Document:

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 Tier
Technologies, Inc., a California corporation, and Official
Payments Corporation, a Delaware corporation (collectively, “Borrower”).

 

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

 

“Account” or “Accounts” mean any right to
payment for goods sold or leased or for services rendered which is not evidenced
by an instrument or chattel paper, whether or not it has been earned by
performance.

 

“Additional Copyright Collateral” shall
mean those items of Product which are registered for Copyright protection after
those items of Copyright Collateral referred to in the Memorandum of Security
Interest in Copyrights.

 

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

 

“Affiliate” means any Person directly or
indirectly 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 direct
or cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.

 

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

 

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

 

“Cash Flow from Operations” will be
determined 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 before
extraordinary items in accordance with GAAP, plus (b) amortization expense,
plus (c) interest expense, plus (d) depreciation expense.

 

“Code” means the California Uniform
Commercial Code, except where the Uniform Commercial Code of another state
governs the perfection of a security interest in Collateral located in that
state.

 

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

 

“Copyright Collateral” shall mean those
items of Product for which Copyright registration has been obtained by Borrower
under the United States Copyright Act, and identified in the Memorandum of
Security Interest in Copyrights.

 

“Covenant Compliance Certificate” shall be
in the form attached hereto as Exhibit A.

 

1

 

“Current Liabilities” will be determined on
a consolidated basis for Borrower and the Subsidiaries (except for intercompany
indebtedness between or among wholly owned Subsidiaries and Borrower that are
eliminated upon consolidation) in accordance with GAAP and will include without
limitation (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) all
indebtedness payable to stockholders, Affiliates, Subsidiaries or officers
regardless of maturity, unless such indebtedness has been subordinated, on
terms satisfactory to CNB, to the Obligations.

 

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

 

“Debt Service” means (a) the aggregate
amount of Current Maturity of Long Term Debt plus (b) all interest incurred on
borrowed money during the twelve month period ending on the date of
determination.  “Current Maturity of
Long Term Debt” means that portion of Borrower’s consolidated long term
liabilities, determined in accordance with GAAP, which shall, by the terms
thereof, become due and payable within one (1) year following the date of the
balance sheet upon which such calculations are based.

 

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

 

“GAAP” means generally accepted accounting
principles and practices, consistently applied.

 

“Interest Period” means the period
commencing on the date a LIBOR Loan is made (including the date a Prime Loan is
converted 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) and
ending on the last day of the month occurring prior to or on the date which is
one (1), two (2), three (3), or six (6) months thereafter, as selected by the
Borrower; provided, however, no Interest Period may extend beyond the
Termination Date.

 

“Inventory” means goods held for sale or
lease in the ordinary course of business, work in process and any and all raw
materials used in connection with the foregoing.

 

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

 

2

 

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

 

“LIBOR Interest Rate” means the rate per
year (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 LIBOR
Base Rate divided by (b) one minus the Eurocurrency Reserve Requirement for the
Interest Period; which is expressed by the following formula:

 

LIBOR Base Rate

1 - Eurocurrency Reserve Requirement

 

“LIBOR Loan” means any Loan tied to the
LIBOR Interest Rate.

 

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

 

“Loan Documents” means, individually and
collectively, this Agreement, any Note, security or pledge agreement, financing
statement and all other contracts, instruments, addenda and documents executed
in connection with or related to the extension(s) of credit, and any Collateral
therefor, 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 in
Section 2.

 

“Obligations” means all present and future
liabilities and obligations of Borrower to CNB hereunder and all other
liabilities and obligations of Borrower to CNB of every kind, now existing or
hereafter owing, matured or unmatured, direct or indirect, absolute or
contingent, joint or several, including any extensions and renewals thereof and
substitutions therefor.

 

“Person” means any individual or entity.

 

“Potential Event of Default” means any
condition 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 recently
announced by CNB at its principal office in Beverly Hills, California as its
“Prime Rate.”  Any change in the
interest rate resulting from a change in the Prime Rate will be effective on
the day on which each change in the Prime Rate is announced by CNB.

 

“Prime Loan” means any Loan tied to the
Prime Rate.

 

“Product” shall mean any software used in
connection with Borrower’s performance of services for its Account Debtors in
commercially viable, finished, form, in each case whether embodied in computer
readable 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 particular
software program.  An item of Product
shall 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, plus
cash equivalents, plus accounts receivable (billed and unbilled), plus securities
classified as short-term marketable securities according to GAAP, as such items
appear on Borrower’s consolidated balance sheet, determined in accordance with
GAAP.

 

“Subordinated Debt” means Debt of Borrower
or any Subsidiary, the repayment of which is subordinated to the Obligations on
terms satisfactory to CNB.

 

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

 

“Tangible Net Worth” means the total of all
assets appearing on a balance sheet prepared in accordance with GAAP for
Borrower and the Subsidiaries on a consolidated basis, minus (a) all intangible
assets (net of accumulated amortization), including, without limitation, unamortized
debt discount, receivables from shareholders to the extent reflected as
contra-equity on the balance sheet, goodwill, research and development costs,
patents, trademarks, the excess of purchase price over underlying values of
acquired companies, any covenants not to compete, deferred charges, copyrights,
franchises and appraisal surplus; minus (b) all obligations which are required
by GAAP to be reflected as a liability on the consolidated balance sheet of
Borrower and the Subsidiaries; minus (c) the amount, if any, at which shares of
stock of a non-wholly owned Subsidiary appear on the asset side of Borrower’s
consolidated 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 the
consolidated 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; the
date of any such termination will become the Termination Date as that term is
used in this Agreement.

 

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

 

“Unused Facility Fee” will be equal to one
quarter 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 to
section 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 Credit
Loans”) to Borrower up to, but not including, the Termination Date, at
Borrower’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 any
time up to the Termination Date; provided, however, that the aggregate unpaid
principal amount of outstanding Revolving Credit Loans will at no time exceed
the Revolving Credit Commitment less the amount of outstanding Letters of
Credit.  All Revolving Credit Loans will
be 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 notice
to CNB, terminate in whole or reduce in part, as of the date specified by
Borrower in such notice, any then unused portion of the Revolving Credit
Commitment in a minimum amount of $1.0 million or any greater amount which is
an integral multiple of $100,000; provided that once reduced by Borrower, the
Revolving 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 Loan
will bear interest from disbursement until due (whether at stated maturity, by
acceleration 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 half
percent (2.50%) per annum, or (b) for a Prime Revolving Loan, the fluctuating
Prime Rate plus one quarter of one percent (1⁄4%) per annum.  Interest on the Revolving Credit Loans will
accrue 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 following
disbursement; (b) if a LIBOR Revolving Loan, (i) at the same time as interest
payments are due on Prime Revolving Loans, (ii) on the last day of each
Interest Period, and (iii) upon any prepayment of any LIBOR Revolving Loan (to
the extent accrued on the amount prepaid); (c) on the date a Prime Revolving
Loan is converted to a LIBOR Revolving Loan; and (d) at the Termination
Date.  A Revolving Credit Loan tied to
the LIBOR Interest Rate is called a “LIBOR Revolving Loan,” and a Revolving
Credit Loan tied to the Prime Rate is called a “Prime Revolving Loan.”  A Revolving Credit Loan will be a Prime
Revolving Loan any time it is not a LIBOR Revolving Loan.

 

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

 

2.2                                 Facility No. 2:  Equipment
Acquisition Loans.  CNB agrees to make loans (“Equipment
Acquisition 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 which
will be used to pay up to one hundred percent (100%) of the purchase price of
new machinery and equipment, excluding sales taxes, delivery and set-up
charges.  Each Equipment Acquisition Loan
will be evidenced by a promissory note (“Equipment Acquisition Note”) in the
form attached hereto as Exhibit D.

 

2.2.1                        Interest on Equipment Acquisition Loans. Each Equipment Acquisition Loan will bear
interest from disbursement until due (whether at stated maturity, by
acceleration 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 and
three quarters percent (2.75%) per annum, or (b) for a Prime Equipment Acquisition
Loan, the fluctuating Prime Rate plus one half of one percent (1⁄2%) per
annum.  Interest on the Equipment
Acquisition Loans will accrue daily and be payable (a) if a Prime Equipment
Acquisition Loan, monthly, in arrears, on the last day of each month, commencing
on the first such date following disbursement; (b) if a LIBOR Equipment
Acquisition Loan, (i) at the same time as interest payments are due on Prime
Equipment Acquisition Loans, (ii) on the last day of each Interest Period, and
(iii) upon any prepayment of any LIBOR Equipment Acquisition Loan (to the
extent accrued on the amount prepaid); (c) on the date a Prime Equipment
Acquisition Loan is converted to a LIBOR Equipment Acquisition Loan; and (d) at
the Termination Date.  An Equipment
Acquisition Loan tied to the LIBOR Interest Rate is called a “LIBOR Equipment
Acquisition Loan,” and an Equipment Acquisition Loan tied to the Prime Rate is
called a “Prime Equipment Acquisition Loan.” 
An Equipment Acquisition Loan will be a Prime Equipment Acquisition Loan
any 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 by
Borrower to CNB of (a) an appropriate purchase invoice evidencing the purchase
of items of machinery and/or equipment, (b) a duly executed Equipment
Acquisition Note, (c) the Advance Fee; and (d) such further documents as will
be requested by CNB to perfect a security interest of first priority in the
assets being purchased in favor of CNB.

