<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TIER TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
CALIFORNIA 7373 94-3145844
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
---------------
1350 TREAT BOULEVARD, SUITE 250
WALNUT CREEK, CALIFORNIA 94596
(510) 937-3950
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
JAMES L. BILDNER, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
TIER TECHNOLOGIES, INC.
1350 TREAT BOULEVARD, SUITE 250
WALNUT CREEK, CALIFORNIA 94596
(510) 937-3950
(Name, Address, Including Zip Code and Telephone Number, Including Area Code,
of Agent for Service)
---------------
Copies to:
MORGAN P. GUENTHER, ESQ. D. BRADLEY PECK, ESQ.
BRUCE R. DEMING, ESQ. NANCY E. DENYES, ESQ.
MARIA L. PIZZOLI, ESQ. MICAELA MARTIN, ESQ.
FARELLA BRAUN & MARTEL LLP COOLEY GODWARD LLP
235 MONTGOMERY STREET 4365 EXECUTIVE DRIVE, SUITE 1100
SAN FRANCISCO, CALIFORNIA 94104 SAN DIEGO, CALIFORNIA 92121
(415) 954-4400 (619) 550-6000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
REGISTERED REGISTERED (1) PER SHARE (2) (2) FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Common Stock, no
par value per share... 3,910,000 $12.00 $46,920,000 $14,218.18
===================================================================================
</TABLE>
(1) Includes 510,000 shares that the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating
the amount of the registration fee.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIESMAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUYNOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1997
3,400,000 SHARES
TIER TECHNOLOGIES, INC.
CLASS B COMMON STOCK
-----------
Of the 3,400,000 shares of Class B Common Stock offered hereby, 2,725,000
shares are being sold by the Company and 675,000 shares are being sold by the
Selling Shareholders. See "Principal and Selling Shareholders." The Company
will not receive any of the proceeds from the sale of the shares by the Selling
Shareholders.
The capital stock of the Company consists of Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"). The two classes are
substantially identical, except that the Class A Common Stock is entitled to
ten votes per share on all matters and the Class B Common Stock is entitled to
one vote per share on all matters, and each share of Class A Common Stock is
convertible into one share of Class B Common Stock and converts automatically
upon a transfer, except for certain limited permitted transfers. Holders of the
Class B Common Stock, voting as a separate class, are entitled to elect two of
the currently authorized five Directors of the Company, and holders of the
Class A and Class B Common Stock, voting together as a single class, are
entitled to elect three Directors. See "Principal and Selling Shareholders" and
"Description of Capital Stock."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $10.00 and $12.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Class B Common Stock has been approved for quotation and
trading, subject to official notice of issuance, on the Nasdaq National Market
under the symbol "TIER."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS B COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================
UNDERWRITING PROCEEDS
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO COMMISSIONS TO SHAREHOLDERS
PUBLIC (1) COMPANY (2) (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
- --------------------------------------------------------------------------------
Total (3)........................ $ $ $ $
================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company and the Selling
Shareholders, estimated at $1,141,000 and $284,000, respectively.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 510,000 shares of Class B Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Class B Common Stock are offered by the several Underwriters,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the shares of
Class B Common Stock will be made at the offices of Adams, Harkness & Hill,
Inc., Boston, Massachusetts, on or about , 1997.
ADAMS, HARKNESS & HILL, INC. NATIONSBANC MONTGOMERY SECURITIES, INC.
The date of this Prospectus is , 1997.
<PAGE>
[Graphic: A representation of Tier's services and how they facilitate the
migration of
clients' enterprise-wide systems and applications to leading edge
technologies.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS B COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Tier Technologies is a registered service mark of the Company. All trademarks
and trade names referred to in this Prospectus are the property of their
respective owners.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Investors should carefully consider the
risk factors related to the purchase of Class B Common Stock of the Company.
See "Risk Factors."
THE COMPANY
Tier Technologies, Inc. ("Tier" or the "Company") provides information
technology ("IT") consulting, application development and software engineering
services that facilitate the migration of clients' enterprise-wide systems and
applications to leading edge technologies. To adapt to change and remain
competitive, large corporations and government entities have sought to harness
their intellectual and informational capital by investing in advanced IT
systems. The Tier Migration Solution is a methodology developed to evaluate or
"score" the efficacy of a client's existing embedded IT capital. This approach
allows the Company to supplement and replace IT systems incrementally, preserve
viable components of the framework and integrate advanced technologies to meet
the client's specific business needs.
Applying the Tier Migration Solution, the Company first assesses a client's
existing business processes and defines the scope of the project, including a
determination of the client's expectations for quantifiable business
improvement. The Company then analyzes the client's existing IT system to
determine which areas would benefit the most from the application of new
technologies. When this assessment is completed, Tier develops a specific IT
strategy that uses a system architecture consistent with the client's existing
environment. Tier then implements the recommended IT strategy. The Company
applies the Tier Migration Solution to all client projects in combination with
a formal internal risk assessment program that enables the Company to manage
and benchmark projects on an on-going basis.
Through its seven offices located in the United States, the United Kingdom
and Australia, the Company works closely with its clients to determine,
evaluate and implement an IT strategy that allows the Company to rapidly adopt,
deploy and transfer emerging technologies in a cost-effective manner. Tier
combines its significant understanding of enterprise-wide IT systems with
expertise in vertical industries, such as healthcare, financial services and
government services, to provide clients with rapid and flexible migration
solutions. The Company's clients consist primarily of Fortune 1000 companies
with information-intensive businesses and government entities with large volume
information and technology needs, including Kaiser Foundation Health Plan,
Inc., Equifax Europe (UK) Ltd., the State of Missouri and the Commonwealth of
Australia.
The Company seeks to become the leading provider of comprehensive IT
migration solutions to Fortune 1000 companies and large government entities.
The Company's strategy includes the following elements: (i) concentrate on
migration opportunities; (ii) develop strategic partnerships; (iii) pursue
strategic acquisitions; (iv) expand into key vertical markets; (v) expand its
geographic presence; and (vi) attract highly skilled employees. This strategy
has allowed the Company to increase revenues from $11.8 million in the nine
months ended September 30, 1996 to $22.5 million in the nine-month fiscal year
ended September 30, 1997. The Company's workforce has grown from 54 on January
1, 1995 to 231 on September 30, 1997.
From December 1996 through September 1997, Tier acquired five IT service
providers for a total cost of $2.7 million, excluding future contingent
payments, to broaden its client base, acquire additional technical expertise
and supplement human resources in key vertical markets. These acquisitions have
enabled the Company to gain access to international labor markets and to
compete effectively for highly skilled employees who have particular geographic
preferences.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class B Common Stock offered by:
The Company........................... 2,725,000 shares
The Selling Shareholders.............. 675,000 shares
Common Stock to be outstanding after the
offering(1)............................ 1,639,762 shares of Class A Common Stock
7,156,191 shares of Class B Common Stock
Use of proceeds......................... To retire indebtedness of
approximately $2.9 million and for
working capital and general corporate
purposes.
Proposed Nasdaq National Market symbol.. TIER
</TABLE>
- --------
(1) Excludes 20,000 shares of Class A Common Stock issuable upon the exercise
of outstanding stock options (at an exercise price of $3.58 per share) and
1,713,075 shares of Class B Common Stock issuable upon the exercise of
outstanding stock options (at a weighted average exercise price of $3.94
per share) under the Company's Amended and Restated 1996 Equity Incentive
Plan. See Note 7 of Notes to Consolidated Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE-MONTH
NINE MONTHS FISCAL YEAR
YEAR ENDED DECEMBER 31, ENDED ENDED
--------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1995 1996 1996 1997(1)
------- ------- -------- -------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
INCOME DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $ 3,651 $ 5,597 $ 12,373 $ 16,197 $ 11,790 $ 22,479
Cost of revenues......... 3,026 4,419 9,066 11,616 8,669 14,917
------- ------- -------- -------- -------- --------
Gross profit............. 625 1,178 3,307 4,581 3,121 7,562
Costs and expenses:
Selling and marketing... 37 272 627 975 577 1,836
General and
administrative......... 369 816 1,560 2,574 1,774 4,397
Depreciation and
amortization........... 14 18 45 80 56 274
------- ------- -------- -------- -------- --------
Income from operations... 205 72 1,075 952 714 1,055
Interest income and
expense, net............ 16 17 61 74 50 99
------- ------- -------- -------- -------- --------
Income before income
taxes................... 189 55 1,014 878 664 956
Provision for income
taxes................... - - 570 351 266 384
------- ------- -------- -------- -------- --------
Net income............... $ 189 $ 55 $ 444 $ 527 $ 398 $ 572
======= ======= ======== ======== ======== ========
Net income per share(2).. $ 0.02 $ -- $ 0.04 $ 0.07 $ 0.05 $ 0.08
======= ======= ======== ======== ======== ========
Shares used in computing
net income per
share(2)................ 12,379 13,309 12,441 7,367 7,599 6,977
======= ======= ======== ======== ======== ========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash................................... $ 284 $ 382 $ 24,311
Working capital........................ 2,234 2,332 27,660
Total assets........................... 11,001 11,099 35,017
Total long-term debt, less current
portion............................... 1,608 1,608 82
Total shareholders' equity............. 4,163 4,261 31,116
</TABLE>
- --------
(1) In September 1997, the Company changed its fiscal year end to September 30.
(2) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
(3) Adjusted to give effect to (i) the conversion of the Series A Convertible
Preferred Stock (the "Series A Preferred Stock") into 420,953 shares of
Class B Common Stock; and (ii) the exercise of options to purchase 30,000
shares of Class B Common Stock by certain Selling Shareholders prior to
this offering at an exercise price of $3.25 per share in order to sell such
shares in this offering.
(4) Adjusted to give effect to (i) the sale of 2,725,000 shares of Class B
Common Stock by the Company in this offering at an assumed initial public
offering price of $11.00 per share and the application of the estimated net
proceeds therefrom; and (ii) the repayment of approximately $131,000 of
indebtedness and accrued interest by certain Selling Shareholders.
----------------
Except as otherwise noted, all information in this Prospectus assumes (i) no
exercise of the Underwriters' over-allotment option; (ii) the conversion of the
Company's outstanding Series A Preferred Stock into 420,953 shares of Class B
Common Stock upon the consummation of this offering; (iii) the automatic
conversion of 645,000 shares of Class A Common Stock offered by the Selling
Shareholders into shares of Class B Common Stock upon the sale thereof pursuant
to the Company's Amended and Restated Articles of Incorporation (the
"Articles"); and (iv) the exercise of options to purchase 30,000 shares of
Class B Common Stock by certain Selling Shareholders prior to this offering in
order to sell such shares in this offering. This Prospectus contains forward-
looking statements which involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
5
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information in this Prospectus before purchasing the Class B Common
Stock offered by this Prospectus. Except for the historical information
contained herein, the discussion in this Prospectus contains certain forward-
looking statements that involve risks and uncertainties. When used in this
Prospectus, the words "believes," "expects," "anticipates," "intends,"
"estimates," "should," "will likely" and similar expressions are intended to
identify such forward-looking statements. The cautionary statements made in
this Prospectus should be read as being applicable to all related forward-
looking statements wherever they appear in this Prospectus. The Company's
actual results could differ materially from those discussed here. Important
factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere herein.
Variability of Quarterly Operating Results. The Company's revenues and
operating results are subject to significant variation from quarter to quarter
due to a number of factors, including the number, size and scope of projects
in which the Company is engaged; the contractual terms and degree of
completion of such projects; competitive pressures on pricing of the Company's
services; any delays incurred in connection with, or early termination of, a
project; employee utilization rates; the adequacy of provisions for losses;
the accuracy of estimates of resources required to complete ongoing projects;
demand for the Company's services generated by strategic partnerships and
certain prime contractors; the Company's ability to increase both the number
and size of engagements from existing clients; and economic conditions in the
vertical and geographic markets served by the Company. Due to the relatively
long sales cycles for the Company's services in the government services
market, the timing of revenue is difficult to forecast. In addition, the
achievement of anticipated revenues is substantially dependent on the
Company's ability to attract, on a timely basis, and retain skilled personnel.
A high percentage of the Company's operating expenses, particularly personnel
and rent, are fixed in advance. Changes in the number, scope, duration or
progress toward completion, of the Company's projects or in employee
utilization rates would cause significant variations in operating results in
any particular quarter. In addition, the Company typically reaches the annual
limitation on its FICA contributions for many of its consultants before the
end of the calendar year. As a result, payroll taxes as a component of cost of
sales will vary from quarter to quarter during the fiscal year and will
generally be higher at the beginning of the calendar year. Therefore, the
Company believes that period-to-period comparisons of its operating results
are not necessarily meaningful, should not be relied upon as indications of
future performance and may result in volatility in the price of the Class B
Common Stock. Due to the foregoing factors, among others, the Company's
operating results will from time to time be below the expectations of the
analysts and investors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Customer Concentration; Dependence on Large Projects. The Company has
derived, and believes that it will continue to derive, a significant portion
of its revenues from a limited number of large client projects. For the nine-
month fiscal year ended September 30, 1997, the State of Missouri, Kaiser
Foundation Health Plan, Inc. ("Kaiser") and Unisys Corporation ("Unisys")
accounted for 22.3%, 21.1% and 19.7% of the Company's revenues, respectively.
Kaiser accounted for 57.6% and 68.1% of the Company's revenues in 1996 and
1995, respectively, while Unisys accounted for 14.4% of the Company's revenues
in 1996. The volume of work performed for specific clients is likely to vary
from year to year, and a major client in one year may not use the Company's
services in a subsequent year. Most of the Company's contracts are terminable
by the client following limited notice and without significant penalty to the
client. The completion, cancellation or significant reduction in the scope of
a large project could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
amount of the Company's services required by any of its clients can be
adversely affected by a number of factors, including technological
developments and the internal budget cycles of such clients. As a result of
the Company's focus in specific vertical markets, economic and other
conditions that affect
6
<PAGE>
these industries could lead to a reduction in capital spending on IT projects,
government spending cuts or general budgetary constraints, any of which would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business - Clients."
Need to Attract and Retain Professional Staff. The Company's success will
depend in large part upon its ability to attract, retain, train, manage and
motivate skilled employees, particularly project managers and other senior
technical personnel. There is significant competition for employees with the
skills required to perform the services the Company offers. In particular,
qualified project managers and senior technical and professional staff are in
great demand worldwide and competition for such persons is likely to increase.
In addition, the Company requires that a significant number of its employees
travel to client sites to perform services on its behalf, which may make a
position with the Company less attractive to potential employees. There can be
no assurance that a sufficient number of skilled employees will continue to be
available to the Company, or that the Company will be successful in training,
retaining and motivating current or future employees. The Company's inability
to attract, retain and train skilled employees or failure of its employees to
achieve expected levels of performance could impair the Company's ability to
adequately manage and staff its existing projects and to bid for or obtain new
projects, which would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business - Human
Resources."
Dependence on Key Personnel. The Company's success will depend in large part
upon the continued services of a number of key employees, including its Chief
Executive Officer and Chairman of the Board of Directors, James L. Bildner,
and its President and Chief Operating Officer, William G. Barton. The loss of
the services of either of Messrs. Bildner or Barton or of one or more of the
Company's other key personnel could have a material adverse effect on the
Company's business. Although the Company has entered into employment
agreements with each of Messrs. Bildner and Barton, either of them may
terminate their employment agreement at any time. If one or more of the
Company's key employees resigns from the Company to join a competitor or to
form a competing company, the loss of such personnel and any resulting loss of
existing or potential clients to any such competitor could have a material
adverse effect on the Company's business, financial condition and results of
operations. In the event of the loss of any such personnel, there can be no
assurance that the Company would be able to prevent the unauthorized
disclosure or use of its technical knowledge, practices or procedures by such
personnel. See "Business - Intellectual Property Rights" and "Management -
Employment Agreements."
Concentration of Control; Voting Trust. All of the holders of Class A Common
Stock have entered into a voting trust (the "Voting Trust") with respect to
their shares of Class A Common Stock, which represents 69.6% of the Common
Stock voting power after this offering. All power to vote shares held in the
Voting Trust has been vested in the Voting Trust's trustees, Messrs. Bildner
and Barton. As a result, Messrs. Bildner and Barton will be able to control
the outcome of all corporate actions requiring shareholder approval, including
the election of a majority of the Company's directors, proxy contests, mergers
involving the Company, tender offers, open-market purchase programs or other
purchases of Common Stock that could give holders of the Company's Class B
Common Stock the opportunity to realize a premium over the then-prevailing
market price for their shares of Class B Common Stock. The concentration of
voting control could have the effect of delaying or preventing a change in
control of the Company and may affect the market price of the Class B Common
Stock. The holders of the Class A Common Stock also hold a number of shares of
Class B Common Stock that will represent 45.3% of the shares of Class B Common
Stock outstanding after this offering. If such holders vote their shares of
Class B Common Stock as a block, it is likely they will initially be able to
elect all of the directors to be elected solely by the holders of the Class B
Common Stock. In addition, based upon provisions in the Company's Amended and
Restated Bylaws (the "Bylaws") and the concentration of voting control,
Messrs. Bildner and Barton may take certain actions by written consent without
formally convening a meeting of shareholders and without giving all
shareholders prior notice of such actions. See "Description of Capital Stock."
7
<PAGE>
Risks Associated with Rapid Technological Advances. The Company's success
will depend in part on its ability to develop IT solutions that keep pace with
continuing changes in technology, evolving industry standards and changing
client preferences. There can be no assurance that the Company will be
successful in developing such IT solutions in a timely manner or that if
developed the Company will be successful in the marketplace. Delay in
developing or failure to develop new IT solutions would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business - Strategy."
Risks Associated with Possible Acquisitions. A principal component of the
Company's business strategy is to grow by acquiring additional businesses to
expand its presence in new or existing markets. From December 1996 through
September 1997, the Company acquired five businesses. There can be no
assurance that the Company will be able to identify, acquire or profitably
manage additional businesses or to integrate successfully any acquired
businesses into the Company without substantial expense, delay or other
operational or financial problems. Acquisitions may also involve a number of
special risks, including diversion of management's attention, failure to
retain key personnel, amortization of acquired intangible assets, client
dissatisfaction or performance problems with an acquired firm, assumption of
unknown liabilities, or other unanticipated events or circumstances, any of
which could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
any acquired business will achieve anticipated revenues and operating results.
The failure of the Company to manage its acquisition strategy successfully
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Acquisitions," Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business - Strategy."
Management of Growth. The Company's growth has placed, and is expected to
continue to place, significant demands on its management, financial, staffing
and other resources. The Company has expanded geographically by opening new
offices domestically and abroad, and intends to open additional offices. The
Company's ability to manage its growth effectively will require it to continue
to develop and improve its operational, financial and other internal systems,
as well as its business development capabilities, and to train, motivate and
manage its employees. In addition, the Company's future success will depend in
large part upon its ability to continue to estimate project parameters
accurately, to maintain employee utilization rates and project quality and to
meet delivery dates, particularly if the average size and number of the
Company's projects continues to increase. If the Company is unable to manage
its growth and projects effectively, such inability would have a material
adverse effect on the quality of the Company's services, its ability to retain
key personnel, and its business, financial condition and results of
operations. There can be no assurance that the Company's rate of growth will
continue or that the Company will be successful in managing any such growth.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Partnerships. The Company has entered into written arrangements or
understandings with certain technology and service providers pursuant to which
the providers have agreed that the Company is, or will be, the exclusive, or
one of a small number of, preferred systems integrators for that provider's
clients within specific market segments or geographic areas. These
arrangements are typically of limited duration, include broad exceptions to
each party's obligations and are terminable by either party following limited
notice and without significant penalty. Certain of these arrangements contain
provisions whereby the provider agrees to utilize a specified number of the
Company's consultants or agrees to provide the Company with business
opportunities resulting in specified revenues. There can be no assurance that
any of these arrangements will result in the future utilization of the
Company's consultants, additional business opportunities or additional
revenues. There also can be no assurance that any business opportunities that
do result from these arrangements will be on terms ultimately satisfactory or
profitable to the Company. The cancellation or a significant reduction in the
scope of any of these arrangements, or the refusal or inability of a provider
to meet its obligations under the relevant arrangement, would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, in the government services market, the Company often
joins with another organization, such as Unisys, to obtain
8
<PAGE>
engagements. In these engagements, the Company is a subcontractor to the prime
contractor of the engagement. There can be no assurance that actions or
failures attributable to the prime contractor of such engagements will not
also negatively affect the Company's business, financial condition or results
of operations. See "Business - Strategy" and "- Clients."
Project Risks. Many of the Company's engagements involve projects which are
critical to the operations of its clients' businesses and provide benefits
that may be difficult to quantify. The failure of the Company, or of the prime
contractor on an engagement in which the Company is a subcontractor, to meet a
client's expectations in the performance of its services could damage the
Company's reputation and adversely affect its ability to attract new business,
and could have a material adverse effect upon its business, financial
condition and results of operations. The Company has undertaken, and may in
the future undertake, projects in which the Company guarantees performance
based upon defined operating specifications or guaranteed delivery dates.
Unsatisfactory performance or unanticipated difficulties or delays in
completing such projects may result in client dissatisfaction and a reduction
in payment to, or payment of damages (as a result of litigation or otherwise)
by, the Company, which could have a material adverse effect upon its business,
financial condition and results of operations. In addition, unanticipated
delays could necessitate the use of more resources than initially budgeted by
the Company for a particular project, which also could have a material adverse
effect upon its business, financial condition and results of operations. Any
failure in a client's system could result in a claim for substantial damages
against the Company, regardless of the Company's responsibility for such
failure. There can be no assurance that the limitations of liability set forth
in the Company's service contracts will be enforceable or will otherwise
protect the Company from liability for damages. Although the Company maintains
general liability insurance coverage, including coverage for errors or
omissions, there can be no assurance that such coverage will continue to be
available on reasonable terms, will be available in sufficient amounts to
cover one or more claims or that the insurer will not disclaim coverage as to
any future claim. The successful assertion of one or more claims against the
Company that exceed available insurance coverage or changes in the Company's
insurance policies, including premium increases or the imposition of large
deductible or co-insurance requirements, would adversely affect the Company's
business, financial condition and results of operations. See "Business -
Representative Engagements" and "- Clients."
Reliance on Government Contracts. For the nine-month fiscal year ended
September 30, 1997, 45.1% of the Company's revenues were derived from sales to
government agencies. A significant reduction in government funds available for
agencies or departments to which Tier supplies IT services, either due to
budget cuts or the imposition of budgetary constraints, or a determination by
the particular federal, state or foreign government that funding of such
agencies or departments should be reduced or discontinued, would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the loss of a major government client, or
any significant reduction or delay in orders by such client, would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business - Sales and Marketing" and "- Clients."
Fixed Price Contracts. During fiscal 1996 and the nine-month fiscal year
ended September 30, 1997, 1.4% and 12.4%, respectively, of the Company's
revenues were generated on a fixed price basis, rather than on a time and
materials basis. The Company's failure to estimate accurately the resources
required for a fixed price project or its failure to complete its contractual
obligations in a timely manner consistent with the project plan upon which its
fixed price contract is based could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, the Company may establish prices before project design
specifications are finalized, which could result in a fixed price that proves
to be too low and therefore adversely affects the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Competition. The IT services market is highly competitive and is served by
numerous international, national and local firms. Market participants include
systems consulting and integration firms, including national accounting firms
and related entities, the internal information systems groups of its
prospective
9
<PAGE>
clients, professional services companies, hardware and application software
vendors, and divisions of large integrated technology companies and
outsourcing companies. Many of these competitors have significantly greater
financial, technical and marketing resources, generate greater revenues and
have greater name recognition than the Company. In addition, there are
relatively low barriers to entry into the IT services market, and the Company
has faced, and expects to continue to face, additional competition from new
entrants into the IT services market.
The Company believes that the principal competitive factors in the IT
services market include reputation, project management expertise, industry
expertise, speed of development and implementation, technical expertise,
competitive pricing, and the ability to deliver results on a fixed price as
well as a time and materials basis. The Company believes that its ability to
compete also depends in part on a number of competitive factors outside its
control, including the ability of its clients or competitors to hire, retain
and motivate project managers and other senior technical staff; the ownership
by competitors of software used by potential clients; the price at which
others offer comparable services; the ability of its clients to perform the
services themselves; and the extent of its competitors' responsiveness to
client needs. There can be no assurance that the Company will be able to
compete effectively on pricing or other requirements with current and future
competitors or that competitive pressures will not cause the Company's
revenues or income to decline or otherwise materially adversely affect its
business, financial condition and results of operations. See "Business -
Competition."
Intellectual Property Rights. The Company relies on a combination of trade
secrets, nondisclosure and other contractual arrangements, and copyright and
trademark laws to protect its intellectual property rights. The Company enters
into confidentiality agreements with its employees, generally requires that
its consultants and clients enter into such agreements and limits access to
its proprietary information. There can be no assurance that the steps taken by
the Company in this regard will be adequate to avoid the loss or
misappropriation of its proprietary information, or that the Company will able
to detect unauthorized use of such information and take appropriate steps to
enforce its intellectual property rights.
A portion of the Company's business involves the development of software
applications for specific client engagements. Ownership of such software is
the subject of negotiation with each particular client and is typically
assigned to the client. The Company also develops software application
frameworks, and may retain ownership or marketing rights to these application
frameworks, which may be adapted through further customization for future
client projects. Certain clients have prohibited the Company from marketing
the software and application frameworks developed for them entirely or for
specified periods of time or to specified third parties, and there can be no
assurance that clients will not demand similar or other restrictions in the
future. Issues relating to the ownership of and rights to use software and
application frameworks can be complicated, and there can be no assurance that
disputes will not arise that affect the Company's ability to resell or reuse
such software and application frameworks.
Although the Company believes that its services and products do not infringe
on the intellectual property rights of others, there can be no assurance that
such a claim will not be asserted against the Company in the future, or that
if asserted, any such claim will be successfully defended. See "Business -
Intellectual Property Rights."
International Operations. International operations in Australia and the
United Kingdom accounted for 13.7% of the Company's total revenues for the
nine-month fiscal year ended September 30, 1997. In addition, a significant
portion of the Company's sales are to large multinational companies. To meet
the needs of such companies, both domestically and internationally, the
Company must provide worldwide services, either directly or indirectly. As a
result, the Company intends to expand its existing international operations
and enter additional international markets, which will require significant
management attention and financial resources and could adversely affect the
Company's operating margins and earnings. In order to expand international
operations, the Company will need to hire additional personnel and develop
relationships with potential international clients through acquisition or
otherwise. To the extent that the
10
<PAGE>
Company is unable to do so on a timely basis, any growth of the Company in
international markets would be limited, and the Company's business, financial
condition and results of operations would be materially and adversely
affected.
The Company's international business operations are subject to a number of
risks, including, but not limited to, difficulties in building and managing
foreign operations, enforcing agreements and collecting receivables through
foreign legal systems, longer payment cycles, fluctuations in the value of
foreign currencies and unexpected regulatory, economic or political changes in
foreign markets. The Company does not currently engage in hedging
transactions. There can be no assurance that these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Shares Eligible for Future Sale. Sales of substantial amounts of Class B
Common Stock in the public market following this offering could have a
material adverse effect on the market price of the Class B Common Stock. The
3,400,000 shares of Class B Common Stock offered hereby will be freely
tradable without restriction under the Securities Act of 1993, as amended (the
"Securities Act"). Each of the Selling Shareholders, who will, upon the
closing of the offering, hold an aggregate of 779,762 shares of Class A Common
Stock and 2,288,572 shares of Class B Common Stock, and options to purchase a
total of 410,000 shares of Class B Common Stock, has agreed that they will not
offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock for 365 days after the date of this Prospectus, subject to certain
exceptions. Each executive officer, director, current shareholder or optionee,
other than the Selling Shareholders, who will, upon the closing of this
offering, hold an aggregate of 860,000 shares of Class A Common Stock and
1,467,619 shares of Class B Common Stock and options to purchase a total of
20,000 shares of Class A Common Stock and a total of 1,303,075 shares of Class
B Common Stock, has agreed that they will not offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock owned beneficially by them for
a period of 180 days after the date of this Prospectus, subject to certain
exceptions. To the extent that a significant portion of such shares are sold
by the holders thereof, such sales may adversely affect the market price of
the Class B Common Stock. Pursuant to an agreement between the Company and the
holders of 420,953 shares of Class B Common Stock, such holders are entitled
to certain demand and piggyback registration rights with respect to such
shares. If such holders, by exercising their demand registration rights, cause
a large number of shares to be registered and sold in the public market, such
sales could have an adverse effect on the market price for the Class B Common
Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. After completion of this offering,
the Company intends to file a Form S-8 registration statement under the
Securities Act to register all shares of Class B Common Stock issuable under
the Company's Amended and Restated 1996 Equity Incentive Plan and the Employee
Stock Purchase Plan. See "Description of Capital Stock - Registration Rights"
and "Shares Eligible for Future Sale."
Unspecified Use of Proceeds. The principal purposes of this offering are to
increase the Company's working capital and financial flexibility, to repay
certain indebtedness, to facilitate future access by the Company to public
equity markets and to provide increased visibility, credibility and name
recognition for the Company in a marketplace where many of its competitors are
publicly held companies. The Company has not yet identified specific uses for
a majority of the net proceeds, and, pending such uses, the Company expects
that it will invest such net proceeds in short-term, interest-bearing
investment-grade securities. Accordingly, the Company's management will have
broad discretion as to the use of such net proceeds without any action or
approval of the Company's shareholders. See "Use of Proceeds."
No Prior Public Market; Potential Volatility of Stock Price. Prior to this
offering there has been no public market for the Class B Common Stock. There
can be no assurance that an active public market for the Class B Common Stock
will develop after this offering or that the market price of the Class B
Common Stock will not decline below the initial public offering price.
11
<PAGE>
The market for securities of early stage companies has been highly volatile
in recent years as a result of factors often unrelated to a company's
operations. Factors such as quarterly variations in operating results,
announcements of technological innovations or new products or services by the
Company or its competitors, general conditions in the IT industry or the
industries in which Tier's clients compete, changes in earnings estimates by
securities analysts and general economic conditions such as recessions or high
interest rates could contribute to the volatility of the price of the Class B
Common Stock and could cause significant fluctuations. Further, in the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against the
issuing company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Any adverse determination in such litigation could also subject
the Company to significant liabilities. There can be no assurance that such
litigation will not be instituted in the future with respect to the Company.
Issuance of Preferred Stock. The Board of Directors has the authority to
issue Preferred Stock and to determine the preferences, limitations and
relative rights of shares of Preferred Stock and to fix the number of shares
constituting any series and the designation of such series, without any
further vote or action by the Company's shareholders. The Preferred Stock
could be issued with voting, liquidation, dividend and other rights superior
to the rights of the Class B Common Stock. The potential issuance of Preferred
Stock may delay or prevent a change in control of the Company, discourage bids
for the Class B Common Stock at a premium over the market price and adversely
affect the market price and the voting and other rights of the holders of the
Common Stock. See "Description of Capital Stock - Preferred Stock."
