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, 2003
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 the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act):    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 30, 2003 as reported on over the counter market was approximately $8,300,870 ($0.39 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 30, 2003, the Registrant had 21,284,283 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 2003 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, 2003.

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 Corporation (the "Company", "we", "us" or "our") is a global provider of software product solutions that help companies deliver robust and reliable Web and business applications in less time, at a lower cost and with significantly reduced maintenance. Companies use our products to simplify and automate the delivery of business applications to increase revenue, enrich customer relationships and enhance operational effectiveness.

Founded in 1980, our mission is to deliver product solutions for companies seeking business advantages through Web applications. We offer companies the best of building a custom application and buying a packaged application—flexibility, speed to market and reduced total cost of ownership. Management believes the flagship product, Unify NXJ™, is a solution that makes it easy and cost-effective for companies to extend their business applications to the Web using the Java 2 Enterprise Edition ("J2EE") platform. Our application development systems for host-based and client/server applications and relational database management systems help companies build and deploy reliable, flexible, mission critical applications that integrate into existing systems and use industry standard technologies such as Windows, UNIX, Linux and Java.

Our products have been adopted in a variety of industries, including healthcare, finance, telecommunications, retail, manufacturing, insurance and government. We have more than 2,000 active customers including software value added resellers ("VARs") and independent software vendors ("ISVs") who sell business applications into vertical markets, corporate information technology ("IT") departments and solutions integrators ("SIs"). We market and sell products through our web site at www.unify.com, directly in the United States, United Kingdom ("UK") and France, and indirectly through worldwide distributors, VARs, ISVs and SIs. Our customers include AT&T, bioMèrieux, Boeing, Bureau of Land Management, Credit Lyonnais, Citigroup, Fannie Mae, Federal Express, Fuji Electric, General Dynamics, GlaxoSmithKline, Lexis/Nexis, Reuters, Sescoi, Triple G Systems Group and Wells Fargo Bank.

We are headquartered in Sacramento, California and have sales and support offices in the UK and France. The principal geographic markets for our products are in the Americas, Europe, Japan, Asia Pacific and Australia.

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Industry Background

Staying competitive in today's business climate requires a new level of speed, efficiency and insight. Companies' requirements to increase revenue, enrich customer relationships and enhance operational effectiveness are placing new demands on Web applications.

IT organizations are being required to extend existing business systems with the next generation of enterprise Web applications offering an increased level of new services, richer interaction, and integration with the physical operations and additional channels of the organization.

As the pace of business accelerates, companies are using Web applications to drive down costs by automating interactions and bringing online information and services to more customers, partners and employees. Today, business viability is dependent upon a company's strategic ability to fundamentally lower the cost of transactions while, at the same time, servicing an increasing number of interactions and creating processes whereby users can directly access the product or information.

Additionally, as Java goes mainstream, more IT organizations are using the J2EE platform to extend their existing systems to the Web. However, building highly interactive, event-driven business systems in J2EE is very difficult, especially for many of today's IT organizations.

To address this growing market need for reliable Web applications that can be easily created by an existing IT organization, Unify recently delivered Unify NXJ, a product solution for delivering J2EE business applications on the Web.

Unify NXJ simplifies and speeds the creation and management of Web applications by providing 70 percent of the application functions and logic necessary for a reliable and robust Web application. This allows companies to simply add business rules, customize the user interface to the corporate standards and automatically deploy the Web application.

Unify NXJ's pre-built application functionality and framework allow IT organizations to easily change and maintain the deployed Web application.

Products

Unify provides leading product solutions for rapidly developing, deploying and maintaining business applications for Web, host-based, graphical and client/server, and relational database management systems.

Business Web Application Product Solution:

 Unify NXJ is a business application platform that enables companies to develop and manage business applications for the Web in less time, at a lower cost and with significantly reduced maintenance. Unify NXJ simplifies and speeds the creation and management of business Web applications by providing 70 percent of the application functions and logic necessary for a reliable and robust Web application. Unify NXJ dramatically transforms the economics, speed and responsiveness of organizations by substantially reducing the time and cost to deliver rich, interactive applications in J2EE.

Unify NXJ was released during the third quarter of fiscal 2003. It's targeted at organizations that plan to adopt Java for mission critical applications and leverage open, standards based technology with write-once, cross-platform portability to generate savings and simplified management. 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 business application developers who are required to extend existing applications—such as order entry, purchase order or customer service—to the Web, without losing the highly interactive capabilities of the current process.

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Unify NXJ enables all developers to work with the J2EE platform 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, transaction driven applications that run in a highly interactive Web environment.

Rapid Application Development Product Solutions:

 Unify markets a set of UNIX- and Linux application development tools under the ACCELL brand name. These development tools facilitate the flexible, yet cost-effective development of mission-critical, host-based applications through tight integration of fourth generation programming language ("4GL") and optimized database features. 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.

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ACCELL/Web™—quickly transforms existing ACCELL/SQL applications into fully featured graphical Web-browser based applications without the requirement for any source code modifications.



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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.



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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:

 Our family of database management products supports all major UNIX, Linux, and Microsoft Windows platforms and is marketed under the DataServer® brand.

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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.



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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.

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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 2003, 2002 or 2001.

Our customers include AT&T, bioMèrieux, BMW Lease BV, Boeing, Bureau of Land Management, Business Console Limited, Canon, Citigroup, Contractors Warehouse, Credit Lyonnais, Fannie Mae, Federal Express, Fuji Electric Co., Ltd, General Dynamics, GlaxoSmithKline, GMAC Lease BV, Grolier Inc., Lexis/Nexis, Linea Informatica S.R.L., Medstat Group, Mitsubishi Denki Co., Ltd., National Australia Bank, NEC, Nortel Networks, Inc., Oregon Department of Agriculture, 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, Triple G Systems Group Inc., and Wells Fargo Bank.

Sales, Marketing and Distribution

Unify's products and 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 the Company's sales, support and consulting resources to provide complete solutions to our customers.

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

We market our products internationally through subsidiaries in the UK and France, and through distributors in Asia Pacific, Australia, Europe, India, Japan, Latin America, Russia and South Africa. International revenues accounted for 54%, 63% and 57% of total revenues in fiscal 2003, 2002, and 2001 respectively.

As of April 30, 2003, we had 23 employees engaged in sales and marketing activities, 16 in North America and 7 in Europe.

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

 Unify provides customer support via telephone, Web, e-mail and fax from its support centers located in Sacramento, California, the UK and France. 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 customers have renewed their annual support contracts.

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Consulting

 Unify offers a full range of consulting services to deliver business application solutions that help companies maximize return on investment and get to market quickly. Consulting services include: Web-enabling applications, technology/knowledge transfer, application architecture audits, database tuning, client server and Internet 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; London, England; and Paris, France. We also offer on-site training at customer facilities.

As of April 30, 2003, we had a total of 10 employees engaged in providing professional services, 7 in support and 3 in consulting and training. Of those employees, 7 were located in the United States and 3 were located in Europe.

Product Development

Historically, Unify has been a product development and technology focused company, having made substantial investments in research and development over the past several years. Our product development expenditures for fiscal 2003, 2002, and 2001, were $4.1 million, $4.1 million, and $4.9 million, respectively, representing approximately 34%, 30% and 34% of total revenues for those periods. Our continued investment in research and development allowed us to build and deliver our latest flagship product, Unify NXJ, as well as to provide improvements in existing products. Most of our current software products have been developed internally; however, we have acquired certain software components from third parties in the past and we expect to do so again in the future. We are committed to delivering products that meet customer and market needs in future periods.

Our product development activities are conducted at the Sacramento, California headquarters facility. As of April 30, 2003, we had a total of 28 employees in product development, including 22 software development engineers. On June 18, 2003, we eliminated 12 research and development 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 have 15 employees in product development including 10 software development engineers.

Competition

The market for Web application product solutions is intensely competitive, subject to rapid change and significantly affected by new product introductions and other activities of market participants. The Company has experienced and expects to continue to experience competition from current and future competitors, particularly as companies enter the Web application development markets, and especially for the J2EE platform. Competitors to Unify include BEA Systems, ("BEA"), Borland Software Corp. ("Borland"), International Business Machines ("IBM"), Oracle Corporation ("Oracle"), and Sybase in addition to companies such as M7 and Versata.

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.

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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 compete favorably with respect to competitive factors including, 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 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, other intellectual property rights or any notices that we are 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 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.

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Employees

As of April 30, 2003, we had a total of 75 employees, including 28 in product development, 20 in sales and marketing, 13 in support, consulting, and training, and 14 in finance, information systems, operations and general administration. Of these employees, 63 were located in the United States and 12 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	40	Chairman, President and Chief Executive Officer
Pete DiCorti	52	Vice President, Finance & Administration and Chief Financial Officer
Jim Kanir	44	Vice President, Worldwide Sales & Marketing
Frank Verardi	54	Vice President, Technical Services
Dave Glende	43	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. 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.

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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 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.

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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 subject to intense competition.

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

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 Web application development market, and new products and technologies are introduced to the market. 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."

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.

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

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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 its 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 that began in 2001 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 2002 and 2001, 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. During fiscal 2003, management resolved all lawsuits relating to the special investigation, addressed issues resulting from resizing the organization, continued to aggressively market ACCELL/Web to existing customers and completed development of a new strategic flagship product (Unify NXJ). In fiscal 2004, the Company plans to make strategic investments in sales and marketing, including hiring additional field sales representatives and sales support engineers, to drive revenue growth and market acceptance of Unify NXJ. There is no assurance that management's plans will be successful. If required, the Company's 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 the Company's short-term or long-term capital requirements, the Company will be required to significantly reduce its operations.

Our products are subject to a lengthy sales cycle.

Our products are used to develop business 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

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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.

We are dependent on acceptance of our new 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 and momentum 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 J2EE 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.

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 we will be successful in marketing Unify NXJ 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 54%, 64% and 50% of our software license revenues with the remainder from end users, for fiscal 2003, 2002 and 2001, respectively. Our success therefore depends in part upon the performance of our indirect sales

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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 54%, 63% and 57% of our total revenues, with the remainder from the United States, in fiscal 2003, 2002 and 2001, 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. Although we have had international operations for a number of years, there can be no assurance that we will be able to successfully market, sell and deliver our products in these markets. In addition to the uncertainty as to our ability to expand our international presence, there are certain risks inherent in doing business on an international level, such as: unexpected changes in regulatory requirements; export restrictions, tariffs and other trade barriers; difficulties in staffing and managing foreign operations; longer payment cycles; problems in collecting accounts receivable; political instability; fluctuations in currency exchange rates; seasonal reductions in business activity during the summer months in Europe and other parts of the world; 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 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.

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Our success is dependent upon the retention of key personnel.

Unify's success depends largely on the efforts and abilities of certain key personnel. The loss of the services of any of the Company's executive officers or the inability to attract and retain additional senior management could have an adverse effect on our business, operating results, and financial condition. The loss of other management and/or key personnel could also have an adverse effect on our business, operating results, and financial condition. See "Business—Employees."

Our success also depends in large part upon our ability to attract and retain qualified employees, particularly highly skilled engineering, sales and support personnel. The competition for such employees can be intense. There can be no assurance that we will be successful in attracting or retaining key personnel. Any failure by the Company to attract and retain engineering, direct sales and support personnel would adversely affect our business, operating results, and financial condition. See "Business—Employees."

Rapid growth may significantly strain the resources of the Company.

Unify's potential expansion may significantly strain management, financial, customer support, operational and other resources. If we achieve successful market acceptance of our current and future products, we may undergo a period of rapid growth. To accommodate this growth, we are continuing to implement a variety of new and upgraded operating and financial systems, procedures and controls, including the improvement of its 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 or that competition will not independently develop similar technology.

Although there are no pending lawsuits against us regarding infringement of any existing patents or other intellectual property rights or any notices that we are infringing the intellectual property rights of others, there can be no assurance that such infringement claims will not be asserted by third parties in

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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 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 officers; 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 coverage and are subject to greater price volatility than those trading on 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 2003 and 2002, we subleased 1,530 and 10,159 square feet, respectively that were not required for operations. We collected sublease income of approximately $15,000 each in fiscal 2003 and 2002. As of June 30, 2003, we no longer have a sublet tenant. 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

 Class Action and Derivative Litigation:    In April 2002, the Company settled the consolidated class actions, the individual institutional investor actions and the consolidated derivative actions which were brought against Unify and certain of the Company's present and former directors and officers. The settlement, which does not constitute any admission of wrongdoing on the part of Unify or the individuals named as defendants, provided that all defendants pay a total of $5.0 million including attorney fees for class action, derivative and individual action plaintiffs, of which the amounts to be paid by the Company were paid by the Company's insurance carrier. The settlement agreement has been approved by the courts in which these actions were pending and the actions have been dismissed.

 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

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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. The Company understands that the SEC's action against the former officers is continuing.

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 in that action is presently set for September 15, 2003. 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 either matter.

 Insurance Litigation:    In May 2001, a lawsuit was brought in the United States District Court for the Northern District of California against the Company and certain of its present and former officers and directors by an insurance carrier which issued Unify a directors and officers liability and reimbursement excess policy. The action, which sought reformation and rescission of the policy, was dismissed by the Court at the request of the insurance company on February 3, 2003.

The Company is subject to legal proceedings and claims that arise in the normal course of business. 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, 2003, there are 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 2003.

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PART II

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

Market Information for Common Stock

During the first half of fiscal 2003, Unify's common stock was traded on the over-the-counter market on the "pink sheets" under the symbol UNFY. In November 2002, the stock became listed on the Over-The-Counter Bulletin Board (OTC 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 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
Fiscal 2002
Fourth Quarter	$	0.90	$	0.28
Third Quarter		0.40		0.05
Second Quarter		0.50		0.20
First Quarter		0.40		0.10

Common Stockholders of Record

At May 30, 2003, there were approximately 266 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.

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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,
				2003			2002			2001			2000			1999
				(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues:
	Software licenses			$	5,895		$	7,303		$	7,229		$	12,576		$	19,768
	Services				6,278			6,297			7,074			8,475			9,680
		Total revenues			12,173			13,600			14,303			21,051			29,448
Cost of revenues:
	Software licenses				263			498			662			1,342			849
	Services				1,133			1,442			3,085			4,037			4,404
		Total cost of revenues			1,396			1,940			3,747			5,379			5,253
Gross profit					10,777			11,660			10,556			15,672			24,195
Operating expenses:
	Product development				4,108			4,099			4,912			6,696			5,928
	Selling, general and administrative				6,523			6,016			10,697			16,835			14,463
	Write-down of other investments				200			1,300			3,650			—			—
	Special charges (recovery)				(132	)		(1,276	)		3,356			—			—
	Total operating expenses				10,699			10,139			22,615			23,531			20,391
		Income (loss) from operations			78			1,521			(12,059	)		(7,859	)		3,804
Other income (expense), net					3			36			(213	)		367			304
		Income (loss) before income taxes			81			1,557			(12,272	)		(7,492	)		4,108
Provision (benefit) for income taxes					(38	)		(10	)		59			192			231
			Net income (loss)	$	119		$	1,567		$	(12,331	)	$	(7,684	)	$	3,877
Net income (loss) per share:
	Basic			$	0.01		$	0.08		$	(0.65	)	$	(0.42	)	$	0.23
	Diluted			$	0.01		$	0.08		$	(0.65	)	$	(0.42	)	$	0.21
Shares used in computing net income (loss) per share:
	Basic				20,939			20,232			18,979			18,127			17,110
	Diluted				21,693			20,779			18,979			18,127			18,102

	April 30,
	2003		2002		2001			2000		1999
	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments	$	3,030	$	2,993	$	3,084		$	11,076	$	11,269
Restricted cash		—		—		118			118		118
Working capital (deficit)		658		65		(3,929	)		5,835		12,336
Total assets		6,675		7,717		9,344			21,792		22,951
Long-term debt, net of current portion		—		200		—			—		—
Total stockholders' equity (deficit)		1,509		971		(1,202	)		10,286		13,945

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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 software product solutions that help companies deliver robust and reliable Web and business applications in less time, at a lower cost and with significantly reduced maintenance. We have a customer base of over 2,000 organizations worldwide that use our solutions to deliver applications that enhance revenue opportunities, improve operational effectiveness, and enrich customer relationships. Our customers are leaders in their respective industries including, healthcare, financial services, government and manufacturing among others.

The Company's flagship product, Unify NXJ, was launched in October 2002 and continues to gain traction in the Web application market. Management believes Unify NXJ is a product solution for delivering business applications for the Web in less time, at a lower cost and with significantly reduced maintenance. Unify NXJ simplifies and speeds the building and management of Web applications by providing 70 percent of the application functions and logic necessary for a robust Web application. This allows IT organizations to simply add business rules, customize the user interface to the corporate standards and quickly deliver a data rich Web application.

For the past 23 years, Unify has provided application development and database management product solutions to organizations worldwide. Unify's rapid application development product line, ACCELL, graphical client/server application development product, VISION, and database management product family, DataServer, enable IT organizations to rapid develop and deliver business applications critical to the enterprise. We help companies solve business and IT challenges by providing a broad range of application development product solutions that are easy to use and cost-effective.

Over the past five years the Company has adjusted to significant changes in its market. At $12.2 million, fiscal 2003 revenue was approximately 41% of what it was in fiscal 1999 when companies were spending heavily to modernize their business applications, adopt distributed computing and early Web enabled capabilities as well as prepare for Y2K compliance. Beginning in fiscal 2000, the Company experienced weakening demand for new licenses of its 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 J2EE technologies

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developed by Sun Microsystems will be the favored platform by our target market of small to medium sized companies, especially by those who wish to migrate legacy systems to modern technologies. As a result, our recently released Unify NXJ was designed to make it easier for programmers without deep understanding of complex J2EE protocols to become quickly effective at building and deploying applications implementing its leading edge capabilities.

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 2003 and 2002 were approximately half of what they were in fiscal 1999 and we have been modestly profitable in both years. Other important but somewhat less prominent adjustments have been made and are expected to continue to be made in order to maintain and increase profitability. 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 and marketing driven organization. Additionally, a new $1.5 million credit facility (see Note 14 to the financial statements, regarding a credit line from Silicon Valley Bank) was announced in June 2003, providing the Company additional working capital to implement a growth strategy.

Unify has been adversely affected by the poor economic environment in recent years but it has also suffered significantly as the result of the improper accounting practices that were disclosed by our Board of Directors in fiscal 2001 (July 2000). The discovery led to the restatement of financial results for fiscal years 1999 and 2000. It also caused considerable disruption and costs in the form of management changes, management time, investigations, legal claims and shaken confidence in the Company from customers, investors and employees.

All known claims against Unify have been settled. Furthermore, our management team responded to the special challenges presented by this problem by leading the Company, our customers and employees through this recovery process focused on our future prospects and strengths, while implementing changes to our cost structure and internal control systems. The improper accounting practices and related misstatements made by former Unify executives had a significant adverse impact on the Company, but the matter has been fully addressed and resolved with all the regulatory authorities. As stated, all known civil claims have been settled. In addition, we believe our leadership and internal controls have been strengthened.

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, training services 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 effected by Statement of Position 98-4 "Deferral of the Effective Date of a

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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 an undelivered element, maintenance and support. The value allocated to the undelivered element is unbundled from the delivered element based on vendor-specific objective evidence (VSOE) of the relative fair value of the maintenance and support, 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.

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.

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.

 Valuation of long-lived assets.    Our long-lived assets are comprised of long-term investments. At April 30, 2003, we had $392,000 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 other-than-temporary, we recognize an impairment loss in the current period operating results to the extent of the decline. We recognized $200,000 in impairment losses related to long-term investments in fiscal 2003. 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, 2003, we have approximately $18.6 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

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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,
	2003		2002		2001
Revenues:
Software licenses	48.4	%	53.7	%	50.5	%
Services	51.6		46.3		49.5
Total revenues	100.0		100.0		100.0
Cost of revenues:
Software licenses	2.2		3.7		4.6
Services	9.3		10.6		21.6
Total cost of revenues	11.5		14.3		26.2
Gross profit	88.5		85.7		73.8
Operating expenses:
Product development	33.7		30.1		34.3
Selling, general and administrative	53.6		44.2		74.8
Write-down of other investments	1.6		9.6		25.5
Special charges (recovery)	(1.0	)	(9.4	)	23.5
Total operating expenses	87.9		74.5		158.1
Income (loss) from operations	0.6		11.2		(84.3	)
Other income, net	0.1		0.2		(1.5	)
Income (loss) before income taxes	0.7		11.4		(85.8	)
Provision (benefit) for income taxes	(0.3	)	(0.1	)	0.4
Net income (loss)	1.0		11.5		(86.2	)

Total Revenues

 The Company generates revenue from software license sales and related services, including maintenance and support, training services 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 54%, 64% and 50% of our software license revenues, with the remainder from end users, for fiscal 2003, 2002 and 2001, 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 web applications for the J2EE platform, 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

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general acceptance of the Java programming language, 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 2003 were $12.2 million, a decrease of 10% or $1.4 million from fiscal 2002 revenues of $13.6 million. While total revenues fell by 10%, revenues from support services remained essentially constant. As a result, the dollar decline was primarily due to the decrease in software license revenues.

In fiscal 2003, we renewed approximately 75% of our maintenance agreements. Consulting revenues for fiscal 2003 increased to $0.7 million from $0.4 million in fiscal 2002. Maintenance revenues for fiscal 2003 decreased to $5.6 million from $5.8 million in fiscal 2002. Although there were minor year-to-year changes in the consulting and maintenance revenues mix, the total services revenue for fiscal years 2003 and fiscal 2002 remained constant at $6.3 million.

Our software license revenues decreased $1.4 million or 19% to $5.9 million in fiscal 2003 from $7.3 million in fiscal 2002. Software license revenues in North America increased 36% to $2.9 million, which represented an increase as a percent of total software license revenues from 29% to 49% in fiscal 2002 and 2003, respectively. Outside North America software license revenues decreased as a percentage of total revenues from 71% to 51% during fiscal 2003, compared to fiscal 2002. These decreases in software license revenues outside North America reflect continuing restrictions in corporate information technology spending and continued economic weakness in Japan and Europe. Sales of Unify NXJ, which only became available in the second half of fiscal 2003, were not strong enough to offset the decline in software license revenues from our existing products. In fiscal 2002, our software license revenues increased 1% to $7.3 million from $7.2 million in fiscal 2001. The increase in software license revenues in fiscal 2002 was the result of the introduction of ACCELL/Web, new releases of the ACCELL, DataServer and VISION products and the stabilization of the U.S. sales team.

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 54%, 63% and 57% of total revenues, with the remainder from the United States, in fiscal years 2003, 2002 and 2001, respectively.

Cost of Revenues

 Cost of Software Licenses.    Cost of software licenses consists primarily of product packaging and production costs as well as royalties paid for licensed technology. Cost of software licenses was $0.3 million for fiscal year 2003, $0.5 million for fiscal 2002 and $0.7 million in fiscal 2001. Costs associated with royalties and other direct production costs are incurred at the time of the sale, while the software license revenue may be recognized in different periods, depending on the terms of the contract.

 Cost of Services.    Cost of services consists primarily of employee, facilities and travel costs incurred in providing customer support under software maintenance contracts and consulting and training services. Total cost of services in fiscal 2003 decreased 21% to $1.1 million from $1.4 million in fiscal 2002 and $3.1 million in fiscal 2001. The decrease in fiscal 2003 from fiscal 2002 was the result of the liquidation of the Company's Japanese subsidiary and the reduction in the use of outsourced contract labor for consulting engagements. In fiscal 2002, the Company experienced decreases in consulting revenues, which reduced the Company's requirement for outside contractors therefore reducing overall consulting costs from fiscal 2001. The cost of services generally has a high component of fixed costs and therefore does not fluctuate readily with changes in services revenues. Our cost of services as a percent of services revenues in fiscal 2003 was 18% as compared to 23% in fiscal 2002 and 44% in fiscal 2001. We continue to evaluate the efficiency of our support, consulting and training operations and plan to

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expand our expertise in J2EE application development in fiscal 2004 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 when additional consulting personnel are hired and when they become fully productive, our results of operations may be adversely affected by the expansion of consulting services.

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 $4.1 million in both fiscal 2003 and 2002, down 16% from the $4.9 million spent in fiscal 2001. The decrease in fiscal 2002 was primarily the result of a reduction in the work force in October 2000 and the elimination of most contract programmers. Product development costs as a percentage of total revenues were 34% in fiscal 2003, 30% in fiscal 2002 and 34% in fiscal 2001.

 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 $6.5 million for 2003, $6.0 million for 2002 and $10.7 million for 2001. As a percentage of total revenue, SG&A expenses were 54% in fiscal 2003, 44% in fiscal 2002 and 75% in fiscal 2001. The major components of SG&A for fiscal 2003 were sales expenses of $3.5 million, marketing expenses of $0.7 million, and general and administrative expenses of $2.3 million. General and administrative expenses include bad debt provisions and recoveries. Sales expenses decreased $0.2 million from fiscal 2002 as a result of the liquidation of the Company's Japanese subsidiary. Marketing expenses increased $0.2 million during the same period as we funded the launch of our new product, Unify NXJ. General and administrative expenses increased by $0.2 million fiscal 2003 compared to fiscal 2002, primarily as a result of the normal fluctuations that occur throughout the Company's operating year. Bad debt recoveries declined by $0.3 million during fiscal 2003 compared to fiscal 2002. In fiscal 2002 SG&A expenses decreased $4.7 million due to a reduction in the work force in fiscal 2001, the reduction of travel expenses and other overall cost containment programs.

 Write-down of Other Investments.    We continue to periodically review the recorded value of our investments. In fiscal 2003, as a result of continued weakness in the software development industry, we reduced the collective carrying value of our investment in Arrango Software International, Inc. and in Evergreen Internet, Inc from $0.6 million to $0.4 million resulting in a $0.2 million non-cash impairment charge. During fiscal 2002, we recorded an impairment charge of $1.3 million related to this same asset group. 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 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. As a result of this financial reporting investigation, Unify incurred special charges related to the investigation itself, legal expenses, additional auditing costs and other litigation related costs of $3.4 million for fiscal 2001. However, during fiscal 2002, we recorded a recovery of special charges of $1.3 million, due primarily to 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.

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 Other Income.    Other income, net consists primarily of foreign exchange gains and losses, interest earned by the Company on our cash, cash equivalents and short-term investments net of interest expense on long-term debt and gains or losses on the liquidation of our assets, including the dissolution of the Japan subsidiary. Other income (expense) was $3,000, $36,000, and ($213,000) in 2003, 2002, and 2001, respectively.

 Provision for Income Taxes.    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 carryforwards and no federal or state tax provisions were recorded for fiscal 2001 due to the Company's net losses. The 2002 and 2001 tax provisions relate primarily to foreign withholding on software license royalties paid to the Company by certain licensees. At April 30, 2003, we had net operating losses for federal tax purposes of approximately $41,780,000.

