67,470.63
Months 43-54	$1.83 per rsf/mo., fully serviced	$	69,757.77
Months 55-66	$1.89 per rsf/mo., fully serviced	$	72,044.91
Months 67-78	$1.95 per rsf/mo., fully serviced	$	74,332.05
Months 79-90	$2.01 per rsf/mo., fully serviced	$	76,619.19

AGREED AND ACCEPTED

Landlord: The Cambay Group, Inc.

By:		Date: 1-31-02
	William C. Scott
	CFO

Tenant: Unify Corporation

By:		Date: 1-10-02
	David Adams
	CFO

EX-10.14 7 a2140130zex-10_14.htm EXHIBIT 10.14

Exhibit 10.14

FIFTH AMENDMENT TO LEASE

AND

TERMINATION OF STOCK PLEDGE AGREEMENT

THIS FIFTH AMENDMENT TO LEASE AND TERMINATION OF STOCK PLEDGE AGREEMENT (“Amendment”) is executed as of the 18^th day of September, 2003, between THE CAMBAY GROUP, INC., a California corporation (“Landlord”), and UNIFY CORPORATION, a Delaware corporation (“Tenant”).

RECITALS

A. Landlord and Tenant entered into that certain Office Building Lease, dated December 17, 1999 (as amended by that certain First Amendment to Office Building Lease (the “First Amendment”), that certain Second Amendment to Office Building Lease dated March 10, 2000 (the “Second Amendment”), that certain Third Amendment to Office Building Lease dated as of August 30, 2000 (the “Third Amendment”), and that certain Fourth Amendment to Office Building Lease dated January 8, 2002 (the “Fourth Amendment”), collectively, the “Lease”), pursuant to which Tenant leased from Landlord the premises located at 2143 Arena Boulevard in Sacramento, California and more particularly depicted in Exhibit B attached to the Lease (the “Property”). Landlord and Tenant presently desire to amend the Lease pursuant to the terms and conditions set forth below.

B. Landlord and Tenant entered into that certain Stock Pledge Agreement, dated as of June 13, 2001 (the “Stock Pledge Agreement”). Landlord and Tenant presently desire to terminate the Stock Pledge Agreement pursuant to the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows:

1. Security Deposit. Addendum 50 as set forth in the Third Amendment is hereby deleted, and the following inserted in its place: “Tenant shall deliver to Landlord, as security for the full and faithful performance of Tenant’s obligations under the Lease, a security deposit (“Security Deposit”) in the total amount of Seventy Five Thousand and No/100 Dollars ($75,000.00) in cash, which will be provided in nine equal monthly installments of Eight Thousand Three Hundred Thirty Three and 33/100 Dollars ($8,333.33) each on the first day of each calendar month from October 1, 2003 through and including June 1, 2004. The Security Deposit shall be returned to Tenant upon satisfaction of the following:

A. Tenant achieves a net annual income equal to four (4) times the annual rent, as provided in this Lease, and

B. Tenant’s net worth as a company is Four Million Dollars ($4,000,000) above the stated net worth, that shall be established upon completion of the current audit.”

2. Termination of Stock Pledge Agreement. Effective immediately upon Landlord’s receipt of the entire Security Deposit (i.e., all nine (9) installments) in accordance with Section 1 of

this Fifth Amendment, the Stock Pledge Agreement shall automatically terminate without further action of Landlord or Tenant, and thereafter neither party shall have any further rights or obligations thereunder.

3. Effect of Amendment. Except as expressly modified by this Amendment, the Lease shall continue in full force and effect according to its terms, and the parties hereby ratify and affirm all their respective rights and obligations under the Lease. In the event of any conflict between this Amendment and the Lease, this Amendment shall govern.

4. Counterparts. This Amendment may be executed in counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute the same document.

IN WITNESS WHEREOF, the parties hereto have executed this document as of the date and year first above written.