Dilution. Based on an assumed initial public offering price of $11.00 per
share, investors who purchase shares of Class B Common Stock in this offering
will incur immediate dilution in pro forma net tangible book value of $7.66
per share. See "Dilution."
No Dividends. The Company has never declared or paid cash dividends on its
capital stock and does not anticipate paying any cash dividends in the
foreseeable future. See "Dividend Policy."
12
<PAGE>
THE COMPANY
Tier was incorporated in the State of California in 1991. The Company
maintains its principal executive offices at 1350 Treat Boulevard, Suite 250,
Walnut Creek, California 94596. The Company's telephone number is (510) 937-
3950.
ACQUISITIONS
From December 1996 through September 1997, the Company made five strategic
acquisitions for a total cost of $2.7 million, excluding future contingent
payments, all of which were structured and accounted for as asset purchases.
On December 16, 1996, the Company acquired certain assets and liabilities of
Chicago Consulting Alliance, LLC ("CCA"). CCA was based in Chicago, Illinois
and provided consulting services for the custom design of software and
computer systems for business applications. The CCA acquisition allowed the
Company to expand its geographic and client base into the Chicago market. The
cost of the acquisition was $170,000.
On December 31, 1996, the Company acquired certain assets and liabilities of
Encore Consulting, Inc. ("Encore"), a Missouri-based corporation, which
provided consulting services for computer systems integration under a
government contract. The Encore acquisition added to Tier's established state
government IT practice. The cost of the acquisition totalled $934,000. A
$150,000 contingent payment is payable by the Company upon the second year's
renewal of this contract.
On January 2, 1997, the Company acquired certain assets and liabilities of
Five Points Consulting, LLC, ("Five Points") which was based in Atlanta,
Georgia. Five Points provided custom designed software and computer systems
for special business applications. Tier acquired Five Points for its
technological expertise with Java, as well as to expand into the southeastern
United States. The cost of the acquisition totalled $284,000.
On March 10, 1997 the Company acquired certain assets and liabilities of
Tangent Group, Pty, Limited, ("Tangent Group") an Australian entity which
provided computer systems consulting services. The Tangent Group acquisition
provided Tier with a local base to support its Australian IT practice and a
foundation for Tier's resource and recruiting needs for a project being
conducted for the Australian federal government. The cost of the acquisition
totalled $488,000. In addition, the Company will pay at least $120,000 in
royalties over the first two-year period following the acquisition. The
royalty is based on 3.0% of the Company's gross revenues generated by its
Australian operations. The maximum amount of royalties to be paid over the
first three-year period is approximately $240,000.
On July 11, 1997, the Company acquired certain assets and liabilities of
Albanycrest Limited, ("Albanycrest"), a United Kingdom private limited
company, which provided information and management consulting services on the
design of software and computer systems. The Albanycrest acquisition added to
Tier's financial services expertise and provided a platform for the expansion
of Tier's international practice into the United Kingdom and Europe. The
purchase price totalled $868,000. Contingent payments of up to $407,000 will
be paid if certain performance criteria are met.
While the Company in the ordinary course of business regularly evaluates and
enters into negotiations relating to potential acquisition opportunities, as
of the date of this Prospectus, there are no existing commitments or
agreements with respect to any future acquisitions.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,725,000 shares of
Class B Common Stock offered by the Company hereby at an assumed initial
public offering price of $11.00 per share, after deducting the estimated
underwriting discounts and estimated offering expenses payable by the Company,
are estimated to be approximately $26.7 million. The Company will not receive
any proceeds from the sale of shares by the Selling Shareholders. See
"Principal and Selling Shareholders."
The Company intends to use approximately $2.9 million of the net proceeds to
repay a portion of its outstanding credit facility. For a description of the
terms of the credit facility, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." The Company intends to use the remaining net proceeds for working
capital and other general corporate purposes. In the normal course of
business, the Company evaluates potential acquisitions of businesses that
would complement or expand the Company's business. A portion of the net
proceeds may be used for one or more such acquisitions, although the Company
has no present commitments or agreements with respect to any such acquisitions
and no portion of the net proceeds has been allocated for any specific
acquisition. Pending such uses, the Company intends to invest the remaining
net proceeds of this offering in investment-grade securities, including short-
term, interest-bearing money market funds.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company's credit facility contains restrictions on the Company's ability
to pay cash dividends. The Company currently intends to retain future
earnings, if any, to fund the development and growth of its business and does
not anticipate paying any cash dividends in the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 on an actual, pro forma and pro forma as adjusted basis.
The capitalization information set forth in the table below is qualified by
the more detailed Consolidated Financial Statements and Notes thereto include
elsewhere in this Prospectus, and should be read in conjunction with such
Consolidated Financial Statements and Notes.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
------ ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt(3)...................... $1,494 $1,494 $ 84
====== ====== =======
Long-term debt, less current
portion(3)............................. $1,608 $1,608 $ 82
------ ------ -------
Shareholders' equity:
Preferred stock, no par value per
share, 5,000,000 shares authorized
and 420,953 shares issued and
outstanding, actual; 4,579,047 shares
authorized and none outstanding, pro
forma and pro forma as adjusted...... 1,892 - -
Class A common stock, no par value,
2,304,762 shares authorized and
2,284,762 shares issued and
outstanding, actual and pro forma;
1,659,762 authorized and 1,639,762
issued and outstanding pro forma as
adjusted(4).......................... 1,649 1,649 1,638
Class B common stock, no par value,
12,600,000 shares authorized and
3,335,238 shares issued and
outstanding, actual; 42,600,000
shares authorized and 3,786,191
shares issued and outstanding pro
forma and 7,156,191 shares issued and
outstanding pro forma as adjusted
(4).................................. 1,299 3,289 30,035
Notes receivable from shareholders.... (2,253) (2,253) (2,133)
Foreign currency translation
adjustment........................... (40) (40) (40)
Retained earnings..................... 1,616 1,616 1,616
------ ------ -------
Total shareholders' equity.......... 4,163 4,261 31,116
------ ------ -------
Total capitalization.............. $5,771 $5,869 $31,198
====== ====== =======
</TABLE>
- --------
(1) Adjusted to give effect to (i) the conversion of the Series A Preferred
Stock into 420,953 shares of Class B Common Stock; and (ii) the exercise
of options to purchase 30,000 shares of Class B Common Stock by certain
Selling Shareholders prior to this offering at an exercise price of $3.25
per share in order to sell such shares in this offering.
(2) Adjusted to give effect to (i) the sale of 2,725,000 shares of Class B
Common Stock offered by the Company hereby at an assumed initial public
offering price of $11.00 per share and the application of the estimated
net proceeds therefrom; and (ii) the repayment of approximately $131,000
of indebtedness and accrued interest by certain Selling Shareholders.
(3) See Notes 4, 5 and 6 of Notes to Consolidated Financial Statements.
(4) Based on the number of shares outstanding as of September 30, 1997.
Excludes (i) 20,000 shares of Class A Common Stock issuable upon the
exercise of outstanding options (at an exercise price of $3.58 per share);
and (ii) 1,713,075 shares of Class B Common Stock issuable upon the
exercise of outstanding stock options under the Company's Amended and
Restated 1996 Equity Incentive Plan (the "Plan") (at a weighted average
exercise price of $3.94 per share). Also excludes 1,246,258 shares of
Class B Common Stock reserved for issuance under the Plan and 100,000
shares of Class B Common Stock reserved for issuance under the Company's
Employee Stock Purchase Plan. See "Equity Incentive Plans" and Note 7 to
Notes to Consolidated Financial Statements and Management."
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock as of September
30, 1997 was approximately $2.5 million or $0.41 per share. Pro forma net
tangible book value per share represents the Company's total tangible assets
less total liabilities, divided by the total number of shares of Common Stock
outstanding assuming the conversion of the outstanding shares of Series A
Preferred Stock into shares of Class B Common Stock.
After giving effect to the sale of the 2,725,000 shares of Class B Common
Stock by the Company in this offering and the receipt of the net proceeds
therefrom, the pro forma net tangible book value of the Company as of
September 30, 1997 would have been approximately $29.4 million or $3.34 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.93 per share to existing shareholders and an immediate dilution in
pro forma net tangible book value of $7.66 per share to purchasers of Class B
Common Stock in this offering. The following table illustrates the per share
dilution as of September 30, 1997:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $11.00
Pro forma net tangible book value per share as of
September 30, 1997...................................... $0.41
Increase per share attributable to new shareholders...... 2.93
-----
Pro forma net tangible book value per share as of September
30, 1997 after the offering............................... 3.34
------
Dilution per share to new shareholders..................... $ 7.66
======
</TABLE>
The following table sets forth on a pro forma basis the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by existing shareholders and by new shareholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)...... 6,070,953 69.0% $ 4,641,370 13.4% $ 0.76
New shareholders.............. 2,725,000 31.0 29,975,000 86.6 11.00
--------- ----- ----------- -----
Total....................... 8,795,953 100.0% $34,616,370 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Includes 30,000 shares to be issued upon the exercise of options by
certain Selling Shareholders prior to this offering at an exercise price
of $3.25 per share.
At September 30, 1997, there were outstanding options to purchase 20,000
shares of Class A Common Stock at an exercise price of $3.58 per share and
1,713,075 shares of Class B Common Stock at a weighted average exercise price
of $3.94 per share. To the extent such options are exercised, there will be
dilution to new shareholders.
The sale of Class B Common Stock by the Selling Shareholders in this
offering will reduce the pro forma number of shares held by existing
shareholders as of September 30, 1997 to 5,395,953, or approximately 61.3% of
the total number of shares of Common Stock outstanding immediately after this
offering (58.0% if the underwriters over-allotment option is exercised in
full), and will increase the number of shares to be purchased by new
shareholders to 3,400,000, or approximately 38.7% of the total number of
shares of Common Stock outstanding immediately after this offering (42.0% if
the underwriters over-allotment option is exercised in full). See "Principal
and Selling Shareholders."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data set forth below for the years ended
December 31, 1995 and December 31, 1996, and for the nine-month fiscal year
ended September 30, 1997 have been derived from the Consolidated Financial
Statements of the Company that have been audited by Ernst & Young LLP,
independent auditors, whose report thereon is included herein. The Selected
Consolidated Financial Data presented below for the years ended December 31,
1993 and December 31, 1994 and for the nine-month period ended September 30,
1996 have been derived from the Company's unaudited consolidated financial
statements and have been prepared on the same basis and, in the opinion of
management, include all necessary adjustments, consisting only of normal
recurring adjustments that the Company considers necessary to present fairly
this information in accordance with generally accepted accounting principles.
These historical results are not necessarily indicative of the results to be
expected in the future. The Selected Consolidated Financial Data should be
read in conjunction with, and are qualified by, the Consolidated Financial
Statements and Notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE-MONTH
NINE MONTHS FISCAL YEAR
YEAR ENDED DECEMBER 31, ENDED ENDED
----------------------------- SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1995 1996 1996 1997(1)
------ ------ ------- ------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenues................ $3,651 $5,597 $12,373 $16,197 $11,790 $22,479
Cost of revenues........ 3,026 4,419 9,066 11,616 8,669 14,917
------ ------ ------- ------- ------- -------
Gross profit............ 625 1,178 3,307 4,581 3,121 7,562
Costs and expenses:
Selling and marketing.. 37 272 627 975 577 1,836
General and
administrative........ 369 816 1,560 2,574 1,774 4,397
Depreciation and
amortization.......... 14 18 45 80 56 274
------ ------ ------- ------- ------- -------
Income from operations.. 205 72 1,075 952 714 1,055
Interest income and
interest expense, net.. 16 17 61 74 50 99
------ ------ ------- ------- ------- -------
Income before income
taxes.................. 189 55 1,014 878 664 956
Provision for income
taxes.................. - - 570 351 266 384
------ ------ ------- ------- ------- -------
Net income.............. $ 189 $ 55 $ 444 $ 527 $ 398 $ 572
====== ====== ======= ======= ======= =======
Net income per
share(2)............... $ 0.02 $ - $ 0.04 $ 0.07 $ 0.05 $ 0.08
====== ====== ======= ======= ======= =======
Shares used in computing
net income per
share(2)............... 12,379 13,309 12,441 7,367 7,599 6,977
====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997
------ ------ ----- ----- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash .............................. $ 13 $ 22 $ - $ 306 $ 284
Working capital.................... 297 236 920 1,191 2,234
Total assets....................... 647 907 2,316 4,133 11,001
Long-term debt, net of current
obligations....................... - 5 156 576 1,608
Total shareholders' equity......... 330 316 686 1,028 4,163
</TABLE>
- --------
(1) In September 1997, the Company changed its fiscal year end to September
30.
(2) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing net income
per share.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Tier provides IT consulting, application development and software
engineering services that facilitate the migration of clients' enterprise-wide
systems and applications to leading edge technologies. Through its seven
offices located in three countries, the Company works closely with its Fortune
1000, government and other clients to determine, evaluate and implement an IT
strategy that allows it to rapidly adopt, deploy and transfer emerging
technologies while preserving viable elements of the client's installed IT
base. From its founding in 1991 through 1994, the Company provided third party
IT services through a workforce consisting primarily of independent
contractors hired to staff particular engagements. In 1995, the Company began
employing more full-time, salaried IT consultants. As of September 30, 1997,
75.6% of the Company's IT consultants were salaried employees, with the
remaining consultants being hourly contractors, which provides the Company
with staffing flexibility. Revenues have increased from $11.8 million in the
nine months ended September 30, 1996 to $22.5 million in the nine-month fiscal
year ended September 30, 1997. The Company's workforce has grown from 54 on
January 1, 1995 to 231 on September 30, 1997.
The Company's revenues are derived primarily from professional fees billed
to clients on either a time and materials or a fixed price basis. Time and
materials revenues are recognized as services are performed. Fixed price
revenues are recognized using the percentage-of-completion method, based upon
the ratio of costs incurred to total estimated project costs. The Company's
risk management committee monitors all material projects, focusing primarily
on factors such as size of revenue and credit exposure to the Company, number
of resources employed, progress against defined project milestones, clarity of
user expectations and definition of project scope. Substantially all of Tier's
contracts are terminable by the client following limited notice and without
significant penalty to the client. To date, the Company has generally been
able to obtain an adjustment in its fees following a significant change in the
assumptions upon which the original estimate was made, but there can be no
assurance that the Company will be successful in obtaining adjustments in the
future.
The Company has derived, and believes that it will continue to derive, a
significant portion of its revenue from a small number of large clients. For
many of these clients, the Company performs a number of different projects
pursuant to multiple contracts or purchase orders. For fiscal 1997, the State
of Missouri, Kaiser and Unisys accounted for 22.3%, 21.1% and 19.7% of the
Company's revenues, respectively.
Personnel and rent expenses represent a significant percentage of the
Company's operating expenses and are relatively fixed in advance of any
particular quarter. Senior management manages the Company's personnel
utilization rates by carefully monitoring its needs and basing most personnel
increases on specific project requirements. To the extent revenues do not
increase at a rate commensurate with these additional expenses, the Company's
results of operations could be materially and adversely affected.
From December 1996 through September 1997, the Company made five
acquisitions for a total cost of $2.7 million, excluding future contingent
payments, all of which were structured and accounted for as asset purchases.
These acquisitions helped to expand the Company's operations in the United
States, to establish the Company's operations in Australia and the United
Kingdom, to broaden the Company's client base and technical expertise and to
supplement its access to human resources. International operations accounted
for 13.7% of fiscal 1997 revenues. International operations may subject the
Company to foreign currency translation adjustments and transaction gains and
losses for amounts denominated in foreign currencies. The Company does not
currently engage in hedging transactions.
In September 1997, the Company changed its fiscal year end to September 30.
Fiscal year 1997 is comprised of the nine months ended September 30, 1997.
18
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results as a
percentage of revenues for each of the periods indicated:
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED NINE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
-------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
------ ------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues.......................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................. 73.3 71.7 73.5 66.4
------ ------ ----- -----
Gross profit...................... 26.7 28.3 26.5 33.6
Costs and expenses:
Selling and marketing............ 5.0 6.0 4.9 8.1
General and administrative....... 12.6 15.9 15.0 19.6
Depreciation and amortization.... 0.4 0.5 0.5 1.2
------ ------ ----- -----
Income from operations............ 8.7 5.9 6.1 4.7
Interest income and interest
expense, net..................... 0.5 0.5 0.5 0.4
------ ------ ----- -----
Income before income taxes........ 8.2 5.4 5.6 4.3
Provision for income taxes........ 4.6 2.1 2.2 1.8
------ ------ ----- -----
Net income........................ 3.6% 3.3% 3.4% 2.5%
====== ====== ===== =====
</TABLE>
NINE-MONTH FISCAL YEAR ENDED SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. Revenues increased 90.7% to $22.5 million for the nine-month
fiscal year ended September 30, 1997, from $11.8 million in the nine months
ended September 30, 1996. This increase resulted primarily from revenues
associated with the five acquisitions completed since December 1996, internal
growth, including $2.1 million from a significant new contract, and an
increase in billing rates for the Company's IT consultants.
Gross Profit. Cost of revenues consists of those costs directly attributed
to providing service to a customer, including consultant salaries, benefits
and travel expenses. Gross profit increased 142.3% to $7.6 million for the
nine-month fiscal year ended September 30, 1997 from $3.1 million in the nine
months ended September 30, 1996. Gross margin increased to 33.6% for the nine-
month fiscal year ended September 30, 1997 from 26.5% in the nine months ended
September 30, 1996. The improvement in gross margin was primarily attributable
to an increased use of salaried employees as opposed to hourly employees,
higher billing rates, larger contracts and an increased use of fixed price
contracts.
Selling and Marketing. Selling and marketing expenses consist primarily of
personnel costs, sales commissions, product literature and participation in
conferences and trade shows. Selling and marketing expenses increased 218.2%
to $1.8 million for the nine-month fiscal year ended September 30, 1997 from
$577,000 in the nine months ended September 30, 1996. As a percentage of
revenues, selling and marketing expenses increased to 8.1% for the nine-month
fiscal year ended September 30, 1997 from 4.9% in the nine months ended
September 30, 1996. This increase was primarily attributable to the addition
of sales and marketing personnel and the Company's increased participation in
conferences and trade shows.
General and Administrative. General and administrative expenses consist
primarily of personnel costs related to general management functions, human
resources, recruiting, finance, accounting and information systems, as well as
professional fees related to legal, audit, tax and recruiting matters. General
and administrative expenses increased 147.9% to $4.4 million for the nine-
month fiscal year ended September 30, 1997 from $1.8 million in the nine
months ended September 30, 1996. As a percentage of revenues, general and
administrative expenses increased to 19.6% for the nine-month fiscal year
ended September 30, 1997 from 15.0% in the nine months ended September 30,
1996. This increase was primarily attributable to building the infrastructure
to support, manage and control the Company's growth.
19
<PAGE>
Depreciation and Amortization. Depreciation and amortization consists
primarily of costs associated with the straight line method depreciation of
equipment and improvements and amortization of certain other intangible assets
resulting from acquisitions. Depreciation and amortization increased 389.3% to
$274,000 for the nine-month fiscal year ended September 30, 1997 from $56,000
in the nine months ended September 30, 1996. As a percentage of revenues,
depreciation and amortization increased to 1.2% for the nine-month fiscal year
ended September 30, 1997 from 0.5% in the nine months ended September 30,
1996. The increase in depreciation and amortization expense was primarily due
to the depreciation of increased capital expenditures and the amortization of
increased intangible assets.
Interest Income and Interest Expense, Net. Interest income and interest
expense, net increased 98.0% to $99,000 for the nine-month fiscal year ended
September 30, 1997 from $50,000 in the nine months ended September 30, 1996.
This increase was primarily attributable to the increase in borrowings under
the Company's bank lines of credit to fund working capital, capital
expenditures and acquisitions.
Provision for Income Taxes. Provision for income taxes increased 44.4% to
$384,000 for the nine-month fiscal year ended September 30, 1997 from $266,000
in the nine months ended September 30, 1996. The effective tax rate for fiscal
1997 was 40.2%, compared to 40.0% for the nine months ended September 30,
1996.
FISCAL YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Revenues. Revenues increased 30.9% to $16.2 million for fiscal 1996 from
$12.4 million in fiscal 1995. This increase was primarily attributable to an
increase in billing rates, an increase in revenue from government service
contracts and the overall growth of the business.
Gross Profit. Gross profit increased 38.5% to $4.6 million for fiscal 1996
from $3.3 million in fiscal 1995. Gross margin increased to 28.3% for fiscal
1996 from 26.7% in fiscal 1995. This increase was primarily attributable to an
increased use of salaried employees rather than hourly employees, higher
billing rates, larger contracts and an increased use of fixed price contracts.
Selling and Marketing. Selling and marketing expenses increased 55.5% to
$975,000 for fiscal 1996 from $627,000 in fiscal 1995. As a percentage of
revenues, selling and marketing expenses increased to 6.0% for fiscal 1996
from 5.0% in fiscal 1995. This increase was primarily attributable to the
hiring of additional sales and marketing employees during the period.
General and Administrative. General and administrative expenses increased
65.0% to $2.6 million for fiscal 1996 from $1.6 million in fiscal 1995. As a
percentage of revenues, general and administrative expenses increased to 15.9%
for fiscal 1996 from 12.6% in fiscal 1995. This increase was primarily
attributable to building the infrastructure to support, manage and control the
Company's growth.
Depreciation and Amortization. Depreciation and amortization increased 77.8%
to $80,000 for fiscal 1996 from $45,000 in fiscal 1995. This increase was
primarily due to increased capital expenditures and the associated
depreciation.
Interest Income and Interest Expense, Net. Interest income and interest
expense, net increased 21.3% to $74,000 for fiscal 1996 from $61,000 in fiscal
1995. This increase was primarily attributable to an increase in borrowings.
Provision for Income Taxes. Provision for income taxes decreased 38.4% to
$351,000 for fiscal 1996 from $570,000 in fiscal 1995. The effective tax rate
for fiscal 1996 was 40.0% from 56.2% for fiscal 1995. The decrease in the
effective tax rate was primarily attributable to a one-time tax expense of
$165,000 taken in 1995 related to the Company's recording of deferred income
taxes upon dissolution of Tier Group, a partnership, and the transfer of
assets to the Company. Excluding this one-time tax expense, the effective tax
rate for fiscal 1995 would have been 40.0%.
20
<PAGE>
SELECTED QUARTERLY STATEMENTS OF INCOME
The following table sets forth certain unaudited consolidated quarterly
statement of income data for each of the seven quarters ending with the
quarter ended September 30, 1997. In the opinion of management, this
information has been prepared on the same basis as the audited Consolidated
Financial Statements contained herein and includes all necessary adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary to present fairly this information in accordance with generally
accepted accounting principles. This information should be read in conjunction
with the Consolidated Financial Statements of the Company and Notes thereto
appearing elsewhere in this Prospectus. The Company's operating results for
any one quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenues................ $3,836 $4,068 $3,886 $4,407 $6,799 $7,343 $8,337
Cost of revenues........ 2,972 2,982 2,715 2,947 4,729 4,814 5,374
------ ------ ------ ------ ------ ------ ------
Gross profit............ 864 1,086 1,171 1,460 2,070 2,529 2,963
Costs and expenses:
Selling and
marketing............ 188 189 200 398 473 641 722
General and
administrative....... 466 609 699 800 1,207 1,531 1,659
Depreciation and
amortization......... 16 19 21 24 59 79 136
------ ------ ------ ------ ------ ------ ------
Income from operations.. 194 269 251 238 331 278 446
Interest income and
interest expense, net.. 15 17 18 24 28 33 38
------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................. 179 252 233 214 303 245 408
Provision for income
taxes.................. 72 101 93 85 121 97 166
------ ------ ------ ------ ------ ------ ------
Net income.............. $ 107 $ 151 $ 140 $ 129 $ 182 $ 148 $ 242
====== ====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth certain unaudited quarterly results of
operations expressed as a percentage of revenues for each of the seven
quarters ending with the period ended September 30, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUES:
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 77.5 73.3 69.9 66.9 69.6 65.6 64.5
----- ----- ----- ----- ----- ----- -----
Gross profit............ 22.5 26.7 30.1 33.1 30.4 34.4 35.5
Costs and expenses:
Selling and
marketing............ 4.9 4.6 5.1 9.0 7.0 8.7 8.7
General and
administrative....... 12.1 15.0 18.0 18.2 17.6 20.8 19.9
Depreciation and
amortization......... 0.4 0.5 0.5 0.5 0.9 1.1 1.6
----- ----- ----- ----- ----- ----- -----
Income from operations.. 5.1 6.6 6.5 5.4 4.9 3.8 5.3
Interest income and
interest expense, net.. 0.4 0.4 0.5 0.5 0.4 0.5 0.4
----- ----- ----- ----- ----- ----- -----
Income before income
taxes.................. 4.7 6.2 6.0 4.9 4.5 3.3 4.9
Provision for income
taxes.................. 1.9 2.5 2.4 2.0 1.8 1.3 2.0
----- ----- ----- ----- ----- ----- -----
Net income.............. 2.8% 3.7% 3.6% 2.9% 2.7% 2.0% 2.9%
===== ===== ===== ===== ===== ===== =====
</TABLE>
21
<PAGE>
The Company's revenues and operating results are subject to significant
variation from quarter to quarter due to many factors, including the number,
size and scope of projects in which the Company is engaged; the contractual
terms and degree of completion of such projects; competitive pressures on the
pricing of the Company's services; any delays incurred in connection with, or
early termination of, a project; employee utilization rates; the adequacy of
provisions for losses; the accuracy of estimates of resources required to
complete ongoing projects; demand for the Company's services generated by
strategic partnerships and certain prime contractors; the Company's ability to
increase both the number and size of engagements from existing clients; and
economic conditions in the vertical and geographic markets served by the
Company. Due to the relatively long sales cycles for the Company's services in
the government services market, the timing of revenue is difficult to
forecast. In addition, the achievement of anticipated revenues is
substantially dependent on the Company's ability to attract, on a timely
basis, and retain skilled personnel.
A high percentage of the Company's operating expenses, particularly
personnel and rent, are fixed in advance. Changes in the number, scope,
duration or progress toward completion, of the Company's projects or in
employee utilization rates would cause significant variations in operating
results in any particular quarter. In addition, the Company typically reaches
the annual limitation on its FICA contributions for many of its consultants
before the end of the calendar year. As a result, payroll taxes as a component
of cost of revenues will vary from quarter to quarter during the fiscal year
and will generally be higher at the beginning of the calendar year. As a
result, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful, should not be relied upon as
indications of future performance and may result in volatility in the price of
the Company's Class B Common Stock in the public market. Due to the foregoing
factors, among others, the Company's operating results will from time to time
be below the expectations of the public market analysts and investors.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations principally through cash
flows from operating activities, the private placement of equity securities
and proceeds from borrowings under asset-based lines of credit.
The Company's principal capital requirement is to fund working capital to
support its growth. The Company utilizes asset-based loan facilities to fund
all of its working capital requirements. In March 1997, the Company entered
into a $4.3 million credit facility (the "Credit Facility"). The revolving
portion of this facility allows the Company to borrow the lesser of the sum of
85% of eligible receivables (approximately $3.1 million as of September 30,
1997) or $3.75 million. This facility allows for the financing of acquisitions
up to $1.5 million. The Credit Facility also allows for up to $500,000 of
borrowings for equipment and software. The Credit Facility is secured by all
of the Company's assets and contains certain restrictive covenants, including
limitations on amounts of loans the Company may extend to officers and
employees, the incurrence of additional debt and the payment of dividends on
the Company's common or preferred stock. Certain executive officers have
personally guarantied the Credit Facility. The agreement requires the
maintenance of certain financial ratios, including minimum tangible net worth
and a limit on the ratio of total liabilities to total tangible net worth. At
September 30, 1997, the Company was not in compliance with certain financial
ratio covenants and has received a letter from the bank waiving such
noncompliance.
As of September 30, 1997, the principal amount outstanding under the Credit
Facility, excluding outstanding checks and deposits that have been included in
the Credit Facility balance in the Company's Consolidated Financial
Statements, was $2.9 million, and approximately $700,000 remained available
for borrowing. The revolving and acquisition line components of the Credit
Facility bear interest at the bank's prime rate plus 1.50% and 1.75%,
respectively. The Company intends to repay all of the borrowings under the
Credit Facility with a portion of the proceeds from the offering. Following
such repayment, the Company will maintain the Credit Facility for future
financing requirements.
22
<PAGE>
The Company currently plans to make additional investments in equipment and
leasehold improvements of approximately $800,000 in fiscal 1998, principally
for leasehold improvements, furniture, software, personal computers and other
technology equipment.
Net cash (used in) provided by operating activities was $(177,000) in fiscal
1995, $491,000 in fiscal 1996 and $(1.7) million in the nine-month fiscal year
ended September 30, 1997. Throughout these periods, the Company experienced
increases in receivables as a result of increases in the Company's sales
volume, which were partially offset by increases in accounts payable and
accrued expenses in those periods.
Net cash used in investing activities totaled $116,000, $297,000, and $2.9
million for fiscal 1995, fiscal 1996 and the nine-month fiscal year ended
September 30, 1997, respectively. These activities consisted primarily of
purchases of equipment and leasehold improvements in fiscal 1995 and fiscal
1996. In the nine-month fiscal year ended September 30, 1997, the Company made
several acquisitions in addition to the purchase of property and equipment.
Net cash provided from financing activity totaled $271,000, $112,000, and
$4.6 million for fiscal 1995, fiscal 1996 and the nine-month fiscal year ended
September 30, 1997, respectively. In the nine-month fiscal year ended
September 30, 1997, the Company raised gross proceeds of $2.2 million through
the issuance of 420,953 shares of Series A Preferred Stock and increased its
borrowing by $2.3 million under its credit facility.
The Company anticipates that its existing capital resources, including cash
provided by operating activities and available bank borrowings, together with
the anticipated net proceeds from this offering, will be adequate to fund the
Company's operations for at least the next 12 months. There can be no
assurance that changes will not occur that would consume available capital
resources before such time. The Company's capital requirements depend on
numerous factors, including potential acquisitions, the timing of the receipt
of accounts receivable and employee growth. To the extent that the Company's
existing capital resources, together with the anticipated net proceeds of this
offering, are insufficient to meet its capital requirements, the Company will
have to raise additional funds. There can be no assurance that additional
funding, if necessary, will be available on favorable terms, if at all.