Liquidity and Capital Resources

At April 30, 2003, the Company had cash, cash equivalents and short-term investments of $3.0 million, compared to $3.0 million at April 30, 2002. Working capital increased by $0.6 million to $0.7 million at April 30, 2003 from $0.1 million at April 30, 2002.

On June 6, 2003, in the first quarter of fiscal 2004, we negotiated a $1.5 million line of credit from Silicon Valley Bank (see Note 14 in footnotes to Consolidated Financial Statements). The line is secured by qualifying accounts receivable, foreign and domestic, and has a one-year term. The Company will incur interest expense on funds used at the prevailing prime rate, not to be less than 4.25% per annum, plus two percent. The Company also agreed to issue 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.

We currently believe that existing cash ($3 million as of April 30, 2003), forecasted operating cash flows for fiscal year 2004, and the new credit facility agreement entered into by the Company, will provide us with sufficient working capital for us to meet our operating plan for fiscal year 2004. The operating plan assumes normal operations for the Company, capital expenditures of approximately $250,000 and interest and principal payments on debt. The Company believes it can generate additional funds by reducing working capital requirements, cost reduction initiatives beyond those already included in the operating plan, asset sales and payment negotiations with various customers and vendors or a combination thereof.

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 marketed to the installed base.

In fiscal 2004, we plan to make 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 $1.5 million secured line of credit obtained from Silicon Valley Bank in June 2003, the first quarter of fiscal 2004, will be adequate to meet our needs over the next twelve months (see Note 14 in footnotes to Consolidated Financial Statements). Our borrowing capacity under this line of credit may be adversely impacted, should revenues not grow sufficiently, which generate receivables that qualify for the line of credit's borrowing base. Our ability to obtain new or 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 our stockholders. If adequate funds are not available to satisfy our short-term or long-term capital requirements, we will be required to significantly reduce operations.

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 Operating Cash Flows.    In fiscal 2003, we had positive cash flows from operations totaling $0.4 million for fiscal 2003. This represented a favorable departure from fiscal 2002 and 2001 where negative cash flows from operations were $0.4 million and $6.0 million, respectively. The positive operating cash flow for fiscal 2003 principally resulted from $0.1 million in net profit, a $1.1 million decrease in amounts owed by customers, 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 our Japan subsidiary, 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 Unify Japan of $0.1 million and depreciation of $0.4 million. The negative operating cash flows for fiscal 2001 resulted from a net loss of $12.3 million, a decrease in deferred revenues of $1.5 million and a decrease in accrued compensation and related expenses of $0.4 million, partially offset by a decrease in accounts receivable of $2.3 million, the write down of other investments of $3.7 million, depreciation of $0.9 million, $0.8 million increase in accounts payable, $0.2 million decrease in prepaid expenses and $0.4 million increase in other accrued liabilities.

 Investing Cash Flows.    Net cash and cash equivalents used by investing activities approximated $0.2 million for fiscal 2003. Net cash and cash equivalents provided by investing activities approximated $0.2 million in fiscal 2002 and $0.8 million in fiscal 2001. The change in fiscal 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. Net cash provided by investing activities of $0.8 million in fiscal 2001 consisted primarily of $3.7 million in sales from available for sale securities partially offset by the net increase in other investments of $2.1 million which represents $2.2 million additional investment in Evergreen Internet Inc. less the sale of the iChatterbox investment for $0.1 million. The remaining offset to fiscal 2001 investing activities was the result of the sale of other assets and property and equipment purchases.

 Financing Cash Flows.    Cash used in financing activities was $0.4 million in fiscal 2003, $0.1 million in fiscal 2002, as compared to cash provided by financing activities of $0.7 million in fiscal 2001. 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 principle 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. Cash provided by financing activities in fiscal 2001 of $0.7 million was provided from stock option exercises and purchases under the employee stock purchase plan of $0.6 million and an increase in note payable to minority interest stockholders of $0.1 million.

Recently Issued Accounting Standards

In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" ("Statement 145"). Statement 145 updates, clarifies and simplifies existing accounting pronouncements. Statement 145 rescinds Statement of Financial Accounting Standards No. 4 ("Statement 4"), which

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required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30 will now be used to classify those gains and losses because Statement 4 has been rescinded. Statement 145 amends Statement of Financial Accounting Standards No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar accounting treatment for transactions that have similar economic effects. Statement 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The Company adopted the provisions of Statement 145 for fiscal 2003, which did not result in a material impact to our financial position, cash flows or results of operations.

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("Statement 146"). Statement 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("Issue 94-3"). The principal difference between Statement 146 and Issue 94-3 relates to Statement 146's requirements for recognition of a liability for a cost associated with an exit or disposal activity. Statement 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. A fundamental conclusion reached by the FASB in Statement 146 is that an entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, Statement 146 eliminates the definition and requirements for recognition of exit costs in Issue 94-3. Statement 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of Statement 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company adopted the provisions of Statement 146 for fiscal 2003, which did not result in a material impact to our financial position, cash flows or results of operations.

In November 2002, the EITF reached a consensus on Issue 00-21, "Multiple-Deliverable Revenue Arrangements" ("EITF 00-21"). EITF 00-21 addresses how to account for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. The consensus mandates how to identify whether goods or services or both that are to be delivered separately in a bundled sales arrangement should be accounted for separately because they are "separate units of accounting." The guidance can affect the timing of revenue recognition for such arrangements, even though it does not change rules governing the timing or pattern of revenue recognition of individual items accounted for separately. The final consensus will be applicable to agreements entered into in fiscal years beginning after June 15, 2003 with early adoption permitted. Additionally, companies will be permitted to apply the consensus guidance to all existing arrangements as the cumulative effect of a change in accounting principle in accordance with APB Opinion No. 20, Accounting Changes. The Company does not expect the adoption of EITF 00-21 will have a material impact on our financial position, cash flows or results of operations.

In November 2002, the FASB issued Interpretation Number 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for interim and annual periods after December 15, 2002 and the Company has adopted those requirements for the financial statements included in this Form 10-K. The initial recognition and initial

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measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The Company adopted the provisions of FIN 45 for fiscal 2003, which did not result in a material impact to our financial position, cash flows or results of operations.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("Statement 148"). Statement 148 amends Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("Statement 123") and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure requirements of FAS 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of Statement 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company adopted the disclosure provisions of Statement 148 for fiscal 2003, which did not result in a material impact to our financial position, cash flows or results of operations.

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, that functions to support the activities of the Primary Beneficiary. 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 June 15, 2003, for variable interest entities created prior to February 1, 2003. The Company currently has no contractual relationship or other business relationship with a VIE. The Company does not expect the adoption of FIN 46 will have a material impact on our financial position, cash flows or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (Statement 149), Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 is intended to result in more consistent reporting of contracts as either freestanding derivative instruments subject to Statement 133 in its entirely, or as hybrid instruments with debt host contracts and embedded derivative features. Statement 149 is effective for contracts entered into or modified after June 30, 2003. The Company does not expect the adoption of Statement 149 will have a material impact on our financial position, cash flows or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (Statement 150), Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Statement 150 requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. Many of these instruments previously were classified as equity or temporary equity and as such, Statement 150 represents a significant change in practice in the accounting for a number of mandatory redeemable equity instruments and certain equity derivatives that frequently are used in connection with share repurchase programs. Statement 150 is effective for all financial instruments created or modified after May 31, 2003, and to other instruments at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of Statement 150 will have a material impact on our financial position, cash flows or results of operations.

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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 $3.0 million at April 30, 2003. Unify had no short-term investments at April 30 in fiscal 2003 or 2002. In fiscal 2001, the securities in the Company's investment portfolio were generally classified as available for sale and, consequently, are recorded on the consolidated balance sheet at fair value with unrealized gains or losses reported as a separate component of stockholders' equity. 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, 2003, the Company had $0.1 million in such receivables denominated in Euros. 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 Item 14(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 years ended April 30, 2002 and 2001, D&T's reports on our financial

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statements did not contain an adverse opinion or a disclaimer of opinion, and were not qualified as to audit scope or accounting principles. These reports contained an explanatory paragraph with respect to uncertainties that raised substantial doubt as to our ability to continue as a going concern. During those two fiscal years 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 reports.

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 years ended April 30, 2002 and 2001, and during the subsequent period through December 20, 2002, we did not consult with E&Y on any accounting or auditing issues.

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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 2003 Annual Meeting of Stockholders (the "2003 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 2003 Annual Meeting of Stockholders and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is included under the caption "Executive Compensation and Other Matters" in the Company's proxy statement for the 2003 Annual Meeting of Stockholders and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is included under the caption "Executive Compensation and Other Matters" in the Company's proxy statement for the 2003 Annual Meeting of Stockholders and is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such controls.

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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 Auditors	37
Report of Deloitte & Touche LLP, Independent Auditors	38
Consolidated Balance Sheets as of April 30, 2003 and 2002	39
Consolidated Statements of Operations for the years ended April 30, 2003, 2002 and 2001	40
Consolidated Statements of Stockholders' Equity for the years ended April 30, 2003, 2002 and 2001	41
Consolidated Statements of Cash Flows for the years ended April 30, 2003, 2002 and 2001	42
Notes to Consolidated Financial Statements	43

2.

Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts 62

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 17, 2003, announcing the Company's financial results for its fourth fiscal quarter and year ended April 30, 2003.

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(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)
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)
10.5		Joint Venture Agreement, dated September 3, 1990, as amended, by and among the Registrant, Unify Japan Corporation, Sumitomo Metals Industries, Ltd. and Artificial Intelligence Research (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
21.1		Subsidiaries of the Registrant (1)
23.1		Consent of Ernst & Young LLP, Independent Auditors
23.2		Consent of Deloitte & Touche LLP, Independent Auditors
99.1		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.
99.2		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.

*

Exhibit pertains to a management contract or compensatory plan or arrangement.

33

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 17, 2003

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 17, 2003
/s/  PETER J. DICORTI Peter J. DiCorti	Chief Financial Officer (Principal Financial and Accounting Officer)	July 17, 2003
/s/  JACK R. CORRIE Jack R. Corrie	Director	July 17, 2003
/s/  KURT M. GARBE Kurt M. Garbe	Director	July 17, 2003
/s/  TERY R. LARREW Tery R. Larrew	Director	July 17, 2003
/s/  STEVEN D. WHITEMAN Steven D. Whiteman	Director	July 17, 2003

34

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002

I, Todd E. Wille, certify that:

1.

I have reviewed this annual report on Form 10-K of Unify Corporation ("registrant");

2.

Based on my knowledge, this annual 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 annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures 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 annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: July 17, 2003

/s/  TODD E. WILLE Todd E. Wille
Chairman, President and Chief Executive Officer

35

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002

I, Peter J. DiCorti, certify that:

1.

I have reviewed this annual report on Form 10-K of Unify Corporation ("registrant");

2.

Based on my knowledge, this annual 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 annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures 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 annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: July 17, 2003

/s/  PETER J. DICORTI Peter J. DiCorti
Chief Financial Officer

36

Report of Ernst & Young LLP, Independent Auditors

To the Board of Directors and Stockholders of
Unify Corporation:

We have audited the accompanying consolidated balance sheet of Unify Corporation as of April 30, 2003, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 15(a) 2 for the year ended April 30, 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 audit. The financial statements of Unify Corporation for the years ended April 30, 2002 and 2001 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 auditing standards generally accepted in the 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 audit provides 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, 2003, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the year ended April 30, 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
May 29, 2003,
except for Note 14,
as to which the date is June 6, 2003

37

Report of Deloitte & Touche LLP, Independent Auditors

To the Stockholders and Board of Directors of Unify Corporation:

We have audited the accompanying consolidated balance sheet of Unify Corporation and subsidiaries (the "Company") as of April 30, 2002, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended April 30, 2002 and 2001. Our audits also included the Company's financial statement schedule listed in Item 15(a) 2 for the years ended April 30, 2002 and 2001. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Unify Corporation and subsidiaries as of April 30, 2002, and the results of their operations and their cash flows for the years ended April 30, 2002 and 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule for the years ended April 30, 2002 and 2001, 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

38

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

			April 30, 2003			April 30, 2002
ASSETS
Current assets:
	Cash and cash equivalents		$	3,030		$	2,993
	Accounts receivable, net of allowances of $252 in 2003, and $318 in 2002			2,504			3,279
	Prepaid expenses and other current assets			290			339
		Total current assets		5,824			6,611
Property and equipment, net				345			396
Other investments				392			589
Other assets				114			121
		Total assets	$	6,675		$	7,717
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	556		$	626
	Current portion of long term debt			200			240
	Other accrued liabilities			822			1,372
	Accrued compensation and related expenses			652			689
	Payable to minority interest stockholders			—			291
	Deferred revenue			2,936			3,328
		Total current liabilities		5,166			6,546
Long term debt				—			200
Commitments and contingencies (Note 13)
Stockholders' equity:
	Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding in 2003 and 2002			—			—
	Common stock, $0.001 par value; 40,000,000 shares authorized; 21,166,016 and 20,338,663 shares outstanding in 2003 and 2002			21			20
	Additional paid-in capital			59,339			59,088
	Note receivable from stockholder			(60	)		(60	)
	Accumulated other comprehensive loss			(43	)		(210	)
	Accumulated deficit			(57,748	)		(57,867	)
		Total stockholders' equity		1,509			971
		Total liabilities and stockholders' equity	$	6,675		$	7,717

See accompanying notes

39

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

			Years Ended April 30,
			2003			2002			2001
Revenues:
	Software licenses		$	5,895		$	7,303		$	7,229
	Services			6,278			6,297			7,074
		Total revenues		12,173			13,600			14,303
Cost of revenues:
	Software licenses			263			498			662
	Services			1,133			1,442			3,085
		Total cost of revenues		1,396			1,940			3,747
Gross profit				10,777			11,660			10,556
Operating expenses:
	Product development			4,108			4,099			4,912
	Selling, general and administrative			6,523			6,016			10,697
	Write-down of other investments			200			1,300			3,650
	Special charges (recovery)			(132	)		(1,276	)		3,356
		Total operating expenses		10,699			10,139			22,615
		Income (loss) from operations		78			1,521			(12,059	)
Other income (expense), net				3			36			(213	)
		Income (loss) before income taxes		81			1,557			(12,272	)
Provision (benefit) for income taxes				(38	)		(10	)		59
		Net income (loss)	$	119		$	1,567		$	(12,331	)
Net income (loss) per share:
	Basic		$	0.01		$	0.08		$	(0.65	)
	Diluted		$	0.01		$	0.08		$	(0.65	)
Shares used in computing net income (loss) per share:
	Basic			20,939			20,232			18,979
	Diluted			21,693			20,779			18,979

See accompanying notes.

40

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

			Common Stock					Note Receivable from Stockholder			Accumulated Other Comprehensive Income (loss)
						Additional Paid-In Capital								Accumulated Deficit			Total Stockholders' Equity (deficit)			Comprehensive Income (Loss)
			Shares	Amount
Balances at April 30, 2000			18,745,079	$	18	$	58,263	$	—		$	(892	)	$	(47,103	)	$	10,286
Comprehensive loss:
	Net loss		—		—		—		—			—			(12,331	)		(12,331	)	$	(12,331	)
	Translation adjustments		—		—		—		—			202			—			202			202
		Unrealized holding gains arising during period	—		—		—		—			39			—			39			39
	Total comprehensive loss																			$	(12,090	)
Exercise of stock options			733,554		—		352		—			—			—			352
Issuance of common stock under employee stock purchase plan			125,915		—		310		—			—			—			310
Note receivable from stockholder			—		—		—		(60	)		—			—			(60	)
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

See accompanying notes.

41

UNIFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

				Years Ended April 30,
				2003			2002			2001
Cash flows from operating activities:
	Net income (loss)			$	119		$	1,567		$	(12,331	)
	Reconciliation of net income (loss) to cash provided by (used in) operating activities:
		Depreciation			233			365			881
		Write-down of other investments			200			1,300			3,650
		Elimination of cumulative translation adjustments upon liquidation of Unify Japan			—			139			—
		Stock-based compensation			130			4			—
		Changes in operating assets and liabilities:
			Accounts receivable		1,092			(455	)		2,294
			Prepaid expenses and other current assets		66			206			212
			Accounts payable		(79	)		(1,250	)		777
			Accrued compensation and related expenses		(79	)		(321	)		(359	)
			Other accrued liabilities		(632	)		(1,533	)		370
			Deferred revenue		(608	)		(401	)		(1,533	)
Net cash provided by (used in) operating activities					442			(379	)		(6,039	)
Cash flows from investing activities:
	Purchases of available-for-sale securities				—			—			(100	)
	Maturities/sale of available-for-sale securities				—			121			3,669
	Decrease in restricted cash				—			75			—
	Purchases of property and equipment				(178	)		(38	)		(605	)
	Other investments (increase) decrease				(3	)		(39	)		(2,130	)
	(Increase) decrease in other assets				15			107			(55	)
Net cash provided by investing activities					(166	)		226			779
Cash flows from financing activities:
	Proceeds from issuance of common stock, net				122			161			602
	Principal payments under debt obligations				(240	)		(60	)		—
	Payable to minority interest stockholders				(309	)		(222	)		135
Net cash provided by (used in) financing activities					(427	)		(121	)		737
Effect of exchange rate changes on cash					188			283			100
Net increase (decrease) in cash and cash equivalents					37			9			(4,423	)
Cash and cash equivalents, beginning of year					2,993			2,984			7,407
Cash and cash equivalents, end of year				$	3,030		$	2,993		$	2,984
Supplemental noncash investing and financing activities:
	Loan to stockholder on common stock issued			$	—		$	—		$	60
	Conversion of other accrued liabilities to long-term debt			$	—		$	500		$	—
Supplemental cash flow information:
	Cash paid (received) during the year for:
		Interest		$	3		$	18		$	6
		Income taxes		$	(52	)	$	(286	)	$	17

See accompanying notes

42

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 software product solutions that help companies deliver robust and reliable Web and business applications in less time, at a lower cost and with significantly reduced maintenance. Companies use Unify products to simplify and automate the delivery of business applications to increase revenue, enrich customer relationships and enhance operational effectiveness.

Founded in 1980, the Company's product lines include a relational database management system, application development systems for host-based and client/server applications and, recently, a product solution for delivering business applications on the Web using the Java 2 Enterprise Edition ("J2EE") platform, Unify NXJ. The Company's application development systems for host-based and client/server applications and relational database management systems help companies build and deploy applications that integrate into existing systems and use industry standard technologies such as Windows, UNIX, Linux and Java.

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 and France.

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 and 2001 to the minority interest shareholders 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 and recorded in other comprehensive income.

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

43

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.

Management currently believes that existing cash ($3 million as of April 30, 2003), forecasted operating cash flows for fiscal year 2004, and the new credit facility agreement entered into by the Company (Note 14), will provide the Company with sufficient working capital for it to meet its operating plan for fiscal year 2004. The operating plan assumes normal operations for the Company, capital expenditures of approximately $250,000 and interest and principal payments on debt. The Company believes it can generate additional funds by reducing working capital requirements, cost reduction initiatives beyond those already included in the operating plan, asset sales and payment negotiations with various customers and vendors or a combination thereof.

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, certificates of deposit, money market funds, and corporate debt securities.

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, 2003, 2002 and 2001. 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, indirect sales channels (ISVs, VARs, distributors and other partners outside the U.S.) accounted for 54%, 63% and 57% of total revenues, with the remainder from the United States, in fiscal years 2003, 2002 and 2001, respectively.

Other Investments

 The Company carries other investments at cost, subject to evaluation for impairment (Note 4).

44

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 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 as well as the strategic significance of any intangible asset in the Company's business objectives.

Revenue Recognition

 The Company generates revenue from software license sales and related services, including maintenance and support, training services 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 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." 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 an undelivered element, maintenance and support. The value allocated to the undelivered element is unbundled from the delivered element based on vendor-specific objective evidence (VSOE) of the relative fair value of the maintenance and support, 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

45

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.

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 financial condition via credit agencies and historical experience with the customer. The on-going credit worthiness of a customer may impact the Company's evaluation of accounts receivable in any given period.

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 professional services are recognized as the services are performed.

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, 70% in fiscal 2003, 118% in fiscal 2002 and 139% in fiscal 2001; risk-free interest rates, 2.1% in fiscal 2003, 4.0% in fiscal 2002 and 5.7% in fiscal 2001; 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. If the computed fair values of the Company's stock-based awards had been amortized to expense over the vesting period of the awards, pro forma net loss would have been $270,000 or $0.01 loss per basic and diluted share in fiscal 2003

46

while pro forma net earnings would have been $1,154,000 or $0.06 per basic and diluted share in fiscal 2002 and pro forma net loss of $12,827,000 or $0.68 loss per basic and diluted share in fiscal 2001.

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 2001 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, and unrealized translation gains and losses on available for sale securities for fiscal 2002 and 2001.

Segment Reporting

 For fiscal 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 and 2001, there were three reportable segments, Americas, Europe and Japan. At the end of fiscal 2002, the Company sold the assets of its Japan subsidiary to a new company in which it has less than a 15% ownership interest. 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 April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" ("Statement 145"). Statement 145 updates, clarifies and simplifies existing accounting pronouncements. Statement 145 rescinds Statement of Financial Accounting Standards No. 4 ("Statement 4"), which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30 will now be used to classify those gains and losses because Statement 4 has been rescinded. Statement 145 amends Statement of Financial Accounting Standards No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be

47

accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar accounting treatment for transactions that have similar economic effects. Statement 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The Company adopted the provisions of Statement 145 for fiscal 2003, which did not result in a material impact to our financial position, cash flows or results of operations.

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("Statement 146"). Statement 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("Issue 94-3"). The principal difference between Statement 146 and Issue 94-3 relates to Statement 146's requirements for recognition of a liability for a cost associated with an exit or disposal activity. Statement 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. A fundamental conclusion reached by the FASB in Statement 146 is that an entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, Statement 146 eliminates the definition and requirements for recognition of exit costs in Issue 94-3. Statement 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of Statement 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company adopted the provisions of Statement 146 for fiscal 2003, which did not result in a material impact to our financial position, cash flows or results of operations.

In November 2002, the EITF reached a consensus on Issue 00-21, "Multiple-Deliverable Revenue Arrangements" ("EITF 00-21"). EITF 00-21 addresses how to account for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. The consensus mandates how to identify whether goods or services or both that are to be delivered separately in a bundled sales arrangement should be accounted for separately because they are "separate units of accounting." The guidance can affect the timing of revenue recognition for such arrangements, even though it does not change rules governing the timing or pattern of revenue recognition of individual items accounted for separately. The final consensus will be applicable to agreements entered into in fiscal years beginning after June 15, 2003 with early adoption permitted. Additionally, companies will be permitted to apply the consensus guidance to all existing arrangements as the cumulative effect of a change in accounting principle in accordance with APB Opinion No. 20, Accounting Changes. The Company does not expect the adoption of EITF 00-21 will have a material impact on our financial position, cash flows or results of operations.

In November 2002, the FASB issued Interpretation Number 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for interim and annual periods after December 15, 2002 and the Company has adopted those requirements for the financial statements included in this Form 10-K. The initial recognition and initial measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The Company adopted the measurement and recognition provisions of FIN

48

45 for fiscal 2003, which did not result in a material impact to our financial position, cash flows or results of operations.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("Statement 148"). Statement 148 amends Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("Statement 123") and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure requirements of FAS 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of Statement 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company adopted the disclosure provisions of Statement 148 for fiscal 2003, which did not result in a material impact to our financial position, cash flows or results of operations.

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, that functions to support the activities of the Primary Beneficiary. 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 June 15, 2003, for variable interest entities created prior to February 1, 2003. The Company currently has no contractual relationship or other business relationship with a VIE. The Company does not expect the adoption of FIN 46 will have a material impact on our financial position, cash flows or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (Statement 149), Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 is intended to result in more consistent reporting of contracts as either freestanding derivative instruments subject to Statement 133 in its entirely, or as hybrid instruments with debt host contracts and embedded derivative features. Statement 149 is effective for contracts entered into or modified after June 30, 2003. The Company does not expect the adoption of Statement 149 will have a material impact on our financial position, cash flows or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (Statement 150), Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Statement 150 requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. Many of these instruments previously were classified as equity or temporary equity and as such, Statement 150 represents a significant change in practice in the accounting for a number of mandatory redeemable equity instruments and certain equity derivatives that frequently are used in connection with share repurchase programs. Statement 150 is effective for all financial instruments created or modified after May 31, 2003, and to other instruments at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of Statement 150 will have a material impact on our financial position, cash flows or results of operations.

49

Reclassifications

 Certain items in the fiscal 2002 and 2001 consolidated financial statements have been reclassified to conform to the fiscal 2003 presentation. These reclassifications had no effect on operating results or stockholders' equity.

Note 2.    Acquisitions and Divestitures

There were no acquisitions or divestitures in fiscal 2003. 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 will represent 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 will no longer be payable as a result of the liquidation.

Note 3. Property and Equipment

Property and equipment at April 30 2003 and 2002 consisted of the following (in thousands):

		2003			2002
Equipment		$	3,249		$	3,194
Furniture and leasehold improvements			884			856
			4,133			4,050
Less accumulated depreciation and amortization			(3,788	)		(3,654	)
	Property and equipment, net	$	345		$	396

Note 4. Other Investments

Other investments represent stock in three closely held companies, which are accounted for under the cost method. The Company's ownership interest in Arrango Software International, Inc. ("Arrango") and Evergreen Internet ("Evergreen") is less than 10% and the ownership interest in Unify Japan KK, a Japanese corporation that is the Company's master distributor in Japan, is less than 15%. Sales to Unify Japan KK in fiscal 2003 were $0.4 million. At April 30, 2003 and 2002 other investments consisted of the following (in thousands):

	2003		2002
Arrango Software International, Inc.	$	350	$	500
Evergreen Internet, Inc.		—		50
Unify Japan KK		39		39
Other		3		—
	$	392	$	589

Based upon a comprehensive review of our investments and long-lived assets during fiscal 2001 and 2002, we recorded non-cash charges of $3,650,000 and $1,300,000, respectively to reduce the carrying amount of Evergreen. During fiscal 2003, we re-evaluated our investments and long-lived assets and recorded additional non-cash charges of $20,000 and $30,000 during the first and third quarters, respectively, to write-off the remaining carrying amount of Evergreen to zero.

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We hold a minority interest in Arrango, a privately held corporation. During the fourth quarter of fiscal 2003, we 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. 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 that is not currently reflected in the investment's carrying value, thereby possibly requiring additional impairment charges in the future.