 

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

 

2.3                                 Facility No. 3:  Letter of
Credit Facility.  CNB will, at the request of Borrower, at any
time up to, but not including, the Termination Date, issue Letters of Credit
for the account of Borrower.  The
aggregate face amount of outstanding Letters of Credit will not at any time
exceed the lesser of (a) $15,000,000.00, less any amount by which the Revolving
Credit Commitment has been reduced by Borrower (the “Letter of Credit
Commitment”) or (b) the Revolving Credit Commitment less Revolving Credit Loans
outstanding on the date of the request.

 

2.3.1                        Issuance of Letters of Credit.  Standby Letters of Credit will
be issued in accordance with an Irrevocable Standby Letter of Credit
Application and Letter of Credit Agreement submitted by Borrower and
incorporated herein by this reference, subject to the terms of this Agreement
in the event of any conflict herewith; provided that the economic terms of any
Standby Letters of Credit will be governed by this Agreement.  All Letters of Credit will be issued on
normal documentation used by CNB from time to time in accordance with the
International Standby Practices 1998, whichever is applicable.  Unless CNB otherwise agrees in writing, no
Letters of Credit may expire more than one year after the Termination
Date.  The following fees and charges
will apply to the issuance of Letters of Credit, (i) the issuance fee shall be
one percent (1%) per annum, and (ii) the negotiation fee shall be one quarter
of one percent (1⁄4%) of the amount drawn or $100.00 whichever is greater.

 

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

 

2.3.3                        Letters of Credit Outstanding on Termination Date.  On
the Termination Date, Borrower shall for each Letter of Credit then
outstanding: (i) pay CNB cash in the aggregate face amount of such Letter of
Credit to be held as cash collateral for Borrower’s obligation to reimburse CNB
upon the funding of such Letter of Credit, (ii) terminate such Letter of
Credit, or (iii) obtain a letter of credit from a financial institution
acceptable to CNB, which may be drawn in full payment of an such reimbursement
obligation 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 LIBOR
Loan, if herein allowed (including conversion of a Prime Loan to a LIBOR Loan,
or continuation of a LIBOR

 

6

 

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

 

2.4.2                        Availability of LIBOR Loans.  Notwithstanding anything
herein 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 Loans
outstanding at any one time under the Revolving Credit Commitment.  Borrower may have Prime Loans and LIBOR
Loans outstanding simultaneously.

 

2.4.3                        Prepayment of Principal.  Borrower may make a full or partial
principal prepayment on a LIBOR Loan. 
Borrower may prepay the full outstanding principal balance on a LIBOR
Loan prior to the end of the Interest Period or partially prepay the principal
balance on a LIBOR Loan in a minimum amount of $100,000 or a greater amount
which is an integral multiple of $10,000, provided, however, that such
prepayment is accompanied by a fee (“LIBOR Prepayment Fee”) equal to the
amount, if any, by which (a)  the
additional interest which would have been earned by CNB had the LIBOR Loan not
been prepaid exceeds (b) the interest which would have been recoverable by CNB
by placing the prepaid amount of the LIBOR Loan on deposit in the LIBOR market
for a period starting on the date on which it was prepaid and ending on the
last day of the applicable Interest Period. 
CNB’s calculation of the LIBOR Prepayment Fee will be conclusive absent
manifest error.

 

2.4.4                        Suspension of LIBOR Loans.  In the event CNB, on any
Business 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, or
governmental order, rule or determination, makes it unlawful for CNB to make a
LIBOR Loan, Borrower’s right to select LIBOR Loans will be suspended until CNB
is again able to determine the LIBOR Base Rate or make LIBOR Loans, as the case
may be.  During such suspension, new
Loans, outstanding Prime Loans and LIBOR Loans whose Interest Periods terminate
may only be Prime Loans.

 

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

 

2.6                                 Loans and Payments.  All payments will be in United States
Dollars and in immediately available funds. 
Interest will be computed on the basis of a 360 day year, actual days
elapsed.  All payments of principal,
interest, fees and other charges on the Loans will be made by charging, and
Borrower hereby authorizes CNB to charge, Borrower’s Demand Deposit Account at
CNB for the amount of each such payment. 
Borrower must have sufficient collected balances in Borrower’s Demand
Deposit Account with CNB in order that each such payment will be available when
due.  CNB is authorized to note the
date, amount and interest rate of each Loan and each payment of principal and
interest on CNB’s books and records, which notations will constitute
presumptive evidence of the accuracy of the information noted, absent manifest
error.  Any Loan will be conclusively
presumed to have been made to or for the benefit of Borrower when CNB, in its
sole discretion and absent manifest error, believes that the request therefor
has been made by authorized persons (whether in fact that is the case), and
when 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 draw
against such account.

 

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2.7                                 Default
Interest Rate.  From and
after 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 (and
interest thereon to the extent permitted by law) will bear additional interest
at a fluctuating rate equal to two and one half percent (21⁄2%) per annum higher
than the interest rate stated in Sections 2.1.1 and 2.2.1 until the Event of
Default has been cured; provided, however, for purposes of this Section, a
LIBOR Loan will be treated as a Prime Loan upon the termination of the Interest
Period. All interest provided for in this Section will be compounded monthly
and payable on demand.

 

2.8                                 Unused
Facility Fee.  Borrower will
pay the Unused Facility Fee on the last day of each calendar quarter;  such fee will be non-refundable and fully
earned when paid.  Borrower hereby
authorizes CNB to charge Borrower’s Demand Deposit Account or Borrower’s Loan
Account for the amount of each such fee.

 

3.                    CONDITIONS
PRECEDENT.

 

3.1                                 Initial
Extension of Credit.  The
obligation of CNB to make the initial Loan or other extension of credit
hereunder is subject to CNB’s receipt of each of the following, in form and
substance 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 first
priority security interest in the Collateral, and evidence of such perfection;

 

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

 

(a)                                  Evidence reasonably satisfactory to CNB
establishing that Borrower has sufficient right, title and interest in and to
each item of the Copyright Collateral as set forth in the attachment to Exhibit
B to enable it to fully perform any existing agreement with respect to
exploitation of such Copyright Collateral;

 

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

 

(c)                                  Evidence that a duly executed Memorandum of
Security Interests in Copyrights  has
been duly acknowledged and submitted for expedited recordation accompanied by
the required filing fee with the Copyright Office within the time limit set
forth in 17 U.S.C. §205(d) for constructive notice as of the date of this
Agreement;

 

(d)                                 Evidence reasonably satisfactory to CNB that
there is no interest of any third party, including heirs, which is contrary to
the rights granted or purported to be granted to CNB in the Copyright
Collateral, apart from (a) rights of termination of transfers applicable to all
authors under the Copyright Act and (b) rights of third parties under license
agreements with Borrower to consent to the pledge of the same to CNB.

 

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

 

3.1.4                        Where Borrower or any party signing a Loan
Document 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                                 Conditions
to Each Extension of All Loans. 
The obligation of CNB to make any Loan or other extension of credit
hereunder will be subject to the fulfillment of each of the following
conditions to CNB’s satisfaction:

 

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

 

3.2..2                     The representations and warranties of Borrower
set forth in Section 4 of this Agreement and in all other Loan Documents will
be true and correct on the date of the making of each Loan or other extension
of credit with the same effect as though such representations and warranties
had been made on and as of such date;

 

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

 

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

 

4.                     REPRESENTATIONS
AND WARRANTIES.  Borrower
represents and warrants (and each request for a Loan or other extension of
credit will be deemed a representation and warranty made on the date of such
request) that:

 

4.1                                 Corporate
Existence, Power and Authorization.  Borrower
and each Subsidiary is duly organized, validly existing and in good standing
under the laws of the state of its organization, and is duly qualified to
conduct business in each jurisdiction in which its business is conducted where
failure to so qualify or be in good standing would result in a material adverse
effect on the business or financial condition of Borrower.  The execution, delivery and performance of
all Loan Documents executed by Borrower are within Borrower’s powers and have
been duly authorized by the Board of Directors of Borrower and do not require
any consent or approval of the stockholders of Borrower.

