**Exhibit 10.49**

 

**CREDIT AND SECURITY AGREEMENT**

 

This Credit and Security Agreement (the “Agreement”),dated as of January 29, 2003, is between **City National Bank (“CNB”)** and **TierTechnologies, Inc.**, a California corporation, and **OfficialPayments Corporation**, a Delaware corporation **(**collectively, **“Borrower”)**.

 

**1.**                    **DEFINITIONS.**  As used in this Agreement, these terms havethe following meanings:

 

**“Account”** or **“Accounts”** mean any right topayment for goods sold or leased or for services rendered which is not evidencedby an instrument or chattel paper, whether or not it has been earned byperformance.

 

**“Additional Copyright Collateral”**shallmean those items of Product which are registered for Copyright protection afterthose items of Copyright Collateral referred to in the Memorandum of SecurityInterest in Copyrights.

 

**“Advance Fee”** shall be one quarter of onepercent (1⁄4%) of the amount being disbursed pursuant to a request for a Loan byBorrower under the Agreement.

 

**“Affiliate”** means any Person directly orindirectly controlling, controlled by, or under common control with, Borrower,and includes any employee stock ownership plan of Borrower or an Affiliate.“Control” means the possession, directly or indirectly, of the power to director cause the direction of the management and policies of that Person, whetherthrough the ownership of voting securities, by contract or otherwise.

 

**“Borrower’s Demand Deposit Account”** meansBorrower’s demand deposit account number 432 671 380, maintained with CNB.

 

**“Business Day”** means a day that CNB’s HeadOffice is open and conducts a substantial portion of its business.

 

**“Cash Flow from Operations”** will bedetermined on a consolidated basis for Borrower and the Subsidiaries and means,with respect to the twelve month period ending on the date of determination,the sum of (a) net income from continuing operations after taxes and beforeextraordinary items in accordance with GAAP, plus (b) amortization expense,plus (c) interest expense, plus (d) depreciation expense.

 

**“Code”** means the California UniformCommercial Code, except where the Uniform Commercial Code of another stategoverns the perfection of a security interest in Collateral located in thatstate.

 

**“Collateral”** means the property, if any,securing the Obligations.

 

**“Copyright Collateral”**shall mean thoseitems of Product for which Copyright registration has been obtained by Borrowerunder the United States Copyright Act, and identified in the Memorandum ofSecurity Interest in Copyrights.

 

**“Covenant Compliance Certificate”** shall bein the form attached hereto as Exhibit A.

 

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**“Current Liabilities”** will be determined ona consolidated basis for Borrower and the Subsidiaries (except for intercompanyindebtedness between or among wholly owned Subsidiaries and Borrower that areeliminated upon consolidation) in accordance with GAAP and will include withoutlimitation (a) all payments on Subordinated Debt required to be made within one(1) year after the date on which the determination is made; and (b) allindebtedness payable to stockholders, Affiliates, Subsidiaries or officersregardless of maturity, unless such indebtedness has been subordinated, onterms satisfactory to CNB, to the Obligations.

 

**“Debt”** means, at any date, the aggregateamount of, without duplication, (a) all obligations of Borrower or anySubsidiary for borrowed money; (b) all obligations of Borrower or anySubsidiary evidenced by bonds, debentures, notes or other similar instruments;(c) all obligations of Borrower or any Subsidiary to pay the deferred purchaseprice of property or services (excluding any contingent purchase price orearnouts with respect to any business acquisition completed prior to the dateof this Agreement or completed after the date of this Agreement with CNB’swritten consent or pursuant to Section 6.8.1); (d) all capitalized leaseobligations of Borrower or any Subsidiary; (e) all obligations or liabilitiesof others secured by a lien on any asset of Borrower or any Subsidiary, whetheror not such obligation or liability is assumed; (f) all obligations guaranteedby Borrower or any Subsidiary; (g) all obligations of Borrower or anySubsidiary, direct or indirect, for letters of credit; and (h) any otherobligations or liabilities which are required by generally accepted accountingprinciples to be shown as debt on the balance sheet of Borrower or anySubsidiary.

 

**“Debt Service”** means (a) the aggregateamount of Current Maturity of Long Term Debt plus (b) all interest incurred onborrowed money during the twelve month period ending on the date ofdetermination.  “Current Maturity ofLong Term Debt” means that portion of Borrower’s consolidated long termliabilities, determined in accordance with GAAP, which shall, by the termsthereof, become due and payable within one (1) year following the date of thebalance sheet upon which such calculations are based.

 

**“Eurocurrency Reserve Requirement”** meansthe aggregate (without duplication) of the rates (expressed as a decimal) ofreserves (including, without limitation, any basic, marginal, supplemental, oremergency reserves) that are required to be maintained by banks during theInterest Period under any regulations of the Board of Governors of the FederalReserve System, or any other governmental authority having jurisdiction withrespect thereto, applicable to funding based on so-called “EurocurrencyLiabilities”, including Regulation D (12 CFR 204).

 

**“GAAP”** means generally accepted accountingprinciples and practices, consistently applied.

 

**“Interest Period”** means the periodcommencing on the date a LIBOR Loan is made (including the date a Prime Loan isconverted to a LIBOR Loan, or a LIBOR Loan is renewed as a LIBOR Loan, which,in the latter case, will be the last day of the expiring Interest Period) andending on the last day of the month occurring prior to or on the date which isone (1), two (2), three (3), or six (6) months thereafter, as selected by theBorrower; provided, however, no Interest Period may extend beyond theTermination Date.

 

**“Inventory”** means goods held for sale orlease in the ordinary course of business, work in process and any and all rawmaterials used in connection with the foregoing.

 

**“Letters of Credit”** means any StandbyLetters of Credit issued under this Agreement.

 

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**“LIBOR Base Rate”** means the BritishBanker’s Association definition of the London InterBank Offered Rates as madeavailable by Bloomberg LP, or such other information service available to CNB,for the applicable Interest Period for the LIBOR Loan selected by Borrower andas quoted by CNB on the Business Day Borrower requests a LIBOR Loan or on thelast day of an expiring Interest Period.

 

**“LIBOR Interest Rate”** means the rate peryear (rounded upward to the next one-sixteenth (1/16th) of one percent(0.0625%), if necessary) determined by CNB to be the quotient of (a) the LIBORBase Rate divided by (b) one minus the Eurocurrency Reserve Requirement for theInterest Period; which is expressed by the following formula:

 

**LIBOR Base Rate**

**1 - Eurocurrency Reserve Requirement**

 

**“LIBOR Loan”** means any Loan tied to theLIBOR Interest Rate.

 

**“Loan”** or **“Loans”** means one or more ofthe Loans extended by CNB to Borrower under Section 2.

 

**“Loan Documents”** means, individually andcollectively, this Agreement, any Note, security or pledge agreement, financingstatement and all other contracts, instruments, addenda and documents executedin connection with or related to the extension(s) of credit, and any Collateraltherefor, which are the subject of this Agreement.

 

**“Memorandum of Security Interest in Copyrights”**shall be in the form attached as Exhibit B.

 

**“Notes”** means the Notes referenced inSection 2.

 

**“Obligations”** means all present and futureliabilities and obligations of Borrower to CNB hereunder and all otherliabilities and obligations of Borrower to CNB of every kind, now existing orhereafter owing, matured or unmatured, direct or indirect, absolute orcontingent, joint or several, including any extensions and renewals thereof andsubstitutions therefor.

 

**“Person”** means any individual or entity.

 

**“Potential Event of Default”** means anycondition that with the giving of notice or passage of time or both would,unless cured or waived, become an Event of Default.

 

**“Prime Rate”** means the rate most recentlyannounced by CNB at its principal office in Beverly Hills, California as its“Prime Rate.”  Any change in theinterest rate resulting from a change in the Prime Rate will be effective onthe day on which each change in the Prime Rate is announced by CNB.

 

**“Prime Loan”** means any Loan tied to thePrime Rate.

 

**“Product”**shall mean any software used inconnection with Borrower’s performance of services for its Account Debtors incommercially viable, finished, form, in each case whether embodied in computerreadable media, cassette, cartridge, disk or on or by any other means, method,process or device whether now known or hereafter developed.  The term “item of Product” shall mean a particularsoftware program.  An item of Productshall also include rights in the item of Product as set forth in Section 7.1.8.

 

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**“Quick Assets”** means the sum of cash, pluscash equivalents, plus accounts receivable (billed and unbilled), plus securitiesclassified as short-term marketable securities according to GAAP, as such itemsappear on Borrower’s consolidated balance sheet, determined in accordance withGAAP.

 

**“Subordinated Debt”** means Debt of Borroweror any Subsidiary, the repayment of which is subordinated to the Obligations onterms satisfactory to CNB.

 

**“Subsidiary”** means any corporation, themajority of whose voting shares are at any time owned, directly or indirectlyby Borrower and/or by one or more Subsidiaries.

 

**“Tangible Net Worth”** means the total of allassets appearing on a balance sheet prepared in accordance with GAAP forBorrower and the Subsidiaries on a consolidated basis, minus (a) all intangibleassets (net of accumulated amortization), including, without limitation, unamortizeddebt discount, receivables from shareholders to the extent reflected ascontra-equity on the balance sheet, goodwill, research and development costs,patents, trademarks, the excess of purchase price over underlying values ofacquired companies, any covenants not to compete, deferred charges, copyrights,franchises and appraisal surplus; minus (b) all obligations which are requiredby GAAP to be reflected as a liability on the consolidated balance sheet ofBorrower and the Subsidiaries; minus (c) the amount, if any, at which shares ofstock of a non-wholly owned Subsidiary appear on the asset side of Borrower’sconsolidated balance sheet, as determined in accordance with GAAP;  minus (d) minority interests; and minus (e)deferred income and reserves not otherwise reflected as a liability on theconsolidated balance sheet of Borrower and the Subsidiaries.

 

**“Termination Date”** means January 31,2005.  Notwithstanding the foregoing,CNB may, at its option, terminate this Agreement pursuant to Section 8.3; thedate of any such termination will become the Termination Date as that term isused in this Agreement.

 

**“Total Senior Debt”** means, as of any dateof determination, the amount of all liabilities for borrowed money that shouldbe reflected as a liability on a consolidated balance sheet of Borrower and theSubsidiaries prepared in accordance with GAAP, less Subordinated Debt.

 

**“Unused Facility Fee”** will be equal to onequarter of one percent (1⁄4%) of the average daily difference between the$15,000,000.00 (or such lesser amount as reduced by Borrower pursuant tosection 2.1) and the Revolving Credit Loans and Letters of Credit outstanding.

 

**2.**                    **LOANS.**

 

2.1                                 **Facility No.1:  Revolving Credit Loans.**  CNB agrees to make loans (“Revolving CreditLoans”) to Borrower up to, but not including, the Termination Date, atBorrower’s request, up to the amount of Fifteen Million Dollars($15,000,000.00) (the “Revolving Credit Commitment”).  The Revolving Credit Loans may be repaid and reborrowed at anytime up to the Termination Date; provided, however, that the aggregate unpaidprincipal amount of outstanding Revolving Credit Loans will at no time exceedthe Revolving Credit Commitment less the amount of outstanding Letters ofCredit.  All Revolving Credit Loans willbe paid by Borrower to CNB on the Termination Date.  The Revolving Credit Loans will be evidenced by a promissory note(“Revolving Credit Note”) in the form attached hereto as Exhibit C. .  The Borrower may, upon prior written noticeto CNB, terminate in whole or reduce in part, as of the date specified byBorrower in such notice, any then unused portion of the Revolving CreditCommitment in a minimum amount of $1.0 million or any greater amount which isan integral multiple of $100,000; provided that once reduced by Borrower, theRevolving Credit Commitment cannot be increased without CNB’s written consent.