Note 5. 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, 2003			Year Ended April 30, 2003			Year Ended April 30, 2001
Deferred Support beginning balance	$	2,932		$	3,208		$	3,394
Amount recognized during period		(5,547	)		(5,805	)		(6,154	)
Amount of new maintenance contracts		5,461			5,529			5,968
Deferred Support ending balance	$	2,846		$	2,932		$	3,208

Note 6. Stockholders' Equity (Deficit)

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 1,950,000 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 2003 we granted 150,000 option shares on a four-year vesting schedule to a new member of our management team outside of the 2001 Stock

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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 purchase up to 5,400,000 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 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, 2000		1,684,400		3.42
	Granted (weighted average fair value of $0.17)	1,170,711		0.22
	Exercised	(733,554	)	0.46
	Cancelled/expired	(783,774	)	3.05
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

Additional information regarding options outstanding at April 30, 2003 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	333,990	2.81	$	0.12	330,240	$	0.12
0.25 -  0.25	419,000	8.75		0.25	150,686		0.25
0.26 -  0.26	544,500	8.55		0.26	193,709		0.26
0.27 -  0.32	324,500	8.96		0.31	63,067		0.32
0.55 -  0.55	524,000	9.02		0.55	114,580		0.55
0.64 -  5.88	341,261	5.55		2.37	283,541		2.59
6.03 - 19.69	187,217	6.31		7.16	173,364		6.98
0.12 - 19.69	2,674,468	7.47		1.05	1,309,187		1.65

Options to purchase 937,190 and 547,898 shares at weighted average prices of $2.14 and $2.89 were exercisable at April 30, 2002 and 2001. At April 30, 2003, there were 121,513 shares reserved for future grants under the Stock Option Plan.

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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. Common stock issued under the Purchase Plan during fiscal 2003, 2002 and 2001 totaled 478,308, 595,946, and 125,915 shares at weighted average prices of $0.22, $0.20, and $2.46, respectively. The weighted average fair values of the fiscal 2003, 2002 and 2001 awards were $0.29, $0.15, and $0.40 per share, respectively. At April 30, 2003, 492,634 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 222,728 shares awarded in fiscal 2003 under this plan, leaving a balance of 277,272 shares. In addition to the annual awards, there were two special one-time awards made for prior year's service and a special one-time award as an incentive to join the Board.

 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 has an interest rate of 5% annually, and is secured by 250,000 shares of common stock and is due and payable on October 1, 2003.

Note 7. Income Taxes

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 carryforwards and no federal or state tax provisions were recorded for fiscal 2001 due to the Company's net losses. The Company's 2002 and 2001 tax provisions relate primarily to foreign income tax withholding on software license royalties paid to the Company by

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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):

		2003			2002			2001
Domestic		$	(292	)	$	(183	)	$	(11,176	)
Foreign			373			1,740			(1,096	)
	Total income (loss) before income taxes	$	81		$	1,557		$	(12,272	)
Foreign taxes		$	(37	)	$	182		$	52
Federal and state income taxes			(1	)		(192	)		7
	Total (benefit) provision for income taxes	$	(38	)	$	(10	)	$	59

The provision for income taxes for the years ended April 30, 2003, 2002 and 2001 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):

		2003			2002			2001
Computed tax expense (benefit)		$	28		$	544		$	(4,295	)
Increases (reductions) in tax expense resulting from:
	Foreign withholding taxes		(168	)		46			52
	Increase (decrease) in valuation allowance for deferred tax assets		279			(1,261	)		4,423
	Expiration of net operating loss carryforwards					587			—
	Other		(177	)		74			(121	)
Actual (benefit) provision for income tax		$	(38	)	$	(10	)	$	59

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):

		2003			2002
Deferred tax assets:
	Net operating loss carryforwards	$	15,130		$	14,537
	Foreign tax credits		360			466
	Deferred revenue		670			470
	Reserves and other accruals		2,120			2,114
	Allowance for losses on accounts receivable		160			571
	Other		130			133
	Total deferred tax assets		18,570			18,291
	Valuation allowance		(18,570	)		(18,291	)
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 $279,000, $(1,261,000), and $4,423,000 during fiscal

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2003, 2002, and 2001 respectively. At April 30, 2003, the Company had approximately $41,780,000 in federal net operating loss carryforwards, approximately $4,760,000 in state net operating loss carryforwards, approximately $2,130,000 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 2004. 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 8. Special Charges

In July 2000, Company announced that certain matters had come to the attention of the Company's Board of Directors that indicated that 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. As a result of this financial reporting investigation during fiscal year 2001, the Company incurred additional costs related to the investigation itself, legal expenses, additional auditing costs and other litigation related costs of $3,356,000. During fiscal year 2003 and 2002, the Company recorded a recovery of $132,000 and $1,276,000, respectively, of these costs.

Note 9. Other Income (Expenses)

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

		2003			2002			2001
Interest income		$	28		$	42		$	191
Interest expense			(27	)		6			—
Foreign currency exchange loss			(5	)		(188	)		(242	)
Loss on asset disposition			—			5			(388	)
Liquidation of Unify Japan KK (former subsidiary) (Note 2)			—			178			—
Other			7			(7	)		226
	Other income (expenses), net	$	3		$	36		$	(213	)

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UNIFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. 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):

		2003		2002		2001
	Net Income (Loss) (Numerator):
	Net income (Loss), basic and diluted	$	119	$	1,567	$	(12,331	)
	Shares (Denominator):
	Weighted Average Shares of Common Stock outstanding, basic		20,939		20,232		18,979
	Effect of dilutive securities (stock options)		754		547		—
	Weighted average shares of common stock outstanding, diluted		21,693		20,779		18,979
	Per Share Amount:
	Net income (loss) per share, basic	$	0.01	$	0.08	$	(0.65	)
	Effect of dilutive securities		—		—		—
	Net income (loss) per share, diluted	$	0.01	$	0.08	$	(0.65	)
Antidilutive Shares:			—		—		1,773

Note 11. Related Party Transactions

In fiscal 2001 and 2002, the Company and Sumitomo Metals Industries, Ltd. ("SMI") owned 66% and 34% 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 who represents Unify as its master distributor in Japan and the subsidiary was liquated. 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 $0.4 million in fiscal 2003.

Transactions with SMI

 Total revenues include revenues from SMI of $124,000, and $220,000 for fiscal, 2002 and 2001, respectively. Unify Japan KK leased office space from SMI; rent expense for this office space totaled approximately $70,000 and $57,000 in fiscal 2002 and 2001, respectively. Unify Japan KK also paid SMI approximately $95,000 and $118,000 for the services of SMI employees in fiscal 2002 and 2001, respectively.

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 the remaining balance of $291,000 at April 30, 2002 recorded in the accompanying consolidated balance sheet as a payable to minority interest stockholders. This balance was subsequently paid in full in fiscal 2003.

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Transactions with Directors

 Included in other current assets at April 30, 2002 is a note receivable, which has been fully reserved, from the Company's former chief executive officer relating to commissions, bonuses and other payments made to the Company's former chief executive officer during the fiscal 2000, which the Company believes were unauthorized. This note receivable was written off in fiscal 2003. 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 is due and payable on October 1, 2003 and bears interest at 5% per annum.

Note 12. 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 2003, 2002 and 2001, the Company contributed $52,000, $37,000 and $208,000, respectively, to the 401(k) Plan.

Note 13. 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, 2003 were as follows (in thousands):

Years Ending April 30,
2004	$	984
2005		996
2006		1,008
2007		999
2008		861
Thereafter		—
	$	4,848

Rent expense under operating leases was $1,267,000, $1,037,000, and $1,107,000 for the years ended April 30, 2003, 2002 and 2001, respectively.

Litigation

 Class Action and Derivative Litigation:    In April 2002, the Company settled the consolidated class actions, the individual institutional investor actions and the consolidated derivative actions which were brought against Unify and certain of the Company's present and former directors and officers. The settlement, which does not constitute any admission of wrongdoing on the part of Unify or the individuals named as defendants, provided that all defendants pay a total of $5.0 million including attorney fees for class action, derivative and individual action plaintiffs, of which the amounts to be paid by the Company were paid by the Company's insurance carrier. The settlement agreement has been approved by the courts in which these actions were pending and the actions have been dismissed.

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 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. The Company understands that the SEC's action against the former officers is continuing.

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 in that action is presently set for September 15, 2003. 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 either matter.

 Insurance Litigation:    In May 2001, a lawsuit was brought in the United States District Court for the Northern District of California against the Company and certain of its present and former officers and directors by an insurance carrier which issued Unify a directors and officers liability and reimbursement excess policy. The action, which sought reformation and rescission of the policy, was dismissed by the Court at the request of the insurance company on February 3, 2003.

The Company is subject to legal proceedings and claims that arise in the normal course of business. 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, 2003, there are 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.

Note 14. Subsequent Events

On June 6, 2003, the Company executed a $1.5 million revolving line of credit facility with Silicon Valley Bank. The line is secured by qualifying accounts receivable, foreign and domestic, and has a one-year term. The Company will incur interest expense on funds used at the prevailing prime rate, not to be less than 4.25% per annum, plus two percent. The Company also agreed to issue 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.

Note 15. Segment Information

For fiscal 2003, the Company had two reportable segments, the Americas (which include 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 and 2001 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

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OEMs. No single customer accounted for 10% or more of the consolidated revenues of the Company in fiscal 2003, 2002 or 2001.

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

			2003			2002			2001
Total net revenues: (1)
	Americas (includes Japan in 2003)		$	7,726		$	5,938		$	7,152
	Europe			4,447			6,142			5,002
	Japan			—			1,520			2,149
		Total net revenues	$	12,173		$	13,600		$	14,303
Operating income (loss):
	Americas (includes Japan in 2003) (2)		$	(300	)	$	(94	)	$	(10,430	)
	Europe			378			1,733			(1,265	)
	Japan			—			(118	)		(364	)
		Total operating income (loss)	$	78		$	1,521		$	(12,059	)
Interest income (3)			$	28		$	42		$	191
Interest expense (3)			$	27		$	6		$	—
Identifiable assets:
	Americas (includes Japan in 2003)		$	2,060		$	2,115		$	1,913
	Europe			2,609			3,828			3,129
	Japan			—			656			892
		Subtotal identifiable assets		4,669			6,599			5,934
	Corporate assets (4)			2,119			1,984			3,909
	Elimination of inter-company balances			(113	)		(866	)		(499	)
		Total assets	$	6,675		$	7,717		$	9,344
Depreciation expense (5)			$	233		$	365		$	881
Capital expenditures (5)			$	178		$	38		$	605

(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

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

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

		2003		2002		2001
Total net revenues:
	Americas	$	7,726	$	5,938	$	7,152
	United Kingdom		2,455		3,790		3,088
	France		1,992		2,352		1,914
	Subtotal Europe		4,447		6,142		5,002
	Japan		—		1,520		2,149
	Total net revenues	$	12,173	$	13,600	$	14,303
Long-lived assets:
	Americas	$	749	$	1,026	$	2,636
	Foreign		102		37		91
	Total long-lived assets	$	851	$	1,063	$	2,727

Note 16. Quarterly Results of Operations (Unaudited)

The following interim financial information presents the fiscal 2003 and 2002 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 2003:
Total revenues	$	2,638		$	2,931		$	3,434		$	3,170
Gross margin	$	2,336		$	2,560		$	3,038		$	2,843
Net income	$	(285)	(1)	$	(85)	(2)	$	306	(3)	$	183	(4)
Net income per share, basic	$	(0.01	)	$	0.00		$	0.01		$	0.01
Net income per share, diluted	$	(0.01	)	$	0.00		$	0.01		$	0.01
Year ended 2002:
Total revenues	$	3,046		$	3,287		$	3,537		$	3,730
Gross margin	$	2,501		$	2,749		$	3,052		$	3,358
Net income	$	14		$	66		$	696	(5)	$	791	(6)
Net income per share, basic	$	0.00		$	0.00		$	0.03		$	0.04
Net income per share, diluted	$	0.00		$	0.00		$	0.03		$	0.04

(1)

Includes recovery of special charges of $106,000 (Note 8) as well as a non-cash charge of $20,000 to write-down the carrying value of Other Investments (Note 4)

(2)

Includes recovery of special charges of $26,000 (Note 8)

(3)

Includes a non-cash charge of $30,000 to write-down the carrying value of Other Investments (Note 4)

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(4)

Includes a non-cash charge of $150,000 to write-down the carrying value of Other Investments (Note 4)

(5)

Includes recovery of special charges of $1,376,000 as well as a non-cash charge of $1,100,000 to write-down the carrying value of Other Investments (Note 4)

(6)

Includes other income of $178,000 related to liquidation of Unify Japan (Note 4)

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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, 2001	$	1,757	$	353		$	(969	)	$	(239	)	$	902
	Year ended April 30, 2002	$	902	$	(362	)	$	(319	)	$	97		$	318
	Year ended April 30, 2003	$	318	$	44		$	(162	)	$	52		$	252
Allowance for long-term accounts and notes receivable—other assets:
	Year ended April 30, 2001	$	625	$	511		$	—		$	236		$	1,372
	Year ended April 30, 2002	$	1,372	$	(3	)	$	—		$	(73	)	$	1,296
	Year ended April 30, 2003	$	1,296	$	(117	)	$	(831	)	$	—		$	348

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UNIFY CORPORATION
INDEX TO 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)
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)
10.5		Joint Venture Agreement, dated September 3, 1990, as amended, by and among the Registrant, Unify Japan Corporation, Sumitomo Metals Industries, Ltd. and Artificial Intelligence Research (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
21.1		Subsidiaries of the Registrant (1)
23.1		Consent of Ernst & Young LLP, Independent Auditors
23.2		Consent of Deloitte & Touche LLP, Independent Auditors
99.1		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.
99.2		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.

*

Exhibit pertains to a management contract or compensatory plan or arrangement.

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QuickLinks

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

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. CONTROLS AND PROCEDURES

PART IV

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

SIGNATURES
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002
Report of Ernst & Young LLP, Independent Auditors
Report of Deloitte & Touche LLP, Independent Auditors
UNIFY CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
UNIFY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except 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)
UNIFY CORPORATION INDEX TO EXHIBITS

EX-10.10

Exhibit 10.10

Confirmation re Closing Documents

June 6, 2003

To:          Silicon Valley Bank

Ladies and Gentlemen:

Concurrently, we are signing and submitting to you a Loan and Security Agreement (the “Loan Agreement”), and we and our affiliates are signing and submitting to you other related documents and agreements (with the Loan Agreement, collectively, the “Loan Documents”).

In order to save time in the closing process, your attorneys have sent the signature copies of the Loan Documents to us by email, and we then printed them and had them signed.

This will confirm that we have not made any changes in any of the Loan Documents and that they were signed as they were submitted to us.

Sincerely,

Unify Corporation
By	/s/ Peter DiCorti
Name:			Peter DiCorti
Title:		Chief Financial Officer

Silicon Valley Bank

Loan and Security Agreement

Borrower:	Unify Corporation
Address:	2101 Arena Blvd., Suite 100
	Sacramento, California  95834
Date:	June 6, 2003

THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK (“Silicon”), whose address is 3003 Tasman Drive, Santa Clara, California  95054 and the borrower(s) named above (jointly and severally, the “Borrower”), whose chief executive office is located at the above address (“Borrower’s Address”). The Schedule to this Agreement (the “Schedule”) shall for all purposes be deemed to be a part of this Agreement, and the same is an integral part of this Agreement.  (Definitions of certain terms used in this Agreement are set forth in Section 8 below.)

1.     LOANS.

1.1  Loans.  Silicon will make loans to Borrower (the “Loans”) up to the amounts (the “Credit Limit”) shown on the Schedule, provided no Default or Event of Default has occurred and is continuing, and subject to deduction of Reserves for accrued interest and such other Reserves as Silicon deems proper from time to time in its good faith business judgment.

1.2  Interest.  All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement.  Interest shall be payable monthly, on the last day of the month.  Interest may, in Silicon’s discretion, be charged to Borrower’s loan account, and the same shall thereafter bear interest at the same rate as the other Loans.  Silicon may, in its discretion, charge interest to Borrower’s Deposit Accounts maintained with Silicon.

1.3  Overadvances.  If at any time or for any reason the total of all outstanding Loans and all other monetary Obligations exceeds the Credit Limit (an “Overadvance”), Borrower shall immediately pay the amount of the excess to Silicon, without notice or demand.  Without limiting Borrower’s obligation to repay to Silicon the amount of any Overadvance, Borrower agrees to pay Silicon interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

1.4  Fees.  Borrower shall pay Silicon the fees shown on the Schedule, which are in addition to all interest and other sums payable to Silicon and are not refundable.

1.5 Loan Requests. To obtain a Loan, Borrower shall make a request to Silicon by facsimile or telephone. Loan requests received after 12:00 Noon will not be considered by Silicon until the next Business Day. Silicon may rely on any telephone request for a Loan given by a person whom Silicon believes is an authorized representative of Borrower, and Borrower will indemnify Silicon for any loss Silicon suffers as a result of that reliance.

1.6  Letters of Credit.   At the request of Borrower, Silicon may, in its good faith business judgment, issue or arrange for the issuance of letters of credit for the account of Borrower, in each case in form and substance satisfactory to Silicon in its sole discretion (collectively, “Letters of Credit”).  The aggregate face amount of all Letters of Credit from time to time outstanding shall not exceed the amount shown on the Schedule (the “Letter of Credit Sublimit”), and shall be reserved against Loans which would otherwise be available hereunder, 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. Borrower shall pay all bank charges (including charges of Silicon) for the issuance of Letters of Credit, together with such additional fee as Silicon’s letter of credit department shall charge in connection with the issuance of the Letters of Credit.  Any payment by Silicon under or in connection with a Letter of Credit shall constitute a Loan hereunder on the date such payment is made.  Each Letter of Credit shall have an expiry date no later than thirty days prior to the Maturity Date.  Borrower hereby agrees to

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indemnify and hold Silicon harmless from any loss, cost, expense, or liability, including payments made by Silicon, expenses, and reasonable attorneys’ fees incurred by Silicon arising out of or in connection with any Letters of Credit.  Borrower agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Silicon and opened for Borrower’s account or by Silicon’s interpretations of any Letter of Credit issued by Silicon for Borrower’s account, and Borrower understands and agrees that Silicon shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto.  Borrower understands that Letters of Credit may require Silicon to indemnify the issuing bank for certain costs or liabilities arising out of claims by Borrower against such issuing bank.  Borrower hereby agrees to indemnify and hold Silicon harmless with respect to any loss, cost, expense, or liability incurred by Silicon under any Letter of Credit as a result of Silicon’s indemnification of any such issuing bank.  The provisions of this Loan Agreement, as it pertains to Letters of Credit, and any other Loan Documents relating to Letters of Credit are cumulative.

2.  SECURITY INTEREST. To secure the payment and performance of all of the Obligations when due, Borrower hereby grants to Silicon a security interest in all of the following (collectively, the “Collateral”):  all right, title and interest of Borrower in and to all of the following, whether now owned or hereafter arising or acquired and wherever located: all Accounts; all Inventory; all Equipment; all Deposit Accounts; all General Intangibles (including without limitation all Intellectual Property); all Investment Property; all Other Property; and any and all claims, rights and interests in any of the above, and all guaranties and security for any of the above, and all substitutions and replacements for, additions, accessions, attachments, accessories, and improvements to, and proceeds  (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties) of, any and all of the above, and all Borrower’s books relating to any and all of the above.

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.

In order to induce Silicon to enter into this Agreement and to make Loans, Borrower represents and warrants to Silicon as follows, and Borrower covenants that the following representations will continue to be true, and that Borrower will at all times comply with all of the following covenants, throughout the term of this Agreement and until all Obligations have been paid and performed in full:

3.1  Corporate Existence and Authority.  Borrower is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation.  Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would result in a Material Adverse Change.  The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors’ rights generally), and (iii) do not violate Borrower’s articles or certificate of incorporation, or Borrower’s by-laws, or any law or any  material agreement or instrument which is binding upon Borrower or its property, and (iv) do not constitute grounds for acceleration of any material indebtedness or obligation under any agreement or instrument which is binding upon Borrower or its property.

3.2  Name; Trade Names and Styles.  The name of Borrower set forth in the heading to this Agreement is its correct name.  Listed in the Representations are all prior names of Borrower and all of Borrower’s present and prior trade names.  Borrower shall give Silicon 30 days’ prior written notice before changing its name or doing business under any other name.  Borrower has complied, and will in the future comply, in all material respects, with all laws relating to the conduct of business under a fictitious business name, except where the failure to so comply would not reasonably be expected to result in a Material Adverse Change.

3.3  Place of Business; Location of Collateral.  The address set forth in the heading to this Agreement is Borrower’s chief executive office.  In addition, Borrower has places of business and Collateral is located only at the locations set forth in the Representations.  Borrower will give Silicon at least 30 days prior written notice before opening any additional place of business, changing its chief executive office, or moving any of the Collateral to a location other than Borrower’s Address or one of the locations set forth in the Representations, except that Borrower may maintain sales offices in the ordinary course of business at which not more than a total of $25,000 fair market value of Equipment is located.

3.4  Title to Collateral; Perfection; Permitted Liens.

(a)  Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment which are leased to Borrower.  The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens.  Silicon now has, and will continue to have, a first-priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend the interests of Silicon and the Collateral against all claims of others. 

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(b)   Borrower has set forth in the Representations all of Borrower’s Deposit Accounts, and Borrower will give Silicon five Business Days advance written notice before establishing any new Deposit Accounts and will cause the institution where any such new Deposit Account is maintained to execute and deliver to Silicon a control agreement in form sufficient to perfect Silicon’s security interest in the Deposit Account and otherwise satisfactory to Silicon in its good faith business judgment.  Nothing herein limits any requirements which may be set forth in the Schedule as to where Deposit Accounts will be maintained.

(c) In the event that Borrower shall at any time after the date hereof have any commercial tort claims against others, which it is asserting or intends to assert, and in which the potential recovery exceeds $100,000, Borrower shall promptly notify Silicon thereof in writing and provide Silicon with such information regarding the same as Silicon shall request (unless providing such information would waive the Borrower’s attorney-client privilege).  Such notification to Silicon shall constitute a grant of a security interest in the commercial tort claim and all proceeds thereof to Silicon, and Borrower shall execute and deliver all such documents and take all such actions as Silicon shall request in connection therewith.

(d)   None of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture.  Borrower is not and will not become a lessee under any real property lease pursuant to which the lessor may obtain any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will prohibit, restrain or impair Borrower’s right to remove any Collateral from the leased premises.  Whenever any Collateral is located upon premises in which any third party has an interest, Borrower shall, whenever requested by Silicon, use its best efforts to cause such third party to execute and deliver to Silicon, in form acceptable to Silicon, such waivers and subordinations as Silicon shall specify in its good faith business judgment.  Borrower will keep in full force and effect, and will comply with all material terms of, any lease of real property where any of the Collateral now or in the future may be located.

3.5  Maintenance of Collateral.  Borrower will maintain the Collateral in good working condition (ordinary wear and tear excepted), and Borrower will not use the Collateral for any unlawful purpose.  Borrower will immediately advise Silicon in writing of any material loss or damage to the Collateral.

3.6  Books and Records.  Borrower has maintained and will maintain at Borrower’s Address complete and accurate books and records, comprising an accounting system in accordance with GAAP.

3.7  Financial Condition, Statements and Reports.  All financial statements now or in the future delivered to Silicon have been, and will be, prepared in conformity with GAAP and now and in the future will fairly present the results of operations and financial condition of Borrower, in accordance with GAAP, at the times and for the periods therein stated.  Between the last date covered by any such statement provided to Silicon and the date hereof, there has been no Material Adverse Change.

3.8  Tax Returns and Payments; Pension Contributions.  Borrower has timely filed, and will timely file, all required tax returns and reports, and Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by Borrower.  Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower’s obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies Silicon in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral.  Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

3.9  Compliance with Law.  Borrower has, to the best of its knowledge, complied, and will comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations applicable to Borrower, including, but not limited to, those relating to Borrower’s ownership of real or personal property, the conduct and licensing of Borrower’s business, and all environmental matters.

3.10  Litigation.  There is no claim, suit, litigation, proceeding or investigation pending or (to best of Borrower’s knowledge) threatened against or affecting Borrower in any court or before any governmental agency (or any basis therefor known to Borrower) which could reasonably be expected to result, either separately or in the aggregate, in any Material Adverse Change.  Borrower will promptly inform Silicon in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted against Borrower involving any single claim of $50,000 or more, or involving $100,000  or more in the aggregate.

3.11  Use of Proceeds.  All proceeds of all Loans shall be used solely for lawful business purposes.  Borrower is not purchasing or carrying any “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve

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System) and no part of the proceeds of any Loan will be used to purchase or carry any “margin stock” or to extend credit to others for the purpose of purchasing or carrying any “margin stock.”

4.  ACCOUNTS.

4.1  Representations Relating to Accounts. Borrower represents and warrants to Silicon as follows:  Each Account with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, (i) represent an undisputed bona fide existing unconditional obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the rendition of services, or the non-exclusive licensing of Intellectual Property, in the ordinary course of Borrower’s business, and (ii) meet the Minimum Eligibility Requirements set forth in  Section 8 below.

4.2  Representations Relating to Documents and Legal Compliance.  Borrower represents and warrants to Silicon as follows:  All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Accounts are and shall be true and correct and all such invoices, instruments and other documents and all of Borrower’s books and records are and shall be genuine and in all respects what they purport to be.  All sales and other transactions underlying or giving rise to each Account shall comply in all material respects with all applicable laws and governmental rules and regulations.  To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Accounts are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms.

4.3  Schedules and Documents relating to Accounts. Borrower shall deliver to Silicon transaction reports and schedules of collections, as provided in the Schedule, on Silicon’s standard forms; provided, however, that Borrower’s failure to execute and deliver the same shall not affect or limit Silicon’s security interest and other rights in all of Borrower’s Accounts, nor shall Silicon’s failure to advance or lend against a specific Account affect or limit Silicon’s security interest and other rights therein. If requested by Silicon, Borrower shall furnish Silicon with copies (or, at Silicon’s request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts, and Borrower warrants the genuineness of all of the foregoing.  Borrower shall also furnish to Silicon an aged accounts receivable trial balance as provided in the Schedule.  In addition, Borrower shall deliver to Silicon, on its request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary indorsements, and copies of all credit memos.