 

4.2                                 Binding
Agreement.  The Loan
Documents constitute the valid and legally binding obligations of Borrower,
enforceable against Borrower in accordance with their terms.

 

4.3                                 Other
Agreements.  The execution
and performance of the Loan Documents will not violate any provision of law or
regulation (including, without limitation, Regulations X and U of the Federal
Reserve Board) or any order of any governmental authority, court, or
arbitration board or the Articles of Incorporation or Bylaws of Borrower, or
result in the breach of, constitute a default under, contravene any provisions
of, or result in the creation of any security interest, lien, charge or
encumbrance upon any of the assets of Borrower pursuant to any indenture or
agreement to which Borrower or any of its properties is bound, except liens and
security 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 adversely
determined, would have a material adverse effect on the business, operations or
condition, financial or otherwise, of Borrower, or any Subsidiary.

 

9

 

4.5                                 Financial
Condition.  Borrower’s
consolidated audited balance sheet as of September 30, 2002, and Borrower’s
consolidated audited income statement for the twelve months ended September
30, 2002, copies of which have been delivered to CNB, and each more recent
financial statement of Borrower delivered to CNB, have been prepared in accordance
with GAAP and are true, complete and correct and fairly present the financial
condition of Borrower and the Subsidiaries, including operating results, as of
the accounting period referenced therein. 
There has been no material adverse change in the financial condition or
business of Borrower or any Subsidiary since the date of such financial
statements.  Neither Borrower nor any
Subsidiary has any material liabilities for taxes or long-term leases or
commitments, except as disclosed in the financial statements.

 

4.6                                 No
Violations.  Borrower is not,
nor is any Subsidiary, in violation of any law, ordinance, rule or regulation
which would have a material adverse impact upon the business or financial
condition of Borrower taken as a whole.

 

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

 

4.8                                 ERISA.  Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974 (“ERISA”).  No
Reportable 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 any
unfunded vested liabilities under any benefit plan of Borrower.  Borrower has met its minimum funding
requirements under ERISA with respect to each of its plans and has not incurred
any material liability to the PBGC in connection with any such plan.

 

4.9                                 Consents.  No consent, license, permit, or
authorization of, exemption by, notice to, report to, or registration, filing
or declaration with, any governmental authority or agency is required in
connection with the execution and performance by Borrower of the Loan Documents
or the transactions contemplated hereunder except, in each case, where the
failure to obtain such consent, license or authorization would not result in a
material adverse effect on the business or financial condition of the Borrower.

 

4.10                           Regulation
U.  Borrower is not engaged
principally, or as one of its principal activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations U or X of the Federal Reserve Board).  No part of the proceeds of the Loans will be
used by Borrower to purchase or carry any such margin stock or to extend credit
to others for the purpose of purchasing or carrying such margin stock.

 

4.11                           Environmental
Matters.  The operations of
Borrower and each Subsidiary comply in all material respects with all
applicable federal, state and local environmental, health and safety statutes,
regulations and ordinances, and comply in all material respects with all terms
of all required permits and licenses.

 

10

 

5.                    AFFIRMATIVE
COVENANTS.  Borrower agrees
that until payment in full of all Obligations, Borrower will comply with the
following covenants, unless CNB shall otherwise consent in writing:

 

5.1                                 Books and
Records.  Borrower will
maintain, in accordance with sound accounting practices, accurate records and
books of account showing, among other things, all Inventory and Accounts, the
proceeds of the sale or other disposition thereof and the collections
therefrom.  Borrower will not change the
accounting method used to determine Borrower’s Inventory cost without
notification to CNB.  CNB may, at any
reasonable time during Borrower’s regular business hours and after at least two
(2) Business Days’ written notice, inspect, audit, and make extracts from, or
copies of, all books, records and other data, and inspect any of Borrower’s
properties.  Upon the occurrence of a
Potential Event of Default or an Event of Default, CNB may confirm balances due
on Accounts by direct inquiry to Account Debtors (defined as those Persons
obligated on the Accounts).  Borrower
will furnish CNB with all information regularly maintained by Borrower regarding
the business or finances of Borrower promptly upon CNB’s request.

 

5.2                                 Financial
Statements.  Borrower will
furnish to CNB on a continuing basis:

 

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

 

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

 

5.2.3                        Within forty-six (46) days after the end of
each 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 internal
controls submitted to Borrower by Borrower’s independent certified public
accountants in connection with each annual or interim special audit of the
financial condition of Borrower and the Subsidiaries made by such accountants;

 

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

 

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

 

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

 

11

 

5.3                                 Taxes and
Premiums.  Borrower will, and
will cause each Subsidiary to, pay and discharge all taxes, assessments,
governmental charges and real and personal property taxes, including, but not
limited to, federal and state income taxes, employee withholding taxes and
payroll 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 each
Subsidiary to, provide and maintain the insurance required under the Loan
Documents;

 

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

 

5.4.3                        If Borrower fails to provide, maintain, or
furnish to CNB the policies required by this Section, CNB may provide written
notice of such deficiency to Borrower, and if not remedied by Borrower within
five (5) Business Days, immediately thereafter procure such insurance or other
insurance necessary to protect CNB’s interest, and Borrower will pay all
premiums thereon promptly upon demand by CNB, together with interest, at the
highest rate provided for any of the Loans exclusive of LIBOR Loans extended
under 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 an
Event of Default), at a rate two and one half percent (21⁄2%) per year higher
than such interest rate until such amount (and interest thereon, to the extent
permitted by law), is paid in full.

 

5.5                                 Notice.  Borrower will promptly advise CNB in writing
of (a) the opening of any new, or the closing of any existing, places of
business, each location at which it currently conducts business, and any change
to Borrower’s name, trade name or other name under which it does business or of
any such new or additional name; (b) the occurrence of any Event of Default or
Potential Event of Default; (c) any litigation pending or threatened against
Borrower, 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 are
more than fifteen (15) days delinquent, the assessment of which would have a
material adverse impact upon the business of Borrower or the Subsidiaries; and
(e) any other matter that would reasonably be expected to materially and
adversely affect Borrower’s, or any Subsidiary’s financial condition, property
or business.

 

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

 

5.7                                 Corporate
Existence.  Borrower will,
and will cause each Subsidiary to, maintain its corporate existence and all of
its rights, privileges and franchises necessary or desirable in the normal
course of its business except where such non-compliance would not result in a
material adverse effect on Borrower’s business or financial condition.

 

5.8                                 Compliance
with Law.  Borrower will, and
will cause each Subsidiary to, comply with all requirements of all applicable
laws, rules, regulations, orders of any governmental agency and all

 

12

 

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

 

5.9                                 Additional
Copyright Collateral.

 

5.9.1                        Borrower shall provide written notice to CNB
of the Copyright registration of any item of Product, or the acquisition of any
Copyrighted item of Product, no later than fifteen (15) days preceding such
registration or acquisition, which notice shall provide a brief description of
such item of Product. Concurrently with the filing of the copyright
registration application or the instrument of transfer, as applicable, Borrower
shall file with the Copyright Office a Memorandum of Security Interest in
Copyrights in substantially the form of Exhibit B attached hereto, duly
executed, 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 copyright
registration, instruments of transfer and Memoranda of Security Interest in
Copyrights filed with the Copyright Office pursuant to the provisions of this
Section 5.9 by Borrower shall be sent to CNB concurrently with the submission
to the Copyright Office of the applicable documents.  Copies of all documents from the Copyright Office acknowledging
the 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 the
Copyright Office.

 

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

 

5.10                           Financial
Tests.  Borrower will
maintain:

 

5.10.1                  A ratio of Total Senior Debt to Tangible Net
Worth plus Subordinated Debt of not more than 0.65 to 1 at the end of each
fiscal quarter;

 

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

 

5.10.3                  A ratio of Quick Assets to Current
Liabilities 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.                    NEGATIVE
COVENANTS.  Borrower agrees
that so long as it is indebted to CNB, or so long as CNB has any obligation to
extend credit to Borrower, it will not, without CNB’s written consent, which
consent 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 for
borrowed moneys other than Loans from CNB, Permitted Indebtedness and obligations
now existing as shown in Borrower’s balance sheet as of September 30, 2002, or
as disclosed in Borrower’s Form 10-K for the fiscal year then ended, excluding
those obligations being refinanced by CNB, or sell or transfer, either with or
without recourse, any accounts or notes receivable or any moneys due or to
become due.

 

13

 

“Permitted Indebtedness” shall mean:

 

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

 

6.1.2                        indebtedness to trade creditors in the
ordinary course of business;

 

6.1.3                        indebtedness with respect to equipment
leases 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 Permitted
Indebtedness (6.1.1) through (6.1.3) above, provided that the principal amount thereof
is not increased or the terms thereof are not materially modified to impose
more burdensome terms upon Borrower.