23
<PAGE>
BUSINESS
Tier Technologies, Inc. ("Tier" or the "Company") provides information
technology ("IT") consulting, application development and software engineering
services that facilitate the migration of clients' enterprise-wide systems and
applications to leading edge technologies. Tier provides IT migration
solutions by applying the Tier Migration Solution, a methodology by which the
Company evaluates or "scores" the efficacy of a client's existing imbedded IT
capital against its business goals. Through its seven offices located in three
countries, the Company works closely with its Fortune 1000, government and
other clients to determine, evaluate and implement an IT strategy that allows
it to rapidly adopt, deploy and transfer emerging technologies while
preserving viable elements of the client's installed IT base. Tier combines
significant understanding of enterprise-wide IT systems with expertise in
vertical industries such as healthcare, financial services and government
services to provide clients with rapid and flexible migration solutions. By
helping clients maintain their core IT systems, Tier provides high value,
cost- effective, flexible solutions that minimize the risks associated with
migration to new technologies.
BACKGROUND
Today, large corporations and government agencies often face a number of
challenges, including a rapidly changing operating environment, intense
competitive pressures and accelerating technological change. To adapt to
change and remain competitive, these organizations have sought to harness
their intellectual and informational capital by investing in advanced IT
systems. As these organizations have become increasingly dependent on more
complex IT systems, their ability to integrate advanced technologies in a
rapid, reliable and cost-effective manner has become critical to their
success.
The migration of enterprise-wide IT systems, which is the process of
incrementally supplementing and replacing IT system components to integrate
advanced technologies, has become a key competitive strategy. This process
enables an organization to preserve the imbedded capital in its installed base
of IT systems, to obtain the benefits of technological innovations and to
mitigate some of the risks, costs and delays inherent in full system
replacements. Several forces are driving the increased use of rapid migration
strategies. As a result of the increasing pace of technological change along
with rapid changes in competitive and business environments, the useful lives
of new technologies have tended to shorten dramatically. To capture more of
the benefits of these technologies, IT projects must be designed and completed
relatively quickly or they risk being out of date upon completion.
Organizations are re-using existing IT components both to preserve the
significant imbedded capital represented by those systems and to achieve new
functionality. For example, mainframe computers are now being used as high
volume servers in distributed computing environments because of their data
storage capacity and transaction processing speeds. As the length and scope of
an IT project expands, so too does the likelihood that the project will fail
to satisfy time, cost or functionality expectations. Consequently,
organizations seek high-impact IT solutions that can be implemented quickly.
Given the complex and mission-critical nature of IT systems, many
organizations choose to outsource the development and eventual migration of
these systems to new technologies. According to Dataquest Incorporated, the
world-wide market for IT professional services was estimated to be $133
billion in 1997, with a projected annual growth rate of over 16% through the
year 1999. The Company believes that successful IT service providers will be
characterized by (i) significant experience in the migration of enterprise-
wide IT systems; (ii) an ability to adopt, deploy and transfer relevant,
emerging technologies rapidly and reliably; (iii) an understanding of the
client's industry, business and existing IT environments; (iv) successful
management of the risks inherent in large system projects; and (v) the ability
to deliver services on a global basis.
24
<PAGE>
THE TIER MIGRATION SOLUTION
Tier works closely with its clients to determine, evaluate and implement an
IT strategy that allows it to rapidly adopt, deploy and transfer emerging
technologies while preserving viable elements of the client's installed IT
base. Tier combines its significant understanding of enterprise-wide IT
systems with its expertise in vertical industries, such as healthcare,
financial services and government services, to provide clients with rapid and
flexible migration solutions to their IT needs. By helping clients to maintain
their core IT systems, Tier provides high value, cost effective, flexible
solutions that minimize the risks associated with system improvements.
The Tier Migration Solution is applied to all of the Company's projects.
Initially, the Company assesses a client's existing business processes and
clearly defines the scope of the project, including a determination of the
client's expectations for quantifiable business improvement. The Company then
analyzes the client's existing IT system to determine which areas would
benefit the most from the application of new technologies. When this
assessment is completed, Tier develops a specific IT strategy that uses a
system architecture consistent with the client's existing environment. Tier
then implements the recommended IT strategy. Throughout all phases, Tier's
risk management committee regularly evaluates the risks inherent in the
project. If the risk management committee detects areas of concern, it
investigates the matter at an early stage and takes appropriate corrective
action to mitigate potential costs and delays.
STRATEGY
The Company seeks to become the leading provider of comprehensive IT
migration solutions to Fortune 1000 companies and large government entities.
The Company's strategy includes the following elements:
Concentrate on Migration Opportunities. The Company focuses on the migration
of enterprise-wide IT systems to leading edge technologies for Fortune 1000
companies and large government entities. The Company maintains proficiency in
relevant mainstream and legacy technologies, while also developing expertise
in high demand, emerging technologies that are expected to facilitate the
Company's development and deployment of IT solutions. This strategy allows
Tier to function effectively in open architecture IT environments and to
rapidly adopt, deploy and transfer emerging technologies within existing IT
systems.
Develop Strategic Partnerships. The Company develops strategic partnerships
with service and technology providers pursuant to which Tier becomes the
exclusive or preferred system integrator related to that provider's products
or services within specific market segments or geographic areas. These
relationships offer Tier identifiable revenue opportunities. The Company
believes these relationships provide a number of competitive advantages,
including (i) enabling the Company to broaden its client base; (ii)
maintaining the Company's technological leadership through the deployment of
leading edge applications; and (iii) allowing the Company to project its
staffing needs and more fully maximize employee utilization.
Pursue Strategic Acquisitions. Tier considers potential acquisitions which
may expand the Company's presence in key geographic or vertical marketplaces,
supplement the Company's technical scope or industry expertise or allow it to
acquire additional human resources or strategic client relationships. Given
the highly fragmented nature of the IT services marketplace, the Company
believes significant acquisition opportunities exists. Since December 1996,
Tier has acquired five IT service providers to add three domestic and two
international locations, to broaden the Company's technical expertise in areas
such as Java and to expand its professional resources by 73 IT consultants.
Expand in Key Vertical Markets. The Company intends to increase its client
base and leverage its expertise by focusing its sales, marketing and
development efforts on high-value opportunities in certain vertical markets,
such as healthcare, government services, financial services, transportation
and
25
<PAGE>
telecommunications. Within those markets, Tier has developed expertise in
areas, such as child welfare services, child support services and procurement
processes. The Company believes that large organizations with intensive
information processing needs provide the best near-term market opportunities
for the Company's services.
Expand Geographic Presence. The Company intends to expand its operations by
opening additional branches in targeted domestic and international locations
to augment its current operations in the United States, Australia and the
United Kingdom. Tier integrates domestic and multi-national resources to
deliver timely, cost-effective IT solutions on a local level. Expanded
geographic presence enables the Company to have increased access to
international labor markets and to compete effectively for highly skilled
employees who have particular geographic preferences. The Company believes
that the local delivery of services is a significant differentiating factor
among IT service providers.
Attract Highly Skilled Employees. The Company maintains programs and
personnel to identify, hire, train and retain highly skilled IT professionals
because it believes these professionals are a critical element in its ability
to deliver high quality services to clients. The Company offers competitive
compensation and benefits including stock option and other stock-based awards,
and has developed a career advancement program that offers employees career
enrichment opportunities, individualized up-training and cross-training
programs, on-the-job learning opportunities and annual training allowances.
SERVICES AND METHODOLOGY
The Company provides IT consulting, application development and software
engineering services which facilitate the migration of its clients' existing
IT systems to leading edge technologies. These services are typically provided
on an enterprise-wide basis. Tier's methodology for providing migration
services combines the ability to evaluate or "score" the efficacy of the
client's imbedded IT capital in comparison to its stated business goals, with
a formal risk assessment program to manage and benchmark projects on an on-
going basis. Tier maintains a high level of vertical market and industry
expertise. As a result the Company is able to understand the environment and
business rules in which its clients operate. This approach allows Tier to
retain, reuse, repeat and distribute its experiential knowledge throughout the
Company and to achieve significant improvements in cost, quality and time to
deployment on client projects.
Services
The Company seeks to rapidly implement cost-effective IT solutions through a
flexible combination of one or more of the following services:
Custom Build. The Company often custom builds an IT solution or component
for the client. The Company has developed custom applications in several
vertical markets, including healthcare, financial services, transportation and
consumer products, using advanced languages such as Java, Forte, PowerBuilder
and Composer. The Company's technical professionals have implemented custom
applications on a variety of platforms and working environments, such as
mainframe, UNIX and Windows NT, using a number of databases, including Oracle,
Sybase, DB2 and Informix. Tier has also developed Internet/intranet, data
warehousing and e-commerce applications, as well as applications in the more
established mainframe and client/server environments.
Repeatable Transfer Solution. In some situations, the Company identifies
existing, transferable IT applications or components that satisfy a portion of
the client's needs. Tier addresses the client's remaining functional elements
through either custom built applications or packaged software. Transfer
solutions greatly shorten the development cycle by providing a working system
as the starting point for the IT solution. For example, between government
agencies, the Company has successfully transferred components of IT systems
that it has built to solve complex child support and welfare requirements.
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Packaged Software. When the most appropriate solution for a client is a
commercially available application package, the Company evaluates, recommends,
implements and integrates enterprise-level package applications from providers
such as NovaSoft Systems, Inc., Ariba Technologies, Inc. and Requisite
Technology, Inc. The Company has developed expertise with commercial
applications in areas such as workflow process management, document
management, operations resource management, e-commerce and procurement. Tier's
package implementation practices are organized around specific application
areas such as healthcare, financial services, transportation and procurement.
Methodology
The Company has developed the Tier Migration Solution over numerous client
engagements and relies on this methodology to provide services in various
industries and technical environments. The four-phase scaleable, repeatable
and leverageable methodology is modular in design and the various phases can
be tailored depending on the scope of a client's needs.
[Graphic: A representation of Tier's four phase methodology
for meeting clients' IT needs.]
Phase I - Business Assessment and Scoping. The Company establishes the scope
of each project and determines expectations for quantifiable business
improvement. The Company assesses the client's current business processes,
identifies improvement opportunities and inventories the existing IT
applications and systems. Tier consultants bring industry and technical
expertise to each engagement and employ current business engineering
techniques, such as workflow analysis, process mapping, use-case analysis and
business rules definition. Typically, Tier consultants interview key
management personnel, lead group discussions, conduct workshops, review
existing business process documentation and inventory the existing application
portfolio. The work product is a business requirements and scope document that
provides a clear charter for the project and a risk management assessment map
to measure project performance throughout the project's life cycle.
Phase II - Application Effectiveness Scoring. The Company develops a
technology portfolio analysis to determine how best to leverage the client's
capital investment in its existing IT system. Tier conducts an in-depth
analysis of the existing IT application portfolio using a qualitative method
of "scoring" to determine which areas would benefit most from the application
of new technologies. The resulting matrix correlates the client's business
functions with the most suitable IT solution. Once agreed to by the client,
the application scoring matrix becomes a roadmap to assist in determining
whether to replace or re-use components of the client's existing IT system.
Phase III - IT Strategy, Architecture and Prototyping. The Company develops
a specific IT strategy to address the development, transfer or acquisition of
new IT solutions and their integration into the client's existing business
environment. Tier analyzes "buy versus build" opportunities, evaluates
potential commercial software products and identifies appropriate software
development techniques. Tier may model critical business rules to test the
underlying assumptions of the IT solution and often prepares an early look-
and-feel prototype to allow the user to visualize the resulting integrated IT
environment. Ultimately, Tier provides clients with a defined IT architecture
designed to meet the client's expectations specified at the beginning of the
engagement.
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<PAGE>
Phase IV - Information Technology Implementation. Tier implements the IT
solution. The Company employs rapid IT processes and incorporates the
Company's collective experience in managing enterprise-wide IT projects in
areas such as packaged software implementation, custom software development,
quality assurance and testing, systems integration, client testing and
acceptance, implementation and help desk support. The output of this final
phase is an implemented IT solution set. Following installation, the Company
and the client conduct a post-project assessment to evaluate the effectiveness
of the new IT solution against the business improvement goals established in
Phase I. In addition, the Company provides post-implementation services, such
as on-going software maintenance and enhancements, help desk support and
training of end users and in-house IT staff.
Across all four phases of its methodology, Tier employs a comprehensive risk
management process. The Company believes that its emphasis on risk management
is a critical component of its methodology, particularly in a market that
increasingly demands service providers to undertake large scale projects while
maintaining a high success rate. Given the importance of this process, the
Company's risk management committee (the "Committee") includes the Company's
Chief Executive, Operating and Financial Officers. Using the risk management
assessment map developed in Phase I of Tier's Migration Solution, the
Committee evaluates projects on a regular basis against a checklist of risk
factors and assigns a status that determines the frequency of intervention and
review required. The Committee focuses on the following risk factors: size of
revenue and credit exposure to the Company, number of resources employed,
progress against defined project milestones, clarity of user expectations,
definition of project scope, use of new technology, effectiveness of project
management personnel and other quantitative and qualitative measures as may be
appropriate to a particular project. If the Committee detects areas of
concern, it investigates the matter at an early stage and takes appropriate
corrective action to mitigate potential costs and delays.
REPRESENTATIVE ENGAGEMENTS
The following are examples of Tier's IT migration engagements:
Healthcare Process Improvement. In a $1.5 million engagement for a national
HMO, Tier completed the implementation of a Medicare compliance system that
reduced the HMO's application process cycle time from six weeks to two days,
which in turn accelerated its Medicare collections. By adding an improved
input and analysis "front end" to the HMO's existing insurance claims
processing system, Tier leveraged the most beneficial components of the HMO's
existing technology infrastructure. In a second $1.5 million project for the
HMO, Tier developed an enterprise-wide budget development system to allow the
HMO's nationwide staff of controllers, analysts and cost center managers to
run financial simulations and receive real-time feedback. The project
increased the quality of the client's budgets and significantly reduced their
development time. The new system was integrated with the HMO's existing
accounting and finance applications to provide a financial control solution at
a fraction of the cost of a complete system replacement. Over a four-year
period, Tier has completed more than a dozen strategic projects for the HMO.
International Risk Management Application. Tier is currently performing a
multi-national engagement for a worldwide financial services and information
company to develop a global check authorization system. This $10 million, 18-
month project encompasses the redesign of business processes, a full migration
of application software, specification for the selective replacement of system
hardware and the creation of a data warehouse for decision support. Tier was
chosen over its competitors for its industry expertise in process redesign,
simulation modeling, technical architecture, database design, rapid
application development, project management and its ability to rapidly
implement this complex project.
Child Welfare Case Management Solution. Tier, in conjunction with Unisys,
developed and implemented an integrated child welfare case management system
for a state government's health and human services department. By focusing on
improved workflow, integrated data management and the use of distributed
client/server technology, the Company believes the case management system will
increase
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the amount of time available for the case worker to work directly with
families, while also improving the quality and timeliness of information. The
case management system supports the state's child protective services intake
hotline, report investigation, case planning and outcome management and
financial and staff management.
Transportation System Solutions. Tier successfully completed a multi-phased
$1.3 million migration project for a state's department of transportation to
develop a fleet management system, including a preventive maintenance program
and a mechanized warranty system. The Company's IT solution utilized an
advanced client/server technology and leveraged components from two existing
mainframe systems. The system provides complete fleet management services to
over 200 users throughout the state. The client performed an extensive cost-
benefit analysis prior to developing the system and determined that the
improved service of the equipment will pay for the system within two years.
Tier is currently performing an $8.8 million, multi-phased client/server
project to redesign the department's multiple legacy transportation management
systems into one highly integrated decision making tool.
SALES AND MARKETING
The Company markets and sells its services through a direct sales force. As
of September 30, 1997, Tier employed ten full-time, dedicated sales and
marketing staff. In addition, the Company's senior management is closely
involved in a significant portion of the Company's sales and marketing
activities. Most of the Company's sales professionals have extensive work
experience in the IT industry, often as strategic IT consultants or managers.
In order to more clearly define the delivery of its services and to reflect
the needs of clients served, the Company has organized the sales and marketing
effort into three strategic business units ("SBUs"): (i) Commercial Services,
which targets custom software development and transfer solutions for
commercial markets; (ii) Government Services, which targets custom software
development and transfer solutions in the fast-growing health and human
services and state strategic IT markets; and (iii) Business Solutions, which
targets packaged software implementation services for both commercial and
governmental markets.
The Company's focus on the vertical markets defined by these SBUs broadens
its knowledge and expertise in these selected industries and generates
additional client engagements. As a result of its focused sales channel
approach, the Company believes that it is able to penetrate markets quickly
and with lower sales acquisition costs.
The sales team derives leads through (i) strategic partnerships with
software providers under which the Company delivers services on an exclusive
or preferred basis within specific geographic or vertical markets; (ii)
industry networking and referrals from existing clients; (iii) government
requests for proposals; (iv) directed sales activities identified by other
strategic business units within the Company; and (v) a national marketing
program. The Company believes that its use of these multiple sales and
marketing activities results in a shorter sales cycle than generally
experienced by other providers.
The Company's marketing program includes targeted software industry trade
shows; joint marketing with software providers through strategic partnership
arrangements; participation in user groups; provision of speakers to
technology conferences; publication of white papers, articles and direct
client newsletters; and distribution of marketing materials through print
advertising, direct mail, media and public relations announcements.
CLIENTS
The Company's clients consist primarily of Fortune 1000 companies with
information-intensive businesses and government entities with large volume
information and technology needs. Tier's sales and marketing objective is to
develop relationships with clients which result in both repeat and long-term
engagements. Of the Company's clients with revenues in excess of $50,000 in
fiscal 1996, 90% (18 of 20)
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were clients in the nine-month fiscal year ended September 30, 1997 and
generated revenues in excess of $50,000 in such subsequent period.
Tier has derived, and believes that it will continue to derive, a
significant portion of its revenues from a small number of large clients, many
of which engage the Company on a number of projects. For the nine-month fiscal
year ended September 30, 1997, the State of Missouri, Kaiser and Unisys
Corporation accounted for 22.3%, 21.1% and 19.7% of the Company's revenues,
respectively. Kaiser accounted for 57.6% and 68.1% of the Company's revenues
in 1996 and 1995, respectively, while Unisys accounted for 14.4% of the
Company's revenues in 1996.
The following is a list of the Company's representative clients:
FINANCIAL/INSURANCE SERVICES COMMUNICATIONS
Allstate Insurance Company GTE Mobilnet Incorporated
Bank of America, N.T. & S.A. Pacific Bell Telesis Co.
Equifax Europe (UK) Ltd. TCI Western TeleCommunications, Inc.
General Electric Capital US WEST Communications, Inc.
Services, Inc
INDUSTRIAL GOVERNMENT
Anheuser-Busch Cos., Inc. Commonwealth of Australia* (multiple
McKesson Corp. agencies)
US Foodservice Inc. Los Angeles County, California
Warner-Lambert Company, Inc. Murray-Darling Basin Commission
State of Arizona*
HEALTH CARE State of Missouri (multiple agencies)
Blue Cross/Blue Shield U.S. Department of Agriculture*
of Tennessee, Inc.
Kaiser Foundation Health Plan, Inc. TRANSPORTATION
Laboratory Corporation of America Automobile Club of Southern California
Holdings Matson Navigation Company, Inc.
Southshore Hospital
OTHER INDUSTRIES
Chevron Information Technology Company
Export Software International, Inc.
Sears Roebuck & Co.
- --------
* Indicates that the Company was engaged as a subcontractor for certain
project engagements for the client.
In its Government Services SBU, the Company sometimes obtains project
engagements through prime contractors such as Unisys. For example, in a
project for the State of Arizona, Tier was responsible for the complete IT
strategy, architecture, design, software development and testing as a
subcontractor to Unisys, which was engaged by the State to implement a new
child welfare system. The Company believes that it has been able to secure
large, complex government projects with low acquisition costs by capitalizing
on the reputation, marketing infrastructure and government relationships of
these prime contractors, while at the same time allowing the prime contractors
to leverage Tier's IT competency in their bid proposals. When Unisys bid for
the Australian National Child Support System, Unisys relied on Tier as an
integral part of the team responsible for securing the engagement. The
Tier/Unisys team ultimately was awarded the contract for the entire system.
The Company will continue to seek subcontracting relationships with parties
such as Unisys.
Until fiscal 1997, Company revenues were generated primarily through Tier's
domestic operations. In the nine-month fiscal year ended September 30, 1997,
the Company's operations in Australia and the United Kingdom represented 9.1%
and 4.6% of revenues, respectively. See Note 10 to Notes to Consolidated
Financial Statements.
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HUMAN RESOURCES
Tier's approach to managing human resources has allowed the Company to meet
its staffing needs while also achieving a low level of employee turnover. As
of September 30, 1997, the Company had a workforce of 231, including 146
salaried IT consultants, ten sales/marketing employees and 28
administrative/accounting employees. In addition to its employee IT
consultants, the Company has retained 47 hourly contractors to supplement its
IT workforce. As of September 30, 1997, approximately 75.6% of the Company's
IT consultants were salaried and the remaining 24.4% were hourly contractors.
Of the Company's total workforce, 80.1%, 10.8% and 9.1% are located in the
United States, Australia and the United Kingdom, respectively.
The Company employs two Senior Directors of Recruiting and seven full-time
recruiters who pursue a three level employee-sourcing strategy. The primary
sources include employee referrals, job fairs, Internet job postings and
direct recruiting. Tier also has established national and international
sources through preferred-rate partnerships with recruiting suppliers. If peak
staffing demand exceeds these resources, the Company engages recruiting
agencies on a contingent basis at market rates. The Company attracts and
retains employees by offering superior technical training opportunities, a
stock option award program and a competitive benefits and compensation
package. Given the rapid pace of technological evolution, the Company
recognizes that skill obsolescence is a fundamental concern for IT
professionals. As a key component of the Company's employee retention program,
Tier has developed a program that enables each employee to specify their
career goals and develop a career advancement plan. The program includes
specific career enrichment opportunities, individualized up-training and
cross-training, on-the-job learning opportunities and challenging assignments.
As part of the program, each consultant works under the guidance of a mentor
within their practice. All employees receive annual training allowances which
can be utilized for an array of career development needs such as internal and
external seminars and computer-based training. The Company believes that there
is a shortage of, and significant competition for, IT professionals and that
its future success is highly dependent upon its ability to attract, train,
motivate and retain skilled IT consultants with the advanced technical skills
necessary to perform the services offered by the Company.
COMPETITION
The IT services market is highly competitive and is served by numerous
international, national and local firms. Market participants include systems
consulting and integration firms, including national accounting firms and
related entities, the internal information systems groups of its prospective
clients, professional services companies, hardware and application software
vendors, and divisions of large integrated technology companies and
outsourcing companies. Many of these competitors have significantly greater
financial, technical and marketing resources, generate greater revenues and
have greater name recognition than the Company. In addition, there are
relatively low barriers to entry into the IT services market, and the Company
has faced, and expects to continue to face, additional competition from new
entrants into the IT services market.
The Company believes that the principal competitive factors in the IT
services market include reputation, project management expertise, industry
expertise, speed of development and implementation, technical expertise,
competitive pricing and the ability to deliver results on a fixed price as
well as a time and materials basis. The Company believes that its ability to
compete also depends in part on a number of competitive factors outside its
control, including the ability of its clients or competitors to hire, retain
and motivate project managers and other senior technical staff; the ownership
by competitors of software used by potential clients; the price at which
others offer comparable services; the ability of its clients to perform the
services themselves; and the extent of its competitors' responsiveness to
client needs. There can be no assurance that the Company will be able to
compete effectively on pricing or other requirements with current and future
competitors or that competitive pressures will not cause the Company's
revenues or income to decline or otherwise materially adversely affect its
business, financial condition and results of operations.
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INTELLECTUAL PROPERTY RIGHTS
Tier's success has resulted, in part, from its methodologies and other
proprietary intellectual property rights. The Company relies upon a
combination of nondisclosure and other contractual arrangements and trade
secret, copyright and trademark laws to protect its proprietary rights and the
proprietary rights of third parties from whom the Company licenses
intellectual property. The Company enters into confidentiality agreements with
its employees and limits distribution of proprietary information. There can be
no assurance that the steps taken by the Company in this regard will be
adequate to deter the misappropriation of proprietary information or that the
Company will be able to detect unauthorized use of this information and take
appropriate steps to enforce its intellectual property rights.
Software developed by Tier in connection with a client engagement is
typically assigned to the client. In limited situations, the Company may
retain ownership, or obtain a license from its client, which permits Tier or a
third party to market the software for the joint benefit of the client and
Tier or for the sole benefit of Tier.
FACILITIES
Tier's principal executive offices are located at 1350 Treat Boulevard,
Suite 250, Walnut Creek, California. The Company's lease on these premises
covers approximately 9,745 square feet and expires November 30, 2001. The
Company also leases facilities in Atlanta, Georgia; Chicago, Illinois;
Jefferson City, Missouri; Phoenix, Arizona; Birmingham, England; and Canberra,
Australia. Tier anticipates that additional space will be required as its
business expands and believes that it will be able to obtain suitable space as
needed.
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James L. Bildner............. 43 Chairman of the Board and Chief Executive Officer
William G. Barton............ 40 President, Chief Operating Officer and Director
George K. Ross............... 56 Senior Vice President, Chief Financial Officer and Director
Albert A. Arthur............. 44 Vice President, Strategic Business Development
Jacqueline R. Hampton........ 44 Vice President, Business Solutions SBU
F. Thomas Latham............. 51 Vice President, Commercial Services SBU
Bryan D. McCaul.............. 39 Vice President and Chief Information/Technology Officer
Bradley H. Nickels........... 36 Vice President, Government Services SBU and Secretary
John W. Reasner.............. 58 Vice President, Human Resources
Samuel Cabot III(1)(2)(3).... 56 Director
Ronald L. Rossetti(1)(2)(3).. 54 Director
</TABLE>
- --------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Class B Director.
Mr. Bildner joined Tier as Chairman of the Board in November 1995 and became
Chief Executive Officer in December 1996. From December 1994 to December 1996,
Mr. Bildner was employed as a principal of Argus Management Corporation, a
management consulting firm. In 1984, Mr. Bildner founded J. Bildner & Sons,
Inc., a specialty retailer, and served as its Chairman of the Board and Chief
Executive Officer from its inception to December 1994. J. Bildner & Sons, Inc.
filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in July
1988 and emerged from reorganization in October 1989. Mr. Bildner received an
A.B. from Dartmouth College and a J.D. from Case Western Reserve School of
Law.
Mr. Barton, one of the initial founders of the Company, has served as
President and Chief Operating Officer and as a Director since 1991. From 1990
to 1991, Mr. Barton was employed as an IT management consultant at Titan
Consulting, an IT consulting firm. From 1979 to 1990, Mr. Barton held various
positions leading to Director of Advanced Business Systems at American Express
Card Services, a financial services company. Previously, Mr. Barton held
positions within the IT industry as a systems analyst, software engineer and
programmer. He received a B.S. in Business Administration and Management from
the University of Phoenix and a Presidential/Key Executive MBA from Pepperdine
University.
Mr. Ross has been a Director of the Company since January 1996 and has
served as Senior Vice President and Chief Financial Officer since February
1997. From September 1992 to January 1997, Mr. Ross was a partner at Capital
Partners, a private equity investment firm. Between 1979 and 1992, Mr. Ross
was Corporate Vice President, Controller for Axel Johnson, Inc., a highly-
diversified private holding company. Mr. Ross has also held corporate and
operating positions with RJR Nabisco, Inc. and served as a senior consultant
with Ernst & Young LLP. Mr. Ross received a B.A. from Ohio Wesleyan University
and an MBA from Ohio State University. Mr. Ross is a certified public
accountant.
Mr. Arthur joined Tier in February 1997 as Director, National Account Sales
and has served as the Company's Vice President, Strategic Business Development
since June 1997. From April 1996 to March 1997, Mr. Arthur was employed by
Texas Instruments Software, a software provider, where he was the Trading Area
Manager for the Western United States and Canada. From August 1995 until April
1996, he served as Director of Financial Business Development (Bay Area) for
Oracle Corporation, a software provider. From 1988 until August 1995, he
served as Global Account Manager for Bank of America, N.T. & S.A. He received
an A.B. degree from Stanford University.
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Ms. Hampton joined the Company as Vice President, Business Solutions SBU in
June 1997. From September 1995 to April 1997, Ms. Hampton was Vice President
for Worldwide Professional Services at Netscape Communications, an Internet
browser company. From April 1992 to September 1995, Ms. Hampton served as Vice
President of Professional Services, Western Area, for Sybase, a software
provider. From 1989 to 1992, she was a managing consultant at Oracle
Corporation. Between 1983 and 1989 she held various senior management and
consulting positions with Ernst & Young LLP and Andersen Consulting. She
received a B.S. in Biochemistry and Microbiology from San Diego State
University and an MBA from Boston University.
Mr. Latham joined Tier in August 1996 as Vice President, Commercial Services
SBU. From March 1995 to August 1996, Mr. Latham was the President of
Distributed Business Technology Solutions, an IT consulting company. From
February 1993 to February 1995, he was a Senior Director at Florida Power and
Light. From 1981 to February 1993, he served as Vice President, Strategic
Business Systems and Vice President, Technology at American Express.
Mr. McCaul has served as Vice President and Chief Information/Technology
Officer since March 1993. From 1990 to March 1993, he was a senior consultant
and trainer for Montare International, a technology consulting firm located in
Dallas, Texas. From 1986 to 1990, Mr. McCaul was a senior systems analyst with
Texas Instruments Software, a software provider. Mr. McCaul received a B.S. in
Business Administration and an M.S. in Computer Science from the University of
Kansas.
Mr. Nickels, one of the initial founders of the Company, has served as Vice
President of the Company's Government Services SBU since January 1996. From
October 1991 to December 1995, he served as a principal consultant and project
manager at the Company. From 1988 to 1992, Mr. Nickels was a project manager
at American Express Travel Related Services. Mr. Nickels received a B.S. in
Computer Science from Arizona State University.
Mr. Reasner joined the Company as Vice President, Human Resources, in
January 1997. From 1989 to December 1996, Mr. Reasner served as Vice
President - Human Resources for Pilkington, Barnes, Hind, a global contact
lens and solution manufacturer where he was responsible for its world-wide
human resources function. Mr. Reasner received a B.A. from Monmouth College.
Mr. Cabot has served as a Director of the Company since January 1997. He has
served as president of Samuel Cabot Inc., a manufacturer and marketer of
premium quality exterior stains and architectural coatings, since 1969. He is
also on the board of directors of Plasticolors, Inc. and Blue Cross/Blue
Shield of Massachusetts, Inc., the National Paint and Coatings Association and
the Associated Industries of Massachusetts. Mr. Cabot received an A.B. from
Dartmouth College and an MBA from Boston University.