4.4  Collection of Accounts.  Borrower shall have the right to collect all Accounts, unless and until a Default or an Event of Default has occurred and is continuing.  Whether or not an Event of Default has occurred and is continuing, Borrower shall hold all payments on, and proceeds of, Accounts in trust for Silicon, and Borrower shall immediately deliver all such payments and proceeds to Silicon in their original form, duly endorsed, to be applied to the Obligations in such order as Silicon shall determine.  Silicon may, in its good faith business judgment, require that all proceeds of Collateral be deposited by Borrower into a lockbox account, or such other “blocked account” as Silicon may specify, pursuant to a blocked account agreement in such form as Silicon may specify in its good faith business judgment.   If the Streamline Period is in effect, Borrower shall nevertheless continue to remit to Silicon all payments on, and proceeds of, Accounts as provided above and, if a lockbox account or other blocked account has been established, Borrower shall continue to cause all such payments and proceeds to be deposited into said lockbox account or other blocked account, but, if the Steamline Period is in effect and no Default or Event of Default has occurred and is continuing, Silicon shall, promptly after receipt of such payments and proceeds in immediately available funds, deposit the same into a Deposit Account of Borrower maintained at Silicon, rather than applying the same to the Obligations.

4.5.  Remittance of Proceeds. All proceeds arising from the disposition of any Collateral shall be delivered, in kind, by Borrower to Silicon in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations in such order as Silicon shall determine; provided that, if no Default or Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Silicon the proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower in good faith in an arm’s length transaction for an aggregate purchase price of $25,000 or less (for all such transactions in any fiscal year).  Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower’s other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Silicon.  Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.

4.6  Disputes.  Borrower shall notify Silicon promptly of all disputes or claims relating to Accounts on the regular reports provided to Silicon.  Borrower shall not forgive (completely or partially), compromise or settle any Account for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arm’s length transactions, which are reported to Silicon on the regular reports provided to Silicon; (ii) no Default or Event of Default has occurred and is con-

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tinuing; and (iii) taking into account all such discounts, settlements and forgiveness, the total outstanding Loans will not exceed the Credit Limit. 

4.7  Returns.  Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower, Borrower shall promptly determine the reason for such return and promptly issue a credit memorandum to the Account Debtor in the appropriate amount.  In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall hold the returned Inventory in trust for Silicon, and immediately notify Silicon of the return of the Inventory. 

4.8  Verification.  Silicon may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, by means of mail, telephone or otherwise, either in the name of Borrower or Silicon or such other name as Silicon may choose.

4.9  No Liability. Silicon shall not be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Silicon be deemed to be responsible for any of Borrower’s obligations under any contract or agreement giving rise to an Account.  Nothing herein shall, however, relieve Silicon from liability for its own gross negligence or willful misconduct.

5.  ADDITIONAL DUTIES OF BORROWER.

5.1  Financial and Other Covenants.  Borrower shall at all times comply with the financial and other covenants set forth in the Schedule.

5.2  Insurance.  Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon, in such form and amounts as Silicon may reasonably require and that are customary and in accordance with standard practices for Borrower’s industry and locations, and Borrower shall provide evidence of such insurance to Silicon.  All such insurance policies shall name Silicon as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon.  Upon receipt of the proceeds of any such insurance, Silicon shall apply such proceeds in reduction of the Obligations as Silicon shall determine in its good faith business judgment, except that, provided no Default or Event of Default has occurred and is continuing, Silicon shall release to Borrower insurance proceeds with respect to Equipment totaling less than $100,000, which shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid.  Silicon may require reasonable assurance that the insurance proceeds so released will be so used.  If Borrower fails to provide or pay for any insurance, Silicon may, but is not obligated to, obtain the same at Borrower’s expense.  Borrower shall promptly deliver to Silicon copies of all material reports made to insurance companies.

5.3  Reports.  Borrower, at its expense, shall provide Silicon with the written reports set forth in the Schedule, and such other written reports with respect to Borrower (including budgets, sales projections, operating plans and other financial documentation), as Silicon shall from time to time specify in its good faith business judgment.

5.4  Access to Collateral, Books and Records.  At reasonable times, and on one Business Day’s notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower’s books and records.  Silicon shall take reasonable steps to keep confidential all information obtained in any such inspection or audit, but Silicon shall have the right to disclose any such information to its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or other legal process.  The foregoing inspections and audits shall be at Borrower’s expense and the charge therefor shall be $750 per person per day (or such higher amount as shall represent Silicon’s then current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Silicon schedule an audit more than 10 days in advance, and Borrower seeks to reschedules the audit with less than 10 days written notice to Silicon, then (without limiting any of Silicon’s rights or remedies), Borrower shall pay Silicon a cancellation fee of $1,000 plus any out-of-pocket expenses incurred by Silicon, to compensate Silicon for the anticipated costs and expenses of the cancellation.

5.5  Negative Covenants.  Except as may be permitted in the Schedule, Borrower shall not, without Silicon’s prior written consent (which shall be a matter of its good faith business judgment), do any of the following:  (i) merge or consolidate with another corporation or entity; (ii) acquire any assets, except in the ordinary course of business; (iii) enter into any other transaction outside the ordinary course of business; (iv) sell or transfer any Collateral, except for the sale of finished Inventory in the ordinary course of Borrower’s business, and except for the sale of obsolete or unneeded Equipment in the ordinary course of business; (v) store any Inventory or other Collateral with any warehouseman or other third party; (vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii) make any loans of any money or other assets; (viii) incur any debts, outside the ordinary course of business, which would result in a Material Adverse Change; (ix) guarantee or otherwise become liable with respect to the obligations of another party or entity; (x) pay or declare any dividends on Borrower’s stock (except for dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or

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otherwise acquire, directly or indirectly, any of Borrower’s stock; (xii) make any change in Borrower’s capital structure which would result in a Material Adverse Change; or (xiii) engage, directly or indirectly, in any business other than the businesses currently engaged in by Borrower or reasonably related thereto; or (xiv) dissolve or elect to dissolve.  Transactions permitted by the foregoing provisions of this Section are only permitted if no Default or Event of Default would occur as a result of such transaction. 

5.6  Litigation Cooperation.  Should any third-party suit or proceeding be instituted by or against Silicon with respect to any Collateral or relating to Borrower, Borrower shall, without expense to Silicon, make available Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Silicon may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding.

5.7  Further Assurances.  Borrower agrees, at its expense, on request by Silicon, to execute all documents and take all actions, as Silicon, may, in its good faith business judgment, deem necessary or useful in order to perfect and maintain Silicon’s perfected first-priority security interest in the Collateral (subject to Permitted Liens), and in order to fully consummate the transactions contemplated by this Agreement.

6.   TERM.

6.1  Maturity Date.  This Agreement shall continue in effect until the maturity date set forth on the Schedule (the “Maturity Date”), subject to Section 6.3 below.

6.2  Early Termination.  This Agreement may be terminated prior to the Maturity Date as follows:  (i) by Borrower, effective three Business Days after written notice of termination is given to Silicon; or (ii) by Silicon at any time after the occurrence and during the continuance of an Event of Default, without notice, effective immediately.  If this Agreement is terminated by Borrower or by Silicon under this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount equal to one percent (1.0%) of the Maximum Credit Limit, provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from another division of Silicon Valley Bank.  The termination fee shall be due and payable on the effective date of termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations.

6.3  Payment of Obligations.  On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable.  Without limiting the generality of the foregoing, if on the Maturity Date,  or on any earlier effective date of termination, there are any outstanding Letters of Credit issued by Silicon or issued by another institution based upon an application, guarantee, indemnity or similar agreement on the part of Silicon, then on such date Borrower shall provide to Silicon cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit plus all interest, fees and cost due or to become due in connection therewith (as estimated by Silicon in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit, pursuant to Silicon’s then standard form cash pledge agreement.  Notwithstanding any termination of this Agreement, all of Silicon’s security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that Silicon may, in its sole discretion, refuse to make any further Loans after termination.  No termination shall in any way affect or impair any right or remedy of Silicon, nor shall any such termination relieve Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full.  Upon payment and performance in full of all the Obligations and termination of this Agreement, Silicon shall promptly terminate its financing statements with respect to the Borrower and deliver to Borrower such other documents as may be required to fully terminate Silicon’s security interests.

7.  EVENTS OF DEFAULT AND REMEDIES.

7.1  Events of Default.  The  occurrence of any of the following events shall constitute an “Event of Default” under this Agreement, and Borrower shall give Silicon immediate written notice thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to Silicon by Borrower or any of Borrower’s officers, employees or agents, now or in the future, shall be untrue or misleading in a material respect when made or deemed to be made; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Credit Limit; or (d) Borrower shall fail to comply with any of the financial covenants set forth in the Schedule, or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured, or shall fail to permit Silicon to conduct an inspection or audit as specified in Section 5.4 hereof; or (e) Borrower shall fail to perform any other non-monetary Obligation (including without limitation the reporting obligations in Section 4.3 of this Agreement and Section 6  of the Schedule), which failure is not cured within five Business Days after the date due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within 15 days after the occurrence of the same; or (g) any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or

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waived in writing by the holder of the Permitted Lien; or (h) Borrower breaches any material contract or obligation, which has resulted or may reasonably be expected to result in a Material Adverse Change; or (i) Dissolution, termination of existence, insolvency or business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (j) the commencement of any proceeding against Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 30 days after the date commenced; or (k) revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (l) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (m) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations other than as permitted in the applicable subordination agreement, or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (n) there shall be a change in the record or beneficial ownership of an aggregate of more than 20% of the outstanding shares of stock of Borrower, in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof, without the prior written consent of Silicon; or (o) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p) a Material Adverse Change shall occur.  Silicon may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred and is continuing. 

7.2  Remedies.  Upon the occurrence and during the continuance of any Event of Default, and at any time thereafter, Silicon, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other Loan Document; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Silicon without judicial process to enter onto any of Borrower’s premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as Silicon deems it necessary, in its good faith business judgment, in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Silicon seek to take possession of any of the Collateral by court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Silicon retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to Silicon at places designated by Silicon which are reasonably convenient to Silicon and Borrower, and to remove the Collateral to such locations as Silicon may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Silicon shall have the right to use Borrower’s premises, vehicles, hoists, lifts, cranes, and other Equipment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time Silicon obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale.  Silicon shall have the right to conduct such disposition on Borrower’s premises without charge, for such time or times as Silicon deems reasonable, or on Silicon’s premises, or elsewhere and the Collateral need not be located at the place of disposition.  Silicon may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition.  Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Accounts and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrower’s name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Silicon’s good faith business judgment, to grant extensions of time to pay, compromise claims and settle Accounts and the like for less than face value; (h) Offset against any sums in any of Borrower’s general, special or other Deposit Accounts with Silicon against any or all of the Obligations; and (i) Demand and receive possession of any of Borrower’s federal and state income tax returns and the books and records

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utilized in the preparation thereof or referring thereto.  All reasonable attorneys’ fees, expenses, costs, liabilities and obligations incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.  Without limiting any of Silicon’s rights and remedies, from and after the occurrence and during the continuance of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional four percent per annum (the “Default Rate”).

7.3  Standards for Determining Commercial Reasonableness.  Borrower and Silicon agree that a sale or other disposition (collectively, “sale”) of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable:  (i) Notice of the sale is given to Borrower at least ten days prior to the sale, and, in the case of a public sale, notice of the sale is published at least five days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) Notice of the sale describes the collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by Silicon, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m;  (v) Payment of the purchase price in cash or by cashier’s check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, Silicon may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same.  Silicon shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable.

7.4  Power of Attorney.  Upon the occurrence and during the continuance of any Event of Default, without limiting Silicon’s other rights and remedies, Borrower grants to Silicon an irrevocable power of attorney coupled with an interest, authorizing and permitting Silicon (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrower’s expense, to do any or all of the following, in Borrower’s name or otherwise, but Silicon agrees that if it exercises any right hereunder, it will do so in good faith and in a commercially reasonable manner:  (a) Execute on behalf of Borrower any documents that Silicon may, in its good faith business judgment, deem advisable in order to perfect and maintain Silicon’s security interest in the Collateral, or in order to exercise a right of Borrower or Silicon, or in order to fully consummate all the transactions contemplated under this Agreement, and all other Loan Documents; (b) Execute on behalf of Borrower, any invoices relating to any Account, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic’s, materialman’s or other lien, or assignment or satisfaction of mechanic’s, materialman’s or other lien; (c) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into Silicon’s possession; (d) Endorse all checks and other forms of remittances received by Silicon; (e) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (f) Grant extensions of time to pay, compromise claims and settle Accounts and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (g) Pay any sums required on account of Borrower’s taxes or to secure the release of any liens therefor, or both; (h) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (i) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give Silicon the same rights of access and other rights with respect thereto as Silicon has under this Agreement; and (j) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other Loan Documents.  Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.  In no event shall Silicon’s rights under the foregoing power of attorney or any of Silicon’s other rights under this Agreement be deemed to indicate that Silicon is in control of the business, management or properties of Borrower.

7.5  Application of Proceeds.  All proceeds realized as the result of any sale of the Collateral shall be applied by Silicon first to the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Silicon in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Silicon shall determine in its sole discretion.  Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Silicon for any deficiency.  If, Silicon, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Silicon shall have the option, exercisable at any time, in its good faith business judgment, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Silicon of the cash therefor.

7.6  Remedies Cumulative.  In addition to the rights and remedies set forth in this Agreement, Silicon shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Silicon and Borrower, and all of such rights and remedies are cumulative and none is exclusive.  Exercise or partial exercise by Silicon of one or

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more of its rights or remedies shall not be deemed an election, nor bar Silicon from subsequent exercise or partial exercise of any other rights or remedies.  The failure or delay of Silicon to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed.

8.     DEFINITIONS.  As used in this Agreement, the following terms have the following meanings:

“Account Debtor” means the obligor on an Account.

“Accounts” means all present and future “accounts” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all accounts receivable and other sums owing to Borrower.

 “Affiliate” means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any Person controlling, controlled by or under common control with such Person.

“Business Day” means a day on which Silicon is open for business.

“Code” means the Uniform Commercial Code as adopted and in effect in the State of California  from time to time.

“Collateral” has the meaning set forth in Section 2 above.

“continuing” and “during the continuance of” when used with reference to a Default or Event of Default means that the Default or Event of Default has occurred and has not been either waived in writing by Silicon or cured within any applicable cure period.

“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.

“Default Rate” has the meaning set forth in Section 7.2 above.

“Deposit Accounts” means all present and future “deposit accounts” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation  all general and special bank accounts, demand accounts, checking accounts, savings accounts and certificates of deposit.

 “Eligible Accounts” means Accounts and General Intangibles arising in the ordinary course of Borrower’s business from the sale of goods or the rendition of services, or the non-exclusive licensing of Intellectual Property, which Silicon, in its good faith business judgment, shall deem eligible for borrowing.  Without limiting the fact that the determination of which Accounts are eligible for borrowing is a matter of Silicon’s good faith business judgment, the following (the “Minimum Eligibility Requirements”) are the minimum requirements for a Account to be an Eligible Account:  (i) the Account must not be outstanding for more than 90 days from its invoice date (the “Eligibility Period”), (ii) the Account must not represent progress billings, or be due under a fulfillment or requirements contract with the Account Debtor, (iii) the Account must not be subject to any contingencies (including Accounts arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be conditional), (iv) the Account must not be owing from an Account Debtor with whom Borrower has any dispute (whether or not relating to the particular Account), (v) the Account must not be owing from an Affiliate of Borrower, (vi) the Account must not be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not acceptable to Silicon, or which, fails or goes out of a material portion of its business, (vii) the Account must not be owing from the United States or any department, agency or instrumentality thereof (unless there has been compliance, to Silicon’s satisfaction, with the United States Assignment of Claims Act), (viii) the Account must not be owing from an Account Debtor located outside the United States or Canada (unless pre-approved by Silicon in its discretion in writing, or backed by a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to Silicon),  (ix) the Account must not be owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise (but, in such case, the Account will be deemed not eligible only to the extent of any amounts owed by Borrower to such Account Debtor). Accounts owing from one Account Debtor will not be deemed Eligible Accounts to the extent they exceed 35% of the total Accounts outstanding.  In addition, if more than 50% of the Accounts owing from an Account Debtor are outstanding for a period longer than their Eligibility Period (without regard to unapplied credits) or are otherwise not eligible Accounts, then all Accounts owing from that Account Debtor will be deemed ineligible for borrowing.  Silicon may, from time to time, in its good faith business judgment, revise the Minimum Eligibility Requirements, upon written notice to Borrower.

“Equipment” means all present and future “equipment” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“Event of Default” means any of the events set forth in Section 7.1 of this Agreement.

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“GAAP” means generally accepted accounting principles consistently applied.

“General Intangibles” means all present and future “general intangibles” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all Intellectual Property, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“good faith business judgment” means honesty in fact and good faith (as defined in Section 1201 of the Code) in the exercise of Silicon’s business judgment.

“including” means including (but not limited to).

 “Intellectual Property” means all present and future (a) copyrights, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, (b) trade secret rights, including all rights to unpatented inventions and know–how, and confidential information; (c) mask work or similar rights available for the protection of semiconductor chips; (d) patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same; (e) trademarks, servicemarks, trade styles, and trade names, whether or not any of the foregoing are registered, and all applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by any such trademarks; (f) computer software and computer software products; (g) designs and design rights; (h) technology; (i) all claims for damages by way of past, present and future infringement of any of the rights included above; (j) all licenses or other rights to use any property or rights of a type described above.

“Inventory” means all present and future “inventory” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation  all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

“Investment Property” means all present and future investment property, securities, stocks, bonds, debentures, debt securities, partnership interests, limited liability company interests, options, security entitlements, securities accounts, commodity contracts, commodity accounts, and all financial assets held in any securities account or otherwise, and all options and warrants to purchase any of the foregoing, wherever located, and all other securities of every kind, whether certificated or uncertificated.

“Loan Documents” means, collectively, this Agreement, the Representations, and all other present and future documents, instruments and agreements between Silicon and Borrower, including, but not limited to those relating to this Agreement, and all amendments and modifications thereto and replacements therefor.

“Material Adverse Change” means any of the following: (i) a material adverse change in the business, operations, or financial or other condition of the Borrower, or (ii) a material impairment of the prospect of repayment of any portion of the Obligations; or (iii) a material impairment of the value or priority of Silicon’s security interests in the Collateral.

“Obligations” means all present and future Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to Silicon, whether evidenced by this Agreement or any note or other instrument or document, or otherwise, whether arising from an extension of credit, opening of a letter of credit, banker’s acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by Silicon in Borrower’s debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, attorney’s fees, expert witness fees, audit fees, letter of credit fees, collateral monitoring fees, closing fees, facility fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement or under any other Loan Documents.

“Other Property” means the following as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and all rights relating thereto: all present and future “commercial tort claims” (including without limitation any commercial tort claims identified in the Representations), “documents”, “instruments”, “promissory notes”, “chattel paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm products” and “money”; and all other goods and personal property of every kind, tangible and intangible, whether or not governed by the California Uniform Commercial Code.

“Permitted Liens” means the following:  (i) purchase money security interests in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes not yet payable; (iv) additional security interests and liens consented to in

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writing by Silicon, which consent may be withheld in its good faith business judgment; (v) security interests being terminated substantially concurrently with this Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not delinquent; (vii) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (i) or (ii) above, provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (viii) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods.  Silicon will have the right to require, as a condition to its consent under subparagraph (iv) above, that the holder of the additional security interest or lien sign an intercreditor agreement on Silicon’s then standard form, acknowledge that the security interest is subordinate to the security interest in favor of Silicon, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement. 

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity.

“Representations” means the written Representations and Warranties provided by Borrower to Silicon referred to in the Schedule.

“Reserves” means, as of any date of determination, such amounts as Silicon may from time to time establish and revise in its good faith business judgment, reducing the amount of Loans, Letters of Credit and other financial accommodations which would otherwise be available to Borrower under the lending formula(s) provided in the Schedule:  (a) to reflect events, conditions, contingencies or risks which, as determined by Silicon in its good faith business judgment, do or may adversely affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the security interests and other rights of Silicon in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Silicon’s good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to Silicon is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Silicon determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.

Other Terms.  All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with GAAP, consistently applied.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein.

9.     GENERAL PROVISIONS.

9.1  Interest Computation.  In computing interest on the Obligations, all checks, wire transfers and other items of payment received by Silicon (including proceeds of Accounts and payment of the Obligations in full) shall be deemed applied by Silicon on account of the Obligations on receipt by Silicon of immediately available funds, and, for purposes of the foregoing, any such funds received after 12:00 Noon on any day shall be deemed received on the next Business Day.  Silicon shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Silicon in its good faith business judgment, and Silicon may charge Borrower’s loan account for the amount of any item of payment which is returned to Silicon unpaid. 

9.2  Application of Payments.  All payments with respect to the Obligations may be applied, and in Silicon’s good faith business judgment reversed and re-applied, to the Obligations, in such order and manner as Silicon shall determine in its good faith business judgment.

9.3  Charges to Accounts.  Silicon may, in its discretion, require that Borrower pay monetary Obligations in cash to Silicon, or charge them to Borrower’s Loan account, in which event they will bear interest at the same rate applicable to the Loans.  Silicon may also, in its discretion, charge any monetary Obligations to Borrower’s Deposit Accounts maintained with Silicon.

9.4  Monthly Accountings.  Silicon shall provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement.  Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Silicon), unless Borrower notifies Silicon in writing to the contrary within 60 days after such account is rendered, describing the nature of any alleged errors or omissions.

9.5  Notices.  All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, addressed to Silicon or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one

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party to the other party.  Notices to Silicon shall be directed to the Commercial Finance Division, to the attention of the Division Manager or the Division Credit Manager.  All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one Business Day following delivery to the private delivery service, or two Business Days following the deposit thereof in the United States mail, with postage prepaid. 

9.6  Severability.  Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect.

9.7  Integration.  This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement.  There are no oral understandings, representations or agreements between the parties which are not set forth in this Agreement or in other written agreements signed by the parties in connection herewith.

9.8  Waivers; Indemnity.  The failure of Silicon at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other Loan Document shall not waive or diminish any right of Silicon later to demand and receive strict compliance therewith.  Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar.  None of the provisions of this Agreement or any other Loan Document shall be deemed to have been waived by any act or knowledge of Silicon or its agents or employees, but only by a specific written waiver signed by an authorized officer of Silicon and delivered to Borrower.  Borrower waives the benefit of all statutes of limitations relating to any of the Obligations or this Agreement or any other Loan Document, and Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by Silicon on which Borrower is or may in any way be liable, and notice of any action taken by Silicon, unless expressly required by this Agreement. Borrower hereby agrees to indemnify Silicon and its affiliates, subsidiaries, parent, directors, officers, employees, agents, and attorneys, and to hold them harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties, costs and expenses (including reasonable attorneys’ fees), of every kind, which they may sustain or incur based upon or arising out of any of the Obligations, or any relationship or agreement between Silicon and Borrower, or any other matter, relating to Borrower or the Obligations; provided that this indemnity shall  not extend to damages proximately caused by the indemnitee’s own gross negligence or willful misconduct.  Notwithstanding any provision in this Agreement to the contrary, the indemnity agreement set forth in this Section shall survive any termination of this Agreement and shall for all purposes continue in full force and effect.

9.9  No Liability for Ordinary Negligence.  Neither Silicon, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of Silicon, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon, but nothing herein shall relieve Silicon from liability for its own gross negligence or willful misconduct.

9.10  Amendment.  The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Silicon.

9.11  Time of Essence.  Time is of the essence in the performance by Borrower of each and every obligation under this Agreement.

9.12  Attorneys Fees and Costs.  Borrower shall reimburse Silicon for all reasonable attorneys’ fees and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys’ fees and costs Silicon incurs in order to do the following: prepare and negotiate this Agreement and all present and future documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower’s books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce Silicon’s security interest in, the Collateral; and otherwise represent Silicon in any litigation relating to Borrower.  In satisfying Borrower’s obligation hereunder to reimburse Silicon for attorneys fees, Borrower may, for convenience, issue checks directly to Silicon’s attorneys, Levy, Small & Lallas, but Borrower acknowledges and agrees that Levy, Small & Lallas is representing only Silicon and not Borrower in connection with this Agreement.  If either Silicon or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and attorneys’ fees, including (but not limited to) reasonable attorneys’ fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment.  All attorneys’ fees and costs to which Silicon may be

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entitled pursuant to this Paragraph shall immediately become part of Borrower’s Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.

9.13  Benefit of Agreement.  The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and Silicon; provided, however, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Silicon, and any prohibited assignment shall be void.  No consent by Silicon to any assignment shall release Borrower from its liability for the Obligations.

9.14  Joint and Several Liability.  If Borrower consists of more than one Person, their liability shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower.

9.15  Limitation of Actions.Any claim or cause of action by Borrower against Silicon, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within one year after the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based, and the service of a summons and complaint on an officer of Silicon, or on any other person authorized to accept service on behalf of Silicon, within thirty (30) days thereafter.  Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action.  The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Silicon in its sole discretion.  This provision shall survive any termination of this Loan Agreement or any other Loan Document.

9.16  Paragraph Headings; Construction.  Paragraph headings are only used in this Agreement for convenience.  Borrower and Silicon acknowledge that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Silicon or Borrower under any rule of construction or otherwise.

9.17  Governing Law; Jurisdiction; Venue.  This Agreement and all acts and transactions hereunder and all rights and obligations of Silicon and Borrower shall be governed by the laws of the State of California.  As a material part of the consideration to Silicon to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Silicon’s option, be litigated in courts located within California, and that the exclusive venue therefor shall be Santa Clara County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding.

9.18  Mutual Waiver of Jury Trial.  BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

Borrower:		Silicon:
UNIFY CORPORATION		SILICON VALLEY BANK
By	/s/ Todd E. Wille	By	/s/ Kevin Gillis
	President or Vice President	Title		Vice President
By	/s/ Peter DiCorti
	Secretary or Ass’t Secretary

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Silicon Valley Bank

Schedule to

Loan and Security Agreement

Borrower:	Unify Corporation
Address:	2101 Arena Blvd., Suite 100
	Sacramento, California  95834
Date:	June 6, 2003

This Schedule forms an integral part of the Loan and Security Agreement between Silicon Valley Bank and the above-borrower of even date.

1.	CREDIT LIMIT
	(Section 1.1):	An amount not to exceed the lesser of:  (i) $750,000 at any one time outstanding (the “Maximum Credit Limit”); or (ii) 75% (the “Advance Rate”) of the amount of Borrower’s Eligible Accounts (as defined in Section 8 above).
		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.
	Letter of Credit Sublimit
	(Section 1.6):	$750,000
	Cash Management
	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 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

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	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.