Landlord:					Tenant:

THE CAMBAY GROUP, INC.					UNIFY CORPORATION
a California corporation					a corporation

By:					By:
Name:					Name:
Its:					Its:

EX-14 8 a2140130zex-14.htm EXHIBIT 14

Exhibit 14

UNIFY CORPORATION

CODE OF ETHICS FOR SENIOR OFFICERS

I. Application

The Code of Ethics for Senior Officers (the “Senior Officers”) shall apply to the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), Corporate Vice Presidents, controller and such other personnel as are designated from time to time by the Audit Committee of the Board of Directors. Every employee of the Company, however, is expected to be aware of the provisions of this Code, including the procedures for internal reporting of violations discussed in Section 7 below.

II. Honest and Ethical Conduct

All Senior Officers shall perform their duties in an honest and ethical manner. They shall handle all actual or apparent conflicts of interest between their personal and professional relationships in an ethical manner.

All Senior Officers should avoid situations in which their personal, family or financial interests conflict or even appear to conflict with those of the Company. Senior Officers may not engage in activities that compete with the Company or compromise its interests. No Senior Officer should take for his or her own benefit any opportunity discovered in the course of employment that the Senior Officer has reason to know would benefit the Company.

The following are examples of actual or potential conflicts:

• a Senior Officer, or a member of his or her family, receives improper personal benefits from another person or entity as a result of his or her position in the Company;

• a Senior Officer uses Company property for the personal benefit of the Senior Officer or a member of his or her own family;

• a Senior Officer engages in activities that interfere with his or her loyalty to the Company or his or her ability to perform Company duties or responsibilities effectively;

• a Senior Officer works simultaneously (whether as an employee, a director or a consultant) for a competitor, customer or supplier;

• a Senior Officer, or a member of his or her family, has a financial interest in a customer, supplier, or competitor which is significant enough to cause divided loyalty with the Company or the appearance of divided loyalty (the significance of a financial interest depends on many factors, such as size of investment in relation to the Senior Officer’s income, net worth and/or financial needs, the Senior Officer’s potential to influence decisions that could impact the Senior Officer’s interests, and the nature of the business or level of competition between the Company and the supplier, customer or competitor);

• a Senior Officer, or a member of his or her family, acquires an interest in property (such as real estate, patent or other intellectual property rights or securities) in which the Senior Officer has reason to know the Company has, or might have, a legitimate interest;

• a Senior Officer, or a member of his or her family, receives a loan or a guarantee of a loan from a customer, supplier or competitor;

• a Senior Officer divulges or uses the Company’s confidential information – such as financial data, customer information, or computer programs – for the personal benefit of the Senior Officer or a member of his or her family;

• a Senior Officer makes gifts or payments, or provides special favors, to customers, suppliers or competitors (or their immediate family members) with a value significant enough to cause the customer, supplier or competitor to make a purchase, or take or forego other action, which is beneficial to the Company and which the customer, supplier or competitor would not otherwise have taken; or

• a Senior Officer is given the right to buy stock in other companies or receives cash or other payments in return for promoting the services of an advisor, such as an investment banker, to the Company.

If a Senior Officer becomes aware of a conflict of interest, of any material transaction or relationship that reasonably could be expected to give rise to a conflict of interest, or has a question as to a potential conflict of interest, the Senior Officer must consult with the Chair of the Audit Committee and/or follow the procedures described in Section 7 below. If a Senior Officer becomes involved in a situation that gives rise to an actual conflict of interest, the Senior Officer must inform the Chair of the Audit Committee of such conflict.

III. Compliance with Governmental Laws, Rules and Regulations; Compliance with Established Accounting Procedures and Controls

Each Senior Officer shall comply with all applicable governmental laws, rules and regulations, including the rules relating to disclosure in reports and documents that the Company files with, or submits to, the SEC.

Senior Officers will, at all times, take all necessary steps to ensure compliance with established accounting procedures, the Company’s system of internal controls and generally accepted accounting principles. Senior Officers will ensure that the Company makes and keeps books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company. Senior Officers will also ensure that the Company devises and maintains a system of internal accounting controls sufficient to provide reasonable assurances that:

• transactions are executed in accordance with management’s general or specific authorization;

• transactions are recorded as necessary (a) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (b) to maintain accountability for assets;

• access to assets is permitted only in accordance with management’s general or specific authorization; and

• the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

Any attempt to enter inaccurate or fraudulent information into the Company’s accounting system will not be tolerated and will result in disciplinary action, up to and including termination of employment.