Mr. Rossetti has served as a Director of the Company since November 1995.
Since February 1997, he has served as President of Riverside Capital Partners,
Inc., a venture capital investment firm. From 1976 until September 1994, Mr.
Rossetti was President, Chief Executive Officer and a director of Nature Food
Centers, Inc. Mr. Rossetti is also on the Board of Directors of General
Nutrition Co. and City Sports, the advisory board of Hamilton Associates and
serves as a trustee of Northeastern University. He received a B.S. from
Northeastern University.
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board. All directors hold office until the
next annual meeting of the Company, or until their successors have been duly
elected and qualified. There are no family relationships between any of the
executive officers or directors of the Company.
The Bylaws authorize a range of directors, numbering between five and nine.
Currently, the Company has designated a Board of five directors. The Company
is actively seeking two additional qualified directors, unaffiliated with the
Company, which process the Company anticipates will be completed within 12
months
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of this offering. Upon an increase in the number of directors to seven, the
holders of shares of Class B Common Stock will elect three directors and the
remaining four directors will be elected by holders of Class A and Class B
Common Stock, voting together. See "Description of Capital Stock."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors maintains an Audit Committee and a Compensation
Committee. The Audit Committee, consisting of Messrs. Rossetti and Cabot,
reviews the results and scope of the annual audit and the services provided by
the Company's independent auditors. The Compensation Committee, consisting of
Messrs. Rossetti and Cabot, establishes the compensation of officers of the
Company and administers the Company's compensation programs, including the
grant of stock options.
DIRECTOR COMPENSATION
The members of the Company's Board of Directors are reimbursed for
reasonable travel expenses incurred in attending Board meetings. In addition,
non-employee members of the Board of Directors receive a grant, upon their
initial appointment, of fully-vested options to purchase 5,000 shares of Class
B Common Stock and an annual grant, upon their re-election thereafter, of
fully-vested options to purchase 5,000 shares of Class B Common Stock under
the Company's Amended and Restated 1996 Equity Incentive Plan. See "-
Incentive Plans."
EMPLOYMENT AGREEMENTS
In December 1996, the Company entered into a three-year employment agreement
with James L. Bildner, the Company's Chairman of the Board and Chief Executive
Officer. The agreement provides for an annual base salary of $325,000,
quarterly incentive compensation totaling at least $100,000 per year upon the
achievement of certain targeted levels of earnings by the Company and benefits
under the Company's benefit plans. Mr. Bildner is also entitled to a $50,000
relocation loan, bearing interest at 5.75% per annum and forgivable over a
three-year period beginning on December 31, 1996 (the "Relocation Loan"), and
a monthly housing allowance of $2,750 (for a three-year period beginning
December 31, 1996), payable in advance upon request of Mr. Bildner. The
agreement also provides, among other things, that, if Mr. Bildner's employment
with the Company is terminated (i) by the Company for cause (as defined in the
agreement), other than Mr. Bildner's conviction of a felony, the Company will
pay to Mr. Bildner his base salary and benefits for a period of 24 months from
the date of termination; or (ii) by the Company without cause or by Mr.
Bildner for good reason (as defined in the agreement), the outstanding
principal balance and accrued interest under the Relocation Loan will be
forgiven, all outstanding unvested options held by Mr. Bildner will
immediately vest and the Company will pay Mr. Bildner a lump sum amount equal
to the discounted present value of 24 months of a base salary plus 100% of the
maximum amount of incentive compensation Mr. Bildner could have earned during
the year in which the termination occurs. Benefits substantially similar to
those set forth in clause (ii) above are provided in the event of termination
of Mr. Bildner's employment due to death or disability and, upon any event of
termination, the Company will take all action required to release Mr. Bildner
from any personal guaranties of Company indebtedness. Pursuant to this
agreement Mr. Bildner also received an option to purchase 80,000 shares of
Class A Common Stock and 120,000 shares of Class B Common Stock at an exercise
price equal to 100% of the fair market value of such stock on the date of
grant, which vested immediately. He also received an option for 120,000 shares
of Class A Common Stock and 180,000 shares of Class B Common Stock, which
vests ratably on the first three annual anniversaries of the date of grant,
except that 33.3% of the option vests upon completion of this offering (the
"Bildner Repurchaseable Option"). The Bildner Repurchaseable Option was
exercised by Mr. Bildner prior to vesting and is subject to a right of
repurchase by the Company at its exercise price until vested. Mr. Bildner's
employment agreement was amended in September 1997 to extend its term through
August 1, 2001. Beginning in January 2000, the agreement provides for a
minimum base salary of the greater of $375,000 or $50,000 greater than the
highest base salary previously paid to Mr. Bildner. See "-Executive
Compensation" and "Certain Transactions."
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In December 1996, the Company entered into a three-year employment agreement
with William G. Barton, the Company's President and Chief Operating Officer.
The agreement provides for an annual base salary of $225,000, quarterly
incentive compensation totaling at least $75,000 per year upon the achievement
of certain targeted levels of earnings by the Company and benefits under the
Company's benefit plans. Mr. Barton is also entitled to an education loan up
to $50,000, bearing interest at 5.75% per annum, forgivable over approximately
three years (the "Education Loan"). The agreement also provides, among other
things, that, if Mr. Barton's employment with the Company is terminated (i) by
the Company for cause (as defined in the agreement), other than Mr. Barton's
conviction of a felony, the Company will pay to Mr. Barton his base salary and
benefits for a period of 24 months from the date of termination; or (ii) by
the Company without cause or by Mr. Barton for good reason (as defined in the
agreement), the outstanding principal balance and accrued interest under the
Education Loan will be forgiven, all outstanding unvested options held by Mr.
Barton will immediately vest and the Company will pay Mr. Barton a lump sum
amount equal to the discounted present value of 24 months of a base salary
plus 100% of the maximum amount of incentive compensation Mr. Barton could
have earned during the year in which the termination occurs. Benefits
substantially similar to those set forth in clause (ii) above are provided in
the event of termination of Mr. Barton's employment due to death or disability
and, upon any event of termination, the Company will take all action required
to release Mr. Barton from any personal guaranties of Company indebtedness.
Pursuant to this agreement, Mr. Barton received an option to purchase 120,000
shares of Class A Common Stock and 180,000 shares of Class B Common Stock, at
an exercise price equal to 110% of the fair market value of such stock on the
date of grant, which vests ratably on the first three annual anniversaries of
the date of grant, except that 33.3% of the option vests upon completion of
this offering (the "Barton Repurchaseable Option"). The Barton Repurchaseable
Option was exercised by Mr. Barton prior to vesting and is subject to a right
of repurchase by the Company at its exercise price until vested. Mr. Barton's
employment agreement was amended in September 1997 to extend its term through
August 1, 2001. See "-Executive Compensation" and "Certain Transactions."
In February 1997, the Company entered into an employment agreement with
George K. Ross, the Company's Senior Vice President and Chief Financial
Officer. The agreement terminates August 1, 2001 and provides for an annual
base salary of $175,000 and quarterly incentive compensation totaling at least
$25,000 per year upon the achievement of certain targeted levels of earnings
by the Company. In the event the agreement is terminated by Mr. Ross for good
reason (as defined in the agreement) or by the Company other than for cause
(as defined in the agreement), Mr. Ross will be entitled to receive his full
salary for a period of six months from the date of such termination and a pro
rata portion of the incentive compensation for which he could be eligible
during the year the termination occurs. The agreement also provides that the
Company offer an unsecured relocation loan of up to $20,000, bearing simple
interest at 5.81% per annum, which amount shall be forgiven over three years
so long as Mr. Ross remains employed by the Company. Pursuant to this
agreement, Mr. Ross received an option to purchase 105,000 shares of Class B
Common Stock, at an exercise price equal to 100% of the fair market value of
such stock on the date of grant, which option vests ratably on the first three
annual anniversaries of the grant. See "-Executive Compensation" and "Certain
Transactions."
36
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned by the Company's Chief Executive Officer and each of the four other
most highly compensated executive officers for the twelve-month period ended
September 30, 1997 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
------------------------------- -------------------
NUMBER OF SHARES
NAME AND PRINCIPAL POSITION OTHER ANNUAL UNDERLYING
(*) SALARY BONUS COMPENSATION OPTIONS GRANTED (#)
- --------------------------- -------- -------- ------------- -------------------
<S> <C> <C> <C> <C>
James L. Bildner(2)........ $242,293 $171,931 $43,749(3) 720,000
Chairman of the Board and
Chief Executive Officer
William G. Barton.......... 209,856 139,785 - 520,000
President and Chief
Operating Officer
Bryan D. McCaul............ 163,542 25,050 - 110,000
Vice President and Chief
Information/Technology
Officer
Bradley H. Nickels......... 163,542 25,000 - 110,000
Vice President, Government
Services SBU
F. Thomas Latham........... 131,250 23,125 - 77,500
Vice President, Commercial
Services SBU
</TABLE>
- --------
* Mr. George K. Ross, the Company's Senior Vice President, Chief Financial
Officer and a member of its Board of Directors, joined the Company in
February 1997. From February 1, 1997 through September 30, 1997, Mr. Ross
received salary of $109,375 and bonus of $17,500. In addition, the Company
granted Mr. Ross options to purchase 130,000 shares of the Company's Class
B Common Stock, forgave $4,065 of debt and accrued interest thereon owed by
Mr. Ross to the Company arising from a housing and relocation loan and paid
Mr. Ross certain other compensation totalling $2,500.
(1) In accordance with the rules of the Securities and Exchange Commission,
the compensation described in this table does not include perquisites and
other personal benefits received by the Named Executive Officers which do
not exceed the lesser of $50,000 or 10% of the total salary and bonus
reported for such Named Executive Officer.
(2) Mr. Bildner joined the Company as an employee in December 1996.
Previously, Mr. Bildner served as a consultant to the Company pursuant to
a consulting agreement between the Company and his employer, Argus
Corporation, pursuant to which Argus was paid $198,890 during the twelve
months ended December 31, 1996.
(3) Represents forgiveness of debt and accrued interest thereon owed by Mr.
Bildner to the Company arising from loans made for housing and relocation
expenses. See "Management - Employment Agreements" and "Certain
Transactions."
37
<PAGE>
The following table sets forth information concerning options granted to the
Named Executive Officers during the twelve-month period ended September 30,
1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (3)
-------------------------------------------------------- -----------------------
NUMBER OF
SHARES PERCENT OF
UNDERLYING TOTAL OPTIONS EXERCISE
OPTIONS GRANTED TO PRICE EXPIRATION
NAME GRANTED (#) EMPLOYEES (1) ($/SHARE)(2) DATE 5% 10%
- ---- ------------------ ------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
James L. Bildner........ 200,000 Class A(4) 7.2% $1.65 12/30/06 $ 208,000 $ 526,000
300,000 Class B(4) 10.8 1.65 12/30/06 312,000 789,000
120,000 Class A(5) 4.3 3.58 2/27/02 108,000 237,600
100,000 Class B(6) 3.6 5.77 7/30/02 145,000 321,000
William G. Barton....... 120,000 Class A(5) 4.3 1.82 12/30/01 55,200 121,200
180,000 Class B(5) 6.5 1.82 12/30/01 82,800 181,800
120,000 Class A(5) 4.3 3.58 2/27/02 108,000 237,600
100,000 Class B(6) 3.6 5.77 7/30/02 145,000 321,000
Bradley H. Nickels...... 100,000 Class B(7) 3.6 3.25 2/27/07 204,000 518,000
10,000 Class B(8) 0.4 5.25 7/31/07 33,000 83,700
Bryan D. McCaul......... 100,000 Class B(7) 3.6 3.25 2/27/07 204,000 518,000
10,000 Class B(8) 0.4 5.25 7/31/07 33,000 83,700
F. Thomas Latham........ 67,500 Class B(7) 2.4 3.25 2/27/07 137,700 349,650
10,000 Class B(8) 0.4 5.25 7/31/07 33,000 83,700
</TABLE>
OPTION GRANTS IN THE TWELVE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
- --------
(1) Based on an aggregate of 2,783,075 options granted to employees in the
twelve-month period ended September 30, 1997, including options granted to
the Named Executive Officers.
(2) The exercise price equals or exceeds the fair market value of the stock as
of the grant date as determined by the Board of Directors.
(3) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Class B Common Stock compounded annually for
the term of the option. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Class B Common Stock and
overall stock market conditions. There can be no assurance that the Class
B Common Stock will appreciate at any particular rate, or at all, in
future years.
(4) Options vest 40% on the date of grant and then 20% on each of the first
three anniversaries of the date of grant; provided, however, that 20% vest
upon completion of this offering. Certain of these options were exercised
in advance of vesting, subject to a right of repurchase by the Company at
such option's exercise price.
(5) Options vest 33.3% on each of the first three anniversaries of the date of
the option; provided, however, that 33.3% vest immediately upon completion
of this offering with the remaining shares vesting over the scheduled
period. Certain of these options were exercised in advance of vesting,
subject to a right of repurchase by the Company at such option's exercise
price.
(6) Options vest 25% on each of the first four anniversaries of the date of
grant.
(7) Options vest 33.3% on each of the first three anniversaries of the date of
grant.
(8) Options vest 25% on each of the first four anniversaries of the date of
grant.
38
<PAGE>
The following table sets forth certain information regarding option
exercises during the twelve-month period ended September 30, 1997 and the
value of unexercised options held as of September 30, 1997 by the Named
Executive Officers.
AGGREGATED OPTION EXERCISES IN THE TWELVE-MONTH PERIOD ENDED SEPTEMBER 30,
1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
SHARES END (#) FISCAL YEAR-END(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James L. Bildner........ 910,000 $1,256,000 10,000 100,000 $54,200 $323,000
William G. Barton....... 410,000 429,000 10,000 100,000 54,200 323,000
Bradley H. Nickels...... - - - 110,000 - 612,500
Bryan D. McCaul......... - - - 110,000 - 612,500
F. Thomas Latham........ - - - 77,500 - 425,625
</TABLE>
- --------
(1) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.
(2) The value of unexercised in-the-money options is calculated based on an
estimated fair market value at September 30, 1997 of $9.00 per share.
Amounts reflected are based on such estimated fair market value minus the
aggregate exercise price and do not necessarily reflect that the optionee
sold such stock.
INCENTIVE PLANS
Amended and Restated 1996 Equity Incentive Plan. The Company's Amended and
Restated 1996 Equity Incentive Plan (the "Plan") provides for grants to
employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and for grants to employees,
directors and consultants of non-qualified stock options, restricted stock and
stock bonuses. The purposes of the Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentives to the employees and consultants of the Company and to
promote business.
In October 1997, the Company amended the Plan to authorize a total of
2,989,333 shares of Class B Common Stock for issuance pursuant to the Plan. As
of September 30, 1997, options to purchase 1,713,075 shares of Class B Common
Stock were outstanding at a weighted average exercise price of $3.94, and upon
the closing of this offering 1,246,258 shares will be available for future
grant under the Plan.
The Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has the power to determine the terms of
the options granted, including the exercise price, the number of shares
subject to the option and the exercisability thereof, and the form of
consideration payable upon exercise. Except as permitted by the Compensation
Committee, options granted under the Plan are not transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. The exercise price of all incentive stock options
granted under the Plan must be at least equal to the fair market value of the
Class B Common Stock on the date of grant. The exercise price of non-qualified
stock options may not be less than 85% of the fair market value of a share of
Class B Common Stock on the date of grant. With respect to any employee who
owns stock possessing more than 10% of the voting power of all classes of the
Company's outstanding capital stock, the exercise price of any incentive stock
option granted to such employee must equal or exceed 110% of the fair market
value of the Class B Common Stock on the grant date and the term of the option
must not exceed five years. The aggregate fair market value of the Class B
Common Stock (determined at the time the option is granted) with respect to
which incentive stock options granted to an individual first become
exercisable in any calendar
39
<PAGE>
year shall not exceed $100,000. No more than 100,000 shares may be granted
pursuant to options to any one person under the Plan in any single fiscal
year. The term of all options (other than the incentive stock options referred
to in the second preceding sentence) may not exceed ten years.
The Compensation Committee may grant restricted shares, i.e., shares of
Class B Common Stock which are subject to transfer restrictions determined by
the Compensation Committee and subject to substantial risk of forfeiture
unless and until specific conditions established by the Compensation Committee
at the time of grant are met. Such conditions may be based on continuing
employment or achievement of pre-established performance goals, or both, as
determined by the Compensation Committee.
The Plan also authorizes the Compensation Committee to award or to offer
bonuses of shares of Class B Common Stock, either restricted or unrestricted,
and as current or deferred compensation, in lieu of all or any portion of the
cash compensation to which the employee is entitled, for a number of shares
having a value on the grant date equal to the amount of such cash
compensation.
Stock options and performance-based restricted stock granted under the Plan
are intended to be "performance-based compensation" and therefore not subject
to the deduction limitation of Code Section 162(m).
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and in the year ended December 31, 1996 adopted the disclosure-only
alternative described in Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Restricted and unrestricted stock
bonuses under the Plan would, however, involve an earnings charge.
The Plan was approved by the Board of Directors and shareholders and became
effective on February 10, 1997. Unless terminated sooner, the Plan will
terminate automatically on February 9, 2007. The Board of Directors has the
authority to amend, suspend or terminate the Plan, subject to any required
shareholder approval under applicable law. Notwithstanding the foregoing, no
amendment, suspension or termination of the Plan an interest granted to a
beneficiary under the Plan without such beneficiary's written consent.
Employee Stock Purchase Plan. In October 1997, the Company adopted an
Employee Stock Purchase Plan (the "Purchase Plan"). A total of 100,000 shares
of Class B Common Stock is reserved for issuance under the Purchase Plan. The
Purchase Plan, which is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code, permits eligible
employees to purchase shares of Class B Common Stock through payroll
deductions. Eligible employees may select a rate of payroll deduction between
1% and 10% of their cash compensation, but not more than 500 shares may be
purchased per participant on any purchase date. The price of stock purchased
under the purchase plan will be 85% of the lower of the fair market value of
the Common Stock at the beginning or the end of the six-month purchase period.
Employees will generally be eligible to participate if they are employed by
the Company on the beginning of a purchase period. Employees may end their
participation in the Purchase Plan at any time, and participation ends
automatically on termination of employment with the Company.
The Board of Directors may amend, suspend or terminate the Purchase Plan at
any time, to be effective immediately after the close of any purchase period.
However, the Board of Directors may not, without shareholder approval,
materially increase the number of shares of Common Stock available for
issuance, alter the purchase price formula so as to reduce the purchase price
payable for shares of Common Stock, or materially modify the eligibility
requirements for participation. The Purchase Plan will in all events terminate
on September 30, 2007, unless terminated earlier by the Board of Directors.
401(k) Plan. The Company maintains a 401(k) profit-sharing and deferred
contribution plan (the "401(k) Plan"). All employees of the Company who have
reached 21 years of age and who have
40
<PAGE>
completed one month of employment are eligible to participate in the 401(k)
Plan, pursuant to which each participant may contribute up to 15% of eligible
compensation (up to a statutorily prescribed annual limit of $9,500 in 1997).
Although the Company is permitted to contribute to the 401(k) Plan, it has not
made such contributions in the past. Participants vest in Company
contributions, if any, ratably on the third through seventh anniversaries of
the Company's contribution. All amounts contributed by employee participants
and earnings on these contributions are fully vested at all times. Employee
participants may elect to invest their contributions in various established
funds.
41
<PAGE>
CERTAIN TRANSACTIONS
The Company retained the consulting services of Argus Corporation ("Argus"),
a consulting firm for which the Company's Chairman of the Board and Chief
Executive Officer, James L. Bildner, was then a principal, for payments
aggregating $198,890 for services rendered during the year ended December 31,
1996.
The Company has made loans to certain employees in connection with their
exercise of stock options, the payment of taxes associated with those
exercises, relocation and housing expenses, educational expenses and personal
purposes. All loans are made pursuant to full-recourse, interest-bearing
promissory notes and certain notes are secured by a pledge of Common Stock
held by the employee. Interest rates range from 5.75% to 9.00% and vary based
on the term of the loan and its date of origination. Loans have a ten-year
term, with the exception of forgivable loans which have three-year terms and
are typically forgiven ratably over the note's term so long as the employee
remains with the Company. Loans to Mr. Bildner total $1,859,302, of which
amount $135,250 plus accrued interest may be forgiven. Loans to Mr. Barton
total $1,164,558, of which amount $47,677 plus accrued interest may be
forgiven. Loans to Mr. Ross total $20,000, which amount plus accrued interest
may be forgiven in its entirety. Loans to Mr. Latham total $10,000, which
amount plus accrued interest may be forgiven in its entirety. See
"Management - Employment Agreements."
The Company has entered into employment agreements with James L. Bildner,
its Chairman of the Board and Chief Executive Officer, William G. Barton, its
President and Chief Operating Officer and George K. Ross, its Senior Vice
President and Chief Financial Officer. See "Management - Employment
Agreements."
In August 1997, the Company entered into an agreement (the "Direct Sale
Agreement") with AH&H Partners Fund Limited Partnership, Wilson Hitchings (who
served as a director of the Company until September 1997), Leon Normand (who
served as a director of the Company until September 1997), Robert Butorac,
James Hinson and Greg Bowen (the "Selling Founders"), wherein the Selling
Founders agreed to sell a total of 95,238 shares of their Class A Common Stock
(which, upon the consummation of the sale converted to an equal number of
shares of Class B Common Stock) to the AH&H Partners Fund Limited Partnership.
Messrs. Hitchings and Normand each received approximately $113,636, before
payment of expenses associated with the transaction.
In August 1997, certain officers, directors and more than 5% shareholders
participated in the Company's offering of Series A Preferred Stock by
purchasing shares in the offering. Messrs. Barton, Cabot, McCaul, Nickels,
Ross and Rossetti purchased 9,254, 3,810, 3,810, 4,762, 4,762 and 9,524 shares
of Preferred stock, respectively, at a price of $5.25 per share.
The Company has entered into indemnification agreements with each of its
directors and executive officers. These agreements provide such persons with
indemnification, to the maximum extent permitted by the Company's Articles or
Bylaws or by the California General Corporation Law, against all expenses,
claims, damages, judgments and other amounts (including amounts paid in
settlement) for which such persons become liable as a result of acting in any
capacity on behalf of the Company, subject to certain limitations.
In August 1996, the Company repurchased 5,000 shares of its common stock
from one of its directors, William C. Lavin, upon his resignation, for a total
of $74,970. This amount is payable to Mr. Lavin pursuant to the terms of a
promissory note. The note bears interest at 8.25% per annum over five years
and principal and interest thereunder are payable monthly. The description of
this transaction does
42
<PAGE>
not reflect the Company's recapitalization, pursuant to which each outstanding
share of common stock was exchanged for forty shares of Class A Common Stock
and sixty shares of Class B Common Stock.
43
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of September 30, 1997, and as adjusted to
reflect the sale of Class B Common Stock offered hereby, certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to own beneficially more than five percent of
the outstanding shares of Common Stock; (ii) each director of the Company;
(iii) each of the Named Executive Officers; (iv) all officers and directors of
the Company as a group; and (v) each of the Selling Shareholders. Unless
otherwise indicated below, to the knowledge of the Company, all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock, except to the extent authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) NUMBER OF AFTER THE OFFERING(1)
-------------------------------- SHARES OF -----------------------------------
PERCENT OF CLASS B
EXECUTIVE OFFICERS, NUMBER NUMBER TOTAL COMMON NUMBER NUMBER OF PERCENT
DIRECTORS AND 5% OF CLASS A OF CLASS B VOTING STOCK OF CLASS CLASS B OF TOTAL VOTING
STOCKHOLDERS(2) SHARES SHARES(3) POWER(4) OFFERED(5) A SHARES SHARES POWER(4)
- ------------------- ---------- ---------- ---------- ---------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Bildner(6)..... 440,000 499,048 18.3% - 440,000 499,048 20.7%
William G. Barton....... 440,000 489,524 18.3 - 440,000 489,524 20.7
George K. Ross.......... - 4,762 * - - 4,762 *
F. Thomas Latham........ - - * - - - *
Bryan McCaul............ 200,000 303,810 8.7 84,930 115,070 303,810 6.2
Bradley H. Nickels...... 200,000 304,762 8.7 84,930 115,070 304,762 6.2
Samuel Cabot III........ - 18,810 * - - 18,810 *
Ronald L. Rossetti...... - 24,524 * - - 24,524 *
All officers and
directors as a group
(11 persons)........... 1,280,000 1,645,240 54.2 169,860 1,110,140 1,645,240 53.6
OTHER SELLING
SHAREHOLDERS(2)(7)
- ------------------
Greg Bowen.............. 187,013 300,000 8.2 67,710 119,303 300,000 6.3
Robert G. Butorac....... 178,355 300,000 7.8 84,930 93,425 300,000 5.2
Thomas Funk............. - 110,000 * 10,000 - 100,000 *
James B. Hinson......... 182,684 300,000 8.0 84,930 97,754 300,000 5.4
Wilson Hitchings........ 178,355 300,000 7.8 84,930 93,425 300,000 5.2
Leon Normand............ 178,355 300,000 7.8 84,930 93,425 300,000 5.2
Graham Pettifer......... 120,000 180,000 5.2 67,710 52,290 180,000 3.0
Deborah Rogers.......... - 75,000 * 20,000 - 55,000 *
</TABLE>
- --------
*Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting power and
investment power with respect to shares. Shares issuable upon the exercise
of outstanding stock options that are currently exercisable or become
exercisable within 60 days from September 30, 1997 are considered
outstanding for the purpose of calculating the percentage of voting power
of such person but not for the purpose of calculating the percentage of
voting power of any other person. The number of shares subject to stock
options that are exercisable within 60 days of September 30, 1997 is as
follows: Mr. Bildner - 10,000 shares of Class A Common Stock; Mr. Barton -
10,000 shares of Class A Common Stock; Mr. Cabot - 15,000 shares of Class
B Common Stock; Mr. Rossetti - 15,000 shares of Class B Common Stock; Mr.
Funk - 110,000 shares of Class B Common Stock; Ms. Rogers - 75,000 shares
of Class B Common Stock; and all officers and directors as a group: 20,000
shares of Class A Common Stock and 215,000 of Class B Common Stock.
(2) The address of each of the officers, directors and Selling Shareholders
listed above is c/o Tier Technologies, Inc., 1350 Treat Boulevard, Suite
250, Walnut Creek, CA 94596.
(3) Assumes the conversion of shares of Series A Preferred Stock into Class B
shares upon completion of this offering.
(4) In calculating the percentage of total voting power the voting power of
shares of Class A Common Stock (ten votes per share) and Class B Common
Stock (one vote per share) is aggregated.
(5) Assumes the conversion of 645,000 shares of Class A Common Stock into
shares of Class B Common Stock upon sale in this offering pursuant to the
terms of the Company's Articles. See "Description of Capital Stock."
(6) Includes 19,048 shares of Series A Preferred Stock held by Allen Bildner,
who is the father of James L. Bildner, as to which James L. Bildner
exercises investment discretion. James L. Bildner disclaims beneficial
ownership of such shares.
(7) Employees of the Company.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 2,304,762 shares of
Class A Common Stock, without par value, 42,600,000 shares of Class B Common
Stock, without par value, and 4,579,047 shares of Preferred Stock. As of
September 30, 1997, there were 2,284,762 shares of Class A Common Stock
outstanding held by ten holders of record, and 3,756,191 shares of Class B
Common Stock outstanding held by 41 holders of record.
CLASS A AND CLASS B COMMON STOCK
Voting Rights. Each share of Class A Common Stock entitles the holder to ten
votes and each share of Class B Common Stock entitles the holder to one vote
on all matters submitted to a vote of the shareholders. Except as described
below, holders of the Class A Common Stock and Class B Common Stock vote
together as a single class on all matters presented for a vote of the
shareholders. However, holders of the Class B Common Stock, voting as a
separate class, elect that number of Directors which is the largest integral
number which is less than 50% of the authorized number of Directors (i.e. two
of the present five directors) (the "Class B Specified Voting Right"). The
holders of Class A and Class B Common Stock, voting together, elect the
remaining members of the Board (i.e. three of the present five directors).
Immediately following this offering, the holders of Class A Common Stock will
retain effective control, and will continue to direct the business, management
and policies of the Company through holding 69.6% of the combined voting power
of the outstanding Class A and Class B Common Stock and the ability to elect
three of the currently authorized five members of the Board of Directors. The
holders of the Class A Common Stock also hold a number of shares of Class B
Common Stock that will represent 45.3% of the shares of Class B Common Stock
outstanding after this offering.
Directors may be removed with or without cause by the holders of the class
of stock that elected them or, to the extent permitted by applicable law, with
cause by the Board of Directors. A vacancy on the Board created by the removal
or resignation of a director or an increase in the authorized number of
directors may be filled either by directors in office or, if the directors
have not filled the vacancy, by the shareholders. Elections or appointments
for any such vacancies will give effect to the Class B Specified Voting Right.
Voting Trust. All of the current holders of Class A Common Stock (the
"Beneficiaries") have transferred their Class A Common Stock into a Voting
Trust. James L. Bildner and William G. Barton are the trustees of the Voting
Trust (the "Trustees") and have the exclusive right to vote all shares of
Class A Common Stock held in the Voting Trust. The Voting Trust has a term of
ten years and is renewable by consent of the Beneficiaries and the Trustees
during the last two years of the original or an extended term. The Voting
Trust terminates upon the earlier of the expiration of the term or in the
event of (i) an agreement of the Trustees to terminate; or (ii) the death of
the sole remaining Trustee, leaving no incumbent or identified successor.
Shares of Class A Common Stock transferred between Messrs. Bildner and
Barton remain within the Voting Trust. Shares of Class A Common Stock
transferred by any other Beneficiary, other than transfers of Class A Common
Stock into the Voting Trust or a transfer of such shares from the Voting Trust
back to the person or entity which transferred the shares into the Voting
Trust.
Dividends. Holders of Class A and Class B Common Stock are entitled to
receive dividends at the same rate if, as and when declared by the Board of
Directors of the Company out of any funds legally available therefore, subject
to the dividend rights of any Preferred Stock that may be issued and
outstanding. If a dividend is declared on either class of Common Stock, a
proportionate dividend must be paid to the other. All dividends must be paid
in cash or shares of Class B Common Stock.
Convertibility. Each share of Class A Common Stock is convertible at any
time at the option of the holder into Class B Common Stock on a share-for-
share basis. Shares of Class A Common Stock will be automatically converted
into shares of Class B Common Stock on the happening of certain transfers
45
<PAGE>
described below. Transfers of shares of Class A Common Stock are also subject
to the terms of the Voting Trust Agreement. The Class B Common Stock has no
conversion rights.