 

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2.1.1                        **Interest on Revolving Credit Loans.**  Each Revolving Credit Loanwill bear interest from disbursement until due (whether at stated maturity, byacceleration or otherwise) at a rate equal to, at Borrower’s option, either (a)for a LIBOR Revolving Loan, the LIBOR Interest Rate plus two and one halfpercent (2.50%) per annum, or (b) for a Prime Revolving Loan, the fluctuatingPrime Rate plus one quarter of one percent (1⁄4%) per annum.  Interest on the Revolving Credit Loans willaccrue daily and be payable (a) if a Prime Revolving Loan, monthly, in arrears,on the last day of each month, commencing on the first such date followingdisbursement; (b) if a LIBOR Revolving Loan, (i) at the same time as interestpayments are due on Prime Revolving Loans, (ii) on the last day of eachInterest Period, and (iii) upon any prepayment of any LIBOR Revolving Loan (tothe extent accrued on the amount prepaid); (c) on the date a Prime RevolvingLoan is converted to a LIBOR Revolving Loan; and (d) at the TerminationDate.  A Revolving Credit Loan tied tothe LIBOR Interest Rate is called a “LIBOR Revolving Loan,” and a RevolvingCredit Loan tied to the Prime Rate is called a “Prime Revolving Loan.”  A Revolving Credit Loan will be a PrimeRevolving Loan any time it is not a LIBOR Revolving Loan.

 

2.1.2                        **Procedure for Revolving Credit Loans.**  Each Revolving Credit Loan maybe made by CNB at the oral or written request of anyone who is authorized inwriting by Borrower to request Revolving Credit Loans until written notice ofthe revocation of such authority is received by CNB.  Each such request shall be accompanied by the Advance Fee andshall specify whether the Loan is a Prime Revolving Loan or a LIBOR RevolvingLoan; provided, however, the aggregate amount of the Advance Fees incurred byBorrower pursuant to this Section 2.1.2 shall not exceed $37,500.00 prior tothe Termination Date.

 

2.2                                 **Facility No. 2:  EquipmentAcquisition Loans. **CNB agrees to make loans (“EquipmentAcquisition Loans”) to Borrower from time to time up to, but not including,January 30, 2004, up to the amount of Two and One Half Million Dollars($2,500,000.00) (the “Equipment Acquisition Commitment”), the proceeds of whichwill be used to pay up to one hundred percent (100%) of the purchase price ofnew machinery and equipment, excluding sales taxes, delivery and set-upcharges.  Each Equipment Acquisition Loanwill be evidenced by a promissory note (“Equipment Acquisition Note”) in theform attached hereto as Exhibit D.

 

2.2.1                        **Interest on Equipment Acquisition Loans.** Each Equipment Acquisition Loan will bearinterest from disbursement until due (whether at stated maturity, byacceleration or otherwise) at a rate equal to, at Borrower’s option, either (a)for a LIBOR Equipment Acquisition Loan, the LIBOR Interest Rate plus two andthree quarters percent (2.75%) per annum, or (b) for a Prime Equipment AcquisitionLoan, the fluctuating Prime Rate plus one half of one percent (1⁄2%) perannum.  Interest on the EquipmentAcquisition Loans will accrue daily and be payable (a) if a Prime EquipmentAcquisition Loan, monthly, in arrears, on the last day of each month, commencingon the first such date following disbursement; (b) if a LIBOR EquipmentAcquisition Loan, (i) at the same time as interest payments are due on PrimeEquipment Acquisition Loans, (ii) on the last day of each Interest Period, and(iii) upon any prepayment of any LIBOR Equipment Acquisition Loan (to theextent accrued on the amount prepaid); (c) on the date a Prime EquipmentAcquisition Loan is converted to a LIBOR Equipment Acquisition Loan; and (d) atthe Termination Date.  An EquipmentAcquisition Loan tied to the LIBOR Interest Rate is called a “LIBOR EquipmentAcquisition Loan,” and an Equipment Acquisition Loan tied to the Prime Rate iscalled a “Prime Equipment Acquisition Loan.” An Equipment Acquisition Loan will be a Prime Equipment Acquisition Loanany time it is not a LIBOR Equipment Acquisition Loan.

 

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2.2.2                        **Procedure for Equipment Acquisition Loans.** Each Equipment Acquisition Loan will be made against delivery byBorrower to CNB of (a) an appropriate purchase invoice evidencing the purchaseof items of machinery and/or equipment, (b) a duly executed EquipmentAcquisition Note, (c) the Advance Fee; and (d) such further documents as willbe requested by CNB to perfect a security interest of first priority in theassets being purchased in favor of CNB.

 

2.2.3                        **Payment of Equipment Acquisition Loans.**  Theprincipal amount of each Equipment Acquisition Loan will be repaid insuccessive monthly installments in the amount of the Equipment AcquisitionLoans outstanding on January 31, 2004, divided by thirty six (36), commencingon February 29, 2004, payable thereafter on the last day of each month.

 

2.3                                 **Facility No. 3:  Letter ofCredit Facility. **CNB will, at the request of Borrower, at anytime up to, but not including, the Termination Date, issue Letters of Creditfor the account of Borrower.  Theaggregate face amount of outstanding Letters of Credit will not at any timeexceed the lesser of (a) $15,000,000.00, less any amount by which the RevolvingCredit Commitment has been reduced by Borrower (the “Letter of CreditCommitment”) or (b) the Revolving Credit Commitment less Revolving Credit Loansoutstanding on the date of the request.

 

2.3.1                        **Issuance of Letters of Credit.**  Standby Letters of Credit willbe issued in accordance with an Irrevocable Standby Letter of CreditApplication and Letter of Credit Agreement submitted by Borrower andincorporated herein by this reference, subject to the terms of this Agreementin the event of any conflict herewith; provided that the economic terms of anyStandby Letters of Credit will be governed by this Agreement.  All Letters of Credit will be issued onnormal documentation used by CNB from time to time in accordance with theInternational Standby Practices 1998, whichever is applicable.  Unless CNB otherwise agrees in writing, noLetters of Credit may expire more than one year after the TerminationDate.  The following fees and chargeswill apply to the issuance of Letters of Credit, (i) the issuance fee shall beone percent (1%) per annum, and (ii) the negotiation fee shall be one quarterof one percent (1⁄4%) of the amount drawn or $100.00 whichever is greater.

 

2.3.2                        **Reimbursement for Funding Letter of Credit. **Any drawingunder a Letter of Credit will be deemed to be an irrevocable request for aRevolving Credit Loan under this Agreement. Borrower’s obligation to reimburse CNB may also be satisfied byimmediately charging Borrower’s Demand Deposit Account if requested byBorrower, and if sufficient clear and collected funds are on deposit.  CNB’s obligation under this subsection tomake a Revolving Credit Loan will exist irrespective of the existence of anyPotential Event of Default or Event of Default.  Any obligations for Letters of Credit not paid when due (and notconstituting Revolving Credit Loans) will bear interest from such time untilrepaid at a fluctuating rate equal to the Prime Rate, from time to time ineffect, plus two and one half percent (21⁄2%) per annum.

 

2.3.3                        **Letters of Credit Outstanding on Termination Date.**  Onthe Termination Date, Borrower shall for each Letter of Credit thenoutstanding: (i) pay CNB cash in the aggregate face amount of such Letter ofCredit to be held as cash collateral for Borrower’s obligation to reimburse CNBupon the funding of such Letter of Credit, (ii) terminate such Letter ofCredit, or (iii) obtain a letter of credit from a financial institutionacceptable to CNB, which may be drawn in full payment of an such reimbursementobligation arising upon a drawing upon CNB’s Letter of Credit.

 

2.4                             **LIBOR Loan Terms and Conditions**

 

2.4.1                        Procedure for LIBOR Loans.  Borrower may request that a Loan be a LIBORLoan, if herein allowed (including conversion of a Prime Loan to a LIBOR Loan,or continuation of a LIBOR

 

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Loan as a LIBOR Loan upon the expiration ofthe Interest Period).  Borrower’srequest will be irrevocable, will be made to CNB, verbally or in writing, noearlier than two (2) Business Days before and no later than 1:00 p.m. PacificTime on the date the LIBOR Loan is to be made, and will specify the InterestPeriod, the amount of the LIBOR Loan, and such other information as CNBrequests.  If Borrower fails to select aLIBOR Loan in accordance herewith, the Loan will be a Prime Loan, and any LIBORLoan will be deemed a Prime Loan upon expiration of the Interest Period.

 

2.4.2                        **Availability of LIBOR Loans.**  Notwithstanding anythingherein to the contrary, each LIBOR Loan must be in the minimum amount of$1,000,000.00 and increments of $100,000.00. Borrower may not have more than five (5) LIBOR Revolving Loansoutstanding at any one time under the Revolving Credit Commitment.  Borrower may have Prime Loans and LIBORLoans outstanding simultaneously.

 

2.4.3                        **Prepayment of Principal. **Borrower may make a full or partialprincipal prepayment on a LIBOR Loan. Borrower may prepay the full outstanding principal balance on a LIBORLoan prior to the end of the Interest Period or partially prepay the principalbalance on a LIBOR Loan in a minimum amount of $100,000 or a greater amountwhich is an integral multiple of $10,000, provided, however, that suchprepayment is accompanied by a fee (“LIBOR Prepayment Fee”) equal to theamount, if any, by which (a)  theadditional interest which would have been earned by CNB had the LIBOR Loan notbeen prepaid exceeds (b) the interest which would have been recoverable by CNBby placing the prepaid amount of the LIBOR Loan on deposit in the LIBOR marketfor a period starting on the date on which it was prepaid and ending on thelast day of the applicable Interest Period. CNB’s calculation of the LIBOR Prepayment Fee will be conclusive absentmanifest error.

 

2.4.4                        **Suspension of LIBOR Loans.**  In the event CNB, on anyBusiness Day, is unable to determine the LIBOR Base Rate applicable for a new,continued, or converted LIBOR Loan for any reason, or any law, regulation, orgovernmental order, rule or determination, makes it unlawful for CNB to make aLIBOR Loan, Borrower’s right to select LIBOR Loans will be suspended until CNBis again able to determine the LIBOR Base Rate or make LIBOR Loans, as the casemay be.  During such suspension, newLoans, outstanding Prime Loans and LIBOR Loans whose Interest Periods terminatemay only be Prime Loans.

 

2.5                                 **Optional Prepayments.**Subject to the provisions of Section 2.4.3, Borrower may prepay any EquipmentAcquisition Loans provided that on each prepayment, Borrower will pay theaccrued interest on the prepaid principal, to the date of such prepayment.  All prepayments will be applied to principalinstallments in the inverse order of their maturities.

 

2.6                                 **Loans and Payments.**  All payments will be in United StatesDollars and in immediately available funds. Interest will be computed on the basis of a 360 day year, actual dayselapsed.  All payments of principal,interest, fees and other charges on the Loans will be made by charging, andBorrower hereby authorizes CNB to charge, Borrower’s Demand Deposit Account atCNB for the amount of each such payment. Borrower must have sufficient collected balances in Borrower’s DemandDeposit Account with CNB in order that each such payment will be available whendue.  CNB is authorized to note thedate, amount and interest rate of each Loan and each payment of principal andinterest on CNB’s books and records, which notations will constitutepresumptive evidence of the accuracy of the information noted, absent manifesterror.  Any Loan will be conclusivelypresumed to have been made to or for the benefit of Borrower when CNB, in itssole discretion and absent manifest error, believes that the request thereforhas been made by authorized persons (whether in fact that is the case), andwhen the Loan is deposited to the credit of Borrower’s account with CNB,regardless of whether any Person other than Borrower may have authority to drawagainst such account.