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2.	INTEREST.
	Interest Rate (Section 1.2):	A rate equal to the “Prime Rate” in effect from time to time, plus 2% per annum, provided that, for purposes of calculating interest hereunder, the Prime Rate on each day shall not be less than 4.25% 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:	$15,000 with respect to the Non-Exim Loan and $15,000 with respect to the Exim Loan, for a total of $30,000, payable concurrently herewith.
	Collateral Monitoring
	Fee:	$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):	One year from the date of this Agreement.
5.	FINANCIAL COVENANTS
	(Section 5.1):	Borrower shall comply with each of the following covenants:
	Minimum Total Cash:	Borrower shall maintain total cash of not less than $750,000 as of the end of each month.
	Minimum Cash
	at Silicon:	Borrower shall, at all times, maintain cash of not less than $500,000 on deposit with Silicon.

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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, 2003	$100,000
June, 2003	$100,000
July, 2003	$700,000
August, 2003	$100,000
September, 2003	$100,000
October, 2003	$700,000
November, 2003	$100,000
December, 2003	$100,000
January, 2004	$1,400,000
February, 2004	$100,000
March 2004	$100,000
April, 2004	$1,800,000

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.

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6.	REPORTING.
	(Section 5.3):	Borrower shall provide Silicon with the following:
		1.	Weekly, 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 30 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 30 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 prior to 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.

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7.	BORROWER INFORMATION:
		Borrower represents and warrants that the information set forth in the Representations and Warranties of the Borrower dated _______________, 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. 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)	Exim Agreement; Cross-Collateralization; Cross-Default.  Silicon and the Borrower are parties to that certain Loan and Security Agreement (Exim Program) of even date (the “Exim Agreement”).  Both this Agreement and the Exim Agreement shall continue in full force and effect, and all rights and remedies under this Agreement and the Exim Agreement are cumulative.  The term “Obligations” as used in this Agreement and in the Exim Agreement shall include without limitation the obligation to pay when due all Loans made pursuant to this Agreement (the “Non-Exim Loans”) and all interest thereon and the obligation to pay when due all Loans made pursuant to the Exim Agreement (the “Exim Loans”) and all interest thereon.  Without limiting the generality of the foregoing, all “Collateral” as defined in this Agreement and as defined in the Exim Agreement shall secure all Exim Loans and all Non-

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	Exim Loans and all interest thereon, and all other Obligations.  Any Event of Default under this Agreement shall also constitute an Event of Default under the Exim Agreement, and any Event of Default under the Exim Agreement shall also constitute an Event of Default under this Agreement.  In the event Silicon assigns its rights under the Exim Agreement and/or under any Note evidencing Exim Loans and/or its rights under this Agreement and/or under any Note evidencing Non-Exim Loans, to any third party, including without limitation the Export-Import Bank of the United States (“Exim Bank”), whether before or after the occurrence of any Event of Default, Silicon shall have the right (but not any obligation), in its sole discretion, to allocate and apportion Collateral to the Agreement and/or Note assigned and to specify the priorities of the respective security interests in such Collateral between itself and the assignee, all without notice to or consent of the Borrower.
(d)	Streamline Provisions.
	(1)	Borrower may, at its option, elect not to have any Non-Exim Loans or Letters of Credit outstanding 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.  On or prior to the Business Day immediately preceding commencement of the Streamline Period Borrower will pay to Silicon, by wire transfer, an amount sufficient to repay in full all outstanding Non-Exim Loans, all accrued interest thereon.  Borrower may not elect to have a Streamline Period go into effect if, at the date the Streamline Period is to go into effect, there are any outstanding Letters of Credit or the combined amount of the required FX Reserves and Cash Management Reserves exceeds $250,000.
	(2)	During the Streamline Period, no Non-Exim Loans may be made, no Letters of Credit may be outstanding, and the combined amount of the required FX Reserves and Cash Management Reserves may not exceed $250,000.
	(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).

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	(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 Non-Exim 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 daily reporting of transactions and daily 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 to Silicon, on a monthly basis, in such form as Silicon shall specify, within 30 days after the end of each month.
(e)	Warrants.  Borrower shall provide Silicon with seven-year warrants to purchase shares of common stock of the Borrower, on the terms set forth in the Warrant to Purchase Stock and related documents being executed concurrently with this Agreement.  Said warrants shall be deemed fully earned on the date hereof, shall be in addition to all interest and other fees, and shall be non-refundable.
(f)	Condition Precedent-UCC Filings and Searches.  Borrower agrees that no Loans will be made and no other credit accommodations will be provided until UCC-1 Financing Statements with respect to Borrower have been filed of record in appropriate jurisdictions and searches showing such filing and no conflicting filings have been received by Silicon.

Borrower:		Silicon:
UNIFY CORPORATION		SILICON VALLEY BANK
By	/s/ Todd E. Wille	By	/s/ Kevin Gillis
	President or Vice President	Title		Vice President
By	/s/ Peter DiCorti
	Secretary or Ass’t Secretary

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Silicon Valley Bank

Loan and Security Agreement

(Exim Program)

Borrower:	Unify Corporation
Address:	2101 Arena Blvd., Suite 100
	Sacramento, California  95834
Date:	June 6, 2003

THIS LOAN AND SECURITY AGREEMENT (EXIM PROGRAM) is entered into on the above date between SILICON VALLEY BANK (“Silicon”), whose address is 3003 Tasman Drive, Santa Clara, California  95054 and the borrower(s) named above (jointly and severally, the “Borrower”), whose chief executive office is located at the above address (“Borrower’s Address”). The Schedule to this Agreement (the “Schedule”) shall for all purposes be deemed to be a part of this Agreement, and the same is an integral part of this Agreement.  (Definitions of certain terms used in this Agreement are set forth in Section 8 below.)

1.     LOANS.

1.1  Loans.  Silicon will make loans to Borrower (the “Loans”) up to the amounts (the “Credit Limit”) shown on the Schedule, provided no Default or Event of Default has occurred and is continuing, and subject to deduction of Reserves for accrued interest and such other Reserves as Silicon deems proper from time to time in its good faith business judgment.

1.2  Interest.  All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement.  Interest shall be payable monthly, on the last day of the month.  Interest may, in Silicon’s discretion, be charged to Borrower’s loan account, and the same shall thereafter bear interest at the same rate as the other Loans.  Silicon may, in its discretion, charge interest to Borrower’s Deposit Accounts maintained with Silicon.

1.3  Overadvances.  If at any time or for any reason the total of all outstanding Loans and all other monetary Obligations exceeds the Credit Limit (an “Overadvance”), Borrower shall immediately pay the amount of the excess to Silicon, without notice or demand.  Without limiting Borrower’s obligation to repay to Silicon the amount of any Overadvance, Borrower agrees to pay Silicon interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

1.4  Fees.  Borrower shall pay Silicon the fees shown on the Schedule, which are in addition to all interest and other sums payable to Silicon and are not refundable.

1.5 Loan Requests. To obtain a Loan, Borrower shall make a request to Silicon by facsimile or telephone. Loan requests received after 12:00 Noon will not be considered by Silicon until the next Business Day. Silicon may rely on any telephone request for a Loan given by a person whom Silicon believes is an authorized representative of Borrower, and Borrower will indemnify Silicon for any loss Silicon suffers as a result of that reliance.

1.6  Letters of Credit.   At the request of Borrower, Silicon may, in its good faith business judgment, issue or arrange for the issuance of letters of credit for the account of Borrower, in each case in form and substance satisfactory to Silicon in its sole discretion (collectively, “Letters of Credit”).  The aggregate face amount of all Letters of Credit from time to time outstanding shall not exceed the amount shown on the Schedule (the “Letter of Credit Sublimit”), and shall be reserved against Loans which would otherwise be available hereunder, 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. Borrower shall pay all bank charges (including charges of Silicon) for the issuance of Letters of Credit, together with such additional fee as Silicon’s

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letter of credit department shall charge in connection with the issuance of the Letters of Credit.  Any payment by Silicon under or in connection with a Letter of Credit shall constitute a Loan hereunder on the date such payment is made.  Each Letter of Credit shall have an expiry date no later than thirty days prior to the Maturity Date.  Borrower hereby agrees to indemnify and hold Silicon harmless from any loss, cost, expense, or liability, including payments made by Silicon, expenses, and reasonable attorneys’ fees incurred by Silicon arising out of or in connection with any Letters of Credit.  Borrower agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Silicon and opened for Borrower’s account or by Silicon’s interpretations of any Letter of Credit issued by Silicon for Borrower’s account, and Borrower understands and agrees that Silicon shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto.  Borrower understands that Letters of Credit may require Silicon to indemnify the issuing bank for certain costs or liabilities arising out of claims by Borrower against such issuing bank.  Borrower hereby agrees to indemnify and hold Silicon harmless with respect to any loss, cost, expense, or liability incurred by Silicon under any Letter of Credit as a result of Silicon’s indemnification of any such issuing bank.  The provisions of this Loan Agreement, as it pertains to Letters of Credit, and any other Loan Documents relating to Letters of Credit are cumulative.

2.  SECURITY INTEREST. To secure the payment and performance of all of the Obligations when due, Borrower hereby grants to Silicon a security interest in all of the following (collectively, the “Collateral”):  all right, title and interest of Borrower in and to all of the following, whether now owned or hereafter arising or acquired and wherever located: all Accounts; all Inventory; all Equipment; all Deposit Accounts; all General Intangibles (including without limitation all Intellectual Property); all Investment Property; all Other Property; and any and all claims, rights and interests in any of the above, and all guaranties and security for any of the above, and all substitutions and replacements for, additions, accessions, attachments, accessories, and improvements to, and proceeds  (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties) of, any and all of the above, and all Borrower’s books relating to any and all of the above.

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.

In order to induce Silicon to enter into this Agreement and to make Loans, Borrower represents and warrants to Silicon as follows, and Borrower covenants that the following representations will continue to be true, and that Borrower will at all times comply with all of the following covenants, throughout the term of this Agreement and until all Obligations have been paid and performed in full:

3.1  Corporate Existence and Authority.  Borrower is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation.  Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would result in a Material Adverse Change.  The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors’ rights generally), and (iii) do not violate Borrower’s articles or certificate of incorporation, or Borrower’s by-laws, or any law or any  material agreement or instrument which is binding upon Borrower or its property, and (iv) do not constitute grounds for acceleration of any material indebtedness or obligation under any agreement or instrument which is binding upon Borrower or its property.

3.2  Name; Trade Names and Styles.  The name of Borrower set forth in the heading to this Agreement is its correct name.  Listed in the Representations are all prior names of Borrower and all of Borrower’s present and prior trade names.  Borrower shall give Silicon 30 days’ prior written notice before changing its name or doing business under any other name.  Borrower has complied, and will in the future comply, in all material respects, with all laws relating to the conduct of business under a fictitious business name, except where the failure to so comply would not reasonably be expected to result in a Material Adverse Change.

3.3  Place of Business; Location of Collateral.  The address set forth in the heading to this Agreement is Borrower’s chief executive office.  In addition, Borrower has places of business and Collateral is located only at the locations set forth in the Representations.  Borrower will give Silicon at least 30 days prior written notice before opening any additional place of business, changing its chief executive office, or moving any of the Collateral to a location other than Borrower’s Address or one of the locations set forth in the Representations, except that Borrower may maintain sales offices in the ordinary course of business at which not more than a total of $15,000 fair market value of Equipment is located.

3.4  Title to Collateral; Perfection; Permitted Liens.

(a)  Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment which are leased to Borrower.  The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens.  Silicon now has, and will continue to have, a

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first-priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend the interests of Silicon and the Collateral against all claims of others.

(b)   Borrower has set forth in the Representations all of Borrower’s Deposit Accounts, and Borrower will give Silicon five Business Days advance written notice before establishing any new Deposit Accounts and will cause the institution where any such new Deposit Account is maintained to execute and deliver to Silicon a control agreement in form sufficient to perfect Silicon’s security interest in the Deposit Account and otherwise satisfactory to Silicon in its good faith business judgment.  Nothing herein limits any requirements which may be set forth in the Schedule as to where Deposit Accounts will be maintained.

(c) In the event that Borrower shall at any time after the date hereof have any commercial tort claims against others, which it is asserting or intends to assert, and in which the potential recovery exceeds $100,000, Borrower shall promptly notify Silicon thereof in writing and provide Silicon with such information regarding the same as Silicon shall request (unless providing such information would waive the Borrower’s attorney-client privilege).  Such notification to Silicon shall constitute a grant of a security interest in the commercial tort claim and all proceeds thereof to Silicon, and Borrower shall execute and deliver all such documents and take all such actions as Silicon shall request in connection therewith.

(d)   None of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture.  Borrower is not and will not become a lessee under any real property lease pursuant to which the lessor may obtain any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will prohibit, restrain or impair Borrower’s right to remove any Collateral from the leased premises.  Whenever any Collateral is located upon premises in which any third party has an interest, Borrower shall, whenever requested by Silicon, use its best efforts to cause such third party to execute and deliver to Silicon, in form acceptable to Silicon, such waivers and subordinations as Silicon shall specify in its good faith business judgment.  Borrower will keep in full force and effect, and will comply with all material terms of, any lease of real property where any of the Collateral now or in the future may be located.

3.5  Maintenance of Collateral.  Borrower will maintain the Collateral in good working condition (ordinary wear and tear excepted), and Borrower will not use the Collateral for any unlawful purpose.  Borrower will immediately advise Silicon in writing of any material loss or damage to the Collateral.

3.6  Books and Records.  Borrower has maintained and will maintain at Borrower’s Address complete and accurate books and records, comprising an accounting system in accordance with GAAP.

3.7  Financial Condition, Statements and Reports.  All financial statements now or in the future delivered to Silicon have been, and will be, prepared in conformity with GAAP and now and in the future will fairly present the results of operations and financial condition of Borrower, in accordance with GAAP, at the times and for the periods therein stated.  Between the last date covered by any such statement provided to Silicon and the date hereof, there has been no Material Adverse Change.

3.8  Tax Returns and Payments; Pension Contributions.  Borrower has timely filed, and will timely file, all required tax returns and reports, and Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by Borrower.  Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower’s obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies Silicon in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral.  Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

3.9  Compliance with Law.  Borrower has, to the best of its knowledge, complied, and will comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations applicable to Borrower, including, but not limited to, those relating to Borrower’s ownership of real or personal property, the conduct and licensing of Borrower’s business, and all environmental matters.

3.10  Litigation.  There is no claim, suit, litigation, proceeding or investigation pending or (to best of Borrower’s knowledge) threatened against or affecting Borrower in any court or before any governmental agency (or any basis therefor known to Borrower) which could reasonably be expected to result, either separately or in the aggregate, in any Material Adverse Change.  Borrower will promptly inform Silicon in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted against Borrower involving any single claim of $50,000 or more, or involving $100,000  or more in the aggregate.

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3.11  Use of Proceeds.  All proceeds of all Loans shall be used solely for lawful business purposes.  Borrower is not purchasing or carrying any “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry any “margin stock” or to extend credit to others for the purpose of purchasing or carrying any “margin stock.”

4.  ACCOUNTS.

4.1  Representations Relating to Accounts. Borrower represents and warrants to Silicon as follows:  Each Account with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, (i) represent an undisputed bona fide existing unconditional obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the rendition of services, or the non-exclusive licensing of Intellectual Property, in the ordinary course of Borrower’s business, and (ii) meet the Minimum Eligibility Requirements set forth in  Section 8 below.

4.2  Representations Relating to Documents and Legal Compliance.  Borrower represents and warrants to Silicon as follows:  All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Accounts are and shall be true and correct and all such invoices, instruments and other documents and all of Borrower’s books and records are and shall be genuine and in all respects what they purport to be.  All sales and other transactions underlying or giving rise to each Account shall comply in all material respects with all applicable laws and governmental rules and regulations.  To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Accounts are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms.

4.3  Schedules and Documents relating to Accounts. Borrower shall deliver to Silicon transaction reports and schedules of collections, as provided in the Schedule, on Silicon’s standard forms; provided, however, that Borrower’s failure to execute and deliver the same shall not affect or limit Silicon’s security interest and other rights in all of Borrower’s Accounts, nor shall Silicon’s failure to advance or lend against a specific Account affect or limit Silicon’s security interest and other rights therein. If requested by Silicon, Borrower shall furnish Silicon with copies (or, at Silicon’s request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts, and Borrower warrants the genuineness of all of the foregoing.  Borrower shall also furnish to Silicon an aged accounts receivable trial balance as provided in the Schedule.  In addition, Borrower shall deliver to Silicon, on its request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary indorsements, and copies of all credit memos.

4.4  Collection of Accounts.  Borrower shall have the right to collect all Accounts, unless and until a Default or an Event of Default has occurred and is continuing.  Whether or not an Event of Default has occurred and is continuing, Borrower shall hold all payments on, and proceeds of, Accounts in trust for Silicon, and Borrower shall immediately deliver all such payments and proceeds to Silicon in their original form, duly endorsed, to be applied to the Obligations in such order as Silicon shall determine.  Silicon may, in its good faith business judgment, require that all proceeds of Collateral be deposited by Borrower into a lockbox account, or such other “blocked account” as Silicon may specify, pursuant to a blocked account agreement in such form as Silicon may specify in its good faith business judgment.   If the Steamline Period is in effect, Borrower shall nevertheless continue to remit to Silicon all payments on, and proceeds of, Accounts as provided above and, if a lockbox account or other blocked account has been established, Borrower shall continue to cause all such payments and proceeds to be deposited into said lockbox account or other blocked account, but, if the Steamline Period is in effect and no Default or Event of Default has occurred and is continuing, Silicon shall, promptly after receipt of such payments and proceeds in immediately available funds, deposit the same into a Deposit Account of Borrower maintained at Silicon, rather than applying the same to the Obligations.

4.5.  Remittance of Proceeds. All proceeds arising from the disposition of any Collateral shall be delivered, in kind, by Borrower to Silicon in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations in such order as Silicon shall determine; provided that, if no Default or Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Silicon the proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower in good faith in an arm’s length transaction for an aggregate purchase price of $25,000 or less (for all such transactions in any fiscal year).  Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower’s other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Silicon.  Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.

4.6  Disputes.  Borrower shall notify Silicon promptly of all disputes or claims relating to Accounts on the regular reports provided to Silicon.  Borrower shall not forgive (completely or partially), compromise or settle any Account for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arm’s length transactions, which

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are reported to Silicon on the regular reports provided to Silicon; (ii) no Default or Event of Default has occurred and is continuing; and (iii) taking into account all such discounts, settlements and forgiveness, the total outstanding Loans will not exceed the Credit Limit.

4.7  Returns.  Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower, Borrower shall promptly determine the reason for such return and promptly issue a credit memorandum to the Account Debtor in the appropriate amount.  In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall hold the returned Inventory in trust for Silicon, and immediately notify Silicon of the return of the Inventory.

4.8  Verification.  Silicon may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, by means of mail, telephone or otherwise, either in the name of Borrower or Silicon or such other name as Silicon may choose.

4.9  No Liability. Silicon shall not be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Silicon be deemed to be responsible for any of Borrower’s obligations under any contract or agreement giving rise to an Account.  Nothing herein shall, however, relieve Silicon from liability for its own gross negligence or willful misconduct.

5.  ADDITIONAL DUTIES OF BORROWER.

5.1  Financial and Other Covenants.  Borrower shall at all times comply with the financial and other covenants set forth in the Schedule.

5.2  Insurance.  Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon, in such form and amounts as Silicon may reasonably require and that are customary and in accordance with standard practices for Borrower’s industry and locations, and Borrower shall provide evidence of such insurance to Silicon.  All such insurance policies shall name Silicon as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon.  Upon receipt of the proceeds of any such insurance, Silicon shall apply such proceeds in reduction of the Obligations as Silicon shall determine in its good faith business judgment, except that, provided no Default or Event of Default has occurred and is continuing, Silicon shall release to Borrower insurance proceeds with respect to Equipment totaling less than $100,000, which shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid.  Silicon may require reasonable assurance that the insurance proceeds so released will be so used.  If Borrower fails to provide or pay for any insurance, Silicon may, but is not obligated to, obtain the same at Borrower’s expense.  Borrower shall promptly deliver to Silicon copies of all material reports made to insurance companies.

5.3  Reports.  Borrower, at its expense, shall provide Silicon with the written reports set forth in the Schedule, and such other written reports with respect to Borrower (including budgets, sales projections, operating plans and other financial documentation), as Silicon shall from time to time specify in its good faith business judgment.

5.4  Access to Collateral, Books and Records.  At reasonable times, and on one Business Day’s notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower’s books and records.  Silicon shall take reasonable steps to keep confidential all information obtained in any such inspection or audit, but Silicon shall have the right to disclose any such information to its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or other legal process.  The foregoing inspections and audits shall be at Borrower’s expense and the charge therefor shall be $750 per person per day (or such higher amount as shall represent Silicon’s then current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Silicon schedule an audit more than 10 days in advance, and Borrower seeks to reschedules the audit with less than 10 days written notice to Silicon, then (without limiting any of Silicon’s rights or remedies), Borrower shall pay Silicon a cancellation fee of $1,000 plus any out-of-pocket expenses incurred by Silicon, to compensate Silicon for the anticipated costs and expenses of the cancellation.

5.5  Negative Covenants.  Except as may be permitted in the Schedule, Borrower shall not, without Silicon’s prior written consent (which shall be a matter of its good faith business judgment), do any of the following:  (i) merge or consolidate with another corporation or entity; (ii) acquire any assets, except in the ordinary course of business; (iii) enter into any other transaction outside the ordinary course of business; (iv) sell or transfer any Collateral, except for the sale of finished Inventory in the ordinary course of Borrower’s business, and except for the sale of obsolete or unneeded Equipment in the ordinary course of business; (v) store any Inventory or other Collateral with any warehouseman or other third party; (vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii) make any loans of any money or other assets; (viii) incur any debts, outside the ordinary course of business, which would result in a Material Adverse Change; (ix) guarantee or otherwise become liable with respect to the obligations of another party or entity; (x) pay or declare any

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dividends on Borrower’s stock (except for dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower’s stock; (xii) make any change in Borrower’s capital structure which would result in a Material Adverse Change; or (xiii) engage, directly or indirectly, in any business other than the businesses currently engaged in by Borrower or reasonably related thereto; or (xiv) dissolve or elect to dissolve.  Transactions permitted by the foregoing provisions of this Section are only permitted if no Default or Event of Default would occur as a result of such transaction.

5.6  Litigation Cooperation.  Should any third-party suit or proceeding be instituted by or against Silicon with respect to any Collateral or relating to Borrower, Borrower shall, without expense to Silicon, make available Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Silicon may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding.

5.7  Further Assurances.  Borrower agrees, at its expense, on request by Silicon, to execute all documents and take all actions, as Silicon, may, in its good faith business judgment, deem necessary or useful in order to perfect and maintain Silicon’s perfected first-priority security interest in the Collateral (subject to Permitted Liens), and in order to fully consummate the transactions contemplated by this Agreement.

6.   TERM.

6.1  Maturity Date.  This Agreement shall continue in effect until the maturity date set forth on the Schedule (the “Maturity Date”), subject to Section 6.3 below.

6.2  Early Termination.  This Agreement may be terminated prior to the Maturity Date as follows:  (i) by Borrower, effective three Business Days after written notice of termination is given to Silicon; or (ii) by Silicon at any time after the occurrence and during the continuance of an Event of Default, without notice, effective immediately.  If this Agreement is terminated by Borrower or by Silicon under this Section 6.2, Borrower shall pay to Silicon a termination fee as set forth in the Non-Exim Agreement.

6.3  Payment of Obligations.  On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable.  Without limiting the generality of the foregoing, if on the Maturity Date,  or on any earlier effective date of termination, there are any outstanding Letters of Credit issued by Silicon or issued by another institution based upon an application, guarantee, indemnity or similar agreement on the part of Silicon, then on such date Borrower shall provide to Silicon cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit plus all interest, fees and cost due or to become due in connection therewith (as estimated by Silicon in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit, pursuant to Silicon’s then standard form cash pledge agreement.  Notwithstanding any termination of this Agreement, all of Silicon’s security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that Silicon may, in its sole discretion, refuse to make any further Loans after termination.  No termination shall in any way affect or impair any right or remedy of Silicon, nor shall any such termination relieve Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full.  Upon payment and performance in full of all the Obligations and termination of this Agreement, Silicon shall promptly terminate its financing statements with respect to the Borrower and deliver to Borrower such other documents as may be required to fully terminate Silicon’s security interests.

7.  EVENTS OF DEFAULT AND REMEDIES.

7.1  Events of Default.  The  occurrence of any of the following events shall constitute an “Event of Default” under this Agreement, and Borrower shall give Silicon immediate written notice thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to Silicon by Borrower or any of Borrower’s officers, employees or agents, now or in the future, shall be untrue or misleading in a material respect when made or deemed to be made; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Credit Limit; or (d) Borrower shall fail to comply with any of the financial covenants set forth in the Schedule, or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured, or shall fail to permit Silicon to conduct an inspection or audit as specified in Section 5.4 hereof; or (e) Borrower shall fail to perform any other non-monetary Obligation (including without limitation the reporting obligations in Section 4.3 of this Agreement and Section 6 of the Schedule), which failure is not cured within five Business Days after the date due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within 15 days after the occurrence of the same; or (g) any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or waived in writing by the holder of the Permitted Lien; or (h) Borrower breaches any material contract or obligation, which has resulted or may reasonably be expected to result in a Material Adverse Change; or (i) Dissolution, termination of existence, insolvency or

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business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (j) the commencement of any proceeding against Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 30 days after the date commenced; or (k) revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (l) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (m) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations other than as permitted in the applicable subordination agreement, or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (n) there shall be a change in the record or beneficial ownership of an aggregate of more than 20% of the outstanding shares of stock of Borrower, in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof, without the prior written consent of Silicon; or (o) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p) a Material Adverse Change shall occur.  Silicon may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred and is continuing.

7.2  Remedies.  Upon the occurrence and during the continuance of any Event of Default, and at any time thereafter, Silicon, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other Loan Document; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Silicon without judicial process to enter onto any of Borrower’s premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as Silicon deems it necessary, in its good faith business judgment, in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Silicon seek to take possession of any of the Collateral by court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Silicon retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to Silicon at places designated by Silicon which are reasonably convenient to Silicon and Borrower, and to remove the Collateral to such locations as Silicon may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Silicon shall have the right to use Borrower’s premises, vehicles, hoists, lifts, cranes, and other Equipment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time Silicon obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale.  Silicon shall have the right to conduct such disposition on Borrower’s premises without charge, for such time or times as Silicon deems reasonable, or on Silicon’s premises, or elsewhere and the Collateral need not be located at the place of disposition.  Silicon may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition.  Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Accounts and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrower’s name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Silicon’s good faith business judgment, to grant extensions of time to pay, compromise claims and settle Accounts and the like for less than face value; (h) Offset against any sums in any of Borrower’s general, special or other Deposit Accounts with Silicon against any or all of the Obligations; and (i) Demand and receive possession of any of Borrower’s federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto.  All reasonable attorneys’ fees, expenses, costs, liabilities and obligations incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be

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due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.  Without limiting any of Silicon’s rights and remedies, from and after the occurrence and during the continuance of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional four percent per annum (the “Default Rate”).