Each share of Class A Common Stock shall automatically be converted into
Class B Common Stock, on a share-for-share basis, in the event that the
beneficial or record ownership of such share of Class A Common Stock shall be
transferred (including, without limitation, by way of gift, settlement, will
or intestacy) to any person or entity except for (i) transfers between Messrs.
Bildner and Barton; or (ii) a transfer of Class A Common Stock into the Voting
Trust, or a transfer of such shares from the Voting Trust back to the person
or entity which transferred the shares into the Voting Trust.
Liquidation Rights. In the event of the liquidation of the Company, after
satisfaction of amounts payable to creditors and distribution to the holders
of outstanding Preferred Stock, if any, of amounts to which they may be
preferentially entitled, holders of the Class A Common Stock and Class B
Common Stock are entitled to share ratably in the assets available for
distribution to the shareholders.
Other Provisions. There are no preemptive rights to subscribe to any
additional securities which the Company may issue and there are no redemption
provisions or sinking fund provisions applicable to the Class A or Class B
Common Stock, nor is either class subject to calls or assessments by the
Company. All outstanding shares are, and all shares to be outstanding upon
completion of this offering will be, legally issued, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Series A
Preferred Stock will be converted into 420,953 shares of Class B Common Stock.
See Note 7 of Notes to Consolidated Financial Statements for a description of
currently outstanding Preferred Stock. Following the conversion, the shares
converted will be retired from the number of authorized shares of Preferred
Stock.
Under the Articles of Incorporation, as amended and restated upon the
closing of this offering (the "Restated Articles"), the Board of Directors
shall have the authority, without further action by the shareholders, to issue
up to 4,579,047 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon
any unissued shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series. The issuance of
Preferred Stock with voting or conversion rights could adversely affect the
voting power or other rights of the holders of Common Stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation
may have the effect of delaying, deferring or preventing a change in control
of the Company. The Company has no present intention to issue any Preferred
Stock.
BYLAW PROVISIONS
The Company's Bylaws provide that special meetings of the shareholders may
be called only by the Board of Directors, the Chairman of the Board, the
President, the Chief Executive Officer of the Company, or by one or more
shareholders holding shares entitled to cast not less than 10% of the
aggregate votes entitled to be cast at such meeting. The Bylaws also provide
that any action which may be taken at any meeting of shareholders, subject to
certain exceptions relating to the election of directors, may be taken without
a meeting and without prior notice if written consents approving the action
are signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to take such action at a
meeting of shareholders. Accordingly, immediately following this offering, the
holders of Class B Common Stock will have insufficient voting power, in the
aggregate, to call special meetings of shareholders and the holders of the
Class A Common Stock may take certain actions by written consent without
formally convening a meeting of shareholders and without giving prior notice
to the holders of the Class B Common Stock. The Bylaws provide that
shareholders may not bring business before or nominate directors at a meeting
of shareholders unless certain advance notice requirements are
46
<PAGE>
satisfied. In addition, the Articles and Bylaws provide for the automatic
elimination of the cumulative voting rights of shareholders in the election of
directors as soon as the Company has 800 shareholders of record. Without
cumulative voting, the holders of a majority of the voting power of the Common
Stock can determine the composition of the Board of Directors.
REGISTRATION RIGHTS
The holders of 420,953 shares of Class B Common Stock ("Registration Rights
Holders") are entitled to certain rights with respect to registration of such
shares under the Securities Act, pursuant to an Investors' Rights Agreement
dated July 28, 1997. In particular, under certain circumstances and subject to
certain conditions, the Registration Rights Holders can require the Company to
register shares under the Act which right becomes exercisable one year from
the closing of this offering. The Registration Rights Holders were also
granted certain "piggy-back" registration rights, exercisable until July 27,
2002, whereby under certain circumstances and subject to certain conditions,
they may include shares in any Company registration of shares of Common Stock
under the Securities Act on a form which permits registration of shares by
selling shareholders. All Registration Rights Holders have waived registration
rights with respect to this offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class B Common Stock is ChaseMellon
Shareholder Services ("Chase"). Chase's address is 50 California Street, 10th
Floor, San Francisco, California 94111, and its telephone number is (415) 954-
9500.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial numbers of shares of Class B Common Stock of the
Company in the public market following this offering could adversely affect
the market price of the Class B Common Stock. Upon completion of this
offering, the Company will have outstanding 1,639,762 shares of Class A Common
Stock and 7,156,191 shares of Class B Common Stock. The Class A Common Stock
is convertible on a share-for-share basis into Class B Common Stock and must
be converted to effect any public sale of such stock. Of these shares, the
3,400,000 shares of Class B Common Stock sold in this offering will be freely
tradable without restriction under the Securities Act of 1933 (the "Securities
Act") except for any shares purchased by "affiliates" of the Company (as that
term is defined in Rule 144 under the Securities Act), which may generally
only be sold in compliance with Rule 144.
The 1,639,762 shares of Class A Common Stock and the remaining 3,756,191
shares of Class B Common Stock (the "Restricted Shares") were issued and sold
by the Company in private transactions in reliance upon exemptions under the
Securities Act. The Restricted Shares generally may be sold in the public
market only if registered under the Securities Act or sold in compliance with
Rule 144 or Rule 701.
Of the Restricted Shares, 374,042 shares of Class A Common Stock and
1,213,788 shares of Class B Common Stock will be eligible for sale in the
public market in reliance on Rule 144(k) immediately following the closing of
this offering and an additional 1,002,350 shares of Class A Common Stock and
1,300,920 shares of Class B Common Stock will be eligible for sale in the
public market pursuant to Rule 144 and Rule 701 under the Securities Act
beginning approximately 90 days after the date of this Prospectus.
Notwithstanding the foregoing, all of the Restricted Shares are subject to the
lock-up agreements described below.
Each of the Selling Shareholders, who will, upon the closing of this
offering, hold an aggregate of 779,762 shares of Class A Common Stock and
2,288,572 shares of Class B Common Stock, and options to purchase a total of
410,000 shares of Class B Common Stock, has agreed that they will not offer,
sell, contract to sell or otherwise dispose of any shares of Common stock
owned beneficially by them for a period of 365 days after the date of this
Prospectus, other than (i) with the prior written consent of Adams, Harkness &
Hill, Inc.; or (ii) a transfer of any or all of such Common Stock either (A)
during his or her lifetime, by bona fide gift, (B) upon his or her death, by
will or intestacy, or (C) to a trust, the beneficiaries of which are
exclusively the transferor or members of his or her immediate family, provided
that such transferee agrees in writing to be bound by the foregoing
restrictions.
Each executive officer, director, current shareholder or optionee, other
than the Selling Shareholders, who will, upon the closing of this offering,
hold an aggregate of 860,000 shares of Class A Common Stock and 1,467,619
shares of Class B Common Stock and options to purchase a total of 20,000
shares of Class A Common Stock and a total of 1,303,075 shares of Class B
Common Stock, has agreed that they will not offer, sell, contract to sell or
otherwise dispose of any shares of Common stock owned beneficially by them for
a period of 180 days after the date of this Prospectus, other than (i) with
the prior written consent of Adams, Harkness & Hill, Inc.; or (ii) a transfer
of any or all of such Common Stock either (A) during his or her lifetime, by
bona fide gift, (B) upon his or her death, by will or intestacy, or (C) to a
trust, the beneficiaries of which are exclusively the transferor or members of
his or her immediate family, provided that the transferee agrees in writing to
be bound by the foregoing restrictions.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates of the
Company, whose Restricted Shares have been fully paid for and held for at
least a year from the later of the date of the issuance by the Company or
acquisition from an affiliate of the Company, may sell such securities in
brokers' transactions or directly to market makers beginning approximately 90
days after the date of this Prospectus, provided the number of shares sold in
any three-month period does not exceed the greater of 1% of the then
outstanding shares of the Class B Common Stock (approximately 71,562 shares,
based on the number of shares to be outstanding
48
<PAGE>
after this offering) or the average weekly trading volume in the public market
during the four calendar weeks preceding the filing of the seller's Form 144.
Sales under Rule 144 are also subject to certain notice of sale requirements
and availability of current public information concerning the Company. After
two years have elapsed from the later of the issuance of Restricted Shares by
the Company or their acquisition from an affiliate of the Company, such shares
may be sold without limitation, pursuant to Rule 144(k), by persons who have
not been affiliates of the Company for at least three months. Rule 144 also
provides that affiliates who are selling shares that are not Restricted Shares
must nonetheless comply with the same restrictions applicable to Restricted
Shares with the exception of the holding period requirement.
Restricted Shares that have been issued in reliance on Rule 701 (such as
shares of Class B Common Stock issued under the Plan) may be resold by persons
other than affiliates of the Company, beginning approximately 90 days after
the date of this Prospectus, subject only to the manner of sale provisions of
Rule 144, and may be resold by affiliates of the Company under Rule 144
without compliance with its one-year holding period requirement.
Rule 144A under the Securities Act would permit, subject to certain
conditions, the sale by the current holders of Restricted Shares of all or a
portion of their shares to certain "qualified institutional buyers," as
defined in Rule 144A.
Certain shareholders of the Company hold registration rights. See
"Description of Capital Stock - Registration Rights." If such holders exercise
their demand registration rights and cause a large number of shares to be
registered and sold in the public market, such sales may have a material
adverse effect on the market price of the Class B Common Stock. If the Company
is required in a Company-initiated registration to register the shares held by
such holders pursuant to the exercise of their piggyback registration rights,
such sales may have a material adverse effect on the Company's ability to
raise needed capital.
At September 30, 1997, the Company had outstanding options to purchase
20,000 shares of Class A Common Stock and 1,713,075 shares of Class B Common
Stock, of which 20,000 shares of Class A Common Stock and 185,000 of Class B
Common Stock were exercisable. After the completion of this offering, the
Company intends to file a Form S-8 registration statement under the Securities
Act to register all shares of Class B Common Stock issuable under the Plan and
the Purchase Plan. The S-8 registration statement will become effective
immediately upon filing. Shares of Class B Common Stock issued pursuant to the
S-8 registration statement will be eligible for resale in the public market,
subject to the Rule 144 limitations applicable to affiliates of the Company.
Prior to this offering there has been no public market for the Class B
Common Stock of the Company and no prediction can be made as to the effect, if
any, that market sales of shares or the availability of shares for sale will
have on the market price of the Class B Common Stock prevailing from time to
time. Sales of substantial numbers of shares of Class B Common Stock in the
public market could adversely affect the market price of the Class B Common
Stock and could impair the Company's ability to raise capital through a sale
of its equity securities.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Adams,
Harkness & Hill, Inc. and NationsBanc Montgomery Securities, Inc. are acting
as representatives (the "Representatives"), has severally agreed to purchase
from the Company and the Selling Shareholders, the respective numbers of
shares of Class B Common Stock set forth opposite each Underwriter's name
below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS B
UNDERWRITER COMMON STOCK
----------- -----------------
<S> <C>
Adams, Harkness & Hill, Inc. ..............................
NationsBanc Montgomery Securities, Inc.....................
---------
Total.................................................... 3,400,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all shares offered hereby, if
any are taken.
The Underwriters propose to offer the shares of Class B Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Class B Common Stock
are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 510,000
additional shares of Class B Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 3,400,000 shares of Class
B Common Stock offered hereby. The Underwriters may exercise such option only
to cover over-allotments in connection with the sale of the 3,400,000 shares
of Class B Common Stock offered hereby.
The Company, all of the executive officers and directors of the Company, all
of the holders of Common Stock and certain of the option holders have agreed,
subject to certain exceptions, not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Adams,
Harkness & Hill, Inc. All Selling Shareholders have agreed, subject to certain
exceptions, not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock for a period of 365 days after the date of this
Prospectus without the prior written consent of Adams, Harkness & Hill, Inc.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
50
<PAGE>
In order to facilitate the offering of the Class B Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class B Common Stock. Specifically, the Underwriters
may over-allot the Class B Common Stock in connection with this offering,
creating a short position in the Class B Common Stock for their own account.
In addition, to cover over-allotments or to stabilize the price of the Class B
Common Stock, the Underwriters may bid for, and purchase, shares of the Class
B Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing Class B
Common Stock in this offering, if the Underwriters repurchase previously
distributed the Class B Common Stock in transactions to cover their short
positions, in stabilization transactions or otherwise. Finally, the
Underwriters may bid for, and purchase, shares of the Class B Common Stock in
market making transactions and impose penalty bids. These activities may
stabilize or maintain the market price of the Class B Common Stock above the
market level that may otherwise prevail. The Underwriters are not required to
engage in these activities, and may terminate any such activities at any time.
Prior to this offering, there has been no public market for the Class B
Common Stock. The initial public offering price will be negotiated among the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The Class B Common Stock has been approved for listing, subject to official
notice of issuance, on the Nasdaq National Market under the symbol "TIER."
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against, or contribute to losses arising out of, certain
liabilities, including liabilities under the Securities Act.
In July 1997, the Company issued 420,953 shares of Series A Preferred Stock,
resulting in aggregate proceeds of approximately $2.2 million. Certain
employees of Adams, Harkness & Hill, Inc., one of the Representatives,
purchased an aggregate of 38,574 shares of the Company's Series A Preferred
Stock for an aggregate purchase price of $203,000, which upon the closing of
this offering, will convert into 38,574 shares of the Company's Class B Common
Stock. For services as placement agent in connection with the Series A
Preferred Stock financing, Adams, Harkness & Hill, Inc. received $90,000
($68,000 net of certain expenses). In August 1997, AH&H Partners Fund Limited
Partnership, a related party to Adams, Harkness & Hill, Inc., purchased 95,238
shares of the Company's Class B Common Stock from certain of the Company's
shareholders for an aggregate purchase price of $429,000. See "Certain
Transactions."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Farella Braun & Martel LLP, San Francisco, California.
Certain legal matters with respect to this offering are being passed upon for
the Underwriters by Cooley Godward LLP, San Diego, California.
EXPERTS
The Consolidated Financial Statements of Tier Technologies, Inc. as of
December 31, 1996 and September 30, 1997 and each of the two years in the
period ended December 31, 1996 and for the nine-month period ended September
30, 1997 and the financial statements of Encore Consulting, Inc. as of
December 31, 1996 and for the period from April 15, 1996 (inception) through
December 31, 1996
51
<PAGE>
appearing in this Prospectus and the Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Albanycrest Limited as of June 30, 1997 and for
the period from November 13, 1996 (inception) through June 30, 1997 appearing
in this Prospectus and the Registration Statement have been audited by Ernst &
Young Chartered Accountants, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as expert in accounting and
audit.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Class B Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference to such exhibit. For further information with respect to the Company
and the Class B Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, NW, Judiciary Plaza,
Washington D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024 Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
New York, New York and Chicago, Illinois, and copies of all or any part
thereof may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission. The Registration Statement, including the
exhibits and schedules thereto, is also available at the Commission's web site
at www.sec.gov. Copies of reports, proxy and information statements and other
information regarding the Company will be available at the Commission's web
site.
52
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TIER TECHNOLOGIES, INC.
<TABLE>
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Shareholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
ENCORE CONSULTING, INC.
Report of Independent Auditors........................................... F-21
Balance Sheet............................................................ F-22
Statement of Income...................................................... F-23
Statement of Shareholders' Equity........................................ F-24
Statement of Cash Flows.................................................. F-25
Notes to Financial Statements............................................ F-26
ALBANYCREST LIMITED
Report of Independent Auditors........................................... F-28
Balance Sheet............................................................ F-29
Statement of Income...................................................... F-30
Statement of Shareholders' Equity........................................ F-31
Statement of Cash Flows.................................................. F-32
Notes to Financial Statements............................................ F-33
SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
Introduction............................................................. F-35
Consolidated Statement of Income for the Nine Months Ended September 30,
1997.................................................................... F-36
Notes to Consolidated Financial Statements............................... F-37
</TABLE>
F-1
<PAGE>
TIER TECHNOLOGIES, INC.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Tier Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Tier
Technologies, Inc. as of December 31, 1996 and September 30, 1997, and the
related consolidated statements of income, shareholders' equity, and cash
flows for the years ended December 31, 1995 and 1996 and for the nine month
period ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tier Technologies, Inc. at
December 31, 1996 and September 30, 1997, and the results of its operations
and its cash flows for the years ended December 31, 1995 and 1996 and for the
nine month period ended September 30, 1997 in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Walnut Creek, California
October 6, 1997
F-2
<PAGE>
TIER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
EQUITY
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................ $ 305,546 $ 284,175
Accounts receivables, net of
allowance for doubtful accounts of
$-0- in 1996 and $50,000 in 1997... 2,978,119 5,905,809
Income taxes receivable............. 26,750 693,235
Prepaid expenses and other current
assets............................. 73,018 285,779
---------- -----------
Total current assets.................. 3,383,433 7,168,998
Equipment and improvements, net....... 337,184 773,666
Notes receivable from shareholders.... - 942,426
Deferred financing costs.............. - 223,597
Other assets.......................... 412,048 1,891,863
---------- -----------
Total assets.......................... $4,132,665 $11,000,550
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under bank lines of
credit............................. $ 223,116 $ 1,409,851
Accounts payable.................... 841,979 1,373,358
Accrued liabilities................. 35,390 652,322
Accrued compensation and related
liabilities........................ 785,378 1,228,295
Deferred revenue.................... 54,309 33,762
Notes payable to current and former
shareholders....................... 69,487 52,704
Capital lease obligations due within
one year........................... 42,690 31,198
Deferred income taxes............... 139,663 153,116
---------- -----------
Total current liabilities............. 2,192,012 4,934,606
Borrowings under bank lines of
credit............................... 432,916 1,526,441
Accrued royalties..................... - 59,385
Notes payable to current and former
shareholders......................... 96,960 57,244
Capital lease obligations, less
current portion...................... 46,193 24,944
Deferred income taxes................. 336,631 234,656
Commitments and contingent liabilities
Shareholders' equity:
Convertible preferred stock, no par
value;
Authorized shares - 5,000,000 (pro
forma - 4,579,047)
Issued and outstanding shares -
none in 1996 and
420,953 in 1997 (pro forma -
none)............................ - 1,892,223 $ -
Common stock, no par value;
Authorized shares - 14,904,762 (pro
forma - 14,259,762)
Issued and outstanding shares -
4,300,000 in 1996 and 5,620,000
in 1997 (pro forma - 6,040,953)... 78,812 2,948,852 4,841,075
Notes receivable from shareholders.. (94,830) (2,253,430) (2,253,430)
Foreign currency translation
adjustment......................... - (40,198) (40,198)
Retained earnings................... 1,043,971 1,615,827 1,615,827
---------- ----------- -----------
Total shareholders' equity............ 1,027,953 4,163,274 $ 4,163,274
---------- ----------- ===========
Total liabilities and shareholders'
equity............................... $4,132,665 $11,000,550
========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues...................... $12,373,309 $16,197,466 $11,790,231 $22,478,643
Cost of revenues.............. 9,065,832 11,616,662 8,668,805 14,916,846
----------- ----------- ----------- -----------
Gross profit.................. 3,307,477 4,580,804 3,121,426 7,561,797
Costs and expenses:
Selling and marketing....... 626,954 975,236 576,967 1,836,082
General and administrative.. 1,560,589 2,573,942 1,774,601 4,397,315
Depreciation and
amortization............... 45,018 80,350 55,546 273,676
----------- ----------- ----------- -----------
Income from operations........ 1,074,916 951,276 714,312 1,054,724
Interest income............... 435 3,866 3,065 70,429
Interest expense.............. 61,504 77,625 53,468 169,299
----------- ----------- ----------- -----------
Income before income taxes.... 1,013,847 877,517 663,909 955,854
Provision for income taxes.... 570,336 351,007 265,563 383,998
----------- ----------- ----------- -----------
Net income.................... $ 443,511 $ 526,510 $ 398,346 $ 571,856
=========== =========== =========== ===========
Net income per share.......... $ 0.04 $ 0.07 $ 0.05 $ 0.08
=========== =========== =========== ===========
Shares used in computing net
income per share............. 12,440,955 7,367,256 7,599,092 6,977,113
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND THE NINE MONTHS ENDED SEPTEMBER
30, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK NOTES FOREIGN
------------------ ---------------------------------------------- RECEIVABLE CURRENCY
CLASS A CLASS B FROM TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS ADJUSTMENT EARNINGS
------- ---------- ---------- ---------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1994............. - $ - 4,600,000 $ 46,000 6,900,000 $ 69,000 $ - $ - $ 73,950
Retirement of
common stock and
assumption of
liabilities by
Tier Group
partners upon
the dissolution
of the
partnership..... - - (2,200,000) 82,662 (3,300,000) 123,993 (94,830) - -
Issuance of
common stock for
cash and notes
receivable...... - - 200,000 14,644 300,000 21,966 (31,610) - -
Repurchase of
common stock.... - - (400,000) (30,759) (600,000) (46,139) - - -
Net income...... - - - - - - - 443,511
------- ---------- ---------- ---------- ---------- ---------- ----------- -------- ----------
Balance at
December 31,
1995............. - - 2,200,000 112,547 3,300,000 168,820 (126,440) - 517,461
Repurchase of
common stock.... - - (480,000) (81,022) (720,000) (121,533) 31,610 - -
Net income...... - - - - - - - - 526,510
------- ---------- ---------- ---------- ---------- ---------- ----------- -------- ----------
Balance at
December 31,
1996............. - - 1,720,000 31,525 2,580,000 47,287 (94,830) - 1,043,971
Issuance of
Series A
convertible
preferred stock
for cash, net of
issuance costs
of $317,778..... 420,953 1,892,223 (95,238) (1,746) 95,238 1,746 - - -
Exercise of
stock options... - - 660,000 1,350,040 660,000 846,000 (2,196,040) - -
Tax benefit of
exercise of
stock options... - - - 269,600 - 404,400 - - -
Payment on notes
receivable...... - - - - - - 37,440 - -
Net income...... - - - - - - - - 571,856
Foreign currency
translation
adjustment...... - - - - - - - (40,198) -
------- ---------- ---------- ---------- ---------- ---------- ----------- -------- ----------
Balance at
September 30,
1997............. 420,953 $1,892,223 2,284,762 $1,649,419 3,335,238 $1,299,433 $(2,253,430) $(40,198) $1,615,827
======= ========== ========== ========== ========== ========== =========== ======== ==========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance at
December 31,
1994............. $ 188,950
Retirement of
common stock and
assumption of
liabilities by
Tier Group
partners upon
the dissolution
of the
partnership..... 111,825
Issuance of
common stock for
cash and notes
receivable...... 5,000
Repurchase of
common stock.... (76,898)
Net income...... 443,511
-------------
Balance at
December 31,
1995............. 672,388
Repurchase of
common stock.... (170,945)
Net income...... 526,510
-------------
Balance at
December 31,
1996............. 1,027,953
Issuance of
Series A
convertible
preferred stock
for cash, net of
issuance costs
of $317,778..... 1,892,223
Exercise of
stock options... -
Tax benefit of
exercise of
stock options... 674,000
Payment on notes
receivable...... 37,440
Net income...... 571,856
Foreign currency
translation
adjustment...... (40,198)
-------------
Balance at
September 30,
1997............. $4,163,274
=============
</TABLE>
See accompanying notes.
F-5
<PAGE>
TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -----------------------
1995 1996 1996 1997
----------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................... $ 443,511 $ 526,510 $ 398,346 $ 571,856
Adjustments to reconcile net
income to net cash (used in)
provided by operating
activities:
Depreciation and
amortization................ 45,018 80,350 55,547 273,676
Provision for doubtful
accounts.................... - - - 50,000
Deferred income taxes........ 570,336 (94,042) - (88,522)
Change in operating assets
and liabilities:
Accounts receivable......... (1,231,926) (420,868) (634,325) (2,739,995)
Income taxes receivable..... - (26,750) (5,261) (666,485)
Prepaid expenses and other
current assets............. 11,592 (51,186) (100,771) (213,861)
Other assets................ (9,405) (52,266) 281 (55,912)
Accounts payable and accrued
liabilities................ 14,661 487,793 534,951 1,234,267
Deferred revenue............ (20,972) 41,438 - (20,547)
----------- --------- --------- -----------
Net cash (used in) provided by
operating activities......... (177,185) 490,979 248,768 (1,655,523)
INVESTING ACTIVITIES
Purchase of equipment and
improvements................. (116,039) (145,449) (49,716) (553,867)
Notes receivable from
shareholders................. - - - (958,482)
Business combinations, net of
cash acquired................ - (152,008) - (1,384,387)
----------- --------- --------- -----------
Net cash used in investing
activities................... (116,039) (297,457) (49,716) (2,896,736)
FINANCING ACTIVITIES
Borrowings under bank lines of
credit....................... 443,322 688,116 312,307 10,533,862
Payment of borrowings on bank
lines of credit.............. (160,000) (450,000) (400,000) (8,253,602)
Repurchase of common stock.... (36,898) (36,635) (36,635) -
Net proceeds from issuance of
common stock................. 5,000 - - 37,440
Net proceeds from sale of
preferred stock.............. - - - 1,892,223
Deferred financing costs...... - - - (223,597)
Tax benefit of exercise of
stock option................. - - - 674,000
Payments on capital lease
obligations.................. (15,517) (46,594) (40,240) (32,741)
Borrowings under (payments on)
notes payable to
shareholders................. 35,000 (42,863) (34,484) (56,499)
----------- --------- --------- -----------
Net cash provided by (used in)
financing activities......... 270,907 112,024 (199,052) 4,571,086
Effect of exchange rate
changes on cash.............. - - - (40,198)
----------- --------- --------- -----------
Net (decrease) increase in
cash......................... (22,317) 305,546 - (21,371)
Cash at beginning of year..... 22,317 - - 305,546
----------- --------- --------- -----------
Cash at end of year........... $ - $ 305,546 $ - $ 284,175
=========== ========= ========= ===========
Supplemental disclosures of
cash flow information:
Cash paid during the year
for:
Interest..................... $ 54,760 $ 74,789 $ 53,468 $ 170,188
=========== ========= ========= ===========
Income taxes paid............ $ 800 $ 472,600 $ 322,600 $ 465,000
=========== ========= ========= ===========
Equipment acquired under
capital lease obligations... $ 130,512 $ 8,734 $ 8,734 $ -
=========== ========= ========= ===========
Retirement of common stock
and assumption of
liabilities by Tier Group
partners upon the
dissolution of the
partnership................. $ 111,825 $ - $ - $ -
=========== ========= ========= ===========
Common stock issued in
exchange for notes
receivable.................. $ 126,440 $ - $ - $ 2,196,040
=========== ========= ========= ===========
Repurchase of common stock in
exchange for forgiveness of
notes receivable............ $ - $ 31,610 $ 31,160 $ -
=========== ========= ========= ===========
Repurchase of common stock in
exchange for a note
payable..................... $ 40,000 $ 134,310 $ 134,310 $ -
=========== ========= ========= ===========
Accrued purchase price and
assumed liabilities related
to business combinations.... $ - $ - $ 427,049 $ 715,949
=========== ========= ========= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Tier Technologies, Inc. (the "Company") provides information technology
consulting, application development and software engineering services to large
companies and government entities.
The Company was formerly owned by Tier Group (a partnership) and its
partners. In November 1995, the partners of Tier Group transferred all of the
assets and liabilities of the partnership to the Company and simultaneously
dissolved the partnership. As a result of the transaction, the partners of
Tier Group retained identical ownership and voting percentages. The
transferred assets and liabilities of Tier Group were recorded at historical
cost.
Basis of Presentation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company translates the accounts of its
foreign subsidiaries using the local foreign currency as the functional
currency. The assets and liabilities of the foreign subsidiaries are
translated into U.S. dollars using exchange rates in effect at the balance
sheet date, revenues and expenses are translated using the average exchange
rate for the period, and gains and losses from this translation process are
credited or charged to shareholders' equity. Foreign currency transaction
gains and losses have not been material.
In September 1997, the Company changed its fiscal year end to September 30.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
Interim Financial Information
The interim financial statements for the nine months ending September 30,
1996 are unaudited but have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of its results of operations and cash flows for this period.
Operating results for the nine months ended September 30, 1996 and 1997 are
not necessarily indicative of the results that may be expected for any future
periods.
Revenue Recognition
The majority of the Company's revenues are from time and material contracts
and are recognized as services are performed. Revenues from fixed price
contracts are recognized using the percentage-of-completion method of contract
accounting based on the ratio of incurred costs to total estimated costs.
Actual results of contracts may differ from management's estimates and such
differences could be material. Most of the Company's contracts are terminable
by the client following limited notice and without significant penalty to the
client. The completion, cancellation or significant reduction in the scope of
a large project could have a material adverse effect on the Company's
business, financial condition and results of operations. Unbilled receivables
were $0 and $676,021 at December 31, 1996 and September 30, 1997,
respectively. Unbilled receivable for one customer accounted for 11% of total
accounts receivables at September 30, 1997.
F-7
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
REVENUE RECOGNITION - (CONTINUED)
Revenues derived from sales to governmental agencies were $799,211,
$2,709,706 and $10,133,147 for the years ended December 31, 1995 and 1996 and
the nine month period ending September 30, 1997, respectively.
Credit Evaluations and Significant Customers
The Company extends credit based on an evaluation of its customers'
financial condition and does not require collateral. The Company's historical
credit losses have not been significant.
During the nine months ending September 30, 1997, sales to three customers
accounted for 22%, 21% and 20% of total revenues. Accounts receivable balances
at September 30, 1997 relating to these three customers amounted to
$1,610,627. During 1996, sales to two customers accounted for 58% and 14% of
total revenues. Accounts receivable balances at December 31, 1996 relating to
these two customers amounted to $1,727,702. During 1995, sales to one customer
accounted for approximately 68% of total revenues.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation and amortization
are computed using the straight-line method over the shorter of the estimated
useful life of the asset or the lease term.
Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations, such as equipment and improvements, and intangible assets when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of the
assets.
Deferred Financing Costs
Deferred financing costs represent costs incurred in connection with this
proposed initial public offering of the Company's Class B common stock. This
amount will be recorded as a reduction of shareholders' equity upon the
successful completion of the initial public offering of Class B common stock.
Stock-Based Compensation
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and in the year ended December 31, 1996 adopted the
disclosure-only alternative described in Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes," ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under this method, deferred income tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using enacted tax rules and laws that
are expected to be in effect when the differences are expected to reverse.
F-8
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Net Income Per Share
Except as noted below, net income per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares from
stock options (using the treasury stock method) have been included in the
computation only when dilutive. Pursuant to applicable Securities and Exchange
Commission ("SEC") Staff Accounting Bulletins, common and common equivalent
shares (stock options and preferred stock) issued during the period commencing
12 months prior to the initial filing of a proposed public offering at prices
below the assumed public offering price have been included in the calculation
as if they were outstanding for all periods presented (using the treasury
stock method for stock options and warrants and the as-if-converted method for
preferred stock at the estimated initial public offering price).