 

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2.7                                 **DefaultInterest Rate.**  From andafter written notice by CNB to Borrower of the occurrence of an Event of Default(and without constituting a waiver of such Event of Default), the Loans (andinterest thereon to the extent permitted by law) will bear additional interestat a fluctuating rate equal to two and one half percent (21⁄2%) per annum higherthan the interest rate stated in Sections 2.1.1 and 2.2.1 until the Event ofDefault has been cured; provided, however, for purposes of this Section, aLIBOR Loan will be treated as a Prime Loan upon the termination of the InterestPeriod. All interest provided for in this Section will be compounded monthlyand payable on demand.

 

2.8                                 **UnusedFacility Fee**.  Borrower willpay the Unused Facility Fee on the last day of each calendar quarter;  such fee will be non-refundable and fullyearned when paid.  Borrower herebyauthorizes CNB to charge Borrower’s Demand Deposit Account or Borrower’s LoanAccount for the amount of each such fee.

 

**3.**                    **CONDITIONSPRECEDENT.**

 

3.1                                 **InitialExtension of Credit.**  Theobligation of CNB to make the initial Loan or other extension of credithereunder is subject to CNB’s receipt of each of the following, in form andsubstance satisfactory to CNB, and duly executed as required by CNB:

 

3.1.1                        All Loan Documents required by CNB,including but not limited to such documents necessary to perfect CNB’s firstpriority security interest in the Collateral, and evidence of such perfection;

 

3.1.2                        CNB shall have received with respect to eachitem of the Copyright Collateral:

 

(a)                                  Evidence reasonably satisfactory to CNBestablishing that Borrower has sufficient right, title and interest in and toeach item of the Copyright Collateral as set forth in the attachment to ExhibitB to enable it to fully perform any existing agreement with respect toexploitation of such Copyright Collateral;

 

(b)                                 Evidence reasonably satisfactory to CNBestablishing that Borrower is duly registered in the Copyright Office as theowner of the copyright set forth in the attachment to Exhibit B;

 

(c)                                  Evidence that a duly executed Memorandum ofSecurity Interests in Copyrights  hasbeen duly acknowledged and submitted for expedited recordation accompanied bythe required filing fee with the Copyright Office within the time limit setforth in 17 U.S.C. §205(d) for constructive notice as of the date of thisAgreement;

 

(d)                                 Evidence reasonably satisfactory to CNB thatthere is no interest of any third party, including heirs, which is contrary tothe rights granted or purported to be granted to CNB in the CopyrightCollateral, apart from (a) rights of termination of transfers applicable to allauthors under the Copyright Act and (b) rights of third parties under licenseagreements with Borrower to consent to the pledge of the same to CNB.

 

3.1.3                        Evidence that any insurance required by thisAgreement or any other Loan Document is in effect;

 

3.1.4                        Where Borrower or any party signing a LoanDocument is a business entity, such authorization documents as CNB may require,in form and substance satisfactory to CNB; and

 

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3.1.5                        A Documentation Fee of $500.00.

 

3.2                                 **Conditionsto Each Extension of All Loans.** The obligation of CNB to make any Loan or other extension of credithereunder will be subject to the fulfillment of each of the followingconditions to CNB’s satisfaction:

 

3.2.1                        If a Standby Letter of Credit is to beissued, CNB will have received an Irrevocable Standby Letter of CreditApplication and Letter of Credit Agreement, duly executed and delivered byBorrower, in the form customarily used by CNB;

 

3.2..2                     The representations and warranties of Borrowerset forth in Section 4 of this Agreement and in all other Loan Documents willbe true and correct on the date of the making of each Loan or other extensionof credit with the same effect as though such representations and warrantieshad been made on and as of such date;

 

3.2.3                        There will be no Event of Default orPotential Event of Default under this Agreement or any of the Loan Documents;and

 

3.2.4                        All other documents and legal matters inconnection with the transactions described in this Agreement will be reasonablysatisfactory in form and substance to CNB.

 

4.                     **REPRESENTATIONSAND WARRANTIES. **Borrowerrepresents and warrants (and each request for a Loan or other extension ofcredit will be deemed a representation and warranty made on the date of suchrequest) that:

 

4.1                                 **CorporateExistence, Power and Authorization. **Borrowerand each Subsidiary is duly organized, validly existing and in good standingunder the laws of the state of its organization, and is duly qualified toconduct business in each jurisdiction in which its business is conducted wherefailure to so qualify or be in good standing would result in a material adverseeffect on the business or financial condition of Borrower.  The execution, delivery and performance ofall Loan Documents executed by Borrower are within Borrower’s powers and havebeen duly authorized by the Board of Directors of Borrower and do not requireany consent or approval of the stockholders of Borrower.

 

4.2                                 **BindingAgreement. **The LoanDocuments constitute the valid and legally binding obligations of Borrower,enforceable against Borrower in accordance with their terms.

 

4.3                                 **OtherAgreements. **The executionand performance of the Loan Documents will not violate any provision of law orregulation (including, without limitation, Regulations X and U of the FederalReserve Board) or any order of any governmental authority, court, orarbitration board or the Articles of Incorporation or Bylaws of Borrower, orresult in the breach of, constitute a default under, contravene any provisionsof, or result in the creation of any security interest, lien, charge orencumbrance upon any of the assets of Borrower pursuant to any indenture oragreement to which Borrower or any of its properties is bound, except liens andsecurity interests in favor of CNB.

 

4.4                                 **Litigation.**  There is no litigation, tax claim,investigation or proceeding pending, threatened against or affecting Borrower,any Subsidiary, or any of their respective properties which, if adverselydetermined, would have a material adverse effect on the business, operations orcondition, financial or otherwise, of Borrower, or any Subsidiary.

 

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4.5                                 **FinancialCondition.**  Borrower’sconsolidated audited balance sheet as of September 30, 2002, and Borrower’sconsolidated audited income statement for the twelve months ended September30, 2002, copies of which have been delivered to CNB, and each more recentfinancial statement of Borrower delivered to CNB, have been prepared in accordancewith GAAP and are true, complete and correct and fairly present the financialcondition of Borrower and the Subsidiaries, including operating results, as ofthe accounting period referenced therein. There has been no material adverse change in the financial condition orbusiness of Borrower or any Subsidiary since the date of such financialstatements.  Neither Borrower nor anySubsidiary has any material liabilities for taxes or long-term leases orcommitments, except as disclosed in the financial statements.

 

4.6                                 **NoViolations.**  Borrower is not,nor is any Subsidiary, in violation of any law, ordinance, rule or regulationwhich would have a material adverse impact upon the business or financialcondition of Borrower taken as a whole.

 

4.7                                 **Use of Proceeds.**  Borrower will use the proceeds of theRevolving Credit Loans to support Borrower’s working capital needs, includingfinancing accounts receivable, financing capital expenditures, repayingexisting debt, and financing acquisitions (as allowed by Section 6.9), and theproceeds of the Equipment Acquisition Loans solely for the acquisition ofcapital equipment.

 

4.8                                 **ERISA.**  Borrower is in compliance in all materialrespects with all applicable provisions of the Employee Retirement IncomeSecurity Act of 1974 (“ERISA”).  NoReportable Event (as defined in ERISA and the regulations issued thereunder[other than a “Reportable Event” not subject to the provision for thirty (30)day notice to the Pension Benefit Guaranty Corporation (“PBGC”) under such regulations])has occurred with respect to any benefit plan of Borrower nor are there anyunfunded vested liabilities under any benefit plan of Borrower.  Borrower has met its minimum fundingrequirements under ERISA with respect to each of its plans and has not incurredany material liability to the PBGC in connection with any such plan.

 

4.9                                 **Consents.**  No consent, license, permit, orauthorization of, exemption by, notice to, report to, or registration, filingor declaration with, any governmental authority or agency is required inconnection with the execution and performance by Borrower of the Loan Documentsor the transactions contemplated hereunder except, in each case, where thefailure to obtain such consent, license or authorization would not result in amaterial adverse effect on the business or financial condition of the Borrower.

 

4.10                           **RegulationU.**  Borrower is not engagedprincipally, or as one of its principal activities, in the business ofextending credit for the purpose of purchasing or carrying margin stock (withinthe meaning of Regulations U or X of the Federal Reserve Board).  No part of the proceeds of the Loans will beused by Borrower to purchase or carry any such margin stock or to extend creditto others for the purpose of purchasing or carrying such margin stock.

 

4.11                           **EnvironmentalMatters. **The operations ofBorrower and each Subsidiary comply in all material respects with allapplicable federal, state and local environmental, health and safety statutes,regulations and ordinances, and comply in all material respects with all termsof all required permits and licenses.

 

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**5.**                    **AFFIRMATIVECOVENANTS. **Borrower agreesthat until payment in full of all Obligations, Borrower will comply with thefollowing covenants, unless CNB shall otherwise consent in writing:

 

5.1                                 **Books andRecords. **Borrower willmaintain, in accordance with sound accounting practices, accurate records andbooks of account showing, among other things, all Inventory and Accounts, theproceeds of the sale or other disposition thereof and the collectionstherefrom.  Borrower will not change theaccounting method used to determine Borrower’s Inventory cost withoutnotification to CNB.  CNB may, at anyreasonable time during Borrower’s regular business hours and after at least two(2) Business Days’ written notice, inspect, audit, and make extracts from, orcopies of, all books, records and other data, and inspect any of Borrower’sproperties.  Upon the occurrence of aPotential Event of Default or an Event of Default, CNB may confirm balances dueon Accounts by direct inquiry to Account Debtors (defined as those Personsobligated on the Accounts).  Borrowerwill furnish CNB with all information regularly maintained by Borrower regardingthe business or finances of Borrower promptly upon CNB’s request.

 

5.2                                 **FinancialStatements. **Borrower willfurnish to CNB on a continuing basis:

 

5.2.1                        Within forty-six (46) days after the end ofeach quarterly accounting period for each of the first three fiscal quarters, aconsolidated financial statement for Borrower and the Subsidiaries consistingof not less than a balance sheet, income statement, and statement of cashflows, with notes thereto, prepared in accordance with GAAP, which consolidatedfinancial statement may be internally prepared and accompanied by Borrower’scertification as to whether any event has occurred which constitutes an Eventof Default or Potential Event of Default, and if so, stating the facts withrespect thereto;

 

5.2.2                        Within ninety-one (91) days after the end ofeach fiscal year, a copy of the annual consolidated financial statements forsuch year for Borrower and the Subsidiaries including therein a balance sheet,income statement, statement of shareholder’s equity and statement of cashflows, with notes thereto, audited by PriceWaterhouseCoopers, or an independentcertified public accountant acceptable to CNB, and certified by such accountantto have been prepared in accordance with GAAP and accompanied by Borrower’scertification as to whether any event has occurred which constitutes an Eventof Default or Potential Event of Default, and if so, stating the facts withrespect thereto;

 

5.2.3                        Within forty-six (46) days after the end ofeach fiscal quarter, Borrower’s certified Covenant Compliance Certificate.

 

5.2.4                        Promptly after receipt thereof by Borrower,any written report pertaining to material items involving Borrower’s internalcontrols submitted to Borrower by Borrower’s independent certified publicaccountants in connection with each annual or interim special audit of thefinancial condition of Borrower and the Subsidiaries made by such accountants;

 

5.2.5                        Within forty-six (46) days after the end ofeach fiscal quarter, a listing and aging of all billed accounts receivable andaccounts payable together with , upon CNB’s request, a current list of thenames and addresses of all Account Debtors;

 

5.2.6                        Within fourteen (14) days after filing, acopy of the Federal Income Tax Return of Borrower; and

 

5.2.7                        Such additional information, reports and/orstatements regularly maintained or produced by Borrower or within Borrower’scontrol, as CNB may, from time to time, reasonably request.

 

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5.3                                 **Taxes andPremiums.**  Borrower will, andwill cause each Subsidiary to, pay and discharge all taxes, assessments,governmental charges and real and personal property taxes, including, but notlimited to, federal and state income taxes, employee withholding taxes andpayroll taxes, and all premiums for insurance required under this Agreement,prior to the date upon which penalties are attached thereto.