 

6.21                           Sale of
Assets. Except for the disposition of obsolete, redundant or
replaced assets, or the sale of assets in Tier Technologies (Australia) Pty
Limited, Simision Bowles & Associate and ADC Consultants PTY limited
(collectively “Tier’s Discontinued Australian Operations), sell, lease or
otherwise dispose of any of Borrower’s or any Subsidiary’s assets, other than
in the ordinary course of business.

 

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

 

“Permitted Investments” shall mean:

 

6.3.1                        investments made in accordance with
Borrower’s investment policy as approved by its Board of Directors, including
without limitation Borrower’s stock repurchase program;

 

6.3.2                        direct obligations of the United States of
America;

 

6.3.3                        investments in certificates of deposit
issued by, and other deposits with, commercial banks organized under the United
States or a State thereof having capital of at least One Hundred Million
Dollars ($100,000,000.00);

 

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

 

6.3.5                        investments consisting of (1) compensation
of employees, officers and directors of Borrower or its Subsidiaries (2) travel
advances, employee relocations loans and other employee loans and advances in
the ordinary course of business, and (3) loans to Subsidiaries for general
corporate 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 and
suppliers and in settlement of delinquent obligations of, and other disputes
with, customers or suppliers arising in the ordinary course of Borrower’s
business;

 

14

 

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

 

6.3.8                        investment in capital stock of Subsidiaries.

 

6.4                                 Contingent
Liabilities. Except for contingent liabilities associated with
potential earnouts of acquisitions made by Borrower prior to the effective date
of this Agreement and any guarantees or contingent liabilities associated with
the issuance of performance bonds to Borrower in the ordinary course of
business pursuant to Section 6.5.12, and any earnouts associated with future
acquisitions to the extent the acquisition falls under Section 6.8.1 or is
otherwise approved in writing by CNB, assume, guarantee, endorse, contingently
agree to purchase or otherwise become liable for the obligation of any Person
other than Borrower, a Subsidiary, or Affiliate, except (a) by the endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business, and (b) contingent liabilities in favor of
CNB.

 

6.5                                 Mortgages,
Liens,
etc.  Create, incur, permit
to exist, or assume any mortgage, pledge, encumbrance, lien or charge of any
kind, whether voluntary or involuntary, upon any asset now owned or hereafter
acquired by it, other than liens for taxes not delinquent and liens in CNB’s
favor 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 and
disclosed in writing to CNB;

 

6.5.2                        liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in
good faith by appropriate proceedings;

 

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

 

6.5.4                        liens on equipment leased by Borrower
pursuant to equipment leases in the ordinary course of business incurred solely
for the purpose of financing the lease of such equipment (including liens
arising from UCC financing statements regarding leases permitted by this
Agreement);

 

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

 

6.5.6                        leases, subleases, licenses and sublicenses,
and performance and surety bonds and associated collateral granted to others in
the ordinary course of Borrower’s business not interfering in any material
respect 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 liens
affecting real property not interfering in any material respect with the
ordinary conduct of business of Borrower;

 

15

 

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

 

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

 

6.5.10                  carriers’, warehousemen’s, materialmen’s,
mechanics’, landlords’, repairmen’s, employees’ or other like liens arising in
the ordinary course of business which are not delinquent or remain payable
without penalty or which are being contested in good faith by appropriate
proceedings;

 

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

 

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

 

6.5.13                  liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described in clauses (6.5.1) through (6.5.12) above, provided that
any extension, renewal or replacement lien shall be limited to the property
encumbered by the existing lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase.

 

6.6                                 Sale and
Leaseback.  Enter into any
sale-leaseback transaction.

 

6.7                                 Dividends.  Declare or pay any dividends or make any
distribution, whether of capital, income or otherwise, and whether in cash or
other property, except that any Subsidiary may declare distributions to
Borrower.

 

6.8                                 Mergers and
Acquisitions.

 

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

 

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

 

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

 

(c)                                  require Borrower to pay a total purchase
price, 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 Borrower
and Borrower may consolidate or become consolidated with or under any other
entity so long as (a) Borrower shall be a continuing or surviving legal entity
and (b) all obligations of Borrower hereunder shall continue in full force and
effect; or sell any assets except in the ordinary and normal course of its
business as now conducted; or sell, lease, assign, or transfer any substantial
part of its

 

16

 

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

 

6.9                                 Executive
Loans.  Make any loan or
advance to any officer or shareholder of Borrower subject to Section 16 of the
Securities Exchange Act.

 

6.10                           Event of
Default.  Permit a default to
occur under any document or instrument evidencing Debt incurred under any
indenture, 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 holder
of the Debt outstanding thereunder to declare the same due and payable before
its stated maturity, whether or not such acceleration occurs or such default be
waived.

 

7.                    SECURITY
AGREEMENT.

 

7.1                                 Grant of
Security Interest.  To secure
all Obligations hereunder as well as all other Obligations to CNB, Borrower
hereby grants and transfers to CNB a continuing security interest in the
following 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 as
that term is defined in the Code;

 

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

 

7.1.5                        All of Borrower’s interest in any patents
(now existing or pending), copyrights, trade names, trademarks and service
marks 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 which
Borrower has or acquires an interest;

 

7.1.7                        All cash and noncash proceeds of the
foregoing property, including, without limitation, proceeds of policies of
fire, credit or other insurance;

 

7.1.8                        All Borrower’s rights in any Copyright
Collateral 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 same
in and to any literary, trademark, service mark, literary property right,
personal right, musical, dramatic or other literary material of any kind or
nature 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 been
used or included in the item of Product;

 

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

 

17

 

(c)                                  All rights of every kind or nature of
Borrower in and to any and all music and musical compositions created for, used
in or to be used in connection with the item of Product, including, without
limitation, all copyrights therein;

 

(d)                                 All rights of every kind or nature, present
and 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, including
the services of writers, directors, cast, producers, special effects personnel,
personnel, animators, cameramen and other creative, artistic and technical
staff and agreements for the use of studio space, equipment, facilities,
locations, animation services, special effects services and laboratory
contracts;

 

(e)                                  All copyrights, rights in copyrights,
interests in copyrights and renewals and extensions of copyrights, domestic and
foreign, of Borrower heretofore or hereafter obtained upon the item of Product,
or any part thereof, and the right (but not the obligation) to make publication
thereof for copyright purposes, to register claim under copyright, and the
right (but not the obligation) to renew and extend such copyrights, and the
right (but not the obligation) to sue in the name of Borrower’s Constituents or
in 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 otherwise
exploit the item of Product;

 

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

 

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

 

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

 

7.2                                 Notification of Account Debtors.  CNB will have the right to
notify any Account Debtor to make payments directly to CNB, take control of the
cash and noncash proceeds of any Account, and settle any Account, which rights
CNB may exercise at any time upon the occurrence of a Potential Event of
Default or an Event of Default and regardless of whether Borrower was
theretofore making collections thereon. 
Until CNB elects to exercise such right, Borrower is authorized on
behalf of CNB to collect and enforce the Accounts.  Immediately upon CNB’s request, Borrower will deliver to CNB for
application in accord with this Agreement, all checks, drafts, cash and other
remittances in payment or on account of payment of its Accounts on the banking
day following the receipt thereof, and in precisely the form received, except
for the endorsement of Borrower where necessary to permit collection of the
items, which endorsement Borrower hereby agrees to make.  Pending such delivery, Borrower will not
commingle any such checks, cash, drafts and other remittances with any of its
other funds or property, but will hold them separate and apart therefrom
expressly in trust for CNB.  All such

 

18

 

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

 

7.3                                 Attorney-In-Fact.  Upon the occurrence of a Potential Event of
Default or an Event of Default, CNB or any of its officers is hereby
irrevocably made the true and lawful attorney for Borrower with full power of
substitution to do the following: (a) endorse the name of Borrower upon any and
all checks, drafts, money orders and other instruments for the payment of
moneys 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 the
Post Office authorities to change the address for delivery of mail addressed to
Borrower to such address as CNB will designate; and (e) do such other acts in
the name of Borrower which CNB may deem necessary or desirable to enforce any
Account or other Collateral.  The powers
granted CNB hereunder are solely to protect its interests in the Collateral and
will not impose any duty upon CNB to exercise any such powers.