7.3  Standards for Determining Commercial Reasonableness.  Borrower and Silicon agree that a sale or other disposition (collectively, “sale”) of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable:  (i) Notice of the sale is given to Borrower at least ten days prior to the sale, and, in the case of a public sale, notice of the sale is published at least five days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) Notice of the sale describes the collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by Silicon, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m;  (v) Payment of the purchase price in cash or by cashier’s check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, Silicon may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same.  Silicon shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable.

7.4  Power of Attorney.  Upon the occurrence and during the continuance of any Event of Default, without limiting Silicon’s other rights and remedies, Borrower grants to Silicon an irrevocable power of attorney coupled with an interest, authorizing and permitting Silicon (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrower’s expense, to do any or all of the following, in Borrower’s name or otherwise, but Silicon agrees that if it exercises any right hereunder, it will do so in good faith and in a commercially reasonable manner:  (a) Execute on behalf of Borrower any documents that Silicon may, in its good faith business judgment, deem advisable in order to perfect and maintain Silicon’s security interest in the Collateral, or in order to exercise a right of Borrower or Silicon, or in order to fully consummate all the transactions contemplated under this Agreement, and all other Loan Documents; (b) Execute on behalf of Borrower, any invoices relating to any Account, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic’s, materialman’s or other lien, or assignment or satisfaction of mechanic’s, materialman’s or other lien; (c) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into Silicon’s possession; (d) Endorse all checks and other forms of remittances received by Silicon; (e) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (f) Grant extensions of time to pay, compromise claims and settle Accounts and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (g) Pay any sums required on account of Borrower’s taxes or to secure the release of any liens therefor, or both; (h) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (i) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give Silicon the same rights of access and other rights with respect thereto as Silicon has under this Agreement; and (j) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other Loan Documents.  Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.  In no event shall Silicon’s rights under the foregoing power of attorney or any of Silicon’s other rights under this Agreement be deemed to indicate that Silicon is in control of the business, management or properties of Borrower.

7.5  Application of Proceeds.  All proceeds realized as the result of any sale of the Collateral shall be applied by Silicon first to the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Silicon in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Silicon shall determine in its sole discretion.  Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Silicon for any deficiency.  If, Silicon, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Silicon shall have the option, exercisable at any time, in its good faith business judgment, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Silicon of the cash therefor.

7.6  Remedies Cumulative.  In addition to the rights and remedies set forth in this Agreement, Silicon shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Silicon and Borrower, and all of such rights and remedies are cumulative and none is exclusive.  Exercise or partial exercise by Silicon of one or more of its rights or remedies shall not be deemed an election, nor bar Silicon from subsequent exercise or partial exercise of any other rights or remedies.  The failure or delay of Silicon to exercise any rights or remedies shall not operate as a waiver

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thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed.

8.     DEFINITIONS.  As used in this Agreement, the following terms have the following meanings:

“Account Debtor” means the obligor on an Account.

“Accounts” means all present and future “accounts” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all accounts receivable and other sums owing to Borrower.

 “Affiliate” means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any Person controlling, controlled by or under common control with such Person.

“Business Day” means a day on which Silicon is open for business.

“Code” means the Uniform Commercial Code as adopted and in effect in the State of California from time to time.

“Collateral” has the meaning set forth in Section 2 above.

“continuing” and “during the continuance of” when used with reference to a Default or Event of Default means that the Default or Event of Default has occurred and has not been either waived in writing by Silicon or cured within any applicable cure period.

“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.

“Default Rate” has the meaning set forth in Section 7.2 above.

“Deposit Accounts” means all present and future “deposit accounts” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation  all general and special bank accounts, demand accounts, checking accounts, savings accounts and certificates of deposit.

 “Eligible Accounts” means Accounts and General Intangibles arising in the ordinary course of Borrower’s business from the sale of goods or the rendition of services, or the non-exclusive licensing of Intellectual Property, which constitutes “Eligible Export-Related Accounts Receivable” (as defined in the Exim Borrower Agreement referred to in the Schedule), and which Silicon, in its good faith business judgment, shall deem eligible for borrowing.  Without limiting the fact that the determination of which Accounts are eligible for borrowing is a matter of Silicon’s good faith business judgment, the following (the “Minimum Eligibility Requirements”) are the minimum requirements for a Account to be an Eligible Account:  (i) the Account must not have sales terms exceeding net 90 days from invoice date, and the Account must not be more than 60 days past the invoice due date (unless insured through EXIM Bank insurance in form and amount acceptable to Silicon in its good faith business judgment, in which case said 60-day period shall be 90 days) (the “Eligibility Period”) and must be supported by a written purchase order, (ii) the Account must not represent progress billings, or be due under a fulfillment or requirements contract with the Account Debtor, (iii) the Account must not be subject to any contingencies (including Accounts arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be conditional), (iv) the Account must not be owing from an Account Debtor with whom Borrower has any dispute (whether or not relating to the particular Account), (v) the Account must not be owing from an Affiliate of Borrower, (vi) the Account must not be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not acceptable to Silicon, or which, fails or goes out of a material portion of its business, (vii) [intentionally omitted], (viii) [intentionally omitted],  (ix) the Account must not be owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise (but, in such case, the Account will be deemed not eligible only to the extent of any amounts owed by Borrower to such Account Debtor). Accounts owing from one Account Debtor will not be deemed Eligible Accounts to the extent they exceed 35% of the total Accounts outstanding.  In addition, if more than 50% of the Accounts owing from an Account Debtor are outstanding for a period longer than their Eligibility Period (without regard to unapplied credits) or are otherwise not eligible Accounts, then all Accounts owing from that Account Debtor will be deemed ineligible for borrowing.  Silicon may, from time to time, in its good faith business judgment, revise the Minimum Eligibility Requirements, upon written notice to Borrower.

 “Equipment” means all present and future “equipment” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“Event of Default” means any of the events set forth in Section 7.1 of this Agreement.

“GAAP” means generally accepted accounting principles consistently applied.

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“General Intangibles” means all present and future “general intangibles” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all Intellectual Property, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“good faith business judgment” means honesty in fact and good faith (as defined in Section 1201 of the Code) in the exercise of Silicon’s business judgment.

“including” means including (but not limited to).

 “Intellectual Property” means all present and future (a) copyrights, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, (b) trade secret rights, including all rights to unpatented inventions and know-how, and confidential information; (c) mask work or similar rights available for the protection of semiconductor chips; (d) patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same; (e) trademarks, servicemarks, trade styles, and trade names, whether or not any of the foregoing are registered, and all applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by any such trademarks; (f) computer software and computer software products; (g) designs and design rights; (h) technology; (i) all claims for damages by way of past, present and future infringement of any of the rights included above; (j) all licenses or other rights to use any property or rights of a type described above.

“Inventory” means all present and future “inventory” as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation  all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

“Investment Property” means all present and future investment property, securities, stocks, bonds, debentures, debt securities, partnership interests, limited liability company interests, options, security entitlements, securities accounts, commodity contracts, commodity accounts, and all financial assets held in any securities account or otherwise, and all options and warrants to purchase any of the foregoing, wherever located, and all other securities of every kind, whether certificated or uncertificated.

“Loan Documents” means, collectively, this Agreement, the Representations, and all other present and future documents, instruments and agreements between Silicon and Borrower, including, but not limited to those relating to this Agreement, and all amendments and modifications thereto and replacements therefor.

“Material Adverse Change” means any of the following: (i) a material adverse change in the business, operations, or financial or other condition of the Borrower, or (ii) a material impairment of the prospect of repayment of any portion of the Obligations; or (iii) a material impairment of the value or priority of Silicon’s security interests in the Collateral.

“Obligations” means all present and future Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to Silicon, whether evidenced by this Agreement or any note or other instrument or document, or otherwise, whether arising from an extension of credit, opening of a letter of credit, banker’s acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by Silicon in Borrower’s debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, attorney’s fees, expert witness fees, audit fees, letter of credit fees, collateral monitoring fees, closing fees, facility fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement or under any other Loan Documents.

“Other Property” means the following as defined in the California Uniform Commercial Code in effect on the date hereof with such additions to such term as may hereafter be made, and all rights relating thereto: all present and future “commercial tort claims” (including without limitation any commercial tort claims identified in the Representations), “documents”, “instruments”, “promissory notes”, “chattel paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm products” and “money”; and all other goods and personal property of every kind, tangible and intangible, whether or not governed by the California Uniform Commercial Code.

“Permitted Liens” means the following:  (i) purchase money security interests in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes not yet payable; (iv) additional security interests and liens consented to in writing by Silicon, which consent may be withheld in its good faith business judgment; (v) security interests being terminated

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substantially concurrently with this Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not delinquent; (vii) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (i) or (ii) above, provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (viii) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods.  Silicon will have the right to require, as a condition to its consent under subparagraph (iv) above, that the holder of the additional security interest or lien sign an intercreditor agreement on Silicon’s then standard form, acknowledge that the security interest is subordinate to the security interest in favor of Silicon, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity.

“Representations” means the written Representations and Warranties provided by Borrower to Silicon referred to in the Schedule.

“Reserves” means, as of any date of determination, such amounts as Silicon may from time to time establish and revise in its good faith business judgment, reducing the amount of Loans, Letters of Credit and other financial accommodations which would otherwise be available to Borrower under the lending formula(s) provided in the Schedule:  (a) to reflect events, conditions, contingencies or risks which, as determined by Silicon in its good faith business judgment, do or may adversely affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the security interests and other rights of Silicon in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Silicon’s good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to Silicon is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Silicon determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.

Other Terms.  All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with GAAP, consistently applied.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein.

9.     GENERAL PROVISIONS.

9.1  Interest Computation.  In computing interest on the Obligations, all checks, wire transfers and other items of payment received by Silicon (including proceeds of Accounts and payment of the Obligations in full) shall be deemed applied by Silicon on account of the Obligations on receipt by Silicon of immediately available funds, and, for purposes of the foregoing, any such funds received after 12:00 Noon on any day shall be deemed received on the next Business Day.  Silicon shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Silicon in its good faith business judgment, and Silicon may charge Borrower’s loan account for the amount of any item of payment which is returned to Silicon unpaid.

9.2  Application of Payments.  All payments with respect to the Obligations may be applied, and in Silicon’s good faith business judgment reversed and re-applied, to the Obligations, in such order and manner as Silicon shall determine in its good faith business judgment.

9.3  Charges to Accounts.  Silicon may, in its discretion, require that Borrower pay monetary Obligations in cash to Silicon, or charge them to Borrower’s Loan account, in which event they will bear interest at the same rate applicable to the Loans.  Silicon may also, in its discretion, charge any monetary Obligations to Borrower’s Deposit Accounts maintained with Silicon.

9.4  Monthly Accountings.  Silicon shall provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement.  Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Silicon), unless Borrower notifies Silicon in writing to the contrary within 60 days after such account is rendered, describing the nature of any alleged errors or omissions.

9.5  Notices.  All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, addressed to Silicon or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party.  Notices to Silicon shall be directed to the Commercial Finance Division, to the attention of the

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Division Manager or the Division Credit Manager.  All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one Business Day following delivery to the private delivery service, or two Business Days following the deposit thereof in the United States mail, with postage prepaid.

9.6  Severability.  Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect.

9.7  Integration.  This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement.  There are no oral understandings, representations or agreements between the parties which are not set forth in this Agreement or in other written agreements signed by the parties in connection herewith.

9.8  Waivers; Indemnity.  The failure of Silicon at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other Loan Document shall not waive or diminish any right of Silicon later to demand and receive strict compliance therewith.  Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar.  None of the provisions of this Agreement or any other Loan Document shall be deemed to have been waived by any act or knowledge of Silicon or its agents or employees, but only by a specific written waiver signed by an authorized officer of Silicon and delivered to Borrower.  Borrower waives the benefit of all statutes of limitations relating to any of the Obligations or this Agreement or any other Loan Document, and Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by Silicon on which Borrower is or may in any way be liable, and notice of any action taken by Silicon, unless expressly required by this Agreement. Borrower hereby agrees to indemnify Silicon and its affiliates, subsidiaries, parent, directors, officers, employees, agents, and attorneys, and to hold them harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties, costs and expenses (including reasonable attorneys’ fees), of every kind, which they may sustain or incur based upon or arising out of any of the Obligations, or any relationship or agreement between Silicon and Borrower, or any other matter, relating to Borrower or the Obligations; provided that this indemnity shall  not extend to damages proximately caused by the indemnitee’s own gross negligence or willful misconduct.  Notwithstanding any provision in this Agreement to the contrary, the indemnity agreement set forth in this Section shall survive any termination of this Agreement and shall for all purposes continue in full force and effect.

9.9  No Liability for Ordinary Negligence.  Neither Silicon, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of Silicon, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon, but nothing herein shall relieve Silicon from liability for its own gross negligence or willful misconduct.

9.10  Amendment.  The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Silicon.

9.11  Time of Essence.  Time is of the essence in the performance by Borrower of each and every obligation under this Agreement.

9.12  Attorneys Fees and Costs.  Borrower shall reimburse Silicon for all reasonable attorneys’ fees and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys’ fees and costs Silicon incurs in order to do the following: prepare and negotiate this Agreement and all present and future documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower’s books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce Silicon’s security interest in, the Collateral; and otherwise represent Silicon in any litigation relating to Borrower.  In satisfying Borrower’s obligation hereunder to reimburse Silicon for attorneys fees, Borrower may, for convenience, issue checks directly to Silicon’s attorneys, Levy, Small & Lallas, but Borrower acknowledges and agrees that Levy, Small & Lallas is representing only Silicon and not Borrower in connection with this Agreement.  If either Silicon or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and attorneys’ fees, including (but not limited to) reasonable attorneys’ fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment.  All attorneys’ fees and costs to which Silicon may be entitled pursuant to this Paragraph shall immediately become part of Borrower’s Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.

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9.13  Benefit of Agreement.  The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and Silicon; provided, however, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Silicon, and any prohibited assignment shall be void.  No consent by Silicon to any assignment shall release Borrower from its liability for the Obligations.

9.14  Joint and Several Liability.  If Borrower consists of more than one Person, their liability shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower.

9.15  Limitation of Actions.Any claim or cause of action by Borrower against Silicon, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within one year after the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based, and the service of a summons and complaint on an officer of Silicon, or on any other person authorized to accept service on behalf of Silicon, within thirty (30) days thereafter.  Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action.  The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Silicon in its sole discretion.  This provision shall survive any termination of this Loan Agreement or any other Loan Document.

9.16  Paragraph Headings; Construction.  Paragraph headings are only used in this Agreement for convenience.  Borrower and Silicon acknowledge that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Silicon or Borrower under any rule of construction or otherwise.

9.17  Governing Law; Jurisdiction; Venue.  This Agreement and all acts and transactions hereunder and all rights and obligations of Silicon and Borrower shall be governed by the laws of the State of California.  As a material part of the consideration to Silicon to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Silicon’s option, be litigated in courts located within California, and that the exclusive venue therefor shall be Santa Clara County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding.

9.18  Mutual Waiver of Jury Trial.  BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

Borrower:		Silicon:
UNIFY CORPORATION		SILICON VALLEY BANK
By	/s/ Todd E. Wille	By	/s/ Kevin Gillis
	President or Vice President	Title		Vice President
By	/s/ Peter DiCorti
	Secretary or Ass’t Secretary

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Silicon Valley Bank

Schedule to

Loan and Security Agreement (Exim Program)

Borrower:	Unify Corporation
Address:	2101 Arena Blvd., Suite 100
	Sacramento, California  95834
Date:	June 6, 2003

This Schedule forms an integral part of the Loan and Security Agreement (Exim Program) between Silicon Valley Bank and the above-borrower of even date.

1.	CREDIT LIMIT
	(Section 1.1):	An amount not to exceed the lesser of:  (i) $750,000 at any one time outstanding (the “Maximum Credit Limit”); or (ii) 75% (the “Advance Rate”) of the amount of Borrower’s Eligible Accounts (as defined in Section 8 above).
		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.
		Loans are subject to the Exim Provisions set forth in Section 9 below.
	Letter of Credit Sublimit
	(Section 1.6):	$750,000.
	Foreign Exchange
	Contract Sublimit:	$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

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		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% per annum, provided that, for purposes of calculating interest hereunder, the Prime Rate on each day shall not be less than 4.25% 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 Fee:	As provided in the Non-Exim Agreement.
4.	MATURITY DATE
	(Section 6.1):	One year from the date of this Agreement.

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5.	FINANCIAL COVENANTS
	(Section 5.1):
		Borrower shall comply with all of the financial covenants set forth in Section 5 of the Schedule to the Non-Exim Agreement.
6.	REPORTING.
	(Section 5.3):
		Borrower shall provide Silicon with the following:
		1.	Weekly transaction reports and schedules of collections, on Silicon’s standard form.
		2.	With respect to any Accounts included as Eligible Accounts, the following information:  (1) purchase order number; (2) invoice number; (3) invoice date and due date; (4) sales terms; (5) amount (with currency); (6) country or address and country; (7) customer name.
		3.	Monthly accounts receivable agings, aged by invoice date, within 30 days after the end of each month.
		4.	Monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, within 30 days after the end of each month.
		5.	Monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports, and general ledger, within fifteen days after the end of each month.
		6.	Monthly unaudited financial statements, as soon as available, and in any event within thirty days after the end of each month.
		7.	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.
		8.	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.

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		9.	Annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower within thirty days prior to the end of each fiscal year of Borrower.
		10.	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 _______________, previously submitted to Silicon (the “Representations”) is true and correct as of the date hereof.
8.	ADDITIONAL PROVISIONS.
		The Additional Provisions set forth in Sections 8(a), (b) and (d) of the Schedule to the Non-Exim Agreement (as defined below) shall also be applicable to this Agreement.  With respect to the Streamline Provisions set forth in Section 8(d) of the Non-Exim Agreement, whenever the Streamline Provisions of the Non-Exim Agreement are applicable, they shall also be applicable under this Agreement, and whenever the Non-Streamline Provisions of the Non-Exim Agreement are applicable, they shall also be applicable under this Agreement.
9.	EXIM PROVISIONS.
		(a)	Exim Guaranty.  Prior to the first disbursement of any Loans hereunder, Borrower shall cause the Export Import Bank of the United States (the “Exim Bank”) to guarantee the Loans made under this Agreement, pursuant to a Master Guarantee Agreement, Loan Authorization Agreement and (to the extent applicable) Delegated Authority Letter Agreement (collectively, the “Exim Guaranty”), and Borrower shall cause the Exim Guaranty to be in full force and effect throughout the term of this Agreement and so long as any Loans hereunder are outstanding.  If, for any reason, the Exim Guaranty shall cease to be in full force and effect, of if the Exim Bank declares the Exim Guaranty void or revokes any obligations thereunder or denies liability thereunder, any such event shall constitute an

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	Event of Default under this Agreement.  Nothing in any confidentiality agreement in this Agreement or in any other agreement shall restrict Silicon’s right to make disclosures and provide information to the Exim Bank in connection with the Exim Guaranty.
(b)	Exim Borrower Agreement; Costs.  Borrower shall, concurrently execute and deliver a Borrower Agreement, in the form specified by the Exim Bank, in favor of Silicon and the Exim Bank  (the “Exim Borrower Agreement”). This Agreement is subject to all of the terms and conditions of the Exim Borrower Agreement, all of which are hereby incorporated herein by this reference.  Borrower expressly agrees to perform all of the obligations and comply with all of the affirmative and negative covenants and all other terms and conditions set forth in the Exim Borrower Agreement as though the same were expressly set forth herein.  In the event of any conflict between the terms of the Exim Borrower Agreement and the other terms of this Agreement, whichever terms are more restrictive shall apply. Borrower acknowledges and agrees that it has received a copy of the Loan Authorization Agreement which is referred to in the Exim Borrower Agreement.  Borrower agrees to be bound by the terms of the Loan Authorization Agreement, including, without limitation, by any additions or revisions made prior to its execution on behalf of Exim Bank.  Upon the execution of the Loan Authorization Agreement by Exim Bank and Silicon, it shall become an attachment to the Exim Borrower Agreement.  Borrower shall reimburse Silicon for all fees and all out of pocket costs and expenses incurred by Silicon with respect to the Exim Guaranty and the Exim Borrower Agreement, including without limitation all facility fees and usage fees, and Silicon is authorized to debit Borrower’s account with Silicon for such fees, costs and expenses when paid by Silicon.
(c)	Non-Exim Agreement; Cross-Collateralization; Cross-Default. Silicon and the Borrower are parties to another Loan and Security Agreement of even date (the “Non-Exim Agreement”).  Both this Agreement and the Non-Exim Agreement shall continue in full force and effect, and all rights and remedies under this Agreement and the Non-Exim Agreement are cumulative.  The term “Obligations” as used in this Agreement and in the Non-Exim Agreement shall include without limitation the obligation to pay when due all Loans made pursuant to this Agreement (the “Exim Loans”) and all interest thereon and the obligation to pay when due all Loans made pursuant to the Non-Exim Agreement (the “Non-Exim Loans”) and all interest thereon.  Without limiting the

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generality of the foregoing, all “Collateral” as defined in this Agreement and as defined in the Non-Exim Agreement shall secure all Exim Loans and all Non-Exim Loans and all interest thereon, and all other Obligations.  Any Event of Default under this Agreement shall also constitute an Event of Default under the Non-Exim Agreement, and any Event of Default under the Non-Exim Agreement shall also constitute an Event of Default under this Agreement.  In the event Silicon assigns its rights under this Agreement and/or under any Note evidencing Exim Loans and/or its rights under the Non-Exim Agreement and/or under any Note evidencing Non-Exim Loans, to any third party, including without limitation the Exim Bank, whether before or after the occurrence of any Event of Default, Silicon shall have the right (but not any obligation), in its sole discretion, to allocate and apportion Collateral to the Agreement and/or Note assigned and to specify the priorities of the respective security interests in such Collateral between itself and the assignee, all without notice to or consent of the Borrower.  Silicon shall use commercially reasonable efforts to give Borrower notice of any assignment of its rights under this Agreement to the Exim Bank, if, at the date of the assignment no Event of Default or Default shall have occurred and be continuing.  In the event Borrower terminates this Agreement, any such termination shall also constitute a termination of the Non-Exim Agreement, and all such terminations be subject to the other provisions of this Agreement and the Non-Exim Agreement.

(d)

Condition Precedent-UCC Filings and Searches.  Borrower agrees that no Loans will be made and no other credit accommodations will be provided until UCC-1 Financing Statements with respect to Borrower have been filed of record in appropriate jurisdictions and searches showing such filing and no conflicting filings have been received by Silicon.

Borrower:		Silicon:
UNIFY CORPORATION		SILICON VALLEY BANK
By	/s/ Todd E. Wille	By	/s/ Kevin Gillis
	President or Vice President	Title		Vice President
By	/s/ Peter DiCorti
	Secretary or Ass’t Secretary

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EXPORT-IMPORT BANK OF THE UNITED STATES

WORKING CAPITAL GUARANTEE PROGRAM

BORROWER AGREEMENT

THIS BORROWER AGREEMENT (this “Agreement”) is made and entered into by the entity identified as Borrower on the signature page hereof (“Borrower”) in favor of the Export-Import Bank of the United States (“Ex-Im Bank”) and the institution identified as Lender on the signature page hereof (“Lender”).

RECITALS

Borrower has requested that Lender establish a Loan Facility in favor of Borrower for the purposes of providing Borrower with pre-export working capital to finance the manufacture, production or purchase and subsequent export sale of Items.

It is a condition to the establishment of such Loan Facility that Ex-Im Bank guarantee the payment of ninety percent (90%) of certain credit accommodations subject to the terms and conditions of a Master Guarantee Agreement, the Loan Authorization Agreement, and to the extent applicable, the Delegated Authority Letter Agreement.

Borrower is executing this Agreement for the benefit of Lender and Ex-Im Bank in consideration for and as a condition to Lender’s establishing the Loan Facility and Ex-Im Bank’s agreement to guarantee such Loan Facility pursuant to the Master Guarantee Agreement.

NOW, THEREFORE, Borrower hereby agrees as follows:

ARTICLE I
DEFINITIONS

1.01      Definition of Terms.  As used in this Agreement, including the Recitals to this Agreement and the Loan Authorization Agreement, the following terms shall have the following meanings:

“Accounts Receivable” shall mean all of Borrower’s now owned or hereafter acquired (a) “accounts” (as such term is defined in the UCC), other receivables, book debts and other forms of obligations, whether arising out of goods sold or services rendered or from any other transaction; (b) rights in, to and under all purchase orders or receipts for goods or services; (c) rights to any goods represented or purported to be represented by any of the foregoing (including unpaid sellers’ rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods); (d) moneys due or to become due to such Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower), including the proceeds of the foregoing; (e) any notes, drafts, letters of credit, insurance proceeds or other instruments, documents and writings evidencing or supporting the foregoing; and (f) all collateral security and guarantees of any kind given by any other Person with respect to any of the foregoing.

“Advance Rate” shall mean the rate specified in Section 5(C) of the Loan Authorization Agreement for each category of Collateral.

“Business Day” shall mean any day on which the Federal Reserve Bank of New York is open for business.

“Buyer” shall mean a Person that has entered into one or more Export Orders with Borrower.

“Collateral” shall mean all property and interest in property in or upon which Lender has been granted a Lien as security for the payment of all the Loan Facility Obligations including the Collateral identified in Section 6 of the Loan Authorization Agreement and all products and proceeds (cash and non-cash) thereof.

“Commercial Letters of Credit” shall mean those letters of credit subject to the UCP payable in Dollars and issued or caused to be issued by Lender on behalf of Borrower under a Loan Facility for the benefit of a supplier(s) of Borrower in connection with Borrower’s purchase of goods or services from the supplier in support of the export of the Items.

“Country Limitation Schedule” shall mean the schedule published from time to time by Ex-Im Bank and provided to Borrower by Lender which sets forth on a country by country basis whether and under what conditions Ex-Im Bank will provide coverage for the financing of export transactions to countries listed therein.

“Credit Accommodation Amount” shall mean, the sum of (a) the aggregate outstanding amount of Disbursements and (b) the aggregate outstanding face amount of Letter of Credit Obligations.

“Credit Accommodations” shall mean, collectively, Disbursements and Letter of Credit Obligations.

“Debarment Regulations” shall mean, collectively, (a) the Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988), (b) Subpart 9.4 (Debarment, Suspension, and Ineligibility) of the Federal Acquisition Regulations, 48 C.F.R. 9.400-9.409 and (c) the revised Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common Rule), 60 Fed. Reg. 33037 (June 26, 1995).