 

5.4                                 **Insurance.**

 

5.4.1                        Borrower will, and will cause eachSubsidiary to, provide and maintain the insurance required under the LoanDocuments;

 

5.4.2                        In addition to the insurance required above,Borrower will, and will cause each Subsidiary to, maintain insurance of thetypes and in amounts customarily carried by companies engaging in the same orsimilar lines of business, including, but not limited to, fire, publicliability, property damage, business interruption and extra expense andworker’s compensation, such insurance to be carried with companies and inamounts customary in Borrower’s industry, and will deliver to CNB from time totime, upon CNB’s request, schedules setting forth all insurance then in effect;and

 

5.4.3                        If Borrower fails to provide, maintain, orfurnish to CNB the policies required by this Section, CNB may provide writtennotice of such deficiency to Borrower, and if not remedied by Borrower withinfive (5) Business Days, immediately thereafter procure such insurance or otherinsurance necessary to protect CNB’s interest, and Borrower will pay allpremiums thereon promptly upon demand by CNB, together with interest, at thehighest rate provided for any of the Loans exclusive of LIBOR Loans extendedunder Section 2 above, from the date of expenditure, and if not paid within ten(10) days of CNB’s demand therefor (and without constituting a waiver of anEvent of Default), at a rate two and one half percent (21⁄2%) per year higherthan such interest rate until such amount (and interest thereon, to the extentpermitted by law), is paid in full*.*

 

5.5                                 **Notice.**  Borrower will promptly advise CNB in writingof (a) the opening of any new, or the closing of any existing, places ofbusiness, each location at which it currently conducts business, and any changeto Borrower’s name, trade name or other name under which it does business or ofany such new or additional name; (b) the occurrence of any Event of Default orPotential Event of Default; (c) any litigation pending or threatened againstBorrower, or any Subsidiary where the amount or amounts in controversy exceed$1,000,000.00; (d) any unpaid taxes of Borrower, or any Subsidiary, which aremore than fifteen (15) days delinquent, the assessment of which would have amaterial adverse impact upon the business of Borrower or the Subsidiaries; and(e) any other matter that would reasonably be expected to materially andadversely affect Borrower’s, or any Subsidiary’s financial condition, propertyor business.

 

5.6                                 **Fair LaborStandards Act.**  Borrowerwill, and will cause each Subsidiary to, comply in all material respects withthe requirements of, and all regulations promulgated under, the Fair LaborStandards Act of 1938 (29 U.S.C. Code § 201 et seq.).

 

5.7                                 **CorporateExistence.**  Borrower will,and will cause each Subsidiary to, maintain its corporate existence and all ofits rights, privileges and franchises necessary or desirable in the normalcourse of its business except where such non-compliance would not result in amaterial adverse effect on Borrower’s business or financial condition.

 

5.8                                 **Compliancewith Law.**  Borrower will, andwill cause each Subsidiary to, comply with all requirements of all applicablelaws, rules, regulations, orders of any governmental agency and all

 

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material agreements to which they are a party except where suchnon-compliance would not result in a material adverse effect on Borrower’sbusiness or financial condition.

 

5.9                                 **AdditionalCopyright Collateral.**

 

5.9.1                        Borrower shall provide written notice to CNBof the Copyright registration of any item of Product, or the acquisition of anyCopyrighted item of Product, no later than fifteen (15) days preceding suchregistration or acquisition, which notice shall provide a brief description ofsuch item of Product. Concurrently with the filing of the copyrightregistration application or the instrument of transfer, as applicable, Borrowershall file with the Copyright Office a Memorandum of Security Interest inCopyrights in substantially the form of Exhibit B attached hereto, dulyexecuted, notarized and in proper form for recordation in the Copyright Office,and referring to such item of Product.

 

5.9.2                        Copies of all applications for copyrightregistration, instruments of transfer and Memoranda of Security Interest inCopyrights filed with the Copyright Office pursuant to the provisions of thisSection 5.9 by Borrower shall be sent to CNB concurrently with the submissionto the Copyright Office of the applicable documents.  Copies of all documents from the Copyright Office acknowledgingthe valid filing or recordation of such documents, or the registration of copyright,as applicable, shall be promptly sent to CNB when received by Borrower from theCopyright Office.

 

5.9.3                        In the event that the law regardingperfection of security interests in copyrights shall be modified by statute,applicable case law or otherwise so as to affect the efficacy of any of theprocedures for perfection required by this Section 5.9, as soon as practicable,Borrower shall comply with any such modifications and shall notify CNB of suchsubstitute procedures.

 

5.10                           **FinancialTests.**  Borrower willmaintain:

 

5.10.1                  A ratio of Total Senior Debt to Tangible NetWorth plus Subordinated Debt of not more than 0.65 to 1 at the end of eachfiscal quarter;

 

5.10.2                  A ratio of Cash Flow from Operations to DebtService of not less than 1.35 to 1, for each fiscal quarter, during the twelvemonths preceding the date of determination.

 

5.10.3                  A ratio of Quick Assets to CurrentLiabilities of not less than 1.25 to 1 at the end of each fiscal quarter; and

 

5.10.4                  Net profits from continuing operations,after taxes, of at least $1.00 for each fiscal quarter.

 

**6.**                    **NEGATIVECOVENANTS. **Borrower agreesthat so long as it is indebted to CNB, or so long as CNB has any obligation toextend credit to Borrower, it will not, without CNB’s written consent, whichconsent shall not be unreasonably withheld, conditioned or delayed:

 

6.1                                 **Borrowing. **Borrower will not create, incur,assume or permit to exist with unrelated third parties any indebtedness forborrowed moneys other than Loans from CNB, Permitted Indebtedness and obligationsnow existing as shown in Borrower’s balance sheet as of September 30, 2002, oras disclosed in Borrower’s Form 10-K for the fiscal year then ended, excludingthose obligations being refinanced by CNB, or sell or transfer, either with orwithout recourse, any accounts or notes receivable or any moneys due or tobecome due.

 

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“Permitted Indebtedness” shall mean:

 

6.1.1                        indebtedness existing on the date hereof anddisclosed in writing to CNB;

 

6.1.2                        indebtedness to trade creditors in theordinary course of business;

 

6.1.3                        indebtedness with respect to equipmentleases and indebtedness secured by Permitted Liens, in an amount not to exceed$5,000,000; and

 

Extensions, renewals, refundings, refinancings,modifications, amendments and restatements of any of the items of PermittedIndebtedness (6.1.1) through (6.1.3) above, *provided*that the principal amount thereofis not increased or the terms thereof are not materially modified to imposemore burdensome terms upon Borrower.

 

6.21                           **Sale ofAssets.** Except for the disposition of obsolete, redundant orreplaced assets, or the sale of assets in Tier Technologies (Australia) PtyLimited, Simision Bowles & Associate and ADC Consultants PTY limited(collectively “Tier’s Discontinued Australian Operations), sell, lease orotherwise dispose of any of Borrower’s or any Subsidiary’s assets, other thanin the ordinary course of business.

 

6.3                                 **Loans,Investments, Secondary Liabilities**. Other than Permitted Investments, and investments now existing as shownin Borrower’s balance sheet as of September 30, 2002, or as disclosed inBorrower’s Form 10-K for the fiscal year then ended, make any loans or advancesto any person or other entity other than in the ordinary and normal course ofits business as now conducted or make any investment in the securities of anyperson or other entity other than the United States Government; or guarantee orotherwise become liable upon the obligation of any person or other entity, exceptfor Permitted Indebtedness and by endorsement of negotiable instruments fordeposit or collection in the ordinary and normal course of its business.

 

“Permitted Investments” shall mean:

 

6.3.1                        investments made in accordance withBorrower’s investment policy as approved by its Board of Directors, includingwithout limitation Borrower’s stock repurchase program;

 

6.3.2                        direct obligations of the United States ofAmerica;

 

6.3.3                        investments in certificates of depositissued by, and other deposits with, commercial banks organized under the UnitedStates or a State thereof having capital of at least One Hundred MillionDollars ($100,000,000.00);

 

6.3.4                        extensions of credit in the nature ofaccounts receivable or notes receivable arising from the sale, lease or licenseof goods, property or services in the ordinary course of business on ordinarytrade terms;

 

6.3.5                        investments consisting of (1) compensationof employees, officers and directors of Borrower or its Subsidiaries (2) traveladvances, employee relocations loans and other employee loans and advances inthe ordinary course of business, and (3) loans to Subsidiaries for generalcorporate funding purposes in the ordinary course of business;

 

6.3.6                        investments (including debt obligations)received in connection with the bankruptcy or reorganization of customers andsuppliers and in settlement of delinquent obligations of, and other disputeswith, customers or suppliers arising in the ordinary course of Borrower’sbusiness;

 

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6.3.7                        investments in joint ventures consisting ofthe licensing of technology or the providing of technical support in theordinary course of Borrower’s business provided there are no liens other thanPermitted Liens; and,

 

6.3.8                        investment in capital stock of Subsidiaries.

 

6.4                                 **ContingentLiabilities.**Except for contingent liabilities associated withpotential earnouts of acquisitions made by Borrower prior to the effective dateof this Agreement and any guarantees or contingent liabilities associated withthe issuance of performance bonds to Borrower in the ordinary course ofbusiness pursuant to Section 6.5.12, and any earnouts associated with futureacquisitions to the extent the acquisition falls under Section 6.8.1 or isotherwise approved in writing by CNB, assume, guarantee, endorse, contingentlyagree to purchase or otherwise become liable for the obligation of any Personother than Borrower, a Subsidiary, or Affiliate, except (a) by the endorsementof negotiable instruments for deposit or collection or similar transactions inthe ordinary course of business, and (b) contingent liabilities in favor ofCNB.

 

6.5                                 **Mortgages,****Liens,etc**.  Create, incur, permitto exist, or assume any mortgage, pledge, encumbrance, lien or charge of anykind, whether voluntary or involuntary, upon any asset now owned or hereafteracquired by it, other than liens for taxes not delinquent and liens in CNB’sfavor and other than liens agreed to in writing by CNB and Permitted Liens.

 

“Permitted Liens” shall mean:

 

6.5.1                        any liens existing on the date hereof anddisclosed in writing to CNB;

 

6.5.2                        liens for taxes, fees, assessments or othergovernmental charges or levies, either not delinquent or being contested ingood faith by appropriate proceedings;

 

6.5.3                        liens (i) upon or in any equipmentacquired or held by Borrower to secure the purchase price of such equipment orindebtedness incurred solely for the purpose of financing the acquisition ofsuch equipment, or (ii) existing on such equipment at the time of itsacquisition, provided that the lien is confined solely to the property soacquired and improvements thereon, and the proceeds of such equipment;

 

6.5.4                        liens on equipment leased by Borrowerpursuant to equipment leases in the ordinary course of business incurred solelyfor the purpose of financing the lease of such equipment (including liensarising from UCC financing statements regarding leases permitted by thisAgreement);

 

6.5.5                        liens arising from judgments, decrees orattachments to the extent and only so long as such judgment, decree orattachment has not caused or resulted in a Potential Event of Default or anEvent of Default;

 

6.5.6                        leases, subleases, licenses and sublicenses,and performance and surety bonds and associated collateral granted to others inthe ordinary course of Borrower’s business not interfering in any materialrespect with the conduct of the business of the Borrower or the Collateral;

 

6.5.7                        easements, reservations, rights-of-way,restrictions, minor defects or irregularities in title and other similar liensaffecting real property not interfering in any material respect with theordinary conduct of business of Borrower;

 

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6.5.8                        liens incurred or deposits made in theordinary course of Borrower’s business in connection with worker’scompensation, unemployment insurance, social security and other like laws;

 

6.5.9                        liens in favor of customs and revenueauthorities arising as a matter of law to secure payment of customs duties inconnection with the importation of goods;

 

6.5.10                  carriers’, warehousemen’s, materialmen’s,mechanics’, landlords’, repairmen’s, employees’ or other like liens arising inthe ordinary course of business which are not delinquent or remain payablewithout penalty or which are being contested in good faith by appropriateproceedings;

 

6.5.11                  liens arising solely by virtue of anystatutory or common law provision relating to banker’s liens, rights of set-offor similar rights and remedies as to deposit accounts or other funds maintainedwith a creditor depository institutions;

 

6.5.12                  obligations, undertakings, deposits,restrictions on cash or the like, made in the ordinary course of Borrower’sbusiness in connection with the issuance of performance bonds to Borrower or aSubsidiary; and

 

6.5.13                  liens incurred in connection with theextension, renewal or refinancing of the indebtedness secured by liens of thetype described in clauses (6.5.1) through (6.5.12) above, provided thatany extension, renewal or replacement lien shall be limited to the propertyencumbered by the existing lien and the principal amount of the indebtednessbeing extended, renewed or refinanced does not increase.