 

8.                    EVENTS OF
DEFAULT.

 

8.1                                 Events of
Default.  The occurrence of
any of the following will constitute an Event of Default:

 

8.1.1                        Borrower fails to pay when due any
installment of principal or interest or any other amount payable under the Loan
Documents;

 

8.1.2                        Borrower or any Subsidiary, which is a party
to any Loan Document fails in any material respect to perform or observe any of
the terms, provisions, covenants, conditions, agreements or obligations
contained in the Loan Documents;

 

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

 

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

 

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

 

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

 

8.1.7                        Any Person obtains an order or decree in any
court of competent jurisdiction enjoining or prohibiting Borrower or CNB or
either of them from performing this Agreement, and such proceedings are not
dismissed or such decree is not vacated within ten (10) days after the granting
thereof;

 

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

 

19

 

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

 

8.1.10                  The occurrence of (a) a Reportable Event as
defined in ERISA which CNB determines in good faith constitutes grounds for the
institution of proceedings to terminate any pension plan by the PBGC, (b) an
appointment of a trustee to administer any pension plan of Borrower, or (c) any
other event or condition which might constitute grounds under ERISA for the
involuntary termination of any pension plan of Borrower, where such event set
forth in (a), (b) or (c) results in a significant monetary liability to Borrower;

 

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

 

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

 

8.1.13                  The Termination Date is not extended and
Borrower’s Obligations remain unpaid and Borrower has no right to future
advances 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 Sections
8.1.3, 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 to
Event of Default 8.1.1) written notice of any event which constitutes or, with
the lapse of time would become an Event of Default, during which time Borrower
will 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 all
other Obligations immediately due and payable in full, whereupon the
same will immediately become due and payable; (b) terminate this Agreement as
to any future liability or obligation of CNB, but without affecting CNB’s
rights and security interest in the Collateral and without affecting the
Obligations owing by Borrower to CNB; and/or (c) exercise its rights and
remedies under the Loan Documents and all rights and remedies of a secured
party under the Code and other applicable laws with respect to all of the
Collateral.

 

8.4                                 Additional
Remedies.  Notwithstanding
any other provision of this Agreement, upon the occurrence of any event, action
or inaction by Borrower, or if any action or inaction is threatened which CNB
reasonably believes will materially affect the value of the Collateral, CNB may
take such legal actions as it deems necessary to protect the Collateral,
including but not limited to, seeking injunctive relief and the appointment of
a receiver, whether or not an Event of Default or Potential Event of Default
has occurred under this Agreement.

 

9.                    MISCELLANEOUS.

 

9.1                                 Reimbursement
of Costs and Expenses.  Borrower
will reimburse CNB for all reasonable costs and expenses relating to this
Agreement, incurred after the execution of this Agreement, including, but not
limited to, filing, recording or search fees, audit or verification fees,
appraisals of the Collateral and other out-of-pocket expenses, and reasonable
attorneys’ fees and expenses expended or incurred by CNB (or allocable to CNB’s
in-house counsel) in documenting or administering the Loan Documents or
collecting any sum which becomes due CNB under the Loan Documents, irrespective
of whether suit is

 

20

 

filed, or in the protection, perfection, preservation or enforcement of
any 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 or
a bankruptcy or reorganization proceeding. 
All amounts due under this Section 9.1 will bear interest at the highest
rate provided for any of the Loans exclusive of LIBOR Loans extended under
Section 2 above, from the date of expenditure (or allocation), and if not paid
within ten (10) days of CNB’s demand therefor (and without constituting a
waiver of an Event of Default), at a rate two and one half percent (21⁄2%) per
year higher than such interest rate until such amount (and interest thereon, to
the extent permitted by law), is paid in full.

 

9.2                                 Dispute
Resolution.

 

9.2.1                        Mandatory Arbitration.  At the request of CNB or Borrower, any
dispute, claim or controversy of any kind (whether in contract or tort,
statutory or common law, legal or equitable) now existing or hereafter arising
between CNB and Borrower and in any way arising out of, pertaining to or in
connection with: (a) this Agreement, and/or any renewals, extensions, or
amendments thereto; (b) any of the Loan Documents; (c) any violation of this
Agreement or the Loan Documents; (d) all past, present and future loans; (e)
any incidents, omissions, acts, practices or occurrences arising out of or
related to this Agreement or the Loan Documents causing injury to either party
whereby the other party or its agents, employees or representatives may be
liable, in whole or in part, or (f) any aspect of the past, present or future
relationships of the parties, will be resolved through final and binding
arbitration conducted at a location determined by the arbitrator in Los Angeles,
California, and administered by the American Arbitration Association (“AAA”) in
accordance with the California Arbitration Act (Title 9, California
Code of Civil Procedure Section
1280 et. seq.) and the then existing Commercial Rules of the AAA.  Judgment upon any award rendered by the
arbitrator(s) may be entered in any state or federal courts having jurisdiction
thereof.

 

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

 

9.2.3                        Judicial Reference.  At the request of any party, a controversy
or claim which is not submitted to arbitration as provided and limited in
subsections 9.2.1 and 9.2.2 will be determined by a reference in accordance
with California
Code of Civil Procedure Sections
638 et. seq.  If such an election
is made, the parties will designate to the court a referee or referees selected
under the auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings.  The
presiding 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 be
entered in the court in which such proceeding was commenced in accordance with California
Code 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 power
of sale under a deed of trust, mortgage or other security agreement or
instrument, or applicable law, (b) exercise any rights or remedies as a secured
party against any personal property collateral pursuant to the terms of a
security agreement or pledge agreement, or applicable law, (c) exercise self
help remedies such as setoff, or (d) obtain provisional or ancillary remedies
such as injunctive relief or the appointment of a receiver from a court having
jurisdiction before, during or after the pendency of

 

21

 

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

 

9.2.5                        Powers and Qualifications of Arbitrators.  The
arbitrator(s) will give effect to statutes of limitation, waiver and estoppel
and other affirmative defenses in determining any claim.  Any controversy concerning whether an issue
is arbitratable will be determined by the arbitrator(s).  The laws of the State of California will
govern.  The arbitration award may
include equitable and declaratory relief. 
All arbitrator(s) selected will be required to be a practicing attorney
or retired judge licensed to practice law in the State of California and will
be required to be experienced and knowledgeable in the substantive laws
applicable to the subject matter of the controversy or claim at issue.

 

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

 

9.2.7                        Miscellaneous.  The arbitrator(s) will determine which is
the prevailing party and will include in the award that party’s reasonable
attorneys’ fees and costs (including allocated costs of in-house legal
counsel).  Each party agrees to keep all
controversies and claims and the arbitration proceedings strictly confidential,
except for disclosures of information required in the ordinary course of
business of the parties or by applicable law or regulation.

 

9.3                                 Cumulative
Rights and No Waiver.  All
rights and remedies granted to CNB under the Loan Documents are cumulative and
no one such right or remedy is exclusive of any other.  No failure or delay on the part of CNB in
exercising any power, right or remedy under any Loan Document will operate as a
waiver thereof, and no single or partial exercise or waiver by CNB of any such
power, right or remedy will preclude any further exercise thereof or the
exercise of any other power, right or remedy.

 

9.4                                 Applicable Law.  This Agreement will be governed by California
law.

 

9.5                                 Lien and Right of Setoff.  Borrower grants to CNB a
continuing lien for all Obligations of Borrower to CNB upon any and all moneys,
securities and other property of Borrower and the proceeds thereof, now or
hereafter held or received by or in transit to CNB from or for Borrower,
whether for safekeeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or special) and credits
of Borrower with, and any and all claims of Borrower against CNB at any time
existing; provided that any funds received, transmitted or held by
Borrower or any Subsidiary on behalf of, or for the benefit of, any
governmental agency, or for the benefit of any other person, pursuant to a
service or payment processing agreement shall not constitute Collateral and
Borrower does not grant, and CNB shall not assert, any lien or interest
therein.  Upon the occurrence of any
Event of Default, CNB is authorized at any time and from time to time, without
notice to Borrower or any other Person, to setoff, appropriate and apply any or
all items hereinabove referred to against all Obligations of Borrower whether
under this Agreement or otherwise, and whether now existing or hereafter
arising.

 

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

 

CNB:                                                                                                              City
National Bank

 

22

 

	
   

  	
   

  	
  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 signed
in any number of counterparts which, when taken together, will constitute but
one agreement.

 

9.8                                 Indemnification.  Borrower will, at all times,
defend and indemnify and hold CNB harmless from and against any and all
liabilities, claims, demands, causes of action, losses, damages, expenses
(including without limitation reasonable attorneys’ fees, [which attorneys may
be employees of CNB, or may be outside counsel]) costs, settlements, judgments
or recoveries arising out of or resulting from (a) any breach of the
representations, warranties, agreements or covenants made by Borrower herein;
(b) any suit or proceeding of any kind or nature whatsoever against CNB arising
from or connected with the transactions contemplated by the Loan Documents or
any of the rights and properties assigned to CNB hereunder; and/or (c) any suit
or proceeding that CNB may deem necessary or advisable to institute, in the
name of CNB, Borrower or both, against any other Person, for any reason
whatsoever to protect the rights of CNB hereunder or under any of the
documents, instruments or agreements executed or to be executed pursuant
hereto, including attorneys’ fees and court costs and all other costs and
expenses incurred by CNB (or allocable to CNB’s in-house counsel), all of which
will be charged to and paid by Borrower and will be secured by the
Collateral.  Any obligation or liability
of Borrower to CNB under this Section will survive the expiration or
termination of this Agreement and the repayment of all Loans and the payment or
performance of all other Obligations of Borrower to CNB.