“Delegated Authority Letter Agreement” shall mean the Delegated Authority Letter Agreement, if any, between Ex-Im Bank and Lender.

“Disbursement” shall mean, collectively, (a) an advance of a working capital loan from Lender to Borrower under the Loan Facility, and (b) an advance to fund a drawing under a Letter of Credit issued or caused to be issued by Lender for the account of Borrower under the Loan Facility.

“Dollars” or “$” shall mean the lawful currency of the United States.

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“Effective Date” shall mean the date on which (a) the Loan Documents are executed by Lender and Borrower or the date, if later, on which agreements are executed by Lender and Borrower adding the Loan Facility to an existing working capital loan arrangement between Lender and Borrower and (b) all of the conditions to the making of the initial Credit Accommodations under the Loan Documents or any amendments thereto have been satisfied.

“Eligible Export-Related Accounts Receivable” shall mean an Export-Related Account Receivable which is acceptable to Lender and which is deemed to be eligible pursuant to the Loan Documents, but in no event shall Eligible Export-Related Accounts Receivable include any Account Receivable:

(a)           that does not arise from the sale of Items in the ordinary course of Borrower’s business;

(b)           that is not subject to a valid, perfected first priority Lien in favor of Lender;

(c)           as to which any covenant, representation or warranty contained in the Loan Documents with respect to such Account Receivable has been breached;

(d)           that is not owned by Borrower or is subject to any right, claim or interest of another Person other than the Lien in favor of Lender;

(e)           with respect to which an invoice has not been sent;

(f)            that arises from the sale of defense articles or defense services;

(g)           that is due and payable from a Buyer located in a country with which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule;

(h)           that does not comply with the requirements of the Country Limitation Schedule;

(i)            that is due and payable more than one hundred eighty (180) days from the date of the invoice;

(j)            that is not paid within sixty (60) calendar days from its original due date, unless it is insured through Ex-Im Bank export credit insurance for comprehensive commercial and political risk, or through Ex-Im Bank approved private insurers for comparable coverage, in which case it is not paid within ninety (90) calendar days from its due date;

(k)           that arises from a sale of goods to or performance of services for an employee of Borrower, a stockholder of Borrower, a subsidiary of Borrower, a Person with a controlling interest in Borrower or a Person which shares common controlling ownership with Borrower;

(l)            that is backed by a letter of credit unless the Items covered by the subject letter of credit have been shipped;

(m)          that Lender or Ex-Im Bank, in its reasonable judgment, deems uncollectible for any reason;

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(n)           that is due and payable in a currency other than Dollars, except as may be approved in writing by Ex-Im Bank;

(o)           that is due and payable from a military Buyer, except as may be approved in writing by Ex-Im Bank;

(p)           that does not comply with the terms of sale set forth in Section 7 of the Loan Authorization Agreement;

(q)           that is due and payable from a Buyer who (i) applies for, suffers, or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or calls a meeting of its creditors, (ii) admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases operations of its present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces to, or fails to have dismissed, any petition which is filed against it in any involuntary case under such bankruptcy laws, or (viii) takes any action for the purpose of effecting any of the foregoing;

(r)            that arises from a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by chattel paper;

(s)           for which the Items giving rise to such Account Receivable have not been shipped and delivered to and accepted by the Buyer or the services giving rise to such Account Receivable have not been performed by Borrower and accepted by the Buyer or the Account Receivable otherwise does not represent a final sale;

(t)            that is subject to any offset, deduction, defense, dispute, or counterclaim or the Buyer is also a creditor or supplier of Borrower or the Account Receivable is contingent in any respect or for any reason;

(u)           for which Borrower has made any agreement with the Buyer for any deduction therefrom, except for discounts or allowances made in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto; or

(v)           for which any of the Items giving rise to such Account Receivable have been returned, rejected or repossessed.

“Eligible Export-Related Inventory” shall mean Export-Related Inventory which is acceptable to Lender and which is deemed to be eligible pursuant to the Loan Documents, but in no event shall Eligible Export-Related Inventory include any Inventory:

(a)           that is not subject to a valid, perfected first priority Lien in favor of Lender;

(b)           that is located at an address that has not been disclosed to Lender in writing;

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(c)           that is placed by Borrower on consignment or held by Borrower on consignment from another Person;

(d)           that is in the possession of a processor or bailee, or located on premises leased or subleased to Borrower, or on premises subject to a mortgage in favor of a Person other than Lender, unless such processor or bailee or mortgagee or the lessor or sublessor of such premises, as the case may be, has executed and delivered all documentation which Lender shall require to evidence the subordination or other limitation or extinguishment of such Person’s rights with respect to such Inventory and Lender’s right to gain access thereto;

(e)           that is produced in violation of the Fair Labor Standards Act or subject to the “hot goods” provisions contained in 29 US.C.§215 or any successor statute or section;

(f)            as to which any covenant, representation or warranty with respect to such Inventory contained in the Loan Documents has been breached;

(g)           that is not located in the United States;

(h)           that is demonstration Inventory;

(i)            that consists of proprietary software (i.e. software designed solely for Borrower’s internal use and not intended for resale);

(j)            that is damaged, obsolete, returned, defective, recalled or unfit for further processing;

(k)           that has been previously exported from the United States;

(l)            that constitutes defense articles or defense services;

(m)          that is to be incorporated into Items destined for shipment to a country as to which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule;

(n)           that is to be incorporated into Items destined for shipment to a Buyer located in a country in which Ex-Im Bank coverage is not available for commercial reasons as designated in the Country Limitation Schedule, unless and only to the extent that such Items are to be sold to such country on terms of a letter of credit confirmed by a bank acceptable to Ex-Im Bank; or

(o)           that is to be incorporated into Items whose sale would result in an Account Receivable which would not be an Eligible Export-Related Account Receivable.

“Eligible Person” shall mean a sole proprietorship, partnership, limited liability partnership, corporation or limited liability company which (a) is domiciled, organized, or formed, as the case may be, in the United States; (b) is in good standing in the state of its formation or otherwise authorized to conduct business in the United States; (c) is not currently suspended or debarred from doing business with the United States government or any instrumentality, division, agency or department thereof; (d) exports or plans to export Items; (e) operates and has operated as a going concern for at least one (1) year; (f) has a positive tangible

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net worth determined in accordance with GAAP; and (g) has revenue generating operations relating to its core business activities for at least one year.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974 and the rules and regulations promulgated thereunder.

“Export Order” shall mean a written export order or contract for the purchase by the Buyer from Borrower of any of the Items.

“Export-Related Accounts Receivable” shall mean those Accounts Receivable arising from the sale of Items which are due and payable to Borrower in the United States.

“Export-Related Accounts Receivable Value” shall mean, at the date of determination thereof, the aggregate face amount of Eligible Export-Related Accounts Receivable less taxes, discounts, credits, allowances and Retainages, except to the extent otherwise permitted by Ex-Im Bank in writing.

“Export-Related Borrowing Base” shall mean, at the date of determination thereof, the sum of (a) the Export-Related Inventory Value multiplied by the Advance Rate applicable to Export-Related Inventory set forth in Section 5(C)(1) of the Loan Authorization Agreement, (b) the Export-Related Accounts Receivable Value multiplied by the Advance Rate applicable to Export-Related Accounts Receivable set forth in Section 5(C)(2) of the Loan Authorization Agreement, (c) if permitted by Ex-Im Bank in writing, the Retainage Value multiplied by the Retainage Advance Rate set forth in Section 5(C)(3) of the Loan Authorization Agreement and (d) the Other Assets Value multiplied by the Advance Rate applicable to Other Assets set forth in Section 5(C)(4) of the Loan Authorization Agreement.

“Export-Related Borrowing Base Certificate” shall mean a certificate in the form provided or approved by Lender, executed by Borrower and delivered to Lender pursuant to the Loan Documents detailing the Export-Related Borrowing Base supporting the Credit Accommodations which reflects, to the extent included in the Export-Related Borrowing Base, Export-Related Accounts Receivable, Eligible Export-Related Accounts Receivable, Export-Related Inventory and Eligible Export-Related Inventory balances that have been reconciled with Borrower’s general ledger, Accounts Receivable aging report and Inventory schedule.

“Export-Related General Intangibles” shall mean those General Intangibles necessary or desirable to or for the disposition of Export-Related Inventory.

“Export-Related Inventory” shall mean the Inventory of Borrower located in the United States that has been purchased, manufactured or otherwise acquired by Borrower for resale pursuant to Export Orders.

“Export-Related Inventory Value” shall mean, at the date of determination thereof, the lower of cost or market value of Eligible Export-Related Inventory of Borrower as determined in accordance with GAAP.

“Final Disbursement Date” shall mean, unless subject to an extension of such date agreed to by Ex-Im Bank, the last date on which Lender may make a Disbursement set forth in Section

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10 of the Loan Authorization Agreement or, if such date is not a Business Day, the next succeeding Business Day; provided, however, to the extent that Lender has not received cash collateral or an indemnity with respect to Letter of Credit Obligations outstanding on the Final Disbursement Date, the Final Disbursement Date with respect to an advance to fund a drawing under a Letter of Credit shall be no later than thirty (30) Business Days after the expiry date of the Letter of Credit related thereto.

“GAAP” shall mean the generally accepted accounting principles issued by the American Institute of Certified Public Accountants as in effect from time to time.

“General Intangibles” shall mean all intellectual property and other “general intangibles” (as such term is defined in the UCC) necessary or desirable to or for the disposition of Inventory.

“Guarantor” shall mean each Person, if any, identified in Section 3 of the Loan Authorization Agreement who shall guarantee (jointly and severally if more than one) the payment and performance of all or a portion of the Loan Facility Obligations.

“Guaranty Agreement” shall mean a valid and enforceable agreement of guaranty executed by each Guarantor in favor of Lender.

“Inventory” shall mean all “inventory” (as such term is defined in the UCC), now or hereafter owned or acquired by Borrower, wherever located, including all inventory, merchandise, goods and other personal property which are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower’s business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies.

“ISP” shall mean the International Standby Practices-ISP98, International Chamber of Commerce Publication No. 590 and any amendments and revisions thereof.

“Issuing Bank” shall mean the bank that issues a Letter of Credit, which bank is Lender itself or a bank that Lender has caused to issue a Letter of Credit by way of guarantee.

“Items” shall mean the finished goods or services which are intended for export from the United States, as specified in Section 4(A) of the Loan Authorization Agreement.

“Letter of Credit” shall mean a Commercial Letter of Credit or a Standby Letter of Credit.

“Letter of Credit Obligations” shall mean all outstanding obligations incurred by Lender, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance or guarantee by Lender or the Issuing Bank of Letters of Credit.

“Lien” shall mean any mortgage, security deed or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or

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agreement to give, any financing statement perfecting a security interest under the UCC or comparable law of any jurisdiction) by which property is encumbered or otherwise charged.

“Loan Agreement” shall mean a valid and enforceable agreement between Lender and Borrower setting forth the terms and conditions of the Loan Facility.

“Loan Authorization Agreement” shall mean the Loan Authorization Agreement entered into between Lender and Ex-Im Bank or the Loan Authorization Notice setting forth certain terms and conditions of the Loan Facility, a copy of which is attached hereto as Annex A.

“Loan Authorization Notice” shall mean the Loan Authorization Notice executed by Lender and delivered to Ex-Im Bank in accordance with the Delegated Authority Letter Agreement setting forth the terms and conditions of each Loan Facility.

“Loan Documents” shall mean the Loan Authorization Agreement, the Loan Agreement, this Agreement, each promissory note (if applicable), each Guaranty Agreement, and all other instruments, agreements and documents now or hereafter executed by Borrower or any Guarantor evidencing, securing, guaranteeing or otherwise relating to the Loan Facility or any Credit Accommodations made thereunder.

“Loan Facility” shall mean the Revolving Loan Facility, the Transaction Specific Loan Facility or the Transaction Specific Revolving Loan Facility established by Lender in favor of Borrower under the Loan Documents.

“Loan Facility Obligations” shall mean all loans, advances, debts, expenses, fees, liabilities, and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower to Lender, of any kind or nature, present or future, arising in connection with the Loan Facility.

“Loan Facility Term” shall mean the number of months from the Effective Date to the Final Disbursement Date as originally set forth in the Loan Authorization Agreement.

“Master Guarantee Agreement” shall mean the Master Guarantee Agreement between Ex-Im Bank and Lender, as amended, modified, supplemented and restated from time to time.

“Material Adverse Effect” shall mean a material adverse effect on (a) the business, assets, operations, prospects or financial or other condition of Borrower or any Guarantor, (b) Borrower’s ability to pay or perform the Loan Facility Obligations in accordance with the terms thereof, (c) the Collateral or Lender’s Liens on the Collateral or the priority of such Lien or (d) Lender’s rights and remedies under the Loan Documents.

“Maximum Amount” shall mean the maximum principal balance of Credit Accommodations that may be outstanding at any time under the Loan Facility specified in Section 5(A) of the Loan Authorization Agreement.

“Other Assets” shall mean the Collateral, if any, described in Section 5(C)(4) of the Loan Authorization Agreement.

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“Other Assets Value” shall mean, at the date of determination thereof, the value of the Other Assets as determined in accordance with GAAP.

“Permitted Liens” shall mean (a) Liens for taxes, assessments or other governmental charges or levies not delinquent, or, being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by Borrower; provided, that, the Lien shall have no effect on the priority of the Liens in favor of Lender or the value of the assets in which Lender has such a Lien and a stay of enforcement of any such Lien shall be in effect; (b) deposits or pledges securing obligations under worker’s compensation, unemployment insurance, social security or public liability laws or similar legislation; (c) deposits or pledges securing bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of Borrower’s business; (d) judgment Liens that have been stayed or bonded; (e) mechanics’, workers’, materialmen’s or other like Liens arising in the ordinary course of Borrower’s business with respect to obligations which are not due; (f) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof, provided, that, any such Lien shall not encumber any other property of Borrower; (g) security interests being terminated concurrently with the execution of the Loan Documents; (h) Liens in favor of Lender securing the Loan Facility Obligations; and (i) Liens disclosed in Section 6(D) of the Loan Authorization Agreement.

“Person” shall mean any individual, sole proprietorship, partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether national, federal, provincial, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof), and shall include such Person’s successors and assigns.

“Principals” shall mean any officer, director, owner, partner, key employee, or other Person with primary management or supervisory responsibilities with respect to Borrower or any other Person (whether or not an employee) who has critical influence on or substantive control over the transactions covered by this Agreement.

“Retainage” shall mean that portion of the purchase price of an Export Order that a Buyer is not obligated to pay until the end of a specified period of time following the satisfactory performance under such Export Order.

“Retainage Accounts Receivable” shall mean those portions of Eligible Export-Related Accounts Receivable arising out of a Retainage.

“Retainage Advance Rate” shall mean the percentage rate specified in Section 5(C)(3) of the Loan Authorization Agreement as the Advance Rate for the Retainage Accounts Receivable of Borrower.

“Retainage Value” shall mean, at the date of determination thereof, the aggregate face amount of Retainage Accounts Receivable, less taxes, discounts, credits and allowances, except to the extent otherwise permitted by Ex-Im Bank in writing.

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“Revolving Loan Facility” shall mean the credit facility or portion thereof established by Lender in favor of  Borrower for the purpose of providing pre-export working capital in the form of loans and/or Letters of Credit to finance the manufacture, production or purchase and subsequent export sale of Items pursuant to Loan Documents under which Credit Accommodations may be made and repaid on a continuous basis based solely on the Export-Related Borrowing Base during the term of such credit facility.

“Special Conditions” shall mean those conditions, if any, set forth in Section 13 of the Loan Authorization Agreement.

“Specific Export Orders” shall mean those Export Orders specified in Section 5(D) of the Loan Authorization Agreement.

“Standby Letter of Credit” shall mean those letters of credit subject to the ISP or UCP issued or caused to be issued by Lender for Borrower’s account that can be drawn upon by a Buyer only if Borrower fails to perform all of its obligations with respect to an Export Order.

“Transaction Specific Loan Facility” shall mean a credit facility or a portion thereof established by Lender in favor of Borrower for the purpose of providing pre-export working capital in the form of loans and/or Letters of Credit to finance the manufacture, production or purchase and subsequent export sale of Items pursuant to Loan Documents under which Credit Accommodations are made based solely on the Export-Related Borrowing Base relating to Specific Export Orders and once such Credit Accommodations are repaid they may not be reborrowed.

“Transaction Specific Revolving Loan Facility” shall mean a Revolving Credit Facility established to provide financing of Specific Export Orders.

“UCC” shall mean the Uniform Commercial Code as the same may be in effect from time to time in the jurisdiction in which Borrower or Collateral is located.

“UCP” shall mean the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 and any amendments and revisions thereof.

“U.S.” or “United States” shall mean the United States of America and its territorial possessions.

“U.S. Content” shall mean with respect to any Item all the labor, materials and services which are of U.S. origin or manufacture, and which are incorporated into an Item in the United States.

“Warranty” shall mean Borrower’s guarantee to Buyer that the Items will function as intended during the warranty period set forth in the applicable Export Order.

“Warranty Letter of Credit” shall mean a Standby Letter of Credit which is issued or caused to be issued by Lender to support the obligations of Borrower with respect to a Warranty or a Standby Letter of Credit which by its terms becomes a Warranty Letter of Credit.

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1.02      Rules of Construction.  For purposes of this Agreement, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (b) the term “or” is not exclusive; (c) the term “including” (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; (e) the words “this Agreement”, “herein”, “hereof”, “hereunder” or other words of similar import refer to this Agreement as a whole including the schedules, exhibits, and annexes hereto as the same may be amended, modified or supplemented; (f) all references in this Agreement to sections, schedules, exhibits, and annexes shall refer to the corresponding sections, schedules, exhibits, and annexes of or to this Agreement; and (g) all references to any instruments or agreements, including references to any of the Loan Documents, or the Delegated Authority Letter Agreement shall include any and all modifications, amendments and supplements thereto and any and all extensions or renewals thereof to the extent permitted under this Agreement.

1.03      Incorporation of Recitals.  The Recitals to this Agreement are incorporated into and shall constitute a part of this Agreement.

ARTICLE II
OBLIGATIONS OF BORROWER

Until payment in full of all Loan Facility Obligations and termination of the Loan Documents, Borrower agrees as follows:

2.01      Use of Credit Accommodations.  (a) Borrower shall use Credit Accommodations only for the purpose of enabling Borrower to finance the cost of manufacturing, producing, purchasing or selling the Items.  Borrower may not use any of the Credit Accommodations for the purpose of: (i) servicing or repaying any of Borrower’s pre-existing or future indebtedness unrelated to the Loan Facility (unless approved by Ex-Im Bank in writing); (ii) acquiring fixed assets or capital goods for use in Borrower’s business; (iii) acquiring, equipping or renting commercial space outside of the United States; (iv) paying the salaries of non U.S. citizens or non-U.S. permanent residents who are located in offices outside of the United States; or (v) in connection with a Retainage or Warranty (unless approved by Ex-Im Bank in writing).

(b)           In addition, no Credit Accommodation may be used to finance the manufacture, purchase or sale of any of the following:

                (i)            Items to be sold or resold to a Buyer located in a country as to which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule;

                (ii)           that part of the cost of the Items which is not U.S. Content unless such part is not greater than fifty percent (50%) of the cost of the Items and is incorporated into the Items in the United States;

                (iii)          defense articles or defense services; or

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                (iv)          without Ex-Im Bank’s prior written consent, any Items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities.

2.02      Loan Documents and Loan Authorization Agreement.  (a)  Each Loan Document and this Agreement have been duly executed and delivered on behalf of Borrower, and each such Loan Document and this Agreement are and will continue to be a legal and valid obligation of Borrower, enforceable against it in accordance with its terms.

(b)           Borrower shall comply with all of the terms and conditions of the Loan Documents, this Agreement and the Loan Authorization Agreement.

2.03      Export-Related Borrowing Base Certificates and Export Orders.  In order to receive Credit Accommodations under the Loan Facility, Borrower shall have delivered to Lender an Export-Related Borrowing Base Certificate as frequently as required by Lender but at least within the past thirty (30) calendar days and a copy of the Export Order(s) (or, for Revolving Loan Facilities, if permitted by Lender, a written summary of the Export Orders) against which Borrower is requesting Credit Accommodations.  If Lender permits summaries of Export Orders, Borrower shall also deliver promptly to Lender copies of any Export Orders requested by Lender.  In addition, so long as there are any Credit Accommodations outstanding under the Loan Facility, Borrower shall deliver to Lender at least once each month no later than the twentieth (20^th) day of such month or more frequently as required by the Loan Documents, an Export-Related Borrowing Base Certificate.

2.04      Exclusions from the Export-Related Borrowing Base.  In determining the Export-Related Borrowing Base, Borrower shall exclude therefrom Inventory which is not Eligible Export-Related Inventory and Accounts Receivable which are not Eligible Export-Related Accounts Receivable.  Borrower shall promptly, but in any event within five (5) Business Days, notify Lender (a) if any then existing Export-Related Inventory no longer constitutes Eligible Export-Related Inventory or (b) of any event or circumstance which to Borrower’s knowledge would cause Lender to consider any then existing Export-Related Accounts Receivable as no longer constituting an Eligible Export-Related Accounts Receivable.

2.05      Financial Statements.  Borrower shall deliver to Lender the financial statements required to be delivered by Borrower in accordance with Section 11 of the Loan Authorization Agreement.

2.06      Schedules, Reports and Other Statements.  Borrower shall submit to Lender in writing each month (a) an Inventory schedule for the preceding month and (b) an Accounts Receivable aging report for the preceding month detailing the terms of the amounts due from each Buyer.  Borrower shall also furnish to Lender promptly upon request such information, reports, contracts, invoices and other data concerning the Collateral as Lender may from time to time specify.

2.07      Additional Security or Payment.  (a)  Borrower shall at all times ensure that the Export-Related Borrowing Base equals or exceeds the Credit Accommodation Amount.  If informed by Lender or if Borrower otherwise has actual knowledge that the Export-Related Borrowing Base is at any time less than the Credit Accommodation Amount, Borrower shall, within five (5)

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Business Days, either (i) furnish additional Collateral to Lender, in form and amount satisfactory to Lender and Ex-Im Bank or (ii) pay to Lender an amount equal to the difference between the Credit Accommodation Amount and the Export-Related Borrowing Base.

(b)           For purposes of this Agreement, in determining the Export-Related Borrowing Base there shall be deducted from the Export-Related Borrowing Base (i) an amount equal to twenty-five percent (25%) of the outstanding face amount of Commercial Letters of Credit and Standby Letters of Credit and (ii) one hundred percent (100%) of the face amount of Warranty Letters of Credit less the amount of cash collateral held by Lender to secure Warranty Letters of Credit.

(c)           Unless otherwise approved in writing by Ex-Im Bank, for Revolving Loan Facilities (other than Transaction Specific Revolving Loan Facilities), Borrower shall at all times ensure that the outstanding principal balance of the Credit Accommodations that is supported by Export-Related Inventory does not exceed sixty percent (60%) of the sum of the total outstanding principal balance of the Disbursements and the undrawn face amount of all outstanding Commercial Letters of Credit.  If informed by Lender or if Borrower otherwise has actual knowledge that the outstanding principal balance of the Credit Accommodations that is supported by Inventory exceeds sixty percent (60%) of the sum of the total outstanding principal balance of the Disbursements and the undrawn face amount of all outstanding Commercial Letters of Credit, Borrower shall, within five (5) Business Days, either (i) furnish additional non-Inventory Collateral to Lender, in form and amount satisfactory to Lender and Ex-Im Bank, or (ii) pay down the applicable portion of the Credit Accommodations so that the above described ratio is not exceeded.

2.08      Continued Security Interest.  Borrower shall not change (a) its name or identity in any manner, (b) the location of its principal place of business, (c) the location of any of the Collateral or (d) the location of any of the books or records related to the Collateral, in each instance without giving thirty (30) days prior written notice thereof to Lender and taking all actions deemed necessary or appropriate by Lender to continuously protect and perfect Lender’s Liens upon the Collateral.

2.09      Inspection of Collateral.  Borrower shall permit the representatives of Lender and Ex-Im Bank to make at any time during normal business hours inspections of the Collateral and of Borrower’s facilities, activities, and books and records, and shall cause its officers and employees to give full cooperation and assistance in connection therewith.

2.10      General Intangibles.  Borrower represents and warrants that it owns, or is licensed to use, all General Intangibles necessary to conduct its business as currently conducted except where the failure of Borrower to own or license such General Intangibles could not reasonably be expected to have a Material Adverse Effect.

2.11      Notice of Certain Events.  Borrower shall promptly, but in any event within five (5) Business Days, notify Lender in writing of the occurrence of any of the following:

(a)           Borrower or any Guarantor (i) applies for, consents to or suffers the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of

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itself or of all or a substantial part of its property or calls a meeting of its creditors, (ii) admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases operations of its present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces to, or fails to have dismissed within thirty (30) days, any petition filed against it in any involuntary case under such bankruptcy laws, or (vii) takes any action for the purpose of effecting any of the foregoing;

(b)           any Lien in any of the Collateral, granted or intended by the Loan Documents to be granted to Lender, ceases to be a valid, enforceable, perfected, first priority Lien (or a lesser priority if expressly permitted pursuant to Section 6 of the Loan Authorization Agreement) subject only to Permitted Liens;

(c)           the issuance of any levy, assessment, attachment, seizure or Lien, other than a Permitted Lien, against any of the Collateral which is not stayed or lifted within thirty (30) calendar days;

(d)           any proceeding is commenced by or against Borrower or any Guarantor for the liquidation of its assets or dissolution;

(e)           any litigation is filed against Borrower or any Guarantor which has had or could reasonably be expected to have a Material Adverse Effect and such litigation is not withdrawn or dismissed within thirty (30) calendar days of the filing thereof;

(f)            any default or event of default under the Loan Documents;

(g)           any failure to comply with any terms of the Loan Authorization Agreement;

(h)           any material provision of any Loan Document or this Agreement for any reason ceases to be valid, binding and enforceable in accordance with its terms;

(i)            any event which has had or could reasonably be expected to have a Material Adverse Effect; or

(j)            the Credit Accommodation Amount exceeds the applicable Export-Related Borrowing Base.

2.12      Insurance. Borrower will at all times carry property, liability and other insurance, with insurers acceptable to Lender, in such form and amounts, and with such deductibles and other provisions, as Lender shall require, and Borrower will provide evidence of such insurance to Lender, so that Lender is satisfied that such insurance is, at all times, in full force and effect.  Each property insurance policy shall name Lender as loss payee and shall contain a lender’s loss payable endorsement in form acceptable to Lender and each liability insurance policy shall name Lender as an additional insured.  All policies of insurance shall provide that they may not be cancelled or changed without at least ten (10) days’ prior written notice to Lender and shall otherwise be in form and substance satisfactory to Lender.  Borrower will promptly deliver to Lender copies of all reports made to insurance companies.