 

6.6                                 **Sale andLeaseback. **Enter into anysale-leaseback transaction.

 

6.7                                 **Dividends.**  Declare or pay any dividends or make anydistribution, whether of capital, income or otherwise, and whether in cash orother property, except that any Subsidiary may declare distributions toBorrower.

 

6.8                                 **Mergers andAcquisitions**.

 

6.8.1                        Purchase or otherwise acquire the assets orbusiness of any person or other entity except where such transactions are forentities or assets within or useful in Borrower’s industry, and would not:

 

(a)                                  cause the occurrence of an Event of Defaultwhich is continuing or would continue to exist after giving effect to thetransactions;

 

(b)                                 require Borrower to convey an initialpurchase price of more than Five Million Dollars ($5,000,000), whether in cashor other property (excluding Borrower’s equity securities); or

 

(c)                                  require Borrower to pay a total purchaseprice, initially or over time of more than Ten Million Dollars ($10,000,000),whether in cash or other property (excluding Borrower’s equity securities); or

 

6.8.2                        Liquidate, dissolve, merge or consolidate,or commence any proceedings therefor, provided that, a Subsidiary may merge,consolidate or distribute its assets into another Subsidiary or into Borrowerand Borrower may consolidate or become consolidated with or under any otherentity so long as (a) Borrower shall be a continuing or surviving legal entityand (b) all obligations of Borrower hereunder shall continue in full force andeffect; or sell any assets except in the ordinary and normal course of itsbusiness as now conducted; or sell, lease, assign, or transfer any substantialpart of its

 

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business or fixed assets, or any property or other assets necessary forthe continuance of its business as now conducted, including without limitationthe selling of any property or other asset accompanied by the leasing back ofthe same.

 

6.9                                 **ExecutiveLoans**.  Make any loan oradvance to any officer or shareholder of Borrower subject to Section 16 of theSecurities Exchange Act.

 

6.10                           **Event ofDefault.**  Permit a default tooccur under any document or instrument evidencing Debt incurred under anyindenture, agreement or other instrument under which such Debt may be issued,or any event to occur under any of the foregoing which would permit any holderof the Debt outstanding thereunder to declare the same due and payable beforeits stated maturity, whether or not such acceleration occurs or such default bewaived.

 

**7.**                    **SECURITYAGREEMENT**.

 

7.1                                 **Grant ofSecurity Interest**.  To secureall Obligations hereunder as well as all other Obligations to CNB, Borrowerhereby grants and transfers to CNB a continuing security interest in thefollowing property whether now owned or hereafter acquired:

 

7.1.1                        All of Borrower’s Inventory;

 

7.1.2                        All of Borrower’s Accounts;

 

7.1.3                        All of Borrower’s general intangibles asthat term is defined in the Code;

 

7.1.4                        All of Borrower’s equipment, as that term isdefined in the Code;

 

7.1.5                        All of Borrower’s interest in any patents(now existing or pending), copyrights, trade names, trademarks and servicemarks useful to the operation of Borrower’s business;

 

7.1.6                        All notes, drafts, acceptances, instruments,documents of title, policies and certificates of insurance, chattel paper,guaranties and securities now or hereafter received by Borrower or in whichBorrower has or acquires an interest;

 

7.1.7                        All cash and noncash proceeds of theforegoing property, including, without limitation, proceeds of policies offire, credit or other insurance;

 

7.1.8                        All Borrower’s rights in any CopyrightCollateral and Additional Copyright Collateral including, without limitation,the following:

 

(a)                                  All rights of every kind and nature(including, without limitation, copyrights) to the extent Borrower has the samein and to any literary, trademark, service mark, literary property right,personal right, musical, dramatic or other literary material of any kind ornature upon which, in whole or in part, the item of Product is or may be based,or from which it is or may be adapted or inspired or which may be or has beenused or included in the item of Product;

 

(b)                                 All tangible personal property and physicalproperties of every kind or nature of or relating to or embodying the item ofProduct and all versions thereof, including, without limitation, all physicalproperties relating to the development, production, completion, delivery,exhibition, distribution or other exploitation of the item of Product;

 

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(c)                                  All rights of every kind or nature ofBorrower in and to any and all music and musical compositions created for, usedin or to be used in connection with the item of Product, including, withoutlimitation, all copyrights therein;

 

(d)                                 All rights of every kind or nature, presentand future, of Borrower in and to all agreements relating to the development,production, completion, delivery and exploitation of the item of Product,including, without limitation, all agreements for personal services, includingthe services of writers, directors, cast, producers, special effects personnel,personnel, animators, cameramen and other creative, artistic and technicalstaff and agreements for the use of studio space, equipment, facilities,locations, animation services, special effects services and laboratorycontracts;

 

(e)                                  All copyrights, rights in copyrights,interests in copyrights and renewals and extensions of copyrights, domestic andforeign, of Borrower heretofore or hereafter obtained upon the item of Product,or any part thereof, and the right (but not the obligation) to make publicationthereof for copyright purposes, to register claim under copyright, and theright (but not the obligation) to renew and extend such copyrights, and theright (but not the obligation) to sue in the name of Borrower’s Constituents orin the name of CNB for past, present and future infringements of copyright;

 

(f)                                    All rights of Borrower to produce, acquire,release, sell, distribute, subdistribute, lease, sublease, market, license,sublicense, exhibit, broadcast, transmit, reproduce, publicize or otherwiseexploit the item of Product;

 

(g)                                 Any and all tangible and intangible personalproperty of Borrower, including, without limitation, general intangibles (asdefined in the Code), not elsewhere included in this definition, constitutingor relating to the item of Product or Rights in Product which may arise inconnection with the creation, production, completion, delivery, financing,ownership, possession or exploitation of the item of Product.

 

(h)                                 Notwithstanding anything to the contrary inthis Agreement, Borrower does not grant to CNB a security interest in, and thecollateral shall not include, any license or contract to the extent that suchgrant would result in a breach or default of such license or contract, Borrowershall use reasonable efforts after the date hereof to obtain the other party’sconsent to grant a security interest in any such license or contract.

 

7.1.9                        All of Borrower’s books and recordspertaining to any of the Collateral described in this Section 7.1.

 

7.2                                 **Notification of Account Debtors**.  CNB will have the right tonotify any Account Debtor to make payments directly to CNB, take control of thecash and noncash proceeds of any Account, and settle any Account, which rightsCNB may exercise at any time upon the occurrence of a Potential Event ofDefault or an Event of Default and regardless of whether Borrower wastheretofore making collections thereon. Until CNB elects to exercise such right, Borrower is authorized onbehalf of CNB to collect and enforce the Accounts.  Immediately upon CNB’s request, Borrower will deliver to CNB forapplication in accord with this Agreement, all checks, drafts, cash and otherremittances in payment or on account of payment of its Accounts on the bankingday following the receipt thereof, and in precisely the form received, exceptfor the endorsement of Borrower where necessary to permit collection of theitems, which endorsement Borrower hereby agrees to make.  Pending such delivery, Borrower will notcommingle any such checks, cash, drafts and other remittances with any of itsother funds or property, but will hold them separate and apart therefromexpressly in trust for CNB.  All such

 

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remittances will be accompanied by such statements and reports ofcollections and adjustments as CNB may specify.

 

7.3                                 **Attorney-In-Fact**.  Upon the occurrence of a Potential Event ofDefault or an Event of Default, CNB or any of its officers is herebyirrevocably made the true and lawful attorney for Borrower with full power ofsubstitution to do the following: (a) endorse the name of Borrower upon any andall checks, drafts, money orders and other instruments for the payment ofmoneys which are payable to Borrower and constitute collections on Accounts;(b) execute in the name of Borrower any schedules, assignments, instruments,documents and statements which Borrower is obligated to give CNB hereunder; (c)receive, open and dispose of all mail addressed to Borrower; (d) notify thePost Office authorities to change the address for delivery of mail addressed toBorrower to such address as CNB will designate; and (e) do such other acts inthe name of Borrower which CNB may deem necessary or desirable to enforce anyAccount or other Collateral.  The powersgranted CNB hereunder are solely to protect its interests in the Collateral andwill not impose any duty upon CNB to exercise any such powers.

 

**8.**                    **EVENTS OFDEFAULT.**

 

8.1                                 **Events ofDefault.**  The occurrence ofany of the following will constitute an Event of Default:

 

8.1.1                        Borrower fails to pay when due anyinstallment of principal or interest or any other amount payable under the LoanDocuments;

 

8.1.2                        Borrower or any Subsidiary, which is a partyto any Loan Document fails in any material respect to perform or observe any ofthe terms, provisions, covenants, conditions, agreements or obligationscontained in the Loan Documents;

 

8.1.3                        The entry of an order for relief or thefiling of an involuntary petition, which remains undismissed after sixty (60)days, with respect to Borrower, or any Subsidiary under the United StatesBankruptcy Code, the appointment of a receiver, trustee, custodian orliquidator of or for any part of the assets or property of Borrower, or anySubsidiary, or Borrower, or any Subsidiary makes a general assignment for thebenefit of creditors;

 

8.1.4                        The entry of any writ of possession,judgment, writ of attachment, or similar process, and execution upon such writof possession, judgment, writ of attachment, or similar process is not stayedeither by court order or operation of law;

 

8.1.5                        Any financial statement, representation orwarranty made or furnished by Borrower, or any Subsidiary in connection withthe Loan Documents proves to be in any material respect incorrect;

 

8.1.6                        CNB’s security interest in or lien on anyportion of any Collateral becomes impaired or otherwise unenforceable;

 

8.1.7                        Any Person obtains an order or decree in anycourt of competent jurisdiction enjoining or prohibiting Borrower or CNB oreither of them from performing this Agreement, and such proceedings are notdismissed or such decree is not vacated within ten (10) days after the grantingthereof;

 

8.1.8                        Borrower or any Subsidiary neglects, failsor refuses to keep in full force and effect any material governmental permit orapproval which is necessary to the operation of its business;

 

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8.1.9                        All or substantially all of the property ofBorrower, or any Subsidiary is condemned, seized or otherwise appropriated;

 

8.1.10                  The occurrence of (a) a Reportable Event asdefined in ERISA which CNB determines in good faith constitutes grounds for theinstitution of proceedings to terminate any pension plan by the PBGC, (b) anappointment of a trustee to administer any pension plan of Borrower, or (c) anyother event or condition which might constitute grounds under ERISA for theinvoluntary termination of any pension plan of Borrower, where such event setforth in (a), (b) or (c) results in a significant monetary liability to Borrower;

 

8.1.11                  Borrower’s ownership in the CopyrightCollateral and Additional Copyright Collateral is, voluntarily orinvoluntarily, limited in any substantial respect, or Borrower grants anyexclusive license in such copyright which limits Borrower’s use of thecopyright in any material respect;

 

8.1.12                  Borrower shall fail to perfect CNB’ssecurity interest within thirty (30) days after notice from CNB in AdditionalCopyright Collateral, as provided for in Section 5.9; or

 

8.1.13                  The Termination Date is not extended andBorrower’s Obligations remain unpaid and Borrower has no right to futureadvances under any Obligation.