IV. Full, Fair, Accurate, Timely and Understandable Disclosure

Senior Officers shall take all necessary steps to ensure that all disclosure in reports and documents that the Company files with, or submits to, the SEC, and in other public communications made by the Company is full, fair, accurate, timely and understandable. The CEO and CFO are responsible for designing, establishing, maintaining, reviewing and evaluating on a quarterly basis the effectiveness of the Company’s disclosure controls and procedures (as such term is defined by applicable SEC rules). The Company’s other Senior Officers shall assist the CEO and CFO with these responsibilities.

V. Changes or Waivers in the Code of Ethics for Senior Officers

Any change to or waiver of this Code of Ethics for Senior Officers shall require approval of the Audit Committee and shall be disclosed within five (5) days of such action (a) on the Company’s website for a period of not less than twelve months, or (b) in a filing on Form 8-K with the Securities and Exchange Commission. The Company must also retain such disclosure for not less than five (5) years.

VI. Internal Reporting of Violations

The Company’s efforts to ensure observance of, and adherence to, the goals and policies outlined in this Code of Ethics for Senior Officers mandate that employees of the Company, including each of the Senior Officers, bring any instance, occurrence or practice that they, in good faith, believe is inconsistent with or in violation of this Code to the attention of the Chair of the Audit Committee or if the employee wishes to report any such matters anonymously then may do so as follows:

Mail a description of the suspected violation or other complaint or concern to:

Steve Whiteman, Audit Committee Chair

12308 N. 119^th Street

Scottsdale, AZ 85259

Call toll free 1-800-GO-UNIFY (ext. 6386) to our Audit/Ethics Compliance Hotline.

A. Use Common Sense and Good Judgment; Act in Good Faith

Every employee of the Company, including each of the Senior Officers, is expected to become familiar with and to understand the requirements of the Code of Ethics for Senior Officers. Employees who become aware of a suspected violation should not attempt to investigate it or resolve it on their own. Prompt disclosure to the appropriate parties is vital to ensuring a thorough and timely investigation and resolution. A violation of this Code is a serious matter and could have legal implications. Allegations of such behavior are not taken lightly and should not be made to embarrass someone or put him or her in a false light. Reports of suspected violations should always be made in good faith.

B. Internal Investigation

When an alleged violation of the Code of Ethics for Senior Officers is reported, the Company shall take prompt and appropriate action in accordance with the law and regulations and otherwise consistent with good business practice. If the suspected violation appears to involve either a potentially criminal act or an issue of significant corporate interest, then the investigator should immediately notify the Chair of the Audit Committee. The Chair of the Audit Committee shall assess the situation and determine the appropriate course of action. As part of this process, a Senior Officer who is suspected of a violation shall be apprised of the alleged violation and shall have an opportunity to provide a response. All actions or investigations in response to a violation shall be documented, as appropriate.

C. No Fear of Retaliation

It is Company policy that there be no intentional retaliation against any person who provides truthful information to a Company or law enforcement official concerning a possible violation of any law, regulation or Company policy, including the Code of Ethics for Senior Officers. Persons who retaliate may be subject to civil, criminal and administrative penalties, as well as disciplinary action, up to and including termination of employment. In cases in which an employee reports a suspected violation in good faith and does not appear to be engaged in the questionable conduct, the Company will attempt to keep its discussions and actions concerning the report confidential to the greatest extent possible. In the course of its investigation, the Company may find it necessary to share information with others on a “need to know” basis. No retaliation shall be taken against employees for reporting alleged violations while acting in good faith.