 

9.9                                 Assignments.  The provisions of this Agreement are hereby
made applicable to and will inure to the benefit of CNB’s successors and
assigns and Borrower’s successors and assigns; provided, however, that neither
party may assign or transfer its rights or obligations under this Agreement
without the prior written consent of the other party except for transfers or
assignments by operation of law.

 

9.10                           Confidentiality.  CNB shall maintain in confidence and hold
all non-public information relating to the Borrower and its Subsidiaries
obtained by it under this Agreement in accordance with its customary procedures
for handling confidential information of this nature which in no event shall be
less protective than the procedures CNB employs with respect to its own
confidential information of a like kind and no less protective than is required
by applicable laws including US securities laws and

 

23

 

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

 

9.11                           Accounting
Terms.  Except as otherwise
stated in this Agreement, all accounting terms and financial covenants and
information will be construed in conformity with, and all financial data
required to be submitted will be prepared in conformity with, GAAP as in
effect, from time to time.

 

9.12                           Severability.  Any provision of the Loan Documents which is
prohibited or unenforceable in any jurisdiction, will be, only as to such
jurisdiction, ineffective to the extent of such prohibition or
unenforceability, but all the remaining provisions of the Loan Documents will
remain valid.

 

9.13                           Complete
Agreement.  This Agreement,
together with the other Loan Documents, constitutes the entire agreement of the
parties and supersedes any prior or contemporaneous oral or written agreements
or understandings, if any, which are merged into this Agreement.  This Agreement may be amended only in a
writing signed by Borrower and CNB.

 

9.14                           Joint and
Several.  Should more than
one Person sign this Agreement, the obligations of each signer will be joint
and several.

 

This Agreement is executed as of the date stated at
the 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

 

	
  “CNB”

  	
  City
  National Bank, a

  national banking association

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph McCarthy

  	
   

  
	
   

  	
   

  	
  Joseph McCarthy, Senior Vice President

  	
   

  
					

 

25

 

EXHIBIT A

 

 

 

COVENANT COMPLIANCE CERTIFICATE

 

 

The undersigned,
                                   ,
the
                                   
of Tier
Technologies, Inc., a California corporation, and Official
Payments 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 and
City National Bank (“CNB”).  Terms and
Section numbers used herein shall have the same meaning as the Credit
Agreement.

 

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

 

1.                     Ratio of
Total Senior Debt to Tangible Net Worth

plus 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

 

	
  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 and
correct as of the date hereof and Borrower has meet each of the Conditions set
forth in Section 3.2.

 

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

 

	
  Date: 

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (signature)

  

 

3

 

EXHIBIT B

 

MEMORANDUM OF SECURITY
INTEREST IN COPYRIGHTS

 

Tier Technologies, Inc. , a California
corporation, whose address is 2001 N. Main Street, Suite 500, Walnut Creek, CA
94596 (“Debtor”), does hereby grant to CITY NATIONAL BANK, a national banking
association, whose address is 1333 North California Blvd., Suite 185, Walnut
Creek, CA 94596 (“Secured Party”), pursuant to a Credit and Security Agreement
dated January 29, 2003 (“Credit Agreement”), a security interest in all of
Debtor’s right, title and interest in and to all copyrights and rights and
interests of every kind or nature in copyrights and works protectable by
copyright, whether now owned or hereafter created or acquired and all renewals
and extensions thereof, including without limitation in and to (i) the
copyright registrations which are identified on Schedule A attached hereto and
herein incorporated by this reference, (ii) the applications for copyright
registration which are identified on Schedule B attached hereto and herein
incorporated by this reference, together with any and all copyright
registrations issued with respect thereto, (iii) all works owned by Debtor
based upon, incorporated in, derived from, incorporating or relating to the
items 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 corporation
shall do or perform any acts which Secured Party believes to constitute an
infringement of any Copyright, or violate or infringe any rights of Debtor in
any Copyright, or if any person, firm or corporation shall do or perform any
acts which Secured Party believes to constitute an unauthorized or unlawful
reproduction, distribution, public performance or display, use, or preparation
of any derivation, of any Copyright, then and in any such event, upon, and
during the continuance of, an Event of Default (as defined in the Credit
Agreement) Secured Party may and shall have the right to take such steps and
institute such suits or proceedings as Secured Party may deem advisable or
necessary to prevent such acts and 
conduct and to secure damages and other relief by reason thereof, and
generally to take such steps as may be advisable or necessary or proper for the
full protection of the rights of the parties. 
Secured Party may take such steps or institute such suits or proceedings
in its own name or in the name of Debtor or in the names of the parties
jointly.

 

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

 

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

 

1

 

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

 

IN WITNESS WHEREOF the undersigned have duly executed
this 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

  

 

2

 

SCHEDULE A

 

UNITED STATES COPYRIGHT REGISTRATIONS

 

	
  Title

  	
   

  	
  Reg. No.

  	
   

  	
  Reg. Date

  	
   

  	
  Author

  

 

3

 

SCHEDULE B

 

UNITED STATES APPLICATIONS FOR COPYRIGHT REGISTRATION

 

	
  Title

  	
   

  	
  Filing
  Date

  	
   

  	
  Author

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  None

  	
   

  	
   

  	
   

  	
   

  

 

4

 

EXHIBIT C

 

REVOLVING
CREDIT NOTE

(For Prime and/or LIBOR options)

 

	
  $15,000,000.00

  	
   

  	
  Walnut Creek,
  California

  
	
   

  	
   

  	
  January 29, 2003

  

 

For Value Received, the undersigned, Tier
Technologies, Inc., a California corporation, , and Official
Payments Corporation, a Delaware corporation (collectively, “Borrower”)
(“Borrower”), promises to pay on the Termination Date to the order of City
National Bank, a national banking association (“CNB”), at its Office
located at 1333 North California Blvd., Suite 185, Walnut Creek, CA 94596, the
principal amount of Fifteen Million  Dollars ($15,000,000.00) or
so much thereof as may be advanced and be outstanding, with interest thereon to
be computed on each Revolving Credit Loan from the date of its disbursement at
a rate computed on the basis of a 360-day year, actual days elapsed, at the
rates, times and in accordance with the terms of that certain Credit and
Security Agreement Credit Agreement between Borrower and CNB, dated as of
January 29, 2003, as it may be amended from time to time (the “Credit Agreement”).  Capitalized terms not defined herein shall
have the meanings given them in that certain Credit Agreement.

 

All or any portion of the principal of this Revolving
Credit Note (“Note”) may be borrowed, repaid and reborrowed from time to time
prior to the Termination Date, provided at the time of any borrowing no default
exists under this Note and no Event of Default or Potential Event of Default
exists under the terms and conditions of the Credit Agreement and provided,
further that the total borrowings outstanding at any one time shall not exceed
the Revolving Credit Commitment less the amount of Letters of Credit issued and
outstanding under the Credit Agreement. 
Each borrowing and repayment of a Revolving Credit Loan shall be noted
in the books and records of CNB.  The
excess of borrowings over repayments as noted on such books and records shall
constitute presumptive evidence of the principal balance due hereon from time
to time and at any time.

 

If payment on this Note becomes due and payable on a
non-business day, the maturity thereof shall be extended to the next business
day and, with respect to payments of principal or interest thereon shall be
payable during such extension at the then applicable rate.  Upon the occurrence of one or more of the
Events of Default specified in the Credit Agreement, all amounts remaining
unpaid on this Note may become or be declared to be immediately payable as
provided in the Credit Agreement, without presentment, demand or notice of
dishonor, all of which are expressly waived. 
Borrower agrees to pay all costs of collection of this Note and
reasonable attorneys’ fees (including attorneys’ fees allocable to CNB’s
in-house counsel) in connection therewith, irrespective of whether suit is
brought thereon.