 

8.2                                 **Notice of Default and Cure of Potential Events of Default. **Except with respect to the Events of Default specified in Sections8.1.3, 8.1.4, or 8.1.6, above, and subject to the provisions of Section 8.4,CNB will give Borrower at least ten (10) days (five (5) days with respect toEvent of Default 8.1.1) written notice of any event which constitutes or, withthe lapse of time would become an Event of Default, during which time Borrowerwill be entitled to cure same.

 

8.3                                 **CNB’s Remedies. **Upon the occurrence of an Event of Default,at the sole and exclusive option of CNB, and upon written notice to Borrower,CNB may (a) declare the principal of and accrued interest on the Loans, and allother Obligations immediately due and payable in full, whereupon thesame will immediately become due and payable; (b) terminate this Agreement asto any future liability or obligation of CNB, but without affecting CNB’srights and security interest in the Collateral and without affecting theObligations owing by Borrower to CNB; and/or (c) exercise its rights andremedies under the Loan Documents and all rights and remedies of a securedparty under the Code and other applicable laws with respect to all of theCollateral.

 

8.4                                 **AdditionalRemedies.**  Notwithstandingany other provision of this Agreement, upon the occurrence of any event, actionor inaction by Borrower, or if any action or inaction is threatened which CNBreasonably believes will materially affect the value of the Collateral, CNB maytake such legal actions as it deems necessary to protect the Collateral,including but not limited to, seeking injunctive relief and the appointment ofa receiver, whether or not an Event of Default or Potential Event of Defaulthas occurred under this Agreement.

 

**9.**                    **MISCELLANEOUS.**

 

9.1                                 **Reimbursementof Costs and Expenses. **Borrowerwill reimburse CNB for all reasonable costs and expenses relating to thisAgreement, incurred after the execution of this Agreement, including, but notlimited to, filing, recording or search fees, audit or verification fees,appraisals of the Collateral and other out-of-pocket expenses, and reasonableattorneys’ fees and expenses expended or incurred by CNB (or allocable to CNB’sin-house counsel) in documenting or administering the Loan Documents orcollecting any sum which becomes due CNB under the Loan Documents, irrespectiveof whether suit is

 

20

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filed, or in the protection, perfection, preservation or enforcement ofany and all rights of CNB in connection with the Loan Documents, including,without limitation, the fees and costs incurred in any out-of-court work-out ora bankruptcy or reorganization proceeding. All amounts due under this Section 9.1 will bear interest at the highestrate provided for any of the Loans exclusive of LIBOR Loans extended underSection 2 above, from the date of expenditure (or allocation), and if not paidwithin ten (10) days of CNB’s demand therefor (and without constituting awaiver of an Event of Default), at a rate two and one half percent (21⁄2%) peryear higher than such interest rate until such amount (and interest thereon, tothe extent permitted by law), is paid in full.

 

9.2                                 **DisputeResolution.**

 

9.2.1                        **Mandatory Arbitration. **At the request of CNB or Borrower, anydispute, claim or controversy of any kind (whether in contract or tort,statutory or common law, legal or equitable) now existing or hereafter arisingbetween CNB and Borrower and in any way arising out of, pertaining to or inconnection with: (a) this Agreement, and/or any renewals, extensions, oramendments thereto; (b) any of the Loan Documents; (c) any violation of thisAgreement or the Loan Documents; (d) all past, present and future loans; (e)any incidents, omissions, acts, practices or occurrences arising out of orrelated to this Agreement or the Loan Documents causing injury to either partywhereby the other party or its agents, employees or representatives may beliable, in whole or in part, or (f) any aspect of the past, present or futurerelationships of the parties, will be resolved through final and bindingarbitration conducted at a location determined by the arbitrator in Los Angeles,California, and administered by the American Arbitration Association (“AAA”) inaccordance with the California Arbitration Act (Title 9, *CaliforniaCode of Civil Procedure*Section1280 et. seq.) and the then existing Commercial Rules of the AAA.  Judgment upon any award rendered by thearbitrator(s) may be entered in any state or federal courts having jurisdictionthereof.

 

9.2.2                        **Real Property Collateral. **Notwithstanding the provisions of subsection9.2.1, no controversy or claim will be submitted to arbitration without theconsent of all the parties if, at the time of the proposed submission, suchcontroversy or claim arises from or relates to an obligation owed to CNB whichis secured in whole or in part by real property collateral.  If all parties do not consent to submissionof such a controversy or claim to arbitration, the controversy or claim will bedetermined as provided in subsection 9.2.3.

 

9.2.3                        **Judicial Reference. **At the request of any party, a controversyor claim which is not submitted to arbitration as provided and limited insubsections 9.2.1 and 9.2.2 will be determined by a reference in accordancewith *CaliforniaCode of Civil Procedure*Sections638 et. seq.  If such an electionis made, the parties will designate to the court a referee or referees selectedunder the auspices of the AAA in the same manner as arbitrators are selected inAAA-sponsored proceedings.  Thepresiding referee of the panel, or the referee if there is a single referee,will be an active attorney or retired judge. Judgment upon the award rendered by such referee or referees will beentered in the court in which such proceeding was commenced in accordance with *CaliforniaCode of Civil Procedure*Sections 644 and 645.

 

9.2.4                        **Provisional Remedies, Self Help and Foreclosure. **No provision of this Agreement will limit the right of any party to:(a) foreclose against any real property collateral by the exercise of a powerof sale under a deed of trust, mortgage or other security agreement orinstrument, or applicable law, (b) exercise any rights or remedies as a securedparty against any personal property collateral pursuant to the terms of asecurity agreement or pledge agreement, or applicable law, (c) exercise selfhelp remedies such as setoff, or (d) obtain provisional or ancillary remediessuch as injunctive relief or the appointment of a receiver from a court havingjurisdiction before, during or after the pendency of

 

21

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any arbitration or referral. The institution and maintenance of an action for judicial relief orpursuit of provisional or ancillary remedies, or exercise of self help remedieswill not constitute a waiver of the right of any party, including theplaintiff, to submit any dispute to arbitration or judicial reference.

 

9.2.5                        **Powers and Qualifications of Arbitrators. **Thearbitrator(s) will give effect to statutes of limitation, waiver and estoppeland other affirmative defenses in determining any claim.  Any controversy concerning whether an issueis arbitratable will be determined by the arbitrator(s).  The laws of the State of California willgovern.  The arbitration award mayinclude equitable and declaratory relief. All arbitrator(s) selected will be required to be a practicing attorneyor retired judge licensed to practice law in the State of California and willbe required to be experienced and knowledgeable in the substantive lawsapplicable to the subject matter of the controversy or claim at issue.

 

9.2.6                        **Discovery.**  The provisions of California Code of CivilProcedure Section 1283.05 or its successor section(s) are incorporated hereinand made a part of this Agreement. Depositions may be taken and discovery may be obtained in anyarbitration under this Agreement in accordance with said section(s).

 

9.2.7                        **Miscellaneous.**  The arbitrator(s) will determine which isthe prevailing party and will include in the award that party’s reasonableattorneys’ fees and costs (including allocated costs of in-house legalcounsel).  Each party agrees to keep allcontroversies and claims and the arbitration proceedings strictly confidential,except for disclosures of information required in the ordinary course ofbusiness of the parties or by applicable law or regulation.

 

9.3                                 **CumulativeRights and No Waiver.**  Allrights and remedies granted to CNB under the Loan Documents are cumulative andno one such right or remedy is exclusive of any other.  No failure or delay on the part of CNB inexercising any power, right or remedy under any Loan Document will operate as awaiver thereof, and no single or partial exercise or waiver by CNB of any suchpower, right or remedy will preclude any further exercise thereof or theexercise of any other power, right or remedy.

 

9.4                                 **Applicable Law.**  This Agreement will be governed by Californialaw.

 

9.5                                 **Lien and Right of Setoff.**  Borrower grants to CNB acontinuing lien for all Obligations of Borrower to CNB upon any and all moneys,securities and other property of Borrower and the proceeds thereof, now orhereafter held or received by or in transit to CNB from or for Borrower,whether for safekeeping, custody, pledge, transmission, collection orotherwise, and also upon any and all deposits (general or special) and creditsof Borrower with, and any and all claims of Borrower against CNB at any timeexisting; provided that any funds received, transmitted or held byBorrower or any Subsidiary on behalf of, or for the benefit of, anygovernmental agency, or for the benefit of any other person, pursuant to aservice or payment processing agreement shall not constitute Collateral andBorrower does not grant, and CNB shall not assert, any lien or interesttherein.  Upon the occurrence of anyEvent of Default, CNB is authorized at any time and from time to time, withoutnotice to Borrower or any other Person, to setoff, appropriate and apply any orall items hereinabove referred to against all Obligations of Borrower whetherunder this Agreement or otherwise, and whether now existing or hereafterarising.

 

9.6                                 **Notices.**  Any notice required or permitted under anyLoan Document will be given in writing and will be deemed to have been givenwhen personally delivered or when sent by the U.S. mail, postage prepaid,certified, return receipt requested, properly addressed.  For the purposes hereof, the addresses ofthe parties will, until further notice given as herein provided, be as follows:

 

CNB:                                                                                                              CityNational Bank

 

22

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|            |   | Walnut Creek CBS                                        |
|-----------------|--------|---------------------------------------------------------|
|            |   | 2001 North Main Street,  Suite 200,                     |
|            |   | Walnut Creek, CA  94596                            |
|            |   | Attention:  Joseph McCarthy, Senior Vice President |
|            |   |                                                    |
| with copy to:   |   | City National Bank, Legal  Department                   |
|            |   | 400 North Roxbury Drive                                 |
|            |   | Beverly Hills, California  90210-5021                   |
|            |   | Attention:  Managing Counsel, Credit Unit          |
|            |   |                                                    |
| Borrower:       |   | Tier Technologies, Inc.                                 |
|            |   | 2001 N. Main Street, Suite  500                         |
|            |   | Walnut Creek, CA 94596                                  |
|            |   | Attention:  Laura DePole, Chief Financial Officer  |
|            |   |                                                    |
| with a copy to: |   | Tier Technologies, Inc.                                 |
|            |   | 2001 N. Main Street, Suite  500                         |
|            |   | Walnut Creek, CA 94596                                  |
|            |   | Attention:  General Counsel                        |

 

9.7                                 **Counterparts.** This Agreement may be signedin any number of counterparts which, when taken together, will constitute butone agreement.

 

9.8                                 **Indemnification. **Borrower will, at all times,defend and indemnify and hold CNB harmless from and against any and allliabilities, claims, demands, causes of action, losses, damages, expenses(including without limitation reasonable attorneys’ fees, [which attorneys maybe employees of CNB, or may be outside counsel]) costs, settlements, judgmentsor recoveries arising out of or resulting from (a) any breach of therepresentations, warranties, agreements or covenants made by Borrower herein;(b) any suit or proceeding of any kind or nature whatsoever against CNB arisingfrom or connected with the transactions contemplated by the Loan Documents orany of the rights and properties assigned to CNB hereunder; and/or (c) any suitor proceeding that CNB may deem necessary or advisable to institute, in thename of CNB, Borrower or both, against any other Person, for any reasonwhatsoever to protect the rights of CNB hereunder or under any of thedocuments, instruments or agreements executed or to be executed pursuanthereto, including attorneys’ fees and court costs and all other costs andexpenses incurred by CNB (or allocable to CNB’s in-house counsel), all of whichwill be charged to and paid by Borrower and will be secured by theCollateral.  Any obligation or liabilityof Borrower to CNB under this Section will survive the expiration ortermination of this Agreement and the repayment of all Loans and the payment orperformance of all other Obligations of Borrower to CNB.