VII. Consequences for Non-Compliance with the Code of Ethics for Senior Officers

A. Disciplinary Actions

The Audit Committee shall be responsible for determining and implementing the appropriate disciplinary action for any violation of the Code of Ethics for Senior Officers. Any violation of applicable law or any deviation from the standards

embodied in this Code will result in disciplinary action, up to and including termination of employment. A Senior Officer who is found to have engaged in illegal or unethical conduct shall be removed from his or her position and not assigned to any other position involving the exercise of substantial discretionary authority. In addition to imposing discipline upon Senior Officers involved in non-compliant conduct, the Company also will impose discipline, as appropriate, upon a Senior Officer’s supervisor, if any, who directs or approves such Senior Officer’s improper actions, or is aware of those actions but does not act appropriately to correct them, and upon other individuals who fail to report known non-compliant conduct. Disciplinary action shall be documented, as appropriate. In addition to imposing its own discipline, the Company will bring suspected violations of law to the attention of appropriate law enforcement personnel.

B. Required Government Reporting

Whenever conduct occurs that requires a report to the government, the Audit Committee shall be responsible for complying with such reporting requirements.

C. Corrective Actions

In the event of a violation of the Code of Ethics for Senior Officers, the Audit Committee will assess the situation to determine whether the violation demonstrates a problem that requires remedial action as to Company policies and procedures. Such corrective action may include retraining Company employees, modifying Company policies and procedures, improving monitoring of compliance under existing procedures and other action necessary to detect similar non-compliant conduct and prevent it from occurring in the future. Such corrective action shall be documented, as appropriate.

EX-23.1 9 a2140130zex-23_1.htm EXHIBIT 23.1
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Exhibit 23.1

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-13203, 333-61705, 333-71814, 333-92973, and 333-98633) of Unify Corporation of our report dated June 3, 2004, with respect to the 2003 and 2004 consolidated financial statements of Unify Corporation included in the Annual Report (Form 10-K) for the year ended April 30, 2004.

/s/ Ernst & Young LLP

Sacramento, California
July 19, 2004

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Exhibit 23.1

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
EX-23.2 10 a2140130zex-23_2.htm EXHIBIT 23.2
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Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-13203, 333-61705, 333-71814, 333-92973, and 333-98633 of Unify Corporation (Company) on Form S-8 of our report dated May 23, 2002, related to the consolidated financial statements and financial statement schedule for the year ended April 30, 2002 (which report expresses an unqualified opinion and contains an explanatory paragraph relating to substantial doubt about the Company's ability to continue as a going concern) appearing in this Annual Report on Form 10-K of Unify Corporation for the year ended April 30, 2004.

DELOITTE & TOUCHE LLP

San Jose, California
July 19, 2004

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Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-31.1 11 a2140130zex-31_1.htm EXHIBIT 31.1
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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Todd E. Wille, Chief Executive Officer of Unify Corporation, certify that:

1.

I have reviewed this annual report on Form 10-K of Unify Corporation ("registrant");

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

(a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:

(a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: July 21, 2004

/s/ TODD E. WILLE

Todd E. Wille
Chairman, President and Chief Executive Officer

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EX-31.2 12 a2140130zex-31_2.htm EXHIBIT 31.2
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Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter J. DiCorti, Chief Financial Officer of Unify Corporation, certify that:

1.

I have reviewed this annual report on Form 10-K of Unify Corporation ("registrant");

2.

3.

4.

(a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

(a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: July 21, 2004

/s/ PETER J. DICORTI

Peter J. DiCorti
Chief Financial Officer

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Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EX-32.1 13 a2140130zex-32_1.htm EXHIBIT 32.1
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Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Unify Corporation (the "Company") for the fiscal year ended April 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Todd E. Wille, Chairman, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ("Section 906"), that, to the best of my knowledge:

(1): The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2): The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

July 21, 2004

/s/ TODD E. WILLE

Todd E. Wille
Chairman, President and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies this Report pursuant to Section 906 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EX-32.2 14 a2140130zex-32_2.htm EXHIBIT 32.2
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Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Unify Corporation (the "Company") for the fiscal year ended April 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter J. DiCorti, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ("Section 906"), that, to the best of my knowledge:

(1): The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2): The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

July 21, 2004

/s/ PETER J. DICORTI

Peter J. DiCorti
Chief Financial Officer

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Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002