 

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

 

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

 

1

 

This Note shall be governed by the laws of the State
of California.  If this Note is executed
by 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

  

 

2

 

EXHIBIT D

 

EQUIPMENT
ACQUISITION NOTE

 

	
  $2,500,000.00

  	
   

  	
  Walnut Creek,
  California

  
	
   

  	
   

  	
  January 29, 2003

  

 

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

 

If payment on this Note becomes due and payable on a
non-business day, the maturity thereof shall be extended to the next business
day and, with respect to payments of principal or interest thereon, shall be
payable during such extension at the then applicable rate.  Upon the occurrence of one or more of the
Events of Default specified in the Credit Agreement, all amounts remaining
unpaid on this Note may become or be declared to be immediately payable as
provided in the Credit Agreement, without presentment, demand or notice of
dishonor, all of which are expressly waived. 
Borrower agrees to pay all costs of collection of this Note and
reasonable attorneys’ fees (including attorneys’ fees allocable to CNB’s
in-house counsel) in connection therewith, irrespective of whether suit is
brought thereon.

 

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

 

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

 

1

 

This shall be governed by the laws of the State of
California.  If this Note is executed by
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

  
								

 

2Exhibit 4.1

               EXECUTIVE SALES AND MARKETING CONSULTING AGREEMENT

     THIS EXECUTIVE SALES AND MARKETING CONSULTANT AGREEMENT (this "Agreement")
is between Marc Jablon (the "Consultant") and Raven Moon Entertainment, Inc.
(the "Company"). Each of the Consultant and the Company are also referred to in
this agreement as the "Parties."

     WHEREAS, the Company intends to develop a market for the Company's products
and services offered from time to time by the Company (the "Products and
Services") for potential customers of the Products and Services; and

     WHEREAS, the Consultant is an executive and marketing professional who will
assist the company with its day to day operations and marketing objectives; and

     WHEREAS, the Company desires to utilize the services of the Consultant to
promote and develop a market for the Company's Products and Services; and

     NOW THEREFORE, in consideration of the premises and mutual covenants set
forth in this Agreement, the Parties hereby agree as follows:

     1.             Scope of Services. The Company hereby retains the Consultant
                    to assist the company as an executive advisor to the CEO of
                    the company on an as needed 24/7 basis for mergers,
                    acquisitions, meetings, conventions, and travel, and to
                    initiate new contracts and increase sales of the company's
                    products, merchandise and services with distributors,
                    licensing companies, major labels, productions facilities,
                    attorneys, and all other opportunities and assignments given
                    to him by the company's Chief Executive Officer.

     2.             Term. This Agreement shall become effective as of the date
                    set forth on the signature page of this Agreement, and shall
                    continue for a period of (3) years (the "Term").
                    Notwithstanding the foregoing, the Company or the Consultant
                    shall be entitled to terminate this Agreement for "cause"
                    upon 90 days' written notice, which written notice shall be
                    effective upon mailing by first class mail accompanied by
                    facsimile transmission to the Consultant at the address and
                    telecopier number last provided by the Consultant to the
                    Company. "Cause" shall be determined solely as to the
                    violation of any rule or regulation of any regulatory
                    agency, and other neglect, act or omission detrimental to
                    the conduct of Company or the Consultant's business,
                    material breach of this Agreement or any unauthorized
                    disclosure of any of the secrets or confidential information
                    of Company, and dishonesty related to independent contractor
                    status.

     3.             Compensation; Grant of Stock Option. In consideration for
                    the services to be provided by the Consultant to the Company
                    under the terms of this Agreement, the Company agrees to
                    grant to the Consultant upon the execution of this Agreement

          A)   Year One: $200,000.00 or 15 million shares of Raven Moon
               Entertainment Inc. common stock to be registered in a S-8 filing,
               15 million restricted shares of stock to be registered in the

<PAGE>

               SB-2and a non-qualified stock option (the "Option") to purchase
               up to the number of shares (the "Shares") of the Company's common
               stock (the "Common Stock") as set forth below, which shall vest
               and be exercisable at the prices and on the terms set forth
               below:

                    1)   30,000,000 shares of common stock @ a 50% discount from
                         the closing "bid" price for the ten (10) trading days
                         immediately preceding the date of exercise of the
                         option.

                    2)   10% Gross Commission on any sales of Merchandise and
                         Products sold by the company from any deal approved by
                         the company that was initiated, arranged and closed on
                         by Marc Jablon during the term of this Agreement.

          B)   Year Two: $250,000 of S-8 stock based upon the average closing
               share price for the previous 10 trading days from the end of the
               term; 10% Gross Commission on any sales of Merchandise and
               Products sold by the company from any deal approved by the
               company that was initiated, arranged and closed on by Marc Jablon
               during the term of this Agreement.

          C)   Year Three: $300,000 or S-8 stock based upon the average closing
               share price for the previous 10 trading days from the end of the
               term 10% Gross Commission on any sales of Merchandise and
               Products sold by the company from any deal approved by the
               company that was initiated, arranged and closed on by Marc Jablon
               during the term of this Agreement.

     Exercise Price per Share: 50% of the average of the closing "bid" price for
the ten (10) trading days immediately preceding the date of exercise of the
option.

     Floor Price: In no event may any Option Shares be exercised or purchased
for a price less than $0.01 per share.

     Expiration of Options: Any options that remain unexercised as of the
termination of this Agreement or the expiration of the Term shall automatically
and immediately expire and no longer be of any force or effect.

Detailed terms of the Option shall be set forth in the form of Non-Qualified
Stock Option Agreement between the Company and the Consultant, substantially in
the form attached as Exhibit A to this Agreement. The Company agrees to register
the Shares promptly after signing of this agreement for resale under the
Securities Act of 1933, as amended, pursuant to a registration statement filed
with the Securities and Exchange Commission on Form S-8 (or, if Form S-8 is not
then available, such other form of registration statement available), pursuant
to the terms of such registration set forth in the Non-Qualified Stock Option
Agreement.

     5. Confidentiality. The Consultant covenants that all information
concerning the Company, including proprietary information, which it obtains as a
result of the services rendered pursuant to this Agreement shall be kept
confidential and shall not be used by the Consultant except for the direct
benefit of the Company nor shall the confidential information be disclosed by
the Consultant to any third party without the prior written approval of the
Company, provided, however, that the Consultant shall not be obligated to treat

                                       2

<PAGE>

as confidential, or return to the Company copies of any confidential information
that (i) was publicly known at the time of disclosure to Consultant, (ii)
becomes publicly known or available thereafter other than by any means in
violation of this Agreement or any other duty owed to the Company by the
Consultant, or (iii) is lawfully disclosed to the Consultant by a third party.

     6. Independent Contractor. The Consultant and the Company hereby
acknowledge that the Consultant is an independent contractor. The Consultant
agrees not to hold himself out as, nor shall he take any action from which
others might reasonably infer that the Consultant is a partner or agent of, or a
joint venturer with the Company. In addition, the Consultant shall take no
action, which, to the knowledge of the Consultant, binds, or purports to bind,
the Company to any contract or agreement.

     7. Miscellaneous.

          (a) Entire Agreement. This Agreement contains the entire agreement
     between the Parties, and may not be waived, amended, modified or
     supplemented except by agreement in writing signed by the Party against
     whom enforcement of any waiver, amendment, modification or supplement is
     sought. Waiver of or failure to exercise any rights provided by this
     Agreement in any respect shall not be deemed a waiver of any further or
     future rights.

          (b) Governing Law. This Agreement shall be construed under the
     internal laws of the State ofFlorida, and the Parties agree that the
     exclusive jurisdiction for any litigation or arbitration arising from this
     Agreement shall be in Orlando, FL.

          (c) Successors and Assigns. This Agreement shall be binding upon the
     Parties, their successors and assigns, provided, however, that the
     Consultant shall not permit any other person or entity to assume these
     obligations hereunder without the prior written approval of the Company,
     which approval shall not be unreasonably withheld and written notice of the
     Company's position shall be given within ten (10) days after approval has
     been requested.

          (d) Counterparts. This Agreement may be executed in two or more
     counterparts, each of which shall be deemed an original, but which when
     taken together shall constitute one agreement.

          (e) Severability. If one or more provisions of this Agreement are held
     to be unenforceable under applicable law, such provision(s) shall be
     excluded from this Agreement and the balance of this Agreement shall be
     interpreted as if such provision were excluded and shall be enforceable in
     accordance with its terms.

                            (Signature Page Follows)

                                       3

<PAGE>

     IN WITNESS WHEREOF, the Parties hereto have executed or caused this
Agreement to be executed as of the date set forth below.

Date:                                       CONSULTANT:
       ----------------

                                            /s/
                                            -----------------------------------
                                                 Marc Jablon

                                            Address for Notices:

                                            Use home address

                                            COMPANY:

                                            Raven Moon Entertainment, Inc.