 

9.9                                 **Assignments**.  The provisions of this Agreement are herebymade applicable to and will inure to the benefit of CNB’s successors andassigns and Borrower’s successors and assigns; provided, however, that neitherparty may assign or transfer its rights or obligations under this Agreementwithout the prior written consent of the other party except for transfers orassignments by operation of law.

 

9.10                           **Confidentiality.**  CNB shall maintain in confidence and holdall non-public information relating to the Borrower and its Subsidiariesobtained by it under this Agreement in accordance with its customary proceduresfor handling confidential information of this nature which in no event shall beless protective than the procedures CNB employs with respect to its ownconfidential information of a like kind and no less protective than is requiredby applicable laws including US securities laws and

 

23

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regulations governing the disclosure and use of material non-publicinformation, except for:  (i) disclosureto its counsel or to any agent or advisor acting on its behalf in connectionwith the negotiation, execution or performance of the Agreement; (ii)disclosure as may be required or requested by any governmental authority orrepresentative thereof or pursuant to legal process; (iii) disclosure to anydirect or indirect contractual counterparty or prospective counterparty (orsuch contractual counterparty’s or prospective counterparty’s professionaladvisor) to any credit derivative transaction relating to any Obligations; (iv)disclosure to the National Association of Insurance Commissioners or any othersimilar organization or any nationally recognized rating agency that requiresaccess to information about CNB’s investment portfolio in connection withratings issued with respect to CNB; (v) disclosure to CNB’s auditors operatingin the normal course of providing services to CNB; and (vi) any otherdisclosure with the prior written consent of the Borrower.  In addition, CNB may disclose the existenceof this Agreement and information about this Agreement to market data collectors,similar service providers to the lending industry, and service providers to CNBin connection with the administration and management of this Agreement and theother Loan Documents.  Notwithstandingthe foregoing, such obligation of confidentiality shall not apply if theinformation or substantially similar information (A) is rightfully received byCNB from a person other than the Borrower without CNB being under an obligationto such person not to disclose such information, or (B) is or becomes part ofthe public domain.

 

9.11                           **AccountingTerms.**  Except as otherwisestated in this Agreement, all accounting terms and financial covenants andinformation will be construed in conformity with, and all financial datarequired to be submitted will be prepared in conformity with, GAAP as ineffect, from time to time.

 

9.12                           **Severability.**  Any provision of the Loan Documents which isprohibited or unenforceable in any jurisdiction, will be, only as to suchjurisdiction, ineffective to the extent of such prohibition orunenforceability, but all the remaining provisions of the Loan Documents willremain valid.

 

9.13                           **CompleteAgreement.**  This Agreement,together with the other Loan Documents, constitutes the entire agreement of theparties and supersedes any prior or contemporaneous oral or written agreementsor understandings, if any, which are merged into this Agreement.  This Agreement may be amended only in awriting signed by Borrower and CNB.

 

9.14                           **Joint andSeveral.**  Should more thanone Person sign this Agreement, the obligations of each signer will be jointand several.

 

This Agreement is executed as of the date stated atthe top of the first page.

 
| **“Borrower”** | **Tier  Technologies, Inc.**, a  California corporation |
|--------------------------|---------------------------------------------------------|
|                     |                                                    |
|                     | By:                                                     | /s/ Laura B. DePole |   |
|                     |                                                    | Laura B. DePole, Chief Financial Officer,  Secretary and Treasurer |   |
|                     |                                                    |
|                     | **Official  Payments Corporation**, a                   |   |
|                     | Delaware corporation                                    |   |
|                     |                                                    |
|                     | By:                                                     | /s/ Laura B. DePole |   |
|                     |                                                    | Laura B. DePole, Secretary/Treasurer |   |
|                          |                                                         |  |  |  |

 

24

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| **“CNB”** | **City  National Bank**, a  national banking association |
|---------------------|----------------------------------------------------------|
|                |                                                     |
|                | By:                                                      | /s/ Joseph McCarthy |   |
|                |                                                     | Joseph McCarthy, Senior Vice President |   |
|                     |                                                          |  |  |  |

 

25

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EXHIBIT A

 

 

 

**COVENANT COMPLIANCE CERTIFICATE**

 

 

The undersigned,                                   ,the                                   of **TierTechnologies, Inc.**, a California corporation, and **OfficialPayments Corporation**, a Delaware corporation **(**collectively, **“Borrower”)**delivers this certificate pursuant to Section 5.2.3 of the Credit and Security Agreement(the “Credit Agreement”) dated as of January 29, 2003, between Borrower andCity National Bank (“CNB”).  Terms andSection numbers used herein shall have the same meaning as the CreditAgreement.

 

The undersigned certifies the accuracy of this Certificateas of             ,(the “Effective Date”).

 

1.                     Ratio ofTotal Senior Debt to Tangible Net Worthplus Subordinated Debt (Section 5.10.1):

 
| 1.1                                Total Senior Debt:                                 |                                                                                                                                                                                               |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.1.1              Aggregate  principal amount of all borrowed money:                                                             |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.1.2              Subordinated  Debt:                                                                                            |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.1.3              1.1.1  less 1.1.2:                                                                                             |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |   |
| 1.2                                Tangible Net Worth plus Subordinated Debt:         |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |   |
|                                                                                                                                                                                                                                             | 1.2.1              Balance  Sheet Assets:                                                                                         |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.2.2              Intangible  Assets (net of accumulated amortization):                                                          |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.2.3              Balance  Sheet Liabilities:                                                                                    |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.2.4              Value  of non-wholly owned Subsidiaries:                                                                       |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.2.5              Minority  interests on Balance Sheet:                                                                          |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.2.6              Deferred  income and reserves (not included in                                                                 |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.2.7              Subordinated  Debt                                                                                             |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |
|                                                                                                                                                                                                                                             | 1.2.8              1.2.1  less 1.2.2, 1.2.3, 1.2.4, 1.2.5 and 1.2.6   plus 1.2.7 (Tangible Net Worth plus Subordinate Debt): |   | $      |   |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |   |
| 1.3                                Ratio of 1.1.3 to 1.2.8 (1.1.3 divided by  1.2.8): |                                                                                                                                                                                               |   |   | to One (1) |
|                                                                                                                                                                                                                                             |                                                                                                                                                                                               |   |   |   |
|                                                                                                                                                                                                                                             | **Required:** Not more than 0.65 to 1.0 at all times.                                                                                                                                              |   |   |
|                                                                                                                                                                                                                                                  |                                                                                                                                                                                                    |        |        |  |  |  |  |  |

 

1

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| 2.                     Ratio of Cash Flow from Operations to Debt  Service (5.10.2):                                                               |                                                                                                                                                                                                                                                                                                  |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |
| 2.1                                Cash Flow from Operations:                               |                                                                                                                                                                                                                                                                                                  | $          |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 2.1.1              Net  income from continuing operations after taxes  and before extraordinary items in accordance with GAAP                                                                                                   |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 2.1.2              Amortization                                                                                                                                                                                                      |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 2.1.3              Interest  expense                                                                                                                                                                                                 |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 2.1.4              Depreciation                                                                                                                                                                                                      |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 2.1.5              Total  of 2.1.1, 2.1.2, 2.1.3, and 2.1.4:                                                                                                                                                                         |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |   |
| 2.2                                Debt Service:                                            |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |   |
|                                                                                                                                                                                                                                                   | 2.2.1              Current  Maturity of Long Term Debt:                                                                                                                                                                              |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 2.2.2              Interest  incurred on borrowed money in current period:                                                                                                                                                           |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 2.2.3              Total  of 2.2.1 and 2.2.2:                                                                                                                                                                                        |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |   |
| 2.3                                Ratio of 2.1.5 to 2.2.3:  (2.1.5 divided by 2.2.3): |                                                                                                                                                                                                                                                                                                  | to One (1) |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |   |
|                                                                                                                                                                                                                                                   | **Required:** Not less than 1.35 to 1.                                                                                                                                                                                                                                                                |       |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
| 3.                     Ratio of Quick Assets to Current Liabilities  (Section 5.10.3)                                                              |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
| 3.1                                Quick Assets:                                            |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 3.1.1              Cash  and Cash Equivalents:                                                                                                                                                                                       |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 3.1.2              Accounts  Receivable (billed and unbilled):                                                                                                                                                                       |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 3.1.3              Short-Term  Marketable Securities (GAAP):                                                                                                                                                                         |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 3.1.4              Total  of 3.1.1, 3.1.2, and 3.1.3:                                                                                                                                                                                |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
| 3.2                                Current Liabilities:                                     |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 3.2.1              Current  Liabilities in accordance with GAAP:                                                                                                                                                                     |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 3.2.2              Payments  on Subordinated Debt required to be made within one (1) year:                                                                                                                                           |       | $ |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 3.2.3              Revolving  Credit Loans outstanding:                                                                                                                                                                              |       |   |
|                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                  |       |   |
|                                                                                                                                                                                                                                                   | 3.2.4              Indebtedness  payable to stockholders, Affiliates,   Subsidiaries (except for intercompany indebtedness  between wholly-owned Subsidiaries and  Borrower  that are eliminated upon  consolidation: |       | $ |   |
|                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                       |            |  |  |  |  |  |  |  |  |

 

2

----

 
|                                                                                                                                                                                                                                                                                                                  | Total of 3.2.1, 3.2.2,  3.2.3, and 3.2.4: |       | $      |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|------------|--------|--------|
|                                                                                                                                                                                                                                                                                                                  |                                      |       |   |
| 3.3                                Ratio of 3.1.4 to 3.2.5 (3.1.4 divided by  3.2.5):                                                                      |                                      | to One (1) |
|                                                                                                                                                                                                                                                                                                                  |                                      |       |   |
|                                                                                                                                                                                                                                                                                                                  | **Required:** Not less than 1.25 to 1.    |       |   |
|                                                                                                                                                                                                                                                                                                                  |                                      |       |   |
| 4.                     Quarterly Profits (Section 5.10.4):                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                  |                                      |       |   |
| 4.1                                Quarterly  Profits from continuing operations for fiscal quarter ending  with  the Effective Date:                 |                                      | $          |   |
|                                                                                                                                                                                                                                                                                                                  |                                      |       |   |
| 4.2                                 Income  taxes from continuing operations attributable to the  fiscal quarter ending with the Effective Date: |                                      | $          |   |
|                                                                                                                                                                                                                                                                                                                  |                                      |       |   |
| 4.3                                 Is  4.1 less 4.2 less than One Dollar?:                                                                           |                                      | Yes:       |   | No:    |   |
|                                                                                                                                                                                                                                                                                                                  |                                      |       |   |
|                                                                                                                                                                                                                                                                                                                  | **Required:**A “No” answer.     |       |   |
|                                                                                                                                                                                                                                                                                                                       |                                           |            |        |        |  |  |  |  |  |

 

**CERTIFICATION:**

 

Each of the above stated information is true andcorrect as of the date hereof and Borrower has meet each of the Conditions setforth in Section 3.2.