Pro Forma Shareholders' Equity (unaudited)
The Company's pro forma shareholders' equity as of September 30, 1997 gives
effect to the automatic conversion of all preferred stock outstanding into an
aggregate of 420,953 shares of Class B common stock, effective upon the
closing of the Company's initial public offering.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("FAS 128"), which is required to be adopted in
fiscal year 1998. At that time the Company will be required to change the
method currently used to compute earnings per share and to restate earnings
per share for all prior periods.
Under the new requirements for calculating basic (primary) earnings per
share, the dilutive effect of common stock equivalents will be excluded.
Diluted earnings per share will include the dilutive effect of common stock
equivalents. The impact of FAS 128 will not be significant to the calculation
of primary or fully diluted earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130 "Reporting Comprehensive Income," ("FAS 130"), and Statement No. 131
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these Statements in fiscal year 1999.
FAS 130 establishes new standards for reporting and displaying comprehensive
income and its components. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these Statements is expected to
have no impact on the Company's consolidated financial position, results of
operations or cash flows.
F-9
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
2. EQUIPMENT AND IMPROVEMENTS
The components of equipment and improvements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Computer equipment and software............... $ 441,229 $ 870,180
Furniture, equipment and leasehold
improvements................................. 58,901 183,816
--------- ----------
500,130 1,053,996
Less accumulated depreciation and
amortization................................. (162,946) (280,330)
--------- ----------
$ 337,184 $ 773,666
========= ==========
</TABLE>
The cost of assets acquired under capital leases is $155,382 and $155,382
and the related accumulated amortization is $49,723 and $71,727 at December
31, 1996 and September 30, 1997, respectively.
3. OTHER ASSETS
The components of other assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Intangible assets, less accumulated
amortization of $1,020 in 1996 and $149,589
in 1997..................................... $347,833 $1,754,579
Other........................................ 29,535 105,736
Deposits..................................... 34,680 31,548
-------- ----------
$412,048 $1,891,863
======== ==========
</TABLE>
4. BANK LINES OF CREDIT
The Company has a credit agreement with a bank which provides for lines of
credit of up to $2,250,000 for general corporate purposes and $1,500,000 for
acquisition purposes (including up to $500,000 for stand-by letters of
credit). The lines of credit bear interest at the bank's prime rate (8.5% at
September 30, 1997) plus 1.5% and 1.75%, respectively. Total borrowings are
limited to the lesser of $3,750,000 or 85% of eligible accounts receivable and
are secured by the Company's assets. At December 31, 1996 and September 30,
1997, the outstanding borrowings were $555,532 and $2,595,553, respectively.
Interest payments are due monthly. At May 31, 1998 all outstanding principal
and remaining interest borrowed under the $2,250,000 line of credit becomes
due and payable. At December 31, 1997 all outstanding principal and remaining
interest borrowed under the $1,500,000 line of credit will convert into a term
loan to be repaid over four years.
The Company also has an equipment line of credit agreement with the same
bank. Under the agreement, the Company may borrow up to $399,500 through May
31, 1998 at variable interest rates of 1.75% above the bank's prime rate. At
December 31, 1996 and September 30, 1997, the Company has outstanding
borrowings of $100,500 and $252,440, respectively, of this amount. Interest
payments are due monthly and all outstanding principal and interest converts
into term loans to be repaid over three years every six months.
At September 30, 1997, the Company has an equipment term loan of $88,299
with the same bank which matures August 31, 2001 at a variable interest rate
of 1.75% above the bank's prime rate. Accrued interest and principal are due
monthly through maturity.
Certain executive officers have personally guaranteed the bank lines of
credit.
F-10
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
4. BANK LINES OF CREDIT - (CONTINUED)
Among other provisions, the bank lines of credit requires the Company to
maintain certain minimum financial ratios. At September 30, 1997, the Company
was not in compliance with certain financial ratios and has received a letter
from the bank waiving such noncompliance.
Payments on the outstanding balances of the lines of credit and term loan
will be made as follows:
<TABLE>
<S> <C>
Years ending September 30,
1998........................................................ $1,409,851
1999........................................................ 448,043
2000........................................................ 496,186
2001........................................................ 469,468
2002 and thereafter......................................... 112,744
----------
$2,936,292
==========
</TABLE>
5. NOTES PAYABLE TO CURRENT AND FORMER SHAREHOLDERS
The unsecured notes payable to current and former shareholders are payable
at interest rates ranging from 8.25% to 9.00%. The notes payable to current
and former shareholders are payable as follows:
<TABLE>
<S> <C>
Years ending September 30,
1998.......................................................... $ 52,704
1999.......................................................... 23,743
2000.......................................................... 25,824
2001.......................................................... 7,677
--------
$109,948
========
</TABLE>
6. COMMITMENTS
The Company leases its principal facilities and certain equipment under
operating and capital leases which expire at various dates through 2001.
Future minimum lease payments for noncancellable leases with terms of one year
or more are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- -------
<S> <C> <C>
Years ending September 30,
1998................................................. $ 325,079 $34,180
1999................................................. 304,442 18,624
2000................................................. 251,356 17,072
2001................................................. 224,376 -
2002................................................. 37,396 -
---------- -------
Total minimum lease payments......................... $1,142,649 69,876
==========
Less amounts representing interest................... (13,734)
-------
Present value of capital lease obligations........... 56,142
Less amounts due within one year..................... (31,198)
-------
$24,944
=======
</TABLE>
Rent expense for years ended December 31, 1995 and 1996 and the nine months
ending September 30, 1997 was $93,616, $163,700 and $183,823, respectively.
F-11
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
7. SHAREHOLDERS' EQUITY
Common Stock
In February 1997, the Company's Board of Directors authorized two classes of
common stock, Class A common stock (2,400,000 shares authorized) and Class B
common stock (12,600,000 shares authorized). Each then outstanding share of
common stock was converted into 40 shares of Class A common stock and 60
shares of Class B common stock. All share and per share information in the
accompanying financial statements has been retroactively adjusted to reflect
this conversion.
The holders of Class A and Class B common stock have 10 votes and 1 vote,
respectively. Each Class A common stock will convert into one share of Class B
common stock upon transfer, except in limited circumstances. Upon conversion
of shares of Class A common stock into shares of Class B common stock, such
Class A common stock shares are retired from the authorized shares and are not
reissuable by the Company. As a result of such conversions, the number of
authorized shares of Class A common stock is 1,659,762 at September 30, 1997.
Convertible Preferred Stock
In July 1997, the Company issued 420,953 shares of Series A preferred stock
at $5.25 per share resulting in net proceeds of approximately $1.9 million.
Each holder of Series A preferred stock may convert such holder's preferred
stock to shares of Class B common stock. The Series A preferred stock has the
same voting rights as the Class B common stock. Series A preferred stock is
initially convertible into one share of the Class B common stock, subject to
certain antidilution provisions. Additionally, Series A preferred stock is
automatically converted upon the earlier of the completion of an underwritten
public offering of common stock or as of June 30, 2003.
In the event of liquidation of the Company, holders of Series A preferred
stock are entitled to receive an amount of $5.25 per share prior and in
preference to any distribution of the Company assets to holders of Class A and
Class B common stock.
Stock Options
For the year ended December 31, 1996, the Company issued options to purchase
440,000 shares of Class A common stock and 660,000 shares of Class B common
stock. The options were issued to two officers of the Company at exercise
prices ranging from $0.12 to $1.82 per share. Options for 200,000 shares of
Class A common stock and 300,000 shares of Class B common stock vested upon
grant. The remaining options vest ratably over a three year period, except
that 33.3% of the options vest upon completion of this offering. These options
will expire in 2006. The Company has the right of first refusal under certain
limited circumstances to repurchase any unvested common stock purchased under
these options for a five year period from the date of grant at the respective
exercise price. These same two officers were granted options in February 1997
to purchase an additional 240,000 shares of Class A common stock at an
exercise price of $3.58 per share. As of September 30, 1997, options for
660,000 shares of Class A and 660,000 shares of Class B common stock had been
exercised at prices ranging from $0.13 to $3.58 per share (weighted average
exercise price of $1.66 per share) and options for 20,000 shares of Class A
common stock at an exercise price of $3.58 per share remain outstanding. The
weighted average fair value of options granted to these two employees during
the year ended December 31, 1996 and the nine months ended September 30, 1997
were $0.18 and $0.48 per share, respectively. At September 30, 1997 820,000
shares of nonvested stock issued pursuant to exercises were subject to
repurchase.
F-12
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
7. SHAREHOLDERS' EQUITY - (CONTINUED)
1996 Equity Incentive Plan
In February 1997, the Company adopted the Plan, under which the Board of
Directors may issue Class B incentive stock options to employees and
nonstatutory stock options, stock bonuses or the right to purchase restricted
stock to employees, consultants and outside directors. Upon the adoption of
the Plan, the Company reserved 1,250,000 shares of Class B common stock for
issuance under the Plan, of which 100,000 shares are reserved for outside
directors. The Board of Directors determines who shall receive awards, the
number of shares and the exercise price (which cannot be less than the fair
market value at date of grant for incentive stock options and other awards, or
85% of the fair market value for nonstatutory stock options). Options granted
under the Plan expire no more than 10 years from the date of grant and must
vest at a rate of at least 20% per year over 5 years from date of grant. The
Company has the right of first refusal with respect to common stock purchased
under these options for a five year period from the date of purchase and also
has the right to repurchase shares of Class B common stock acquired under the
Plan within ninety days of the termination of the participant's employment at
a repurchase price equal to the greater of the fair market value of the common
stock on the date of termination or the exercise price. Such right of first
refusal and repurchase right expire upon an initial public offering. In July
1997, the Plan was amended to increase the number of shares authorized for
issuance under the Plan to 1,811,714.
A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at December 31, 1996............... - $ -
Options granted....................................... 1,782,675 3.91
Options cancelled..................................... (39,600) 3.33
--------- -----
Options outstanding at September 30, 1997.............. 1,743,075 $3.93
========= =====
</TABLE>
At September 30, 1997, options to acquire 215,000 Class B common shares had
vested and no shares of nonvested stock issued pursuant to exercises of
options were subject to repurchase. The weighted average fair value of options
granted to employees under the Plan during the nine-month period ended 1997
was $0.84 per share. At September 30, 1997 options to purchase 68,639 shares
of Class B common stock were available for grant. The weighted average
remaining life of outstanding options under the Plan at September 30, 1997 is
9.00 years.
Pro Forma Disclosures of the Effect of Stock-Based Compensation
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options has equaled or exceeded the market price of the
underlying common stock on the grant date, no compensation expense has been
recorded.
F-13
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
7. SHAREHOLDERS' EQUITY - (CONTINUED)
Pro forma Disclosures of the Effect of Stock Based Compensation - (continued)
Pro forma information regarding net income and net income per share is
required by FAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of FAS 123. Under this
method, the estimated fair value of the options is amortized to expense over
the options' vesting period. The effect of applying FAS 123 fair value method
to the Company's stock-based awards results in net income and net income per
share are as follows:
<TABLE>
<CAPTION>
NINE MONTH
YEAR ENDED PERIOD ENDING
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Net income, as reported......................... $526,510 $571,856
Net income, pro forma .......................... 524,710 493,214
Net income per share, as reported............... 0.07 0.08
Net income per share, pro forma................. 0.07 0.07
</TABLE>
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
NINE MONTH
YEAR ENDED PERIOD ENDING
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Expected dividend yield......................... 0% 0%
Expected volatility............................. 0% 0%
Risk-free interest rate......................... 5.78% 6.48%
Expected life of the option..................... 1-5 years 1-5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimates, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
Because FAS 123 is applicable only to options granted subsequent to December
31, 1994, its adjusted effect will not be fully reflected until 1999.
8. ACQUISITIONS
On December 16, 1996, the Company acquired certain assets and liabilities of
Chicago Consulting Alliance, LLC ("CCA"). CCA was based in Chicago, Illinois
and provided consulting services for the custom design of software and
computer systems for business applications. The cost of the acquisition was
$170,329 and was accounted for as a purchase. Intangible assets recorded are
being amortized over a six year period.
F-14
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
8. ACQUISITIONS - (CONTINUED)
On December 31, 1996, the Company acquired certain assets and liabilities of
Encore Consulting, Inc. ("Encore"), a Missouri based S corporation, which
provided consulting services for computer systems integration on a government
contract. The cost of the acquisition totalled $934,268 and was accounted for
as a purchase. Intangible assets are being amortized over a six year period. A
contingent payment of $150,000 was accrued in July 1997, upon the first year's
renewal of the government contract, and an additional $150,000 is payable by
the Company upon the second year's renewal of this contract.
On January 2, 1997, the Company acquired certain assets and liabilities of
Five Points Consulting, LLC, ("Five Points") was based in Atlanta, Georgia.
Five Points custom designed software and computer systems for special business
applications. The cost of the acquisition totalled $283,775 and was accounted
for as a purchase. Intangible assets recorded are being amortized over a six
year period.
On March 10, 1997 the Company acquired certain assets and liabilities of
Tangent Group, Pty. Limited, ("Tangent Group") an Australian entity which
provided computer systems consulting services. The cost of the acquisition
totalled $487,698 and the transaction was accounted for as a purchase.
Intangible assets recorded are being amortized over a six year period. In
addition, the Company will pay at least $120,000 in royalties over the first
two year period following the acquisition. The royalty is based on 3% of the
Company's gross revenues generated by its Australian operations . The maximum
royalties to be paid over the first three year period is approximately
$240,000.
On July 11, 1997, the Company acquired certain assets and liabilities of
Albanycrest, Limited, a United Kingdom private limited company, which provided
information and management consulting services on the design of software and
computer systems. The purchase price totalled $868,135 and the transaction was
accounted for as a purchase. Intangible assets recorded are being amortized
over a six year period. Contingent payments of up to $407,000 will be paid to
former shareholders if certain performance criteria are met.
The accompanying consolidated financial statements include the results of
operations of these acquired businesses from the periods subsequent to the
respective acquisition dates.
F-15
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
8. ACQUISITIONS - (CONTINUED)
Pro Forma Disclosure of Significant Subsidiaries (Unaudited)
The financial statements for the nine months ended September 30, 1997
include the operations of Encore for the entire period. The financial
statements for the year ended December 31, 1996 do not include any period of
operations of Encore. The financial statements for the year ended December 31,
1996 and the nine months ended September 30, 1997, do not include any period
of operations for Albanycrest. The following summary, prepared on a pro forma
basis, combines the consolidated results of operations of the Company as if
Encore had been purchased by the Company at its inception on April 15, 1996,
and as if Albanycrest had been purchased by the Company at its inception on
November 1, 1996, after including the impact of certain adjustments, such as
the unaudited pro forma adjustments for income taxes which would have been
recorded if Encore had not been an S corporation, based on tax laws in effect
during the applicable period and increased amortization expense due to
recording of intangible assets:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDING
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Revenues........................................ $18,217,583 $23,845,502
Net income...................................... 761,447 590,384
Net income per share............................ 0.11 0.08
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented and are not intended to be a projection of future results.
9. NOTES RECEIVABLE FROM SHAREHOLDERS
The Company's outstanding notes receivable are from certain officers who are
also shareholders of the Company. These notes bear interest at rates ranging
from 5.75% to 9.0% and have due dates ranging from three to ten years. Certain
of these notes with original principal amounts totalling $212,927 are being
forgiven in accordance with the terms of the officers' employment agreements
and have an aggregate balance of $190,869 at September 30, 1997.
In February 1997, the Company advanced a total of $2,196,040 to two
Shareholders, who are also executive officers of the Company, in connection
with the exercise of options to purchase common stock. These notes are due in
February 2007, bear interest at 6.99%, are secured and are full recourse.
F-16
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
10. SEGMENT AND GEOGRAPHIC AREAS
The Company operates in one industry segment, information technology
consulting, and markets its services in the United States, Australia and the
United Kingdom.
The following table presents a summary of operating information and certain
year end balance sheet information by geographic region:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDING
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Revenues:
United States...................... $12,373,309 $16,197,466 $19,406,743
Australia.......................... - - 2,048,493
United Kingdom..................... - - 1,023,407
----------- ----------- -----------
Total................................ $12,373,309 $16,197,466 $22,478,643
=========== =========== ===========
Income from operations:
United States...................... $ 1,074,916 $ 951,276 $ 591,607
Australia.......................... - - 205,890
United Kingdom..................... - - 257,227
----------- ----------- -----------
Total................................ $ 1,074,916 $ 951,276 $ 1,054,724
=========== =========== ===========
Identifiable assets:
United States...................... $ 2,315,833 $ 4,132,665 $ 8,323,077
Australia.......................... - - 1,257,348
United Kingdom..................... - - 1,420,125
----------- ----------- -----------
Total................................ $ 2,315,833 $ 4,132,665 $11,000,550
=========== =========== ===========
</TABLE>
11. INCOME TAXES
The domestic and foreign components of income before income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDING
------------------- SEPTEMBER 30,
1995 1996 1997
---------- -------- -------------
<S> <C> <C> <C>
United States............................ $1,013,847 $877,517 $491,566
Foreign.................................. - - 464,288
---------- -------- --------
Total.................................... $1,013,847 $877,517 $955,854
========== ======== ========
</TABLE>
F-17
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
11. INCOME TAXES - (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
at December 31, 1996 and September 30, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Deferred tax liabilities:
Accrual basis to cash basis adjustments...... $499,213 $374,412
Depreciation................................. 34,328 46,580
Other........................................ 226 113,100
-------- --------
Total deferred tax liabilities................. 533,767 534,092
Deferred tax assets:
Vacation accruals............................ 21,593 72,182
Accrued expenses............................. - 20,435
Accrued revenue.............................. 21,724 2,032
Accrued rent................................. 14,156 11,738
Intangibles.................................. - 19,933
Accounts receivable allowance................ - 20,000
-------- --------
Total deferred tax assets...................... 57,473 146,320
-------- --------
Net deferred tax liabilities................... $476,294 $387,772
======== ========
</TABLE>
Effective January 1, 1996, the Company changed from the cash to the accrual
method of accounting for income tax purposes. Differences in income tax basis
existing at that date are being amortized to taxable income over a four year
period.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDING
----------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Current:
Federal................................. $ - $373,151 $252,394
State................................... - 71,898 65,844
Foreign................................. - - 154,282
-------- -------- --------
- 445,049 472,520
Deferred (benefit):
Federal................................. 480,021 (74,646) (75,358)
State................................... 90,315 (19,396) (13,164)
-------- -------- --------
570,336 (94,042) (88,522)
-------- -------- --------
Total provision for income taxes.......... $570,336 $351,007 $383,998
======== ======== ========
</TABLE>
F-18
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
11. INCOME TAXES - (CONTINUED)
The effective tax rate differs from the applicable U.S. statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDING
--------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
U.S. statutory federal tax rate.......... 34% 34% 34%
State taxes, net of federal tax benefit.. 6 6 6
Deferred income taxes recorded upon
dissolution of Tier Group............... 16 - -
------ ------ ---
Effective tax rate....................... 56% 40% 40%
====== ====== ===
</TABLE>
Prior to December 31, 1994, earnings of the Company accrued to Tier Group
for income tax purposes through consulting and management agreements. Any U.S.
federal and state income taxes on the earnings of the partnership were payable
by the partners and, accordingly, no provision for U.S. federal or state
income taxes was made for those years, with the exception of minimum state
franchise taxes. Effective January 1, 1995, the Company terminated its
consulting and management agreements with Tier Group. In connection with the
dissolution of Tier Group and the transfer of all of its assets and
liabilities, the Company recorded deferred income taxes related to temporary
differences associated with the transfer of assets and liabilities. The
recording of such deferred income taxes resulted in a charge to the provision
for income taxes of approximately $165,000 in the year ended December 31,
1995.
12. RETIREMENT PLAN
The Company maintains a savings plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan"). Under the 401(k) Plan, participating
employees may defer a portion of their pretax earnings up to the Internal
Revenue Service annual contribution limit. The Company's contributions to the
401(k) Plan are discretionary. The Company has not contributed any amounts to
the 401(k) Plan to date.
13. SUBSEQUENT EVENTS
Proposed Public Offering of Common Stock
On October 1, 1997, the Board of Directors authorized the Company to proceed
with an initial public offering of the Company's Class B common stock. If the
offering is consummated under the terms presently anticipated, all of the
outstanding shares of convertible preferred stock at September 30, 1997 will
automatically convert into shares of Class A common stock. In addition, the
Board of Directors authorized an increase in the number of authorized Class B
common shares to 42,600,000, subject to shareholder approval.
1996 Equity Incentive Plan
On October 1, 1997, the Board of Directors increased the authorized shares
of Class B Common Stock for issuance under the Plan to 2,989,333, subject to
shareholder approval, to be effective upon the Company's initial public
offering of Class B common stock.
F-19
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
13. SUBSEQUENT EVENTS - (CONTINUED)
Employee Stock Purchase Plan
On October 1, 1997, the Company's Employee Stock Purchase Plan was adopted
by the Board of Directors, subject to shareholder approval, to be effective
upon the completion of the Company's initial public offering of its common
stock. The Company has reserved a total of 100,000 shares of Class B common
stock for issuance under the plan. Eligible employees may purchase common
stock at 85% of the lesser of the fair market value of the Company's Class B
common stock on the first day or the last day of the applicable purchase
period.
Voting Trust
All of the current Class A shareholders (the "Beneficiaries") have
transferred their Class A common stock into a voting trust. The Company's
Chief Executive Officer and President are the trustees of the voting trust
(the "Trustees") and have the exclusive right to vote all shares of Class A
common stock held in the voting trust. The voting trust has a term of 10 years
and is renewable by consent of the Beneficiaries and the Trustees during the
last 2 years of the original or an extended term. The voting trust terminates
upon the earlier of the expiration of the term or in the event of (i) an
agreement of the Trustees to terminate or (ii) the death of the sole remaining
Trustee, leaving no incumbent or identified successor.
F-20
<PAGE>
ENCORE CONSULTING, INC.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Encore Consulting, Inc.
We have audited the accompanying balance sheet of Encore Consulting, Inc. as
of December 31, 1996, and the related statements of income, shareholders'
equity, and cash flows for the period from April 15, 1996 (inception) through
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Encore Consulting, Inc. at
December 31, 1996, and the results of its operations and its cash flows for
the period from April 15, 1996 (inception) through December 31, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Walnut Creek, California
September 8, 1997
F-21
<PAGE>
ENCORE CONSULTING, INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 213,726
Accounts receivable, including $537,530 unbilled.................. 1,039,731
----------
Total current assets................................................ 1,253,457
Other assets........................................................ 17,125
----------
Total assets........................................................ $1,270,582
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under bank line of credit.............................. $ 440,713
Accounts payable and accrued liabilities.......................... 191,540
Accrued payroll and related expenses.............................. 44,822
----------
Total current liabilities........................................... 677,075
Commitments
Shareholders' equity:
Common stock, $10 par value; 3,000 shares authorized, 300 shares
issued and outstanding........................................... 3,000
Additional paid-in capital........................................ 210,000
Retained earnings................................................. 380,507
----------
Total shareholders' equity.......................................... 593,507
----------
Total liabilities and shareholders' equity.......................... $1,270,582
==========
</TABLE>
See accompanying notes.
F-22
<PAGE>
ENCORE CONSULTING, INC.
STATEMENT OF INCOME
FOR THE PERIOD FROM APRIL 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues............................................................ $1,873,907
Costs of revenues................................................... 1,389,182
----------
Gross Profit........................................................ 484,725
Selling, general and administrative expenses........................ 104,218
----------
Net income.......................................................... $ 380,507
==========
Pro forma data (Unaudited--Note 2)
Historical net income............................................. $ 380,507
Pro forma income tax provision.................................... 146,941
----------
Pro forma net income.............................................. $ 233,566
==========
</TABLE>
See accompanying notes.
F-23
<PAGE>
ENCORE CONSULTING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock....... 300 $3,000 $ - $ - $ 3,000
Additional capital
contribution.................. - - 210,000 - 210,000
Net income for the period from
April 15, 1996 (inception)
through December 31, 1996..... - - - 380,507 380,507
--- ------ -------- -------- --------
Balance at December 31, 1996... 300 $3,000 $210,000 $380,507 $593,507
=== ====== ======== ======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
ENCORE CONSULTING, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income....................................................... $ 380,507
Adjustments to reconcile net income to net cash used in operating
activities:
Amortization................................................... 467
Changes in operating assets and liabilities:
Accounts receivable, including unbilled...................... (1,039,731)
Accounts payable and other accrued liabilities............... 236,362
-----------
Net cash used in operating activities............................ (422,395)
INVESTING ACTIVITY
Additions to other assets........................................ (17,592)
-----------
Net cash used in investing activity.............................. (17,592)
FINANCING ACTIVITIES
Borrowings under bank line of credit............................. 1,071,124
Repayments of borrowings under bank line of credit............... (630,411)
Issuance of common stock......................................... 3,000
Additional capital contribution.................................. 210,000
-----------
Net cash provided by financing activities........................ 653,713
-----------
Cash and cash equivalents at end of period....................... $ 213,726
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest....................... $ 2,095
===========
</TABLE>
See accompanying notes.
F-25
<PAGE>
ENCORE CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ACCOUNTING POLICIES
Organization and Basis of Presentation
Encore Consulting, Inc. ("Encore") was established on April 15, 1996 to
provide custom software development and information technology consulting
services. During the period from April 15, 1996 (inception) through December
31, 1996, all of Encore's revenues were derived from a contract with the State
of Missouri. Encore does not require collateral for receivables and invoices
are generally due within 45 days.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents
Encore considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Income Taxes
The shareholders have elected under Subchapter S of the Internal Revenue
Code to include Encore's taxable income in their personal income tax returns
for federal and state income tax purposes. Accordingly, Encore was not subject
to federal and state income taxes during the period presented.
Revenue Recognition
Encore revenues are from time and materials contracts, which are recognized
as services are performed.
2. PRO FORMA STATEMENT OF INCOME DATA (UNAUDITED)
The accompanying statement of income for the period from April 15, 1996
through December 31, 1996 includes an unaudited pro forma adjustment for
income taxes which would have been recorded if the Company had not been an S
corporation, based on the tax laws in effect during the period.
The pro forma income tax provision consists of the following for the period
from April 15, 1996 through December 31, 1996:
<TABLE>
<S> <C>
Current:
Federal......................................................... $121,997
State........................................................... 24,944
--------
$146,941
========
</TABLE>
F-26
<PAGE>
ENCORE CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. PRO FORMA STATEMENT OF INCOME DATA (UNAUDITED) - (CONTINUED)
The pro forma income tax provision would result in an effective tax rate
that differs from the statutory federal income tax rate as follows for the
period from April 15, 1996 through December 31, 1996:
<TABLE>
<S> <C>
Federal income tax at 34% statutory rate......................... $129,372
State income taxes, net of federal benefit....................... 16,463
Other............................................................ 1,106
--------
$146,941
========
</TABLE>
3. BANK LINE OF CREDIT
Encore has a credit agreement with a bank which provided for a revolving
line of credit of up to $850,000 through September 1, 1997. Borrowings under
the line of credit bore interest payable quarterly at the bank's prime rate
plus 1.5% (9.75% at December 31, 1996). Borrowings are secured by
substantially all of Encore's assets. Borrowings are guaranteed by the
shareholders of Encore. At December 31, 1996, outstanding borrowings under the
line of credit were $440,713.
4. LEASE COMMITMENT
Encore leases its principal facilities under an operating lease which
expires in October 1997. The lease may be renewed for up to two successive
terms of one year each at Encore's option, subject to 2% annual rent
increases. Future minimum lease payments for this noncancellable lease for the
year ending December 31, 1997 total $7,917. Rent expense for the period from
April 15, 1996 (inception) through December 31, 1996 was $1,583.
5. SUBSEQUENT EVENT
Effective December 31, 1996, Encore entered into an asset sale agreement
under which it sold substantially all of its net assets and assigned its
rights to its contract with the State of Missouri to Tier Technologies, Inc.
The financial statements do not include any adjustments to the recorded
amounts of assets and liabilities which may result from this transaction.
F-27
<PAGE>
ALBANYCREST LIMITED
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Albanycrest Limited
We have audited the accompanying balance sheet of Albanycrest Limited as of
June 30, 1997 and the related statements of income, shareholders' equity and
cash flows for the period from inception (November 13, 1996) to June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Albanycrest Limited at
June 30, 1997 and the results of its operations and its cash flows for the
period from inception (November 13, 1996) to June 30, 1997 in conformity with
United States generally accepted accounting principles.
Ernst & Young
Chartered Accountants
Reading, England
September 30, 1997
F-28
<PAGE>
ALBANYCREST LIMITED
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1997
---------------
<S> <C>
ASSETS
Current assets:
Cash........................................................ (Pounds) 31,796
Accounts receivable......................................... 109,141
Accrued revenue............................................. 49,152
---------------
Total assets.................................................. (Pounds)190,089
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................................ (Pounds)118,672
Accrued and other liabilities............................... 34,850
---------------
Total current liabilities..................................... 153,522
Shareholders' equity:
Ordinary shares - nominal value (Pounds)1 per share; at
amounts paid up; 1,000 shares authorized, issued and
outstanding at June 30, 1997............................... 1,000
Retained earnings........................................... 36,567
---------------
37,567
---------------
Notes receivable from shareholders.......................... (1,000)
---------------
Total shareholders' equity.................................... 36,567
---------------
Total liabilities and shareholders' equity.................... (Pounds)190,089
===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
ALBANYCREST LIMITED
STATEMENT OF INCOME
<TABLE>
<CAPTION>
INCEPTION
(NOVEMBER 13, 1996)
TO JUNE 30, 1997
-------------------
<S> <C>
Revenues.................................................... (Pounds)829,957
Operating expenses:
Cost of revenues ......................................... 778,345
General and administrative................................ 4,285
---------------
Total operating expenses.................................. 782,630
---------------
Income before provision for income taxes.................... 47,327
Provision for income taxes.................................. 10,760
---------------
Net income.................................................. (Pounds) 36,567
===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE>
ALBANYCREST LIMITED
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ORDINARY SHARES NOTES TOTAL
-------------------- RETAINED FROM SHAREHOLDERS'
SHARES AMOUNT EARNINGS SHAREHOLDERS EQUITY
------ ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of ordinary
shares to founders..... 1,000 (Pounds)1,000 (Pounds) - (Pounds)(1,000) (Pounds) -
Net income.............. - - 36,567 - 36,567
----- ------------- -------------- -------------- --------------
Balance at June 30,
1997................... 1,000 (Pounds)1,000 (Pounds)36,567 (Pounds)(1,000) (Pounds)36,567
===== ============= ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE>
ALBANYCREST LIMITED
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(NOVEMBER 13, 1996)
TO JUNE 30, 1997
-------------------
<S> <C>
Cash flows from operating activities
Net income.................................................. (Pounds)36,567
Adjustments to reconcile net income to net cash
provided by operating activities
Changes in assets and liabilities:
Accounts receivable..................................... (109,141)
Accrued revenue......................................... (49,152)
Accounts payable........................................ 118,672
Accrued and other liabilities........................... 34,850
--------------
Net cash provided by operating activities................... 31,796
Cash at beginning of period................................. -
--------------
Cash at end of period....................................... (Pounds)31,796
==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
ALBANYCREST LIMITED
NOTES TO FINANCIAL STATEMENTS
1 BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Albanycrest Limited ("Albanycrest") provides information technology ("IT')
consulting, conforming applications development and systems integration
services.
Albanycrest was incorporated in November 1996 under the laws of England and
Wales as a private limited company.
On July 11, 1997, the shareholders and directors of Albanycrest entered into
an agreement with Tier Technologies, Inc., a California corporation, for the
sale of Albanycrest's business. The accompanying financial statements do not
reflect any adjustments arising from this agreement.
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("US GAAP').
These financial statements do not comprise statutory accounts of Albanycrest
within the meaning of section 240 of the Companies Act 1985, as amended, of
Great Britain. Albanycrest has not prepared any such accounts.
Concentrations
Sales to one customer accounted for 100% of Albanycrest's revenue from the
date of inception to June 30, 1997. The loss of this customer would have a
material adverse effect on Albanycrest's business, financial condition and
results of operations.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could
differ from those estimates.
Revenue Recognition
Revenue is derived from time and material contracts and recognized during
the period in which the services are provided.
Income Taxes
Income taxes are computed using the liability method, in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, deferred income tax assets and liabilities are
determined based on temporary differences between the financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates
and laws.
2 ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------------
<S> <C>
Income tax authorities.................................... (Pounds)10,760
Accrued expenses.......................................... 14,926
Other..................................................... 9,164
--------------
(Pounds)34,850
==============
</TABLE>
F-33
<PAGE>
ALBANYCREST LIMITED
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
3 INCOME TAXES
Albanycrest is subject to taxes in the United Kingdom. The income tax expense
for the period ending June 30, 1997 consists entirely of a current charge
computed at the United Kingdom statutory rate.
4 RELATED PARTY TRANSACTIONS
Included within cost of revenues is an amount of approximately
(Pounds)313,000 relating to consulting costs invoiced by three companies;
Albanycrest shareholders are also shareholders and directors of these
companies.
F-34
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The selected unaudited pro forma condensed consolidated financial
information for the Company set forth below gives effect to the acquisition of
certain assets and liabilities of Albanycrest Limited ("Albanycrest"). The
Company acquired Albanycrest in July 1997. Accordingly, the results of
operations of Albanycrest is included in the Tier Technologies, Inc.
consolidated financial statements as of September 30, 1997 subsequent to the
acquisition date. Therefore, the results of operations of Albanycrest for the
six month period ended is reflected in these unaudited pro forma condensed
consolidated financial information. The historical financial information set
forth below has been derived from, and is qualified by reference to, the
financial statements of the Company and Albanycrest and should be read in
conjunction with those financial statements and the notes thereto included
elsewhere herein. The selected unaudited pro forma condensed consolidated
statement of income data for the nine month period ended September 30, 1997
set forth below gives effect to the acquisition as if it occurred on January
1, 1997. The selected unaudited pro forma condensed consolidated financial
information set forth below reflects certain adjustments, including
adjustments to reflect amortization of the intangible assets. The information
set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
unaudited pro forma condensed consolidated financial information set forth
below does not purport to represent what the consolidated results of
operations or financial condition of the Company would actually have been if
the Albanycrest acquisition and related transactions had in fact occurred on
such date or to project the future consolidated results of operations or
financial condition of the Company.
F-35
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMPANY PRO FORMA
FOR THE NINE ALBANYCREST FOR THE NINE
MONTHS ENDED FOR THE SIX PRO FORMA MONTHS ENDED
SEPTEMBER MONTHS ENDED BUSINESS SEPTEMBER
30, JUNE 30, COMBINATION 30,
1997 1997(1) COMBINED ADJUSTMENTS (2) 1997
------------ ------------ ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $22,478,643 $1,366,859 $23,845,502 $ - $23,845,502
Cost of revenues........ 14,916,846 1,281,856 16,198,702 - 16,198,702
----------- ---------- ----------- -------- -----------
7,561,797 85,003 7,646,800 - 7,646,800
Costs and expenses:
Selling and
marketing............ 1,836,082 - 1,836,082 - 1,836,082
General and
administrative....... 4,397,315 7,057 4,404,372 - 4,404,372
Depreciation and
amortization......... 273,676 - 273,676 46,976 320,652
----------- ---------- ----------- -------- -----------
Income from operations.. 1,054,724 77,946 1,132,670 (46,976) 1,085,694
Interest income......... 70,429 - 70,429 - 70,429
Interest expense........ 169,299 - 169,299 - 169,299
----------- ---------- ----------- -------- -----------
Income before income
taxes.................. 955,854 77,946 1,033,800 (46,976) 986,824
Provision for income
taxes.................. 383,998 17,721 401,719 (5,279) 396,440
----------- ---------- ----------- -------- -----------
Net income.............. $ 571,856 $ 60,225 $ 632,081 $(41,697) $ 590,384
=========== ========== =========== ======== ===========
Net income per
share(3)............... $ 0.08
===========
Shares used in computing
net income per
share(3)............... 6,977,113
===========
</TABLE>
See accompanying notes.
F-36
<PAGE>
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
Pro forma and offering adjustments for statement of operations for the nine
month period ended September 30, 1997 are as follows:
(1) The Albanycrest condensed statement of operations is presented after
translation using the local currency as the functional currency.
(2) Reflects the amortization of intangible assets acquired in the
Albanycrest acquisition recorded at $565,628 amortized over a six year
period.
(3) Net income per share is computed using the weighted average number of
shares of common stock outstanding plus common equivalent shares from
convertible preferred stock, that will be converted upon the closing of the
Company's proposed initial public offering (using the if-converted method).
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued by the Company at
proceeds below the assumed public offering price for the twelve-month
period prior to the offering have been included in the computation as if
they were outstanding for all periods presented (using the treasury stock
method at the estimated initial public offering price).
See Note 8 of the Tier Technologies, Inc. Consolidated Financial Statements
regarding contingent payments related to the Albanycrest acquisition.
F-37
<PAGE>
[Inside Back Cover Graphic: A representation of Tier's geographic coverage]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 13
Acquisitions............................................................. 13
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 24
Management............................................................... 33
Certain Transactions..................................................... 42
Principal and Selling Shareholders....................................... 44
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 51
Experts.................................................................. 51
Additional Information................................................... 52
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS B COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,400,000 SHARES
TIER TECHNOLOGIES, INC.
CLASS B COMMON STOCK
----------------
PROSPECTUS
----------------
ADAMS, HARKNESS & HILL, INC.
NATIONSBANC MONTGOMERY
SECURITIES, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, expected to be incurred by the
Registrant and the Selling Shareholders in connection with the offering
described in this Registration Statement. All amounts, except the SEC
registration fee, the NASD filing fee and the Nasdaq listing fee are
estimates.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 14,000
NASD Filing Fee.................................................. 5,000
Nasdaq Listing Fee............................................... 24,550
Printing and Engraving Expenses.................................. 150,000
Accounting Fees and Expenses..................................... 475,000
Legal Fees and Expenses.......................................... 350,000
Blue Sky Fees and Expenses (including fees of counsel)........... 2,500
Transfer Agent and Registrar Fees................................ 15,000
Director and Officer Insurance................................... 250,000
Miscellaneous Expenses........................................... 138,950
----------
Total.......................................................... $1,425,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IV of the Registrant's Amended and Restated Articles of
Incorporation (see Exhibit 3.1) provides for the indemnification of the
officers and directors of the Registrant to the fullest extent permissible
under California law. In addition, Article IX, Section 1 of the Registrant's
Amended and Restated Bylaws (see Exhibit 3.2) requires that the Registrant
indemnify, and, in certain instances, advance expenses to, its agents, with
respect to certain costs, expenses, judgments, fines, settlements and other
amounts incurred in connection with any proceeding, to the full extent
permitted by applicable law. Pursuant to its Articles and Bylaws, the
Registrant has entered into indemnification agreements with each of its
officers and directors, the form of which is filed as Exhibit 10.24.
Section 317(b) of the California Corporations Code (the "Corporations Code")
provides that a corporation may indemnify any person who was or is a party or
is threatened to be made a party to any "proceeding" (as defined in Section
317(a) of the Corporations Code), other than an action by or in the right of
the corporation to procure a judgment in its favor, by reason of the fact that
such person is or was a director, officer, employee or other agent of the
corporation (collectively, an "Agent"), against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if the Agent acted in good faith and in a manner the
Agent reasonably believed to be in the best interest of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct was unlawful.
Section 317(c) of the Corporations Code provides that a corporation shall
have power to indemnify any Agent who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact
that such person is or was an Agent, against expenses actually and reasonably
incurred by the Agent in connection with the defense or settlement of such
action if the Agent acted in good faith and in a manner such Agent believed to
be in the best interest of the corporation and its shareholders.
II-1
<PAGE>
Section 317(c) further provides that no indemnification may be made
thereunder for any of the following: (i) in respect of any claim, issue or
matter as to which the Agent shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such
proceeding is or was pending shall determine that such Agent is fairly and
reasonably entitled to indemnity for expenses, (ii) of amounts paid in
settling or otherwise disposing of a pending action without court approval and
(iii) of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
Section 317(d) of the Corporations Code requires that an Agent be
indemnified against expenses actually and reasonably incurred to the extent
the Agent has been successful on the merits in the defense of proceedings
referred to in subdivisions (b) or (c) of Section 317.
Except as provided in Section 317(d), and pursuant to Section 317(e),
indemnification under Section 317 shall be made by the corporation only if
specifically authorized and upon a determination that indemnification is
proper in the circumstances because the Agent has met the applicable standard
of conduct set forth in Section 317(b) or (c), by any of the following: (i) a
majority vote of a quorum consisting of directors who are not parties to the
proceeding, (ii) if such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion, (iii) approval of the
shareholders, provided that any shares owned by the Agent may not vote
thereon, or (iv) the court in which such proceeding is or was pending.
Pursuant to Section 317(f) of the Corporations Code, the corporation may
advance expenses incurred in defending any proceeding upon receipt of an
undertaking by the Agent to repay such amount if it is ultimately determined
that the Agent is not entitled to be indemnified.
Section 317(h) provides, with certain exceptions, that no indemnification
shall be made under Section 317 where it appears that it would be inconsistent
with a provision of the corporation's articles, bylaws, a shareholder
resolution or an agreement which prohibits or otherwise limits
indemnification, or where it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 317(i) authorizes a corporation to purchase and maintain insurance
on behalf of an Agent for liabilities arising by reason of the Agent's status,
whether or not the corporation would have the power to indemnify the Agent
against such liability under the provisions of Section 317.
Section 10 of the Underwriting Agreement between the Underwriters, the
Registrant and the Selling Shareholders (see Exhibit 1.1), provides that the
Underwriters shall indemnify and hold harmless the Selling Shareholders, the
Registrant from and against any liability caused by any materially misleading
or untrue statement or omission in the Registration Statement or Prospectus
furnished to the Registrant by the Underwriters for use therein.
In addition, Article IX, Section 1 of the Bylaws of the Registrant
authorizes the Registrant to purchase and maintain insurance on behalf of any
person indemnified by the Company. The Registrant currently maintains a
directors and officers liability insurance policy in the amount of $3,000,000.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Registrant has issued the following securities that were not registered under
the Act (issuances prior to February 1997 do not reflect the Company's
recapitalization pursuant to which each outstanding share of Common Stock was
exchanged for 40 shares of Class A Common Stock and 60 shares of Class B
Common Stock):
On March 31, 1995, the Registrant sold 5,000 shares of Common Stock to
Terrence King at a price of approximately $7.32 per share, for total
consideration of $36,609.67.
II-2
<PAGE>
In January 1997, the Company issued 3,000 shares of Common Stock to James L.
Bildner upon the exercise of a stock option with an exercise price of $12.48
per share. The Company received total consideration of $37,440.
From January 1996 to the present, the Company has granted options to
purchase a total of 680,000 shares of Class A Common Stock and 2,470,175
shares of Class B Common Stock at exercise prices ranging from $1.25 per share
to $9.00 per share.
In February 1997, 1,840,000 shares of Class A Common Stock and 2,760,000
shares of Class B Common Stock were issued to certain employees and directors
of the Registrant in exchange for 46,000 shares of Common Stock.
In February 1997, the Company issued 80,000 shares of Class A Common Stock
and 120,000 shares of Class B Common Stock to James L. Bildner upon the
exercise of a stock option with an exercise price of $1.65 per share. The
Company received total consideration of $330,000.
In February 1997, the Company issued 120,000 shares of Class A Common Stock
and 180,000 shares of Class B Common Stock to James L. Bildner upon the
exercise of a stock option with an exercise price of $1.65 per share. The
Company received total consideration of $495,000.
In February 1997, the Company issued 120,000 shares of Class A Common Stock
and 180,000 shares of Class B Common Stock to William G. Barton upon the
exercise of a stock option with an exercise price of $1.82 per share. The
Company received total consideration of $546,000.
In February 1997, the Company issued 110,000 shares of Class A Common Stock
to James L. Bildner upon the exercise of a stock option with an exercise price
of $3.58 per share. The Company received total consideration of $393,800.
In February 1997, the Company issued 110,000 shares of Class A Common Stock
to William G. Barton upon the exercise of a stock option with an exercise
price of $3.58 per share. The Company received total consideration of
$393,800.
In July 1997, pursuant to the terms of an equity financing of the Company
(the "Equity Financing"), the Registrant issued a total of 420,953 shares of
the Company's Series A Convertible Preferred Stock to the following
shareholders: Albermarle Partners; Allen I. Bildner; Allyn C. Woodward, Jr.;
Barry A. Sylvetsky; Benjamin A. Marsh; Bernard K. Chiu; Bradley H. Nickels;
Bryan McCaul; Donald Baron; Delaware Charter Guarantee & Trust Co. (TTEE) fbo
George K. Ross; Eunice Buckland; Francis H. Zenie; Frederick Mark D'Annolfo;
Ira Stepanian; John L. Newbold; John W. Adams; Josef von Rickenbach; Kevin M.
McCafferty; Larry Moore; Merchants' Fund; Nucon Capital Corporation; Peter
Goodman; Ralph Casazzone; Richard K. Bendetson; Richard N. Goldman & Co.;
Ronald E. English; Ronald L. Rossetti; Samuel Cabot III; Scott H. Cummings;
Sherif A. Nada; Steven J. Sheftel; Tucks Point LP; and William G. Barton. The
price per share was $5.25, for an aggregate consideration of $2,210,003. In
connection with the Equity Financing, Adams, Harkness & Hill, Inc. received a
commission of $68,374.00.
The shares of capital stock and other securities issued in the above
transactions were offered and sold in reliance upon the exemptions from
registration under Section 4(2) and Section 3(a)(9) of the Securities Act, or
Regulation D or Rule 701 promulgated under the Securities Act, relative to
sales by an issuer not involving any public offering. The recipients of the
above-described securities represented their intention to acquire the
securities for investment only and not with a view to distribution thereof.
Appropriate legends were affixed to the stock certificates issued in such
transactions. All recipients had adequate access, through employment or other
relationships, to information about the Registrant.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Articles of Incorporation
3.2* Amended and Restated Bylaws
4.1 Form of Class B Common Stock Certificate
4.2 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles and Amended and Restated Bylaws of the Registrant defining
rights of the holders of Class B Common Stock of the Registrant
5.1* Opinion of Farella Braun & Martel LLP, Counsel to the Registrant, as to
the legality of the shares being registered
10.1 Amended and Restated 1996 Equity Incentive Plan
10.2 First Amended and Restated Employment Agreement by and between the
Registrant and James L. Bildner, dated as of December 31, 1996
10.3 Second Amendment to Employment Agreement by and between the Registrant
and James L. Bildner, dated as of September 30, 1997
10.4 First Amended and Restated Employment Agreement by and between the
Registrant and William G. Barton, dated as of December 31, 1996
10.5 Second Amendment to Employment Agreement by and between the Registrant
and William G. Barton, dated as of September 30, 1997
10.6* Line of Credit by and between the Registrant and WestAmerica Bank
10.7 Investors' Rights Agreement by and among the Registrant and holders of
the Registrant's Series A Convertible Preferred Stock, dated as of July
28, 1997
10.8 Stock Purchase Agreement by and among the Registrant and holders of the
Registrant's Series A Convertible Preferred Stock, dated as of July 28,
1997
10.9 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of December 31, 1996
10.10 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of January 2, 1997
10.11 Full Recourse Secured Promissory Note and Amended and Restated Pledge
Agreement by and between the Registrant and James L. Bildner, dated as
of August 1, 1997
10.12 Full Recourse Promissory Note and Pledge Agreement by and between the
Registrant and James L. Bildner, dated as of February 28, 1997
10.13 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of May 31, 1997
10.14 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of May 31, 1997
10.15 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of July 15, 1997
10.16 Full Recourse Promissory Note by and between the Registrant and William
G. Barton, dated as of December 31, 1996
10.17 Full Recourse Secured Promissory Note, dated as of February 28, 1997,
and Amended and Restated Pledge Agreement, dated as of August 1, 1997,
by and between the Registrant and William G. Barton
10.18 Full Recourse Secured Promissory Note by and between the Registrant and
William G. Barton, dated as of February 28, 1997
10.19 Full Recourse Promissory Note by and between the Registrant and William
G. Barton, dated as of July 15, 1997
10.20 Full Recourse Promissory Note by and between the Registrant and F.
Thomas Latham, dated as of December 6, 1996
10.21 Employment Agreement by and between the Registrant and George K. Ross,
dated as of February 1, 1997
10.22 Full Recourse Promissory Note by and between the Registrant and George
K. Ross, dated as of February 3, 1997
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S> <C>
10.23 Office Lease by and between Urban West Business Park, Colony MB
Partners, L.P., as Landlord, and Tier Corporation, a California
Corporation, as Tenant, as amended July 29, 1997
10.24 Form of Indemnification Agreement
10.25 Tier Corporation 401(k) Plan, Summary Plan Description
10.26 Asset Purchase Agreement by and among the Registrant, Encore
Consulting LLC, Robert D. Beman, Thomas E. McCleod and David
Myers, dated as of December 31, 1996
10.27 Asset Purchase Agreement by and among the Registrant, Albanycrest
Limited, a Limited Liability Company Incorporated in England, and
Andrew David Armstrong, Thomas Thomson and Howard Moore, dated as
of July 11, 1997
10.28 Agreement for provision of consulting services by and between the
Registrant and Kaiser Foundation Health Plan, Inc.
10.29 Agreement for provision of consulting services by and between the
Registrant and the State of Missouri
10.30a Agreement for provision of consulting services by and between the
Registrant and Unisys Corporation (Arizona)
10.30b Agreement for provision of consulting services by and between the
Registrant and Unisys Corporation (Australia)
10.31 Form of Voting Trust Agreement
10.32* Employee Stock Purchase Plan
11.1 Statement Regarding the Computation of Net Income Per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Farella Braun & Martel LLP (included in legal opinion
filed as Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ernst & Young, Independent Auditors
24.1 Powers of Attorney (included in signature page in Part II of the
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WALNUT CREEK, STATE OF
CALIFORNIA, ON THE 10TH DAY OF OCTOBER, 1997.
Tier Technologies, Inc.
By: /s/ James L. Bildner
----------------------------------
JAMES L. BILDNER CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James L. Bildner, William G. Barton and George
K. Ross, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments, exhibits thereto and other
documents in connection therewith to this Registration Statement and any
subsequent registration statement filed by the Registrant pursuant to Rule
462(b) of the Securities Act, which relates to this Registration Statement)
and to file the same with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents,
or any of them, or their substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
/s/ James L. Bildner Chairman of the October 10, 1997
- -------------------------------- Board and Chief
JAMES L. BILDNER Executive Officer
(Principal
Executive Officer)
/s/ William G. Barton President, Chief October 10, 1997
- -------------------------------- Operating Officer
WILLIAM G. BARTON and Director
/s/ George K. Ross Senior Vice October 10, 1997
- -------------------------------- President, Chief
GEORGE K. ROSS Financial Officer
and Director
(Principal
Financial and
Accounting Officer)
/s/ Ronald L. Rossetti Director October 10, 1997
- --------------------------------
RONALD L. ROSSETTI
/s/ Samuel Cabot III Director October 10, 1997
- --------------------------------
SAMUEL CABOT III
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement........................................
3.1* Amended and Restated Articles of Incorporation........................
3.2* Amended and Restated Bylaws...........................................
4.1 Form of Class B Common Stock Certificate..............................
4.2 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles and Amended and Restated Bylaws of the Registrant defining
rights of the holders of Class B Common Stock of the Registrant.......
5.1* Opinion of Farella Braun & Martel LLP, Counsel to the Registrant, as
to the legality of the shares being registered........................
10.1 Amended and Restated 1996 Equity Incentive Plan ......................
10.2 First Amended and Restated Employment Agreement by and between the
Registrant and James L. Bildner, dated as of December 31, 1996 .......
10.3 Second Amendment to Employment Agreement by and between the
Registrant and James L. Bildner, dated as of September 30, 1997 ......
10.4 First Amended and Restated Employment Agreement by and between the
Registrant and William G. Barton, dated as of December 31, 1996 ......
10.5 Second Amendment to Employment Agreement by and between the
Registrant and William G. Barton, dated as of September 30, 1997 .....
10.6* Line of Credit by and between the Registrant and WestAmerica Bank.....
10.7 Investors' Rights Agreement by and among the Registrant and holders
of the Registrant's Series A Convertible Preferred Stock, dated as of
July 28, 1997.........................................................
10.8 Stock Purchase Agreement by and among the Registrant and holders of
the Registrant's Series A Convertible Preferred Stock, dated as of
July 28, 1997.........................................................
10.9 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of December 31, 1996 ............................
10.10 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of January 2, 1997 ..............................
10.11 Full Recourse Secured Promissory Note and Amended and Restated Pledge
Agreement by and between the Registrant and James L. Bildner, dated
as of August 1, 1997 .................................................
10.12 Full Recourse Promissory Note and Pledge Agreement by and between the
Registrant and James L. Bildner, dated as of February 28, 1997 .......
10.13 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of May 31, 1997..................................
10.14 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of May 31, 1997 .................................
10.15 Full Recourse Promissory Note by and between the Registrant and James
L. Bildner, dated as of July 15, 1997 ................................
10.16 Full Recourse Promissory Note by and between the Registrant and
William G. Barton, dated as of December 31, 1996 .....................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S> <C>
10.17 Full Recourse Secured Promissory Note, dated as of February 28, 1997,
and Amended and Restated Pledge Agreement, dated as of August 1,
1997, by and between the Registrant and William G. Barton.............
10.18 Full Recourse Secured Promissory Note by and between the Registrant
and William G. Barton, dated as of February 28, 1997..................
10.19 Full Recourse Promissory Note by and between the Registrant and
William G. Barton, dated as of July 15, 1997..........................
10.20 Full Recourse Promissory Note by and between the Registrant and F.
Thomas Latham, dated as of December 6, 1996...........................
10.21 Employment Agreement by and between the Registrant and George K.
Ross, dated as of February 1, 1997....................................
10.22 Full Recourse Promissory Note by and between the Registrant and
George K. Ross, dated as of February 3, 1997..........................
10.23 Office Lease by and between Urban West Business Park, Colony MB
Partners, L.P., as Landlord, and Tier Corporation, a California
Corporation, as Tenant, as amended July 29, 1997......................
10.24 Form of Indemnification Agreement.....................................
10.25 Tier Corporation 401(k) Plan, Summary Plan Description................
10.26 Asset Purchase Agreement by and among the Registrant, Encore
Consulting LLC, Robert D. Beman, Thomas E. McCleod and David Myers,
dated as of December 31, 1996.........................................
10.27 Asset Purchase Agreement by and among the Registrant, Albanycrest
Limited, a Limited Liability Company Incorporated in England, and
Andrew David Armstrong, Thomas Thomson and Howard Moore, dated as of
July 11, 1997.........................................................
10.28 Agreement for provision of consulting services by and between the
Registrant and Kaiser Foundation Health Plan, Inc.....................
10.29 Agreement for provision of consulting services by and between the
Registrant and the State of Missouri..................................
10.30a Agreement for provision of consulting services by and between the
Registrant and Unisys Corporation (Arizona)...........................
10.30b Agreement for provision of consulting services by and between the
Registrant and Unisys Corporation (Australia).........................
10.31 Form of Voting Trust Agreement........................................
10.32* Employee Stock Purchase Plan..........................................
11.1 Statement Regarding the Computation of Net Income Per Share...........
21.1 Subsidiaries of the Registrant........................................
23.1 Consent of Farella Braun & Martel LLP (included in legal opinion
filed as Exhibit 5.1)....................................................
23.2 Consent of Ernst & Young LLP, Independent Auditors....................
23.3 Consent of Ernst & Young, Independent Auditors........................
24.1 Powers of Attorney (included in signature page in Part II of the
Registration Statement)..................................................
27.1 Financial Data Schedule...............................................
</TABLE>
- --------
*To be filed by amendment
<PAGE>
NUMBER SHARES
TIER TIER TECHNOLOGIES, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR STATEMENTS RELATING
OF THE STATE OF CALIFORNIA TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
This Certifies that CUSIP
EXHIBIT 4.1
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF CLASS B COMMON STOCK, NO PAR VALUE, OF
=========================== TIER TECHNOLOGIES, INC. ============================
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ George K. Ross [CORPORATE SEAL APPEARS HERE] /s/ James L. Bildner
SENIOR VICE PRESIDENT AND CHAIRMAN OF THE BOARD AND
CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares and upon the
holders thereof as established, from time to time, by the Articles of
Incorporation of the Corporation and by any certificate of determination, and
the number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon written request and without
charge from the Secretary of the Corporation at its corporate headquarters.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________Custodian____________________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act______________________________________
in common (State)
UNIF TRF MIN ACT - ___________Custodian (until age_____)
(Cust)
_____________under Uniform Transfers
(Minor)
to Minors Act____________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,___________________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASIGNEE
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________ Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated__________________________
X _______________________________________
X _______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guranteed
By_____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKHOLDERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GURANTEE, MEDALLION
PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-18.
<PAGE>
EXHIBIT 10.1
TIER TECHNOLOGIES, INC.
1996 EQUITY INCENTIVE PLAN
(Amended and Restated effective upon the Closing of the Company's Initial Public
Offering under the Securities Act of 1933, as amended)
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees of and Consultants to the Company and its Affiliates, and Outside
Directors may be given an opportunity to benefit from increases in value of the
stock of the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses and (iv) restricted stock or
restricted stock units, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees of or Consultants to the Company or its
Affiliates, or Outside Directors, to secure and retain the services of new
Employees, Consultants and Outside Directors, and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options or (ii) stock bonuses, restricted
stock or restricted stock units granted pursuant to Section 7 hereof. All
Options shall be separately designated Incentive Stock Options or Nonstatutory
Stock Options at
1
<PAGE>
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan. In the absence of a Committee, the term
"Committee" means the Board.
(e) "Common Stock" means the authorized and unissued or reacquired shares
of the Company's Class B Common Stock.
(f) "Company" means Tier Technologies, Inc., a California corporation.
(g) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render services and who is compensated for such
services, provided that the term "Consultant" shall not include Outside
Directors.
(h) "Continuous Status as an Employee, Consultant or Outside Director"
means the employment or the relationship as a Consultant or Outside Director is
not interrupted or
2
<PAGE>
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Consultant or Outside Director shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board,
including sick leave, military leave, or any other personal leave; or (ii)
transfers between the Company and its Affiliates or their successors.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability, as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company, including a Director employed by
the Company. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means the value of the Common Stock of the Company
based on the closing price of the Common Stock on the Nasdaq National Market, or
other principal trading market of the Common Stock, on the day preceding the
date of grant.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
3
<PAGE>
(p) "Officer" means a person who is an "executive officer" of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
(r) "Option Agreement" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(s) "Optioned Stock" means the Common Stock of the Company subject to an
Option.
(t) "Optionee" means an Employee, Consultant or Outside Director who
holds an outstanding Option.
(u) "Outside Director" means a Director who is not an Employee.
(v) "Plan" means this 1996 Equity Incentive Plan, as amended.
(w) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect when discretion is being exercised with respect to the
Plan.
(x) "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, any restricted stock or any restricted stock unit.
4
<PAGE>
(y) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates the administration of the Plan to a Committee, as provided in
subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory
Stock Option, a stock bonus, restricted stock, restricted stock unit, or any
combination of the foregoing; the provisions of each Stock Award granted (which
need not be identical), including the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award; and the number of shares
with respect to which Stock Awards shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award in a manner
and to the extent it shall deem necessary or expedient to make the Plan fully
effective.
5
<PAGE>
(3) To amend the Plan as provided in Section 13.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company.
(c) The Board may delegate administration of the Plan to a committee
composed solely of not fewer than two (2) Board members (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, all the powers possessed by the
Board (and references in this Plan to the Board shall thereafter be to the
Committee, except where the context indicates otherwise); subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, the stock that may be sold or issued pursuant to Stock Awards
shall not exceed in the aggregate two million nine hundred and eighty-nine
thousand, three hundred and thirty-three (2,989,333) shares of the Company's
Common Stock, of which one hundred thousand (100,000) shares are reserved
exclusively for grant to Outside Directors. No more than 100,000 shares may be
granted to any one person pursuant to an Option or Options under the Plan in any
single fiscal year. If any Stock Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the stock
not acquired under such Stock Award shall revert to and again become available
for issuance under the Plan. In the event of an Optionee's use of already-
6
<PAGE>
owned shares of Common Stock in payment of the Option Price, or a portion of it,
only the net number of shares issued upon exercise of the Option shall be
considered issued under the Plan for the purposes of this Section 4.
5. ELIGIBILITY.
(a) General Rule. Incentive Stock Options may be granted only to
------------
Employees. Stock Awards other than Incentive Stock Options may be granted only
to Employees, including prospective employees, Consultants or Outside Directors.
(b) Automatic Grants to Outside Directors. In addition to any
--------------------------------------
discretionary grants of Stock Awards which may be granted to Outside Directors
from time to time, each Outside Director shall automatically be granted
Nonstatutory Stock Options as described in this Section 5(b). In addition,
subject to the Board's discretion, at the request of an Outside Director, such
Nonstatutory Stock Options may be granted instead to an entity wholly owned by
such Outside Director.