                                            By:  /s/
                                               --------------------------------
                                                      Joey DeFrancesco, CEO

                                       4

<PAGE>

                                    EXHIBIT A
                                    ---------

                                     FORM OF
                      NON-QUALIFIED STOCK OPTION AGREEMENT

     THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is between
Marc Jablon (the "Grantee") and Raven Moon Entertainment, Inc. (the "Company").
Each of the Grantee and the Company are also referred to in this agreement as
the "Parties."

     WHEREAS, the Board of Directors of the Company (the "Board of Directors")
has authorized the grant to the Grantee, for services to be rendered by the
Grantee as a consultant to the Company pursuant to the terms of a Consulting and
Marketing License Agreement of even date herewith (the "Consulting Agreement")
between the Company and the Grantee, of a non-qualified stock option (the
"Option") to purchase up to the number of shares of the Company's common stock
(the "Common Stock") specified in paragraph 1 of this Agreement, at the prices
specified in paragraph 1 of this Agreement.

     NOW THEREFORE, in consideration of the premises and mutual covenants set
forth in this Agreement, the Parties hereby agree as follows:

     1. Number of Shares; Exercise Price. Pursuant to action taken by the Board
of Directors, the Company hereby grants to the Grantee, in consideration of
consulting services to be performed for the benefit of the Company pursuant to
the Consulting Agreement, an option ("Option") to purchase the number of shares
("Option Shares") of the Company's Common Stock set forth below, at the exercise
price and terms set forth below:

     Number of Shares: _____shares in total Exercise Price per Share: 50% of the
average of the closing "bid" price for the ten (10) trading days immediately
preceding the date of exercise of the option.

     Expiration of Options: Any options that remain unexercised as of the
termination of this Agreement shall automatically and immediately expire and no
longer be of any force or effect.

     2. Term. The Options and this Agreement shall expire one year from the date
of this Agreement.

     3. Shares Subject To Exercise. The Option shall be exercisable and shall
remain exercisable as set forth in Paragraph 1 of this Agreement.

     4. Method and Time of Exercise. The Option may be exercised as to vested
Option Shares in whole or in part by written notice delivered to the Company
stating the number of Option Shares with respect to which the Option is then
being exercised, together with a check and/or a wire transfer made payable to
the Company in the amount equal to the Exercise Price multiplied by the number
of Option Shares then being issued pursuant to the written notice of exercise,
plus the amount of applicable federal, state and local withholding taxes,
provided, however, that such taxes may be satisfied by the withholding of Option
Shares then issuable upon the exercise of the Option pursuant to paragraph 5 of
this Agreement. Not less than one hundred (100) Option Shares may be purchased
upon exercise of the Option at any one time unless the number of Option Shares

<PAGE>

for which exercise of the Option is being made is all of the Option Shares then
issuable upon exercise of the Option. Only whole shares shall be issued upon
exercise of the Option.

     5. Tax Withholding. As a condition to exercise of the Option, the Company
may require the Grantee to pay to the Company all applicable federal, state and
local taxes which the Company is required to withhold with respect to the
exercise of the Option.

     6. Transferability. The Option and this Agreement may not be assigned or
transferred except by will or by the laws of descent and distribution, and with
prior written consent of the Company.

     7. Grantee Not a Shareholder. The Grantee shall have no rights as a
shareholder with respect to the Option Shares issued from time to time upon
exercise of the Option until the earlier of: (1) the date of issuance of a stock
certificate or stock certificates to the Grantee applicable to the Option Shares
then issuable to the Grantee upon exercise of the Option and (2) the date on
which the Grantee or his nominee is recorded as owner of such Option Shares on
the Company's stock ledger by the Company's registrar and transfer agent, which
may be the Company. Except as set forth in paragraph 12 of this Agreement, no
adjustment will be made for dividends or other rights for which the record date
is prior to the earlier of the events described in clauses (1) and (2) of this
paragraph.

     8. Restrictions on Transfer. The Grantee represents and agrees that, upon
the Grantee's exercise of the Option, in whole or in part, unless there is in
effect at that time under the Securities Act of 1933 a registration statement
relating to the Option Shares, the Grantee will acquire the Option Shares for
the purpose of investment and not with a view to their resale or further
distribution, and that upon such exercise hereof, the Grantee will furnish to
the Company a written statement to such effect, satisfactory to the Company in
form and substance.

     9. Shares Qualified for Listing. Company represents that its Common Stock
is qualified for trading or quotation on a nationally recognized securities
exchange or stock quotation system, including, the NASDAQ Bulletin Board.

     10. Registration Rights. Promptly after this Agreement has been fully
signed, the Company shall, at the Company's expense, file with the Securities
and Exchange Commission ("SEC") a registration statement ("Registration
Statement") on Form S-8, or if such form is not then available, such other form
of registration statement then available, in such form as to comply with
applicable federal and state laws for the purpose of registering or qualifying
the Option Shares for public resale by the Consultant.

     11. Notices. All notices to the Company shall be addressed to the Company
at the principal office of the Company at the address and facsimile number set
forth on the signature page of this Agreement, and all notices to the Grantee
shall be addressed to the Grantee at the address and facsimile number of the
Grantee set forth on the signature page of this Agreement or, if different, the
last address and facsimile number on file with the Company, or to such other
address and facsimile number as either may designate to the other in writing. A
notice shall be deemed to be duly given if and when enclosed in a properly
addressed sealed envelope deposited, postage prepaid and followed by facsimile
to the addressee. In lieu of giving notice by mail as aforesaid, written notices
under this Agreement may be given by personal delivery to the Grantee or to the
Company (as the case may be) by nationally recognized courier or overnight
delivery service.

                                       2

<PAGE>

     12. Adjustments. If there is any change in the capitalization of the
Company after the date of this Agreement affecting in any manner the number of
kind of outstanding shares of Common Stock of the Company, whether by stock
dividend, stock split, reclassification or recapitalization of such stock, or
because the Company has merged or consolidated with one or more other
corporations (and provided the Option does not thereby terminate pursuant to
paragraph 13 of this Agreement), then the number and kind of shares then subject
to the Option and the exercise price to be paid for the Option Shares shall be
appropriately adjusted by the Board of Directors; provided however, that in no
event shall any such adjustment result in the Company being required to sell or
issue any fractional shares. Any such adjustment shall be made without change in
the aggregate exercise price applicable to the unexercised portion of the
Option, but with an appropriate adjustment to the exercise price of each Option
Share or other unit of security then covered by the Option and this Agreement.

     13. Cessation of Corporate Existence. Notwithstanding any other provision
of this Agreement, in the event of the reorganization, merger or consolidation
of the Company with one or more corporations as a result of which the Company is
not the surviving corporation, or the sale of substantially all the assets of
the Company or of more than fifty percent (50%) of the then outstanding stock of
the Company to another corporation or other entity in a single transaction, the
Option grated hereunder shall terminate, provided however, that not later than
five (5) days before the effective date of such merger or consolidation or sale
of assets in which the Company is not the surviving corporation, the surviving
corporation may, but shall not be so obligated to, tender to the Grantee an
option to purchase a number of shares of capital stock of the surviving
corporation equal to the number of Option Shares then issuable upon exercise of
the Option, and such new option or options for shares of the surviving
corporation shall contain such terms, conditions and provisions as shall be
required substantially to preserve the rights and benefits of the Option and
this Agreement.

                                       3

<PAGE>

     14. Miscellaneous.

          (a) Entire Agreement. This Agreement and the Consulting Agreement
     contain the entire agreement between the Parties and may not be waived,
     amended, modified or supplemented except by agreement in writing signed by
     the Party against whom enforcement of any waiver, amendment, modification
     or supplement is sought. Waiver of or failure to exercise any rights
     provided by this Agreement and the Consulting Agreement in any respect
     shall not be deemed a waiver of any further or future rights.

          (b) Governing Law. This Agreement shall be construed under the
     internal laws of the State of Florida, and the Parties agree that the
     exclusive jurisdiction for any litigation or arbitration arising from this
     Agreement shall be in Orlando, FL

          (c) Counterparts. This Agreement may be executed in two or more
     counterparts, each of which shall be deemed an original, but which when
     taken together shall constitute one agreement.

          (d) Severability. If one or more provisions of this Agreement are held
     to be unenforceable under applicable law, such provision(s) shall be
     excluded from this Agreement and the balance of this Agreement shall be
     interpreted as if such provision were excluded and shall be enforceable in
     accordance with its terms.

                            (Signature Page Follows)

                                       4

<PAGE>

     IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of
the date set forth below.

Date:                                       OPTIONEE:
       ----------------

                                            -----------------------------------
                                            Marc Jablon

                                            Address for Notices:
                                            HOME

                                            COMPANY:

                                            Raven Moon Entertainment, Inc.

                                            By:________________________________
                                                  Joey DeFrancesco, CEO

                                            Address for Notices:

                                       5

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