 

I declare under penalty of perjury that the foregoingis true and correct.

 
| Date:  |   |   |        |   |
|--------|--------|--------|-------------|--------|
|   |   |   | (signature) |

 

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EXHIBIT B

 

MEMORANDUM OF SECURITYINTEREST IN COPYRIGHTS

 

**Tier Technologies, Inc.**, a Californiacorporation, whose address is 2001 N. Main Street, Suite 500, Walnut Creek, CA94596 (“Debtor”), does hereby grant to **CITY NATIONAL BANK**, a national bankingassociation, whose address is 1333 North California Blvd., Suite 185, WalnutCreek, CA 94596 (“Secured Party”), pursuant to a Credit and Security Agreementdated January 29, 2003 (“Credit Agreement”), a security interest in all ofDebtor’s right, title and interest in and to all copyrights and rights andinterests of every kind or nature in copyrights and works protectable bycopyright, whether now owned or hereafter created or acquired and all renewalsand extensions thereof, including without limitation in and to (i) thecopyright registrations which are identified on Schedule A attached hereto andherein incorporated by this reference, (ii) the applications for copyrightregistration which are identified on Schedule B attached hereto and hereinincorporated by this reference, together with any and all copyrightregistrations issued with respect thereto, (iii) all works owned by Debtorbased upon, incorporated in, derived from, incorporating or relating to theitems identified on said schedules (collectively, the “Copyrights”), and (iv)all actions for past, present or future infringement concerning the foregoing.

 

Debtor agrees that if any person, firm or corporationshall do or perform any acts which Secured Party believes to constitute aninfringement of any Copyright, or violate or infringe any rights of Debtor inany Copyright, or if any person, firm or corporation shall do or perform anyacts which Secured Party believes to constitute an unauthorized or unlawfulreproduction, distribution, public performance or display, use, or preparationof any derivation, of any Copyright, then and in any such event, upon, andduring the continuance of, an Event of Default (as defined in the CreditAgreement) Secured Party may and shall have the right to take such steps andinstitute such suits or proceedings as Secured Party may deem advisable ornecessary to prevent such acts and conduct and to secure damages and other relief by reason thereof, andgenerally to take such steps as may be advisable or necessary or proper for thefull protection of the rights of the parties. Secured Party may take such steps or institute such suits or proceedingsin its own name or in the name of Debtor or in the names of the partiesjointly.

 

The terms and conditions of the security interestgranted hereby are contained in the Credit Agreement, between Debtor andSecured Party.  The security interestgranted hereby is as security for Debtor’s performance of Debtor’s obligationsidentified in the Credit Agreement as being secured thereby.  Nothing contained in this Memorandum ofSecurity Interest in Copyrights shall be construed as an absolute assignment ofthe Copyrights or applications for copyright registration nor as limiting anyinterest which Secured Party may have in any other collateral described in theCredit Agreement or otherwise.

 

Upon, and during the continuance of, an Event ofDefault (as defined in the Credit Agreement), Secured Party may exercise allrights and remedies described therein, and Debtor hereby authorizes SecuredParty to make, constitute and appoint any officer or agent of Secured Party asSecured Party may select, in its sole discretion, as Debtor’s true and lawfulattorney-in-fact, with power (upon Secured Party’s notice to Debtor of itsintention to do so) to (a) enforce its security interest in any of theCopyrights, (b) grant or issue any exclusive or non-exclusive license under theCopyrights to anyone, or (c) assign, pledge, convey or otherwise transfer titlein or dispose of the Copyrights to anyone. Debtor hereby ratifies all that such attorney shall lawfully do or causeto be done by virtue hereof.  SecuredParty shall have, in addition to all other rights and remedies given it by theterms of the Credit

 

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Agreement and this Memorandum of Security Interest in Copyrights, allrights and remedies allowed by law.

 

IN WITNESS WHEREOF the undersigned have duly executedthis Memorandum of Security Interest in Copyrights as of the                     day of                    ,                      .

 
| “Secured Party:”                               |                                   | “Debtor:”                                       |
|----------------------------------------------------------|----------------------------------------|-----------------------------------------------------------|
|                                                     |                                   |                                                      |
| **CITY  NATIONAL BANK,** a  national banking association |                                   | **Tier  Technologies, Inc.**, a  a California corporation |
|                                                     |                                   |                                                      |
| By:                                                      |                                   |                                                      | By: |   |   |
|                                                     | Joseph McCarthy, Senior Vice President |                                                      |   | Laura B. DePole, Chief Financial Officer,  Secretary and Treasurer |

 

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**SCHEDULE A**

 

**UNITED STATES COPYRIGHT REGISTRATIONS**

 

| **Title** |   | **Reg. No.** |   | **Reg. Date** |   | **Author** |
|-----------|--------|--------------|--------|---------------|--------|------------|

 

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**SCHEDULE B**

 

**UNITED STATES APPLICATIONS FOR COPYRIGHT REGISTRATION**

 

| **Title** |   | **Filing  Date** |   | **Author** |
|-----------|--------|------------------|--------|------------|
|      |   |             |   |       |
| None      |   |             |   |       |

 

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EXHIBIT C

 

**REVOLVINGCREDIT NOTE**

*(For Prime and/or LIBOR options)*

 

| **$15,000,000.00** |   | Walnut Creek,  California |
|--------------------|--------|---------------------------|
|               |   | January 29, 2003          |

 

**For Value Received**, the undersigned, **TierTechnologies, Inc.**, a California corporation, , and **OfficialPayments Corporation**, a Delaware corporation **(**collectively, **“Borrower”)**(“Borrower”), promises to pay on the Termination Date to the order of **CityNational Bank**, a national banking association (“CNB”), at its Officelocated at 1333 North California Blvd., Suite 185, Walnut Creek, CA 94596, theprincipal amount of **Fifteen Million****Dollars ($15,000,000.00)** orso much thereof as may be advanced and be outstanding, with interest thereon tobe computed on each Revolving Credit Loan from the date of its disbursement ata rate computed on the basis of a 360-day year, actual days elapsed, at therates, times and in accordance with the terms of that certain Credit andSecurity Agreement Credit Agreement between Borrower and CNB, dated as ofJanuary 29, 2003, as it may be amended from time to time (the “Credit Agreement”).  Capitalized terms not defined herein shallhave the meanings given them in that certain Credit Agreement.

 

All or any portion of the principal of this RevolvingCredit Note (“Note”) may be borrowed, repaid and reborrowed from time to timeprior to the Termination Date, provided at the time of any borrowing no defaultexists under this Note and no Event of Default or Potential Event of Defaultexists under the terms and conditions of the Credit Agreement and provided,further that the total borrowings outstanding at any one time shall not exceedthe Revolving Credit Commitment less the amount of Letters of Credit issued andoutstanding under the Credit Agreement. Each borrowing and repayment of a Revolving Credit Loan shall be notedin the books and records of CNB.  Theexcess of borrowings over repayments as noted on such books and records shallconstitute presumptive evidence of the principal balance due hereon from timeto time and at any time.

 

If payment on this Note becomes due and payable on anon-business day, the maturity thereof shall be extended to the next businessday and, with respect to payments of principal or interest thereon shall bepayable during such extension at the then applicable rate.  Upon the occurrence of one or more of theEvents of Default specified in the Credit Agreement, all amounts remainingunpaid on this Note may become or be declared to be immediately payable asprovided in the Credit Agreement, without presentment, demand or notice ofdishonor, all of which are expressly waived. Borrower agrees to pay all costs of collection of this Note andreasonable attorneys’ fees (including attorneys’ fees allocable to CNB’sin-house counsel) in connection therewith, irrespective of whether suit isbrought thereon.

 

This is the Revolving Credit Note referred to in theCredit Agreement and is entitled to the benefits thereof.

 

Upon CNB’s written notice to Borrower of theoccurrence of an Event of Default, the outstanding principal balance (andinterest, to the extent permitted by law) shall bear additional interest fromthe date of such notice at the rate of two and one half percent (2 1/2%) perannum higher than the interest rate as determined and computed above, andcontinuing thereafter until the Event of Default is cured.

 

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This Note shall be governed by the laws of the Stateof California.  If this Note is executedby more than one Borrower, all obligations are joint and several.

 
| **“Borrower”** | **Tier  Technologies, Inc.**, a  California corporation |
|--------------------------|---------------------------------------------------------|
|                     |                                                    |
|                     |                                                    |
|                     | By:                                                     |   |   |
|                     |                                                    | Laura B. DePole, Chief Financial Officer,  Secretary and Treasurer |
|                     |                                                    |
|                     | **Official  Payments Corporation**, a                   |
|                     | Delaware corporation                                    |
|                     |                                                    |
|                     |                                                    |
|                     | By:                                                     |   |
|                     |                                                    | Laura B. DePole, Secretary/Treasurer |

 

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EXHIBIT D

 

**EQUIPMENTACQUISITION NOTE**

 

| **$2,500,000.00** |   | Walnut Creek,  California |
|-------------------|--------|---------------------------|
|              |   | January 29, 2003          |

 

**For Value Received**, the undersigned,**TierTechnologies, Inc.**, a California corporation, and **OfficialPayments Corporation**, a Delaware corporation **(**collectively, **“Borrower”)**,promises to pay to the order of **City National Bank**, a national bankingassociation (“CNB”), at its Office located at 1333 North California Blvd.,Suite 185, Walnut Creek, CA 94596, the principal sum of **Two Million Five Hundred ThousandDollars ($2,500,000.00)**,with interest thereon to be computed on eachEquipment Acquisition Loan from the date of its disbursement at a rate computedon the basis of a 360-day year, actual days elapsed, at the rates, times and inaccordance with the terms of that certain Credit and Security Agreement CreditAgreement between Borrower and CNB, dated as of January 29, 2003, as it may beamended from time to time (the “Credit Agreement”). Principal is payable inthirty six (36) equal, consecutive monthly installments, each in the amount ofone thirty sixth (1/36) of the Equipment Acquisition Loans outstanding onJanuary 31, 2004, commencing February 29, 2004, and continuing on the last dayof each month up to and including January 31, 2007, on which day the balance ofprincipal and interest then unpaid shall become due and payable.  Capitalized terms not defined herein shallhave the meanings given them in that certain Credit and Security AgreementCredit Agreement dated as of January 29, 2003, between CNB and Borrower, as itmay be amended from time to time (the “Credit Agreement”).

 

If payment on this Note becomes due and payable on anon-business day, the maturity thereof shall be extended to the next businessday and, with respect to payments of principal or interest thereon, shall bepayable during such extension at the then applicable rate.  Upon the occurrence of one or more of theEvents of Default specified in the Credit Agreement, all amounts remainingunpaid on this Note may become or be declared to be immediately payable asprovided in the Credit Agreement, without presentment, demand or notice ofdishonor, all of which are expressly waived. Borrower agrees to pay all costs of collection of this Note andreasonable attorneys’ fees (including attorneys’ fees allocable to CNB’sin-house counsel) in connection therewith, irrespective of whether suit isbrought thereon.

 

This is the Equipment Acquisition Note referred to inthe Credit Agreement and is entitled to the benefits thereof.

 

Upon CNB’s written notice to Borrower of theoccurrence of an Event of Default, the outstanding principal balance (andinterest, to the extent permitted by law) shall bear additional interest fromthe date of such notice at the rate of two and one half percent (21⁄2%) per annumhigher than the interest rate as determined and computed above, and continuingthereafter until the Event of Default is cured.

 

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This shall be governed by the laws of the State ofCalifornia.  If this Note is executed bymore than one Borrower, all obligations are joint and several.

 
|   | **“Borrower”**                                |
|--------|---------------------------------------------------------|
|   |                                                    |   |
|   | **Tier  Technologies, Inc.**, a  California corporation |
|   |                                                    |
|   |                                                    |   |
|   | By:                                                     |   |   |
|   |                                                    | Laura B. DePole, Chief Financial Officer,  Secretary and Treasurer |
|   |                                                    |   |
|   |                                                    |   |
|   | **Official  Payments Corporation**, a                   |
|   | Delaware corporation                                    |
|   |                                                    |
|   |                                                    |
|   | By:                                                     |   |   |
|   |                                                    | Laura B. DePole, Secretary/Treasurer |
|        |                                                         |  |  |  |  |  |  |

 

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