(i) Initial Grant. Effective February 28, 1997, each person who is
-------------
serving as an Outside Director on that date shall receive a Nonstatutory Stock
Option for 5,000 shares of Common Stock.
(ii) Grants to Future Outside Directors. Any other person who
----------------------------------
hereafter becomes an Outside Director after February 27, 1997 shall
automatically receive a Nonstatutory Stock Option for 5,000 shares of Common
Stock effective as of the date of their appointment or election to the Board.
7
<PAGE>
(iii) Subsequent Annual Grants. In addition to the grants described
------------------------
in subparagraphs (i) and (ii) above, each Outside Director who is re-elected to
serve as an Outside Director for an additional term shall automatically be
granted a Nonstatutory Option to purchase 5,000 shares of Common Stock as of the
date of such re-election.
(iv) Vesting. All Options granted pursuant to this Section 5(b)
-------
shall be fully vested on the date of grant
(v) Exercise Price. The exercise price of all Nonstatutory Stock
--------------
Options granted to Outside Directors under this Section 5(b) shall be at least
equal to one hundred percent (100%) of the Fair Market Value of the Common Stock
on the date of grant.
(c) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates, unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110 %) of the Fair Market Value of such stock at
the date of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate, subject to the provisions of
this Plan. The terms of separate Options need not be identical, but each Option
shall be subject to (through incorporation of
8
<PAGE>
provisions hereof by reference in the Option Agreement or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be determined in the discretion of the
Board (with the exception of the Nonstatutory Stock Options automatically
granted to Outside Directors pursuant to Section 5(b), which shall be granted at
an exercise price of at least one hundred percent (100%) of Fair Market Value of
the stock subject to the Option on the date the Option is granted).
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the option is exercised, or (ii) at
the discretion of the Board or the Committee, exercised either at the time of
the grant or exercise of the Option, (A) by tendering (either actually or by
attestation) Common Stock valued using the Fair Market Value on the date of
exercise, (B) by authorizing a third party to sell Common Stock (or a sufficient
portion thereof) acquired upon exercise of the Option and to remit to the
Company a sufficient portion of the sales proceeds to pay for all the Common
Stock acquired through such exercise and any tax withholding obligations
resulting from such exercise, (C) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of
9
<PAGE>
other Common Stock of the Company) with the person to whom the Option is granted
or to whom the Option is transferred pursuant to subsection 6(d), or (D) in any
other form of legal consideration that may be acceptable to the Board. In the
case of any deferred payment arrangement, interest shall be payable at least
annually and shall be charged at the minimum rate of interest necessary to avoid
the treatment as interest, under any applicable provisions of the Code, of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.
(d) Transferability. Except as permitted by the Board in any particular
Option Agreement, Options granted under the Plan shall not be transferable by
the holder other than by will or the laws of descent and distribution and shall
be exercisable during the holder's lifetime only by the holder or the
holder's guardian or legal representative.
(e) Vesting. The Option Agreement for each individual Option grant shall
provide that the Option subject to such Option Agreement shall become
exercisable ("vest") at a rate to be determined by the Board at the time of
grant. The Board may also provide for the acceleration of vesting in certain
circumstances.
(f) Exercise Upon Termination. In the event an Optionee's Continuous
Status as an Employee, Consultant or Outside Director terminates (other than
upon the Optionee's death or Disability), the Optionee may exercise his or her
Option to the extent that the Optionee is otherwise entitled to exercise on the
date employment terminates, but only within such period of time as is determined
by the Board and specified in the Option Agreement.
10
<PAGE>
(g) Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Consultant or Outside Director terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option to the extent
that the Optionee is otherwise entitled to exercise on the date employment
terminates, but only within such period of time as is determined by the Board
and specified in the Option Agreement.
(h) Death of Optionee. In the event an Optionee's Continuous Status as an
Employee terminates as result of his death, the Option may be exercised, but
only within such period of time as is determined by the Board and specified in
the Option Agreement, by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
the Optionee was entitled to exercise the Option at the date of death.
(i) Early Exercise. An Option Agreement may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Consultant or Outside Director, to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option.
(j) Repurchase of Shares Upon Termination. The Option may include a
provision whereby shares purchased pursuant to the Option may be subject to a
right of repurchase in favor of the Company upon termination of a Participant's
Continuous Status as an Employee, Consultant or Outside Director.
11
<PAGE>
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus, restricted stock or restricted stock unit agreement shall
be in such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus,
restricted stock or restricted stock unit agreements may change from time to
time, and the terms and conditions of separate agreements need not be identical,
but each stock bonus, restricted stock or restricted stock unit agreement shall
include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions as
appropriate:
(a) Purchase Price. The purchase price, if any, under each restricted
stock or restricted stock unit agreement shall be such amount as the Board or
Committee shall determine and designate in such agreement.
(b) Transferability. Except as determined by the Board of Directors in its
discretion, no rights under a stock bonus, restricted stock or restricted stock
unit agreement shall be transferable except by will or by the laws of descent
and distribution.
(c) Consideration. The purchase price of stock acquired pursuant to a
restricted stock or restricted stock unit agreement shall be paid either: (i)
in cash at the time of purchase; (ii) at the discretion of the Board or the
Committee, according to a deferred payment or other arrangement with the person
to whom the stock is sold; or (iii) in any other form of legal consideration
that may be acceptable to the Board or the Committee in their discretion.
Notwithstanding the foregoing, the Board or the Committee to which
administration of the Plan
12
<PAGE>
has been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) Vesting. Shares of stock sold or awarded as stock bonuses, restricted
stock or restricted stock units under the Plan may, but need not, be subject to
a repurchase option in favor of the Company in accordance with a vesting
schedule to be determined by the Board or the Committee.
(e) Termination of Employment or Relationship as a Consultant. In the
event a Participant's Continuous Status as an Employee, Consultant or Outside
Director terminates, the Company may repurchase or otherwise reacquire any or
all of the shares of Common Stock held by that person which have not vested as
of the date of termination under the terms of the stock bonus, restricted stock
or restricted stock unit agreement between the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any time and
from time to time, with the consent of the affected holders of Options, (i) the
repricing of any outstanding Options under the Plan and/or (ii) the cancellation
of any outstanding Options under the Plan and the grant in substitution therefor
of new Options under the Plan covering the same or different numbers of shares
of stock but having an exercise price per share of not less than the Fair Market
Value on the date of such repricing or new Option
13
<PAGE>
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of Stock Awards; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Stock Awards or any stock issued or issuable
pursuant to any such Stock Awards. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of Stock Awards unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(a) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
14
<PAGE>
(b) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant, Optionee
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment or relationship as a Director or Consultant of any Employee,
Director, Consultant, Optionee or other holder of Stock Awards with or without
cause.
(c) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options granted
after 1986 are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(d) The Company may require any recipient of a Stock Award, or any person
to whom a Stock Award is transferred under subsections 6(d) or 7(b), as a
condition of exercising any such Stock Award, (i) to give written assurances
satisfactory to the Company as to such person's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Stock Award, and (ii) to give written assurances satisfactory to
the Company stating that such person is acquiring the stock subject to the Stock
Award for such person's own account and not with any present intention of
selling or otherwise distributing the stock. The foregoing requirements, and
15
<PAGE>
any assurances given pursuant to such requirements, shall be inoperative if (a)
the issuance of the shares upon the exercise of or acquisition of stock under
the Stock Award has been registered under a then currently effective
registration statement under the Securities Act of 1933, as amended (the
'Securities Act'), or (b) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(e) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise of or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means, subject to the approval of the Board: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares from the shares of Common Stock
otherwise issuable to the participant as a result of the exercise of or
acquisition of stock under the Stock Award; or (iii) delivering to the Company
owned and unencumbered shares of the Common Stock of the Company, subject to
certain requirements, as designated by Company counsel.
(f) The Company shall provide to all holders of Stock Awards a financial
statement of the Company at least annually, except to Employees whose duties in
connection with the Company assure them access to equivalent information.
16
<PAGE>
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan or subject to
any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, reverse stock split, liquidating dividend, combination of shares,
reclassification, exchange of shares, change in corporate structure or
otherwise), the Plan and outstanding Stock Awards will be appropriately adjusted
in the class(es) and maximum number of shares subject to the Plan and the
class(es) and number of shares and price per share of stock subject to
outstanding Stock Awards.
(b) In the event of (1) a dissolution or liquidation of the Company; (2) a
merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) any other capital reorganization
in which more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, then at the sole discretion of the Board and to the extent
permitted by applicable law: (i) any surviving corporation shall assume any
Stock Awards outstanding under the Plan or shall substitute similar Stock Awards
for those outstanding under the Plan, (ii) the time during which such Stock
Award may be exercised shall be accelerated and the Stock Awards terminated if
not exercised prior to such event, or (iii) such Stock Awards shall continue in
full force and effect.
17
<PAGE>
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Stock Awards under the
Plan;
(2) Modify the requirements as to eligibility for participation in the
Plan (to the extent such modification requires shareholder approval in order for
the Plan to satisfy the requirements of Sections 162(m) or 422 of the Code or
the requirements of the Nasdaq National Market or other principal market for the
Common Stock); or
(3) Modify the Plan in any other way if such modification requires
shareholder approval in order for the Plan to satisfy the requirements of
Sections 162(m) or 422 of the Code, or the requirements of the Nasdaq National
Market or other principal market for the Common Stock, or to comply with the
requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
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<PAGE>
(c) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on February 9, 2007. No Stock Awards may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board of Directors and Shareholders of the
Company on February 10, 1997. The Plan was amended to increase the number of
shares available for grant thereunder and to add the provisions for automatic
grants to Outside Directors on July 24, 1997. The Plan was amended herewith in
connection with the initial public offering of the Common Stock under the
Securities Act of 1933, as amended.
19
<PAGE>
EXHIBIT 10.2
FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------------
FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") dated
as of December 31, 1996, by and between TIER TECHNOLOGIES, INC., a California
corporation (the "Company") and JAMES L. BILDNER ("Bildner").
In consideration of the mutual benefits derived from this Agreement and
of the agreements, covenants and provisions hereof, the parties hereto agree as
follows:
1. EMPLOYMENT
----------
1.1. Position. During the Term (as hereinafter defined) of this
--------
Agreement and subject to the terms and conditions set forth herein, the Company
agrees to employ Bildner as its Chairman of the Board and Chief Executive
Officer, reporting only to the Board of Directors of the Company.
1.2. Election to Office. During the Term of this Agreement, the Company
------------------
shall use its best efforts to sustain and continue Bildner's position and
designation as Chairman of the Board and Chief Executive Officer.
1.3. Fulfillment of Duties. As long as the Company sustains and
---------------------
continues Bildner's position and designation as Chairman and Chief Executive
Officer of the Company, Bildner shall (i) devote his full-time efforts during
normal business hours to the performance of his services hereunder, except
during vacation periods and periods of illness or incapacity and except that
nothing in this Agreement shall preclude Bildner from devoting reasonable
periods required for serving as a director, or member of a committee of, or
holding other positions, in any organization involving no conflict of interest
with the interests of the Company and (ii) perform his services hereunder
faithfully, diligently and to the best of his skill and ability.
1.4. Location. During the Term of this Agreement, Bildner will perform
--------
his duties and services at such locations as he shall deem appropriate, except
that Bildner agrees to make such business trips to the Company's principal
executive offices and to other locations as may be reasonable and necessary in
the performance of his services hereunder.
2. COMPENSATION AND BENEFITS
-------------------------
2.1. Salary. In consideration of and as compensation for the services
------
agreed to be performed by Bildner hereunder, the Company agrees to pay Bildner
during the Term of this Agreement a base salary (the "Base Salary") of not less
than $325,000 per year, payable semi-monthly in accordance with the Company's
regular payroll practices. The Company may review Bildner's Base Salary and
other compensation (including bonuses) from time to time during the Term of this
Agreement and, at the discretion of the Board of Directors of the Company, may
increase his Base Salary or other compensation (including bonuses) from time to
time. Any increase in Base Salary or other compensation (including bonuses)
shall in no way limit or reduce any other obligation of the Company hereunder
and, once established at an increased rate, Bildner's Base Salary hereunder
shall not be reduced.
<PAGE>
2.2. Incentive Compensation. During the term of this Agreement, in
----------------------
addition to the base salary provided in Section 2.1 above, Bildner shall be
eligible to receive additional incentive compensation upon achievement of the
targeted levels of earnings before interest, taxes, depreciation and
amortization ("EBITDA") of the Company as set forth in Exhibit A.
2.3. Stock Option. Bildner shall receive, within forty-five (45) days
------------
following execution of this Agreement, an option (the "Option") to purchase five
thousand (5,000) shares of Company common stock at an exercise price which shall
be at least the minimum exercise price required by law, pursuant to an option
agreement on the Company's standard form. Subject to the terms of the Option,
forty percent of the option (i.e. 2,000 shares) shall vest immediately.
One-third of the remainder of the Option (i.e. 1,000 shares) shall vest on each
of the first, second and third anniversary dates of this Agreement; provided,
however, that one-third of the remainder of the Option (i.e. 1,000 shares) shall
vest as provided in Section 4.2 or upon the last day of the month of the closing
of an underwritten public offering of the Company's securities and as otherwise
set forth in the option agreement, with the remaining unvested Option vesting
ratably over the remaining anniversary dates of this Agreement.
2.4. Participation in Benefit Plans. During the Term of this Agreement,
------------------------------
Bildner shall be entitled to participate in any pension plans, profit-sharing
plans and group insurance, medical, hospitalization, disability and other
benefit plans presently in effect (a partial list of which is attached hereto as
Exhibit B) or hereinafter adopted, which plans are generally applicable to the
most senior executives of the Company and to the extent he is eligible under the
general provisions thereof.
2.5. Reimbursement of Expenses. The Company will reimburse Bildner for
-------------------------
all business expenses, including, without limitation, traveling, entertainment
and similar expenses, incurred by Bildner on behalf of the Company during the
Term of this Agreement if such expenses are ordinary and necessary business
expenses incurred on behalf of the Company pursuant to the Company's standard
expense reimbursement policy, provided that Bildner shall provide the Company
with such itemized accounts, receipts or documentation for such expenses as are
required under the Company's policy regarding the reimbursement of such
expenses.
2.6. Vacation and Sick Leave. During the Term of this Agreement,
-----------------------
Bildner will be entitled to three weeks of paid vacation per year. Bildner shall
also be entitled to paid sick leave in accordance with the policy applicable to
the other senior executives of the Company.
2.7. Relocation Loan and Housing Allowance.
-------------------------------------
(a) Concurrent with the execution of this Agreement, the
Company will fund an unsecured loan to Bildner in the principal amount of
$50,000 bearing simple interest at 5.75% per annum (the "Relocation Loan").
Repayment of the principal amount of the Relocation Loan and any interest
payable thereon shall be forgiven, as follows: (i) on a pro rata basis, during
Bildner's employment with the Company, upon the close of business on the last
business day of each month commencing with the month ending December 31, 1996
and ending November 30, 1999 and (ii) in
2
<PAGE>
its entirety under the circumstances set forth in Section 4.2 hereof. In the
event that Bildner's employment under this Agreement is terminated by Bildner
without Good Reason (as defined herein) or for Cause as defined in Section
4.1(iii)(C), Bildner shall pay the total of unforgiven principal and interest
due under the Relocation Loan within ninety (90) days of the occurrence of such
event. The Relocation Loan shall be evidenced by a promissory note in form
acceptable to Bildner and the Company and consistent with the terms of this
Agreement.
(b) During each month of the Term of his employment under this
Agreement, Bildner shall be entitled to receive a housing allowance of $2,750
per month, which amount may be issued on a monthly basis, or at the option of
Bildner, in advance (the "Housing Allowance"). If the Housing Allowance is paid
in advance, and thereafter Mr. Bildner's employment hereunder shall terminate
for any reason whatsoever during the Term of his employment under this
Agreement, Mr. Bildner shall pay the Company, within ninety (90) days of such
termination, an amount equal to $2,750 for each complete month remaining of his
Term of employment under this Agreement.
3. TERM
----
3.1. Term. The "Term" of employment under this Agreement means the
----
period commencing on the date hereof and expiring on December 31, 1999 or the
earlier termination hereof pursuant to Section 4.1.
4. TERMINATION OF EMPLOYMENT
-------------------------
4.1. Events of Termination. Upon the occurrence of any of the
---------------------
events described in this Section 4.1 during the Term of this Agreement,
Bildner's employment hereunder shall terminate and Bildner shall be entitled to
the benefits provided in Section 4.2 hereof.
(i) Termination of Bildner's employment with the Company
due to Bildner's death.
(ii) If, as a result of Bildner's incapacity due to physical
or mental illness, injury or disability, Bildner shall have been absent from his
duties with the Company on a full-time basis for three consecutive months, and
within thirty days after the receipt of written Notice of Termination (as
hereinafter defined) he shall not have returned to the full-time performance of
his duties, the Company may terminate Bildner's employment for "Disability."
"Absent from his duties" means, for the purposes of this Section 4.1( ii ), that
Bildner is devoting less than 40 hours per week to his duties under this
Agreement.
(iii) The Company shall be entitled to terminate Bildner's
employment for Cause. For purposes of this Agreement, "Cause" shall mean:
(A) the willful and continued failure by Bildner to
substantially perform his duties with the Company in good faith
(other than any such failure resulting from his incapacity due to
physical or mental illness, injury or disability or any such
3
<PAGE>
actual or anticipated failure resulting from his termination for
Good Reason (as hereinafter defined)), after a demand for
substantial performance is delivered to him by the Board of
Directors of the Company which identifies, in reasonable detail,
the manner in which the Board of Directors believes that Bildner
has not substantially performed his duties in good faith;
(B) the willful engaging by Bildner in conduct which causes
material harm to the Company, monetarily or otherwise; or
(C) Bildner's conviction of a felony arising from conduct
during the Term of this Agreement.
For purposes of this Subsection 4.1(iii), no act, or failure to
act, on Bildner's part shall be considered "willful" unless done, or omitted to
be done, by him not in good faith and without reasonable belief that his action
or omission was in the best interest of the Company or its shareholders.
Notwithstanding the foregoing, Bildner shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than two-
thirds of the entire membership of the Board of Directors at a meeting of the
Board of Directors called and held for such purpose (after ten days notice to
him and an opportunity for him, together with his counsel, to appear before the
Board of Directors), finding that Bildner was guilty of conduct set forth above
in clauses (A), (B) or (C) of this Subsection 4.1(iii) and setting forth, in
reasonable detail, the basis for such finding.
(iv) Bildner shall be entitled to terminate his employment for
Good Reason. For purposes of this Agreement, "Good Reason" shall, without
Bildner's express written consent, mean:
(A) the assignment to Bildner of any duties substantially
inconsistent with his status as Chairman and Chief Executive
Officer of the Company;
(B) a reduction by the Company in Bildner's Base Salary as
in effect on the date hereof or as the same may be increased from
time to time;
(C) the relocation of the Company's principal executive
offices to a location not approved by Bildner or the Company's
requiring Bildner to be based in a location not approved by
Bildner;
(D) the failure by the Company to continue in effect any
pension, health, compensation or other benefit plan in which
Bildner participates (including those listed on Exhibit B), or any
similar plans hereafter adopted, unless an equitable arrangement
(as determined by an employee benefit consultant of national
standing selected by the Company and reasonably satisfactory to
Bildner), embodied in an ongoing substitute or alternative plan,
has been made with respect to such plan, or the failure by the
Company to continue his participation therein, or the taking of
any action by the Company which would directly or indirectly
materially reduce any of
4
<PAGE>
such benefits or deprive Bildner of any material fringe benefit
presently enjoyed by him;
(E) the failure of the Company to obtain a satisfactory
agreement from any successor (by means of merger, consolidation,
sale of assets or otherwise) to assume and agree to perform this
Agreement as contemplated by Section 5 hereof; or
(F) any purported termination of Bildner's employment
which is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection (v) of this Section 4.1
(and, if applicable, Subsection (iii) of this Section 4.1); and
for purposes of this Agreement, no such purported termination
shall be effective.
Bildner's right to terminate his employment pursuant to this
Subsection 4.1(iv) shall not be affected by his incapacity due to
physical or mental illness, injury or disability. The Company may,
solely during the period of such incapacity, make arrangements for
the discharge of any of Bildner's duties hereunder by another
officer of the Company, but any such arrangement shall not affect
or in any way diminish Bildner's rights hereunder.
(v) Any purported termination by the Company or by Bildner shall
be communicated by written Notice of Termination to the other party hereto in
accordance with Sections 4.3 and 8.1 hereof.
(vi) Notwithstanding the pendency of a Notice of Dispute (as
hereinafter defined), the Company will continue to pay Bildner his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, Base Salary) and continue his participation in
all compensation, bonus, benefit and insurance plans in which he was
participating when the notice giving rise to the dispute was given (or provide
Bildner with benefits substantially similar, as determined by an employee
benefit consultant of national standing selected by the Company and reasonably
satisfactory to Bildner, to those under such plans), until the dispute is
finally resolved. Amounts paid under this Section 4.1 (vi) are in addition to
all other amounts due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement or otherwise. If it is finally
determined that Bildner terminated his employment for other than Good Reason or
the Company rightfully terminated Bildner's employment for Cause, Bildner shall
reimburse the Company for all amounts paid to him under this Section 4.1(vi)
(less any amounts determined to be owing to Bildner under any other provision of
this Agreement), with interest thereon calculated at a rate of six percent per
annum.
4.2. Effect of Termination.
---------------------
(i) Upon the termination of Bildner's employment as a result
of his Disability, Bildner shall be entitled to receive:
5
<PAGE>
(A) for an additional twenty-four months after the date of
such termination, his Base Salary and any and all benefits to
which he is entitled on the date of such termination under the
Company's pension, life, disability, accident and health and other
benefit plans in accordance with the provisions of such plans; and
(B) one hundred percent (100%) of the maximum amount of incentive
compensation for which Bildner could have become eligible during
the year in which such termination occurs.
(B) the Option, together with any other options to purchase
stock (common or otherwise) in the Company granted pursuant to any
plan or otherwise, or any equivalent or similar rights which
appreciate or tend to appreciate as the value of the Company's
stock appreciates, shall become immediately accelerated and fully
vested and any restrictions on such options or equivalent or
similar rights shall, to the extent permissible under applicable
securities laws, fully lapse; and the Company shall endeavor to
cause any restrictions on such options or equivalent or similar
rights not lapsed by operation of this clause to so lapse.
(C) forgiveness of any then outstanding principal amount
plus accrued interest of the Relocation Loan in its entirety.
(D) the indemnity described in Section 4.2(vi) hereto.
(ii) Upon the termination of Bildner's employment as a result of
his death, Bildner's heirs, devisees, executors or other legal representatives
shall receive:
(A) for an additional twenty-four months from the date of
such termination, his Base Salary and any and all benefits to
which he is entitled on the date of such termination under the
Company's pension, life, disability, accident and health and other
benefit plans in accordance with the provisions of such plans; and
(B) one hundred percent (100%) of the maximum amount of incentive
compensation for which Bildner could have become eligible during
the year in which such termination occurs.
(B) the Option, together with any other options to purchase
stock (common or otherwise) in the Company granted pursuant to any
plan or otherwise, or any equivalent or similar rights which
appreciate or tend to appreciate as the value of the Company's
stock appreciates, shall become immediately accelerated and fully
vested and any restrictions on such options or equivalent or
similar rights shall, to the extent permissible under applicable
securities laws, fully lapse; and the Company shall endeavor to
cause any restrictions on such options or equivalent or similar
rights not lapsed by operation of this clause to so lapse.
(C) forgiveness of any then outstanding principal amount
plus accrued interest of the Relocation Loan in its entirety.
6
<PAGE>
(D) the indemnity described in Section 4.2(vi) hereto.
(iii) Subject to Section 4.l (vi) hereof: (a) if Bildner's
employment shall be terminated for Cause as described in Section 4.1(iii)(A) or
(B) hereto, the Company shall pay Bildner his full Base Salary and other
benefits to which he is entitled for a period of twenty-four months, and shall
continue to provide the indemnity described in Section 4.2(vi) hereto; and (b)
if Bildner's employment shall be terminated for Cause as described in Section
4.1(iii)(C) hereto, the Company shall pay Bildner his full Base Salary and other
benefits to which he is entitled, through the Date of Termination at the rate in
effect at the time the Notice of Termination is given, and the Company shall
have no further obligations to him under this Agreement, with the exception of
the indemnity described in Section 4.2(vi) hereto. Upon any such termination for
Cause, the outstanding principal amount of the Relocation Loan plus accrued
interest shall be due and payable in full.
(iv) If Bildner's employment by the Company shall be terminated
(a) by the Company other than for Cause, Death or Disability, or (b) by Bildner
for Good Reason, then Bildner shall be entitled to the benefits provided below:
(A) the Company shall pay Bildner, not later than the fifth
day following the Date of Termination, a lump sum in cash equal to
the sum of (i) twenty-four months of Base Salary, at the rate of
Bildner's Base Salary on the Date of Termination, discounted to
the then present value at a discount rate of ten percent per annum
applied to each future payment from the time it would have become
payable; and (ii) one hundred percent (100%) of the maximum amount
of incentive compensation for which Bildner could have become
eligible during the year in which such termination occurs;
(B) the Option, together with any other options to purchase
stock (common or otherwise) in the Company granted pursuant to any
plan or otherwise, or any equivalent or similar rights which
appreciate or tend to appreciate as the value of the Company's
stock appreciates, shall become immediately accelerated and fully
vested and any restrictions on such options or equivalent or
similar rights shall, to the extent permissible under applicable
securities laws, fully lapse; and the Company shall endeavor to
cause any restrictions on such options or equivalent or similar
rights not lapsed by operation of this clause to so lapse; and
(C) forgiveness of the then outstanding principal balance
plus accrued interest of the Relocation Loan in its entirety.
(D) the indemnity described in Section 4.2(vi) hereto.
(v) Bildner shall not be required to mitigate the amount of
any payment provided for in this Section 4.2 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Section 4.2 be subject to set-off or reduced by any
7
<PAGE>
compensation earned by him as the result of employment by another employer or by
benefits after the Date of Termination, or otherwise.
(vi) In connection with the termination of Bildner's employment
for any reason, the Company will take all necessary action to release Bildner
from any obligations under any guarantees by Bildner of the Company's corporate
debt. Bildner's employment shall not be terminated until such time as he is
removed or replaced with respect to any such guarantee. In addition, after the
Date of Termination, the Company will indemnify Bildner for any claims,
including all legal fees and expenses associated therewith, made by any lender
with respect to any such guarantee.
4.3. Certain Definitions. For the purposes of this Section 4, the
-------------------
following terms shall have the meanings set forth in this Section 4.3:
(i) "Notice of Termination" means a written notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment under the provision so indicated.
(ii) "Date of Termination" means (i) if employment is
terminated for Disability, thirty days after Notice of Termination is given
(provided that Bildner shall not have returned to the performance of his duties
on a full-time basis during such thirty-day period), and (ii) if employment is
terminated pursuant to Subsection (iii) or (iv) of Section 4.1 or for any other
reason, the date specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (iii) of Section 4.1, shall not be less than
ten days and, in the case of a termination pursuant to Subsection (iv) of
Section 4.1, shall not be more than sixty days, respectively, from the date such
Notice of Termination is given); provided that if within thirty days after any
Notice of Termination is given, the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination (a
"Notice of Dispute"), the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award, or by a final judgment, order or decree
of a court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected); and provided further that the Date
of Termination shall be extended by a Notice of Dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
5. SUCCESSORS
----------
5.1. Assumption by Successors. The Company shall require any successor
------------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Bildner to compensation from the Company in the same
amount and on the same terms as
8
<PAGE>
he would be entitled hereunder if he terminates his employment for Good Reason,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
6. NON-COMPETITION AND CONFIDENTIALITY
-----------------------------------
6.1. Non-Competition. During Bildner's employment by the Company
---------------
hereunder and during the period of one year after the termination of Bildner's
employment hereunder by the Company for Cause or by Bildner for other than Good
Reason:
(i) Bildner will not directly compete with the business of the
Company so as to cause the Company to lose material revenue from any client
account which is in existence on the Date of Termination.
(ii) Bildner will not directly or indirectly employ or solicit
for employment any person whom he knows to be an employee of the Company or any
subsidiary of the Company.
6.2. Confidential Information.
------------------------
(a) Bildner agrees and acknowledges that the Confidential
Information of the Company (as hereinafter defined) is valuable, special and
unique to its business; that such business depends on such Confidential
Information; and that the Company wishes to protect such Confidential
Information by keeping it confidential for the use and benefit of the Company.
Based on the foregoing, Bildner agrees to undertake the following obligations
with respect to such Confidential Information:
(i) Bildner agrees to keep any and all Confidential
Information in trust for the use and benefit of the Company;
(ii) Bildner agrees that, except as required by Bildner's
duties hereunder or authorized in writing by the Company, he will
not at any time during and for five years after the termination of
his employment with the Company, disclose or use, directly or
indirectly, any Confidential Information of the Company;
(iii) Bildner agrees to take all reasonable steps
necessary, or reasonably requested by the Company, to ensure that
all Confidential Information of the Company is kept confidential
for the use and benefit of the Company; and
(iv) Bildner agrees that, upon termination of his
employment by the Company or at any other time the Company may in
writing so request, he will promptly deliver to the Company all
materials constituting Confidential Information (including all
copies thereof) that are in the possession of or under the control
of Bildner. Bildner further agrees that, if requested by the
Company to return any
9
<PAGE>
Confidential Information pursuant to this Subsection 6.2(a) (iv),
he will not make or retain any copy of or extract from such
materials.
(b) For purposes of this Section 6.2, Confidential Information
means any and all information developed by or for the Company of which Bildner
gained knowledge by reason of his employment by the Company prior the date
hereof or his employment under this Agreement that is not generally known in any
industry in which the Company is or may become engaged. Confidential Information
includes, but is not limited to, any and all information developed by or for the
Company concerning plans, marketing and sales methods, materials, processes,
business forms, procedures, devices used by the Company, contractors and
customers with which the Company has dealt prior to Bildner's termination of
employment with the Company, plans for development of new products, services and
expansion into new areas or markets, internal operations, and any trade secrets
and proprietary information of any type owned by the Company together with all
written, graphic and other materials relating to all or any part of the same.
In the event that Bildner is, in the opinion of his legal counsel
(which counsel shall be acceptable to the Company in its reasonable discretion),
required to disclose any Confidential Information to any federal, state, local
or foreign judicial, legislative, administrative or other authority, agency or
instrumentality or is required to disclose such Confidential Information