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2.13      Taxes. Borrower has timely filed all tax returns and reports required by applicable law, has timely paid all applicable taxes, assessments, deposits and contributions owing by Borrower and will timely pay all such items in the future as they became due and payable.  Borrower may, however, defer payment of any contested taxes; provided, that Borrower (a) in good faith contests Borrower’s obligation to pay such taxes by appropriate proceedings promptly and diligently instituted and conducted; (b) notifies Lender in writing of the commencement of, and any material development in, the proceedings; (c) posts bonds or takes any other steps required to keep the contested taxes from becoming a Lien upon any of the Collateral; and (d) maintains adequate reserves therefor in conformity with GAAP.

2.14      Compliance with Laws. Borrower represents and warrants that it has complied in all material respects with all provisions of all applicable laws and regulations, including those relating to Borrower’s ownership of real or personal property, the conduct and licensing of Borrower’s business, the payment and withholding of taxes, ERISA and other employee matters, safety and environmental matters.

2.15      Negative Covenants.  Without the prior written consent of Ex-Im Bank and Lender, Borrower shall not (a) merge, consolidate or otherwise combine with any other Person; (b) acquire all or substantially all of the assets or capital stock of any other Person; (c) sell, lease, transfer, convey, assign or otherwise dispose of any of its assets, except for the sale of Inventory in the ordinary course of business and the disposition of obsolete equipment in the ordinary course of business; (d) create any Lien on the Collateral except for Permitted Liens; (e) make any material changes in its organizational structure or identity; or (f) enter into any agreement to do any of the foregoing.

2.16      Reborrowings and Repayment Terms.  (a)  If the Loan Facility is a Revolving Loan Facility, provided that Borrower is not in default under any of the Loan Documents, Borrower may borrow, repay and reborrow amounts under the Loan Facility until the close of business on the Final Disbursement Date.  Unless the Revolving Loan Facility is renewed or extended by Lender with the consent of Ex-Im Bank, Borrower shall pay in full the outstanding Loan Facility Obligations and all accrued and unpaid interest thereon no later than the first Business Day after the Final Disbursement Date.

(b)           If the Loan Facility is a Transaction Specific Loan Facility, Borrower shall, within two (2) Business Days of the receipt thereof, pay to Lender (for application against the outstanding Loan Facility Obligations and accrued and unpaid interest thereon) all checks, drafts, cash and other remittances it may receive in payment or on account of the Export-Related Accounts Receivable or any other Collateral, in precisely the form received (except for the endorsement of Borrower where necessary).  Pending such deposit, Borrower shall hold such amounts in trust for Lender separate and apart and shall not commingle any such items of payment with any of its other funds or property.

2.17      Cross Default.  Borrower shall be deemed in default under the Loan Facility if Borrower fails to pay when due any amount payable to Lender under any loan or other credit accommodations to Borrower whether or not guaranteed by Ex-Im Bank.

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2.18      Munitions List.  If any of the Items are articles, services, or related technical data that are listed on the United States Munitions List (part 121 of title 22 of the Code of Federal Regulations), Borrower shall send a written notice promptly, but in any event within five (5) Business Days, of Borrower learning thereof to Lender describing the Items(s) and the corresponding invoice amount.

2.19      Suspension and Debarment, etc.  On the date of this Agreement neither Borrower nor its Principals are (a) debarred, suspended, proposed for debarment with a final determination still pending, declared ineligible or voluntarily excluded (as such terms are defined under any of the Debarment Regulations referred to below) from participating in procurement or nonprocurement transactions with any United States federal government department or agency pursuant to any of the Debarment Regulations or (b) indicted, convicted or had a civil judgment rendered against Borrower or any of its Principals for any of the offenses listed in any of the Debarment Regulations.  Unless authorized by Ex-Im Bank, Borrower will not knowingly enter into any transactions in connection with the Items with any person who is debarred, suspended, declared ineligible or voluntarily excluded from participation in procurement or nonprocurement transactions with any United States federal government department or agency pursuant to any of the Debarment Regulations.  Borrower will provide immediate written notice to Lender if at any time it learns that the certification set forth in this Section 2.19 was erroneous when made or has become erroneous by reason of changed circumstances.

ARTICLE III
RIGHTS AND REMEDIES

3.01      Indemnification.  Upon Ex-Im Bank’s payment of a Claim to Lender in connection with the Loan Facility pursuant to the Master Guarantee Agreement, Ex-Im Bank may assume all rights and remedies of Lender under the Loan Documents and may enforce any such rights or remedies against Borrower, the Collateral and any Guarantors.  Borrower shall hold Ex-Im Bank and Lender harmless from and indemnify them against any and all liabilities, damages, claims, costs and losses incurred or suffered by either of them resulting from (a) any materially incorrect certification or statement knowingly made by Borrower or its agent to Ex-Im Bank or Lender in connection with the Loan Facility, this Agreement, the Loan Authorization Agreement or any other Loan Documents or (b) any material breach by Borrower of the terms and conditions of this Agreement, the Loan Authorization Agreement or any of the other Loan Documents.  Borrower also acknowledges that any statement, certification or representation made by Borrower in connection with the Loan Facility is subject to the penalties provided in Article 18 U.S.C. Section 1001.

3.02      Liens.  Borrower agrees that any and all Liens granted by it to Lender are also hereby granted to Ex-Im Bank to secure Borrower’s obligation, however arising, to reimburse Ex-Im Bank for any payments made by Ex-Im Bank pursuant to the Master Guarantee Agreement.  Lender is authorized to apply the proceeds of, and recoveries from, any property subject to such Liens to the satisfaction of Loan Facility Obligations in accordance with the terms of any agreement between Lender and Ex-Im Bank.

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ARTICLE IV
MISCELLANEOUS

4.01      Governing Law.  This Agreement and the Loan Authorization Agreement and the obligations arising under this Agreement and the Loan Authorization Agreement shall be governed by, and construed in accordance with, the law of the state governing the Loan Documents.

4.02      Notification.  All notices required by this Agreement shall be given in the manner and to the parties provided for in the Loan Agreement.

4.03      Partial Invalidity.  If at any time any of the provisions of this Agreement becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, the validity nor the enforceability of the remaining provisions hereof shall in any way be affected or impaired.

4.04      Waiver of Jury Trial. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT, PROCEEDING OR OTHER LITIGATION BROUGHT TO RESOLVE ANY DISPUTE ARISING UNDER, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT, ANY LOAN DOCUMENT, OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OR OMMISSIONS OF LENDER, EX-IM BANK, OR ANY OTHER PERSON, RELATING TO THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT OR ANY OTHER LOAN DOCUMENT.

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IN WITNESS WHEREOF, Borrower has caused this Agreement to be duly executed as of the 6th day of June, 2003.

UNIFY CORPORATION
(Name of Borrower)
By:	/s/ Peter J. DiCorti
	(Signature)
Name:	Peter J. DiCorti
	(Print or Type)
Title:	Chief Financial Officer
	(Print or Type)
ACKNOWLEDGED:
SILICON VALLEY BANK
(Name of Lender)
By:	/s/ Kevin Gillis
	(Signature)
Name:	Kevin Gillis
	(Print or Type)
Title:	Vice President
	(Print or Type)

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ANNEXES:

Annex A - Loan Authorization Agreement or Loan Authorization Notice

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ASSIGNMENT

For value received, Silicon Valley Bank hereby sells, assigns and transfers unto:

                                Name: Silicon Valley Bancshares

                                Address: 3003 Tasman Drive (HA-200)

                                Santa Clara, CA 95054

                                TaxID: 91-1962278

that certain Warrant to Purchase Stock issued by UNIFY CORPORATION (the “Company”), on June 6, 2003

(the “Warrant”) together with all rights, title and interest therein.

SILICON VALLEY BANK
By:	/s/ Kevin Gillis
Name:	Kevin Gillis
Title:	Vice President

Date: 6/6/03

By its execution below, and for the benefit of the Company, Silicon Valley Bancshares makes each of the representations and warranties set forth in Article 4 of the Warrant as of the date hereof.

SILICON VALLEY BANCSHARES
By:	/s/ Paulette Mehas
Name:	Paulette Mehas
Title	Treasurer

INTELLECTUAL PROPERTY SECURITY AGREEMENT

This Intellectual Property Security Agreement is entered into as of June 6, 2003 by and between SILICON VALLEY BANK (“Secured Party”) and UNIFY CORPORATION (“Grantor”).

RECITALS

A.            Secured Party and Grantor are entering into that certain Loan and Security Agreement by dated of even date herewith (as the same may be amended, modified or supplemented from time to time, the “Loan Agreement”; capitalized terms used herein which are not defined, have the meanings set forth in the Loan Agreement).

B.            Pursuant to the terms of the Loan Agreement, Grantor has granted to Secured Party a security interest in all of Grantor’s right, title and interest, whether presently existing or hereafter acquired, in, to all Intellectual Property and all other Collateral.

NOW, THEREFORE, as collateral security for the payment and performance when due of all of the Obligations, Grantor hereby grants, represents, warrants, covenants and agrees as follows:

AGREEMENT

1.             Grant of Security Interest.  To secure all of the Obligations, Grantor grants and pledges to Secured Party a security interest in all of Grantor’s right, title and interest in, to and under its Intellectual Property (as defined in the Loan Agreement), including without limitation the following:

(a)           All of present and future United States registered copyrights and copyright registrations, including, without limitation, the registered copyrights, maskworks, software, computer programs and other works of authorship subject to United States copyright protection listed in Exhibit A-1 to this Agreement (and including all of the exclusive rights afforded a copyright registrant in the United States under 17 U.S.C.§106 and any exclusive rights which may in the future arise by act of Congress or otherwise) and all present and future applications for copyright registrations (including applications for copyright registrations of derivative works and compilations) (collectively, the “Registered Copyrights”), and any and all royalties, payments, and other amounts payable to Grantor in connection with the Registered Copyrights, together with all renewals and extensions of the Registered Copyrights, the right to recover for all past, present, and future infringements of the Registered Copyrights, and all computer programs, computer databases, computer program flow diagrams, source codes, object codes and all tangible property embodying or incorporating the Registered Copyrights, and all other rights of every kind whatsoever accruing thereunder or pertaining thereto.

(b)           All present and future copyrights, maskworks, software, computer programs and other works of authorship subject to (or capable of becoming subject to) United States copyright protection which are not registered in the United States Copyright Office (the “Unregistered Copyrights”), whether now owned or hereafter acquired, including without limitation the Unregistered Copyrights listed in Exhibit A-2 to this Agreement, and any and all

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royalties, payments, and other amounts payable to Grantor in connection with the Unregistered Copyrights, together with all renewals and extensions of the Unregistered Copyrights, the right to recover for all past, present, and future infringements of the Unregistered Copyrights, and all computer programs, computer databases, computer program flow diagrams, source codes, object codes and all tangible property embodying or incorporating the Unregistered Copyrights, and all other rights of every kind whatsoever accruing thereunder or pertaining thereto.  The Registered Copyrights and the Unregistered Copyrights collectively are referred to herein as the “Copyrights.”

(c)           All right, title and interest in and to any and all present and future license agreements with respect to the Copyrights.

(d)           All present and future accounts, accounts receivable, royalties, and other rights to payment arising from, in connection with or relating to the Copyrights.

(e)           All patents, patent applications and like protections including, without limitation, improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, including without limitation the patents and patent applications set forth on Exhibit B attached hereto (collectively, the “Patents”);

(f)            All trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Grantor connected with and symbolized by such trademarks, including without limitation those set forth on Exhibit C attached hereto (collectively, the “Trademarks”);

(g)           Any and all claims for damages by way of past, present and future infringements of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the rights identified above;

(h)           All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;

(i)            All amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks or Patents; and

(j)            All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing, and all license royalties and proceeds of infringement suits, and all rights corresponding to the foregoing throughout the world and all re-issues, divisions continuations, renewals, extensions and continuations-in-part of the foregoing.

2.             Loan Agreement.  This security interest is granted in conjunction with the security interest granted to Secured Party under the Loan Agreement.  The rights and remedies of Secured Party with respect to the security interest granted hereby are in addition to those set forth in the Loan Agreement and the other Loan Documents, and those which are now or hereafter available to Secured Party as a matter of law or equity.  Each right, power and remedy of Secured Party provided for herein or in the Loan Agreement or any of the other Loan Documents, or now or

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hereafter existing at law or in equity shall be cumulative and concurrent and shall be in addition to every right, power or remedy provided for herein and the exercise by Secured Party of any one or more of the rights, powers or remedies provided for in this Agreement, the Loan Agreement or any of the other Loan Documents, or now or hereafter existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including Secured Party, of any or all other rights, powers or remedies.

3.             Covenants and Warranties. Grantor represents, warrants, covenants and agrees as follows:

(a)           Grantor has no present maskworks, software, computer programs and other works of authorship registered with the United States Copyright Office except as disclosed on Exhibit A-1 hereto.

(b)           Grantor shall undertake all reasonable measures to cause its employees, agents and independent contractors to assign to Grantor all rights of authorship to any copyrighted material in which Grantor has or may subsequently acquire any right or interest.

(c)           Grantor shall promptly advise Secured Party of any Trademark, Patent or Copyright not specified in this Agreement, which is hereafter acquired by Grantor.

(d)           Grantor shall not register any maskworks, software, computer programs or other works of authorship subject to United States copyright protection with the United States Copyright Office without first complying with the following:  (i) providing Secured Party with at least 5 days prior written notice thereof, (ii) providing Secured Party with a copy of the application for any such registration and (iii) executing and filing such other instruments, and taking such further actions as Secured Party may reasonably request from time to time to perfect or continue the perfection of Secured Party’s interest in the Collateral, including without limitation the filing with the United States Copyright Office, simultaneously with the filing by Grantor of the application for any such registration, of a copy of this Agreement or a Supplement hereto in form acceptable to Secured Party identifying the maskworks, software, computer programs or other works of authorship being registered and confirming the grant of a security interest therein in favor of Secured Party.

4.             General. If any action relating to this Agreement is brought by either party hereto against the other party, the prevailing party shall be entitled to recover reasonable attorneys fees, costs and disbursements. This Agreement may be amended only by a written instrument signed by both parties hereto.  To the extent that any provision of this Agreement conflicts with any provision of the Loan Agreement, the provision giving Secured Party greater rights or remedies shall govern, it being understood that the purpose of this Agreement is to add to, and not detract from, the rights granted to Secured Party under the Loan Agreement.  This Agreement, the Loan Agreement, and the other Loan Documents comprise the entire agreement of the parties with respect to the matters addressed in this Agreement. This Agreement shall be governed by the laws of the State of California, without regard for choice of law provisions. Grantor and Secured Party consent to the nonexclusive jurisdiction of any state or federal court located in Santa Clara County, California.

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5.             WAIVER OF RIGHT TO JURY TRIAL.  SECURED PARTY AND GRANTOR EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II)  ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SECURED PARTY AND GRANTOR; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF SECURED PARTY OR GRANTOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,  ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SECURED PARTY OR GRANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

IN WITNESS WHEREOF, the parties have cause this Intellectual Property Security Agreement to be duly executed by its officers thereunto duly authorized as of the first date written above.

Address of Grantor:	Grantor:
2101 Arena Blvd., Suite 100 Sacramento, California  95834	UNIFY CORPORATION
	By:	/s/ Peter J. DiCorti
	Title:	Chief Financial Officer
	Name:	Peter J. DiCorti
Address of Secured Party:	Secured Party:
3003 Tasman Drive Santa Clara, California  95054	SILICON VALLEY BANK
	By:	/s/ Kevin Gillis
	Title:	Vice President

Form: 3/1/02

Document Version: -1

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EXHIBIT A-1

REGISTERED COPYRIGHTS

(including copyrights that are the subject of an application for registration)

Description	Registration/ Application Number	Registration/ Application Date
NONE

EXHIBIT A-2

UNREGISTERED COPYRIGHTS

NONE

EXHIBIT B

PATENTS

Description	Registration/ Application Number	Registration/ Application Date
NONE

EXHIBIT C

TRADEMARKS

Description	Registration/ Application Number	Registration/ Application Date
SEE ATTACHED

The undersigned Directors further hereby certify that the following persons are the duly elected and acting officers of the Corporation named above as borrower and that the following are their actual signatures:

NAMES	OFFICE(S)	ACTUAL SIGNATURES
Todd Wille	Chief Executive Officer	x	/s/ Todd E. Wille
	President & Chairman
Peter DiCorti	Chief Financial Officer	x	/s/ Peter J. DiCorti
Peter DiCorti	Secretary	x	/s/ Peter J. DiCorti

AUTHORITY

RESOLVED, that the officers of the Corporation are, and each individually is, authorized to do and perform any and all such acts, including execution of any and all documents and certificates, as they shall deem necessary or advisable, to carry out the purpose of the foregoing resolutions.

COUNTERPARTS

RESOLVED, that this consent may be executed in two or more counterparts, each of which shall be deemed an original (including copies sent to a party by telecopy or facsimile transmission), but all of which together constitute one and the same instrument.

IN WITNESS WHEREOF, the undersigned, being the Directors of the Corporation have executed this consent as of the date first written above.

Todd Wille, Chairman of the Board

Jack Corrie

Kurt Garbe

Tery Larrew

Steve Whiteman

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WARRANT TO PURCHASE STOCK

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

Company:	UNIFY CORPORATION
Number of Shares:	115,385
Class of Stock:	Common
Warrant Price:	$	0.39	per share
Issue Date:	JUNE 6, 2003
Expiration Date:	JUNE 6, 2010

                THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, SILICON VALLEY BANK (“Holder”) is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the “Shares”) of the company (the “Company”) at the Warrant Price, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

ARTICLE 1. EXERCISE.

                                1.1           Method of Exercise.  Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company.  Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other from of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

                                1.2           Conversion Right.  In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share.  The fair market value of the Shares shall be determined pursuant to Article 1.3.

                                1.3           Fair Market Value.  If the Company’s common stock is traded in a public market and the shares are common stock, the fair market value of each Share shall be the closing price of a Share reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the “price to public” per share price specified in the final prospectus relating to such offering).  If the Company’s common stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Company’s common stock reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or, in the

instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the initial “price to public” per share price specified in the final prospectus relating to such offering), in both cases, multiplied  by the number of shares of the Company’s common stock into which a Share is convertible.    If the Company’s common stock is  not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.

                                1.4           Delivery of Certificate and New Warrant.  Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder, or instruct the Company’s transfer agent to issue to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.

                                1.5           Replacement of Warrants.  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

                                1.6           Treatment of Warrant Upon Acquisition of Company.

                                                1.6.1        “Acquisition”.  For the purpose of this Warrant, “Acquisition” means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction.

                                                1.6.2        Treatment of Warrant at Acquisition.

A)           Upon the written request of the Company, Holder agrees that, in the event of an Acquisition in which the sole consideration is cash, either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition. The Company shall provide the Holder with written notice of its request relating to the foregoing (together with such reasonable information as the Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

B)            Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is an “arms length” sale of all or substantially all of the Company’s assets (and only its assets) to a third party that is not an Affiliate (as defined below) of the Company (a “True Asset Sale”), either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will continue until the Expiration Date if the Company continues as a going concern following the closing of any such True Asset Sale. The Company shall provide the Holder with written notice of its request relating to the foregoing (together with such reasonable information as the Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

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C)            Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly.

As used herein “Affiliate” shall mean any person or entity that owns or controls directly or indirectly ten (10) percent or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such person’s or entity’s officers, directors, joint venturers or partners, as applicable.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

                                2.1           Stock Dividends, Splits, Etc.  If the Company declares or pays a dividend on the Shares payable in common stock, or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend occurred.  If the Company subdivides the Shares by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of stock into which the Shares are convertible, the number of shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased.  If the outstanding shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

                                2.2           Reclassification, Exchange, Combinations or Substitution.  Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event.  Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company’s Articles or Certificate (as applicable) of Incorporation upon the closing of a registered public offering of the Company’s common stock.  The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant.  The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant.  The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

                                2.3           [intentionally omitted]

                                2.4           No Impairment.  The Company shall not, by amendment of its Articles or Certificate (as applicable) of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of

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all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Article against impairment.

                                2.5           Fractional Shares.  No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share.  If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.

                                2.6           Certificate as to Adjustments.  Upon each adjustment of the Warrant Price, the Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

                                3.1           Representations and Warranties.  The Company represents and warrants to the Holder as follows:

                                                (a)           The initial Warrant Price referenced on the first page of this Warrant is not greater than (i) the price per share at which the Shares were last issued in an arms-length transaction in which at least $500,000 of the Shares were sold and (ii) the fair market value of the Shares as of the date of this Warrant.

                                                (b)           All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

                                                (c)           The Capitalization Table previously provided to Holder remains true and complete as of the Issue Date.

                                3.2           Notice of Certain Events.  If the Company proposes at any time (a) to declare any dividend or distribution upon any of its stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for sale additional shares of any class or series of the Company’s stock; (c) to effect any reclassification or recapitalization of any of  its stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company’s securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.

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                              3.3             [intentionally omitted]

                              3.4             No Shareholder Rights.  Except as provided in this Warrant, the Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER.  The Holder represents and warrants to the Company as follows:

                              4.1             Purchase for Own Account.  This Warrant and the securities to be acquired upon exercise of this Warrant by the Holder will be acquired for investment for the Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act.  Holder also represents that the Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares.

                              4.2             Disclosure of Information.  The Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities.  The Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Holder or to which the Holder has access.

                              4.3             Investment Experience.  The Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk.  The Holder has experience as an investor in securities of companies in the development stage and acknowledges that the Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that the Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables the Holder to be aware of the character, business acumen and financial circumstances of such persons.

                              4.4             Accredited Investor Status.  The Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

                              4.5             The Act.  The Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder’s investment intent as expressed herein.  The Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the 1933 Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.

ARTICLE 5. MISCELLANEOUS.

                              5.1             Term:  This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

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                                5.2           Legend.  This Warrant shall be imprinted with a legend in substantially the following form:

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

                                5.3           Compliance with Securities Laws on Transfer.  This Warrant may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company).  The Company shall not require Holder to provide an opinion of counsel if the transfer is to Silicon Valley Bancshares (Holder’s parent company) or any other affiliate of Holder.  Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder’s notice of proposed sale.

                                5.4           Transfer Procedure.  Upon receipt by Holder of the executed Warrant, Holder will transfer all of this Warrant to Silicon Valley Bancshares, Holder’s parent company, by execution of an Assignment substantially in the form of Appendix 2.  Subject to the provisions of Article 5.3 and upon providing Company with written notice, Silicon Valley Bancshares and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, Silicon Valley Bancshares or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable).  The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.

                                5.5           Notices.  All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may  (or on the first business day after transmission by facsimile) be, in writing by the Company or such holder from time to time.  Effective upon receipt of the fully executed Warrant and the initial transfer described in Article 5.4 above, all notices to the Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

Silicon Valley Bancshares

Attn:  Treasury Department

3003 Tasman Drive, HA 200

Santa Clara, CA 95054

Telephone:  408-654-7400

Facsimile:  408-496-2405

6

Notice to the Company shall be addressed as follows until the Holder receives notice of a change in address:

Unify Corporation
Attn:  Chief Financial Officer
2101 Arena Blvd., Suite 100

Sacramento, California  95834

Telephone:  916-928-6288
Facsimile:  916-928-6408

                                5.6           Waiver.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by both parties.

                                5.7           Attorney’s Fees.  In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorney’s fees.

                                5.8           Automatic Conversion upon Expiration.  In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Exercise Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to the Holder.

                                5.9           Counterparts.  This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

                                5.10         Governing Law.  This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

“COMPANY”
UNIFY CORPORATION
By:	/s/ Todd E. Wille	By:	/s/ Peter J. DiCorti
Name:	Todd E. Wille	Name:	Peter J. DiCorti
	(Print)		(Print)
Title:	Chairman of the Board, President or Vice President	Title:	Chief Financial Officer, Secretary, Assistant Treasurer or Assistant Secretary

7

“HOLDER”
SILICON VALLEY BANK
By:
Name:
	(Print)
Title:

8

APPENDIX 1

NOTICE OF EXERCISE

                1.             Holder elects to purchase ___________ shares of the Common/Series ______ Preferred [strike one] Stock of __________________ pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.

                                [or]

                1.             Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant.  This conversion is exercised for _____________________ of the Shares covered by the Warrant.

                [Strike paragraph that does not apply.]

                2.             Please issue a certificate or certificates representing the shares in the name specified below:

Holders Name

(Address)

                3.             By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.

HOLDER:

By:

Name:

Title:

(Date):

9

APPENDIX 2

ASSIGNMENT

For value received, Silicon Valley Bank hereby sells, assigns and transfers unto

Name:	Silicon Valley Bancshares
Address:	3003 Tasman Drive (HA-200)
	Santa Clara, CA 95054
Tax ID:	91-1962278

that certain Warrant to Purchase Stock issued by [insert Borrower Name] (the “Company”), on [insert Issue Date] (the “Warrant”) together with all rights, title and interest therein.

SILICON VALLEY BANK

By:

Name:

Title:

Date: [insert Issue Date]

By its execution below, and for the benefit of the Company, Silicon Valley Bancshares makes each of the representations and warranties set forth in Article 4 of the Warrant  as of the date hereof.

SILICON VALLEY BANCSHARES

By:

Name:

Title:

10

EX-23.1

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Exhibit 23.1

Consent of Ernst & Young LLP, Independent Auditors

We consent to the incorporation by reference in the Registration Statements on Form S-8 of Unify Corporation (Nos. 333-13203, 333-61705, 333-71814, 333-92973, and 333-98633) of our report dated May 29, 2003, except for Note 14, as to which the date is June 6, 2003, appearing in this Annual Report on Form 10-K of Unify Corporation for the year ended April 30, 2003.

/s/ Ernst & Young LLP

Sacramento, California
July 15, 2003

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Exhibit 23.1

Consent of Ernst & Young LLP, Independent Auditors

EX-23.2

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Exhibit 23.2

INDEPENDENT AUDITORS' CONSENT

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 on Form S-8 of our report dated May 23, 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, 2003.

DELOITTE & TOUCHE LLP

San Jose, California
July 15, 2003

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Exhibit 23.2

INDEPENDENT AUDITORS' CONSENT

EX-99.1

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Exhibit 99.1

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, 2003, 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 17, 2003

/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 99.1

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-99.2

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Exhibit 99.2

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, 2003, 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 17, 2003

/s/  PETER J. DICORTI Peter J. DiCorti
Chief Financial 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 99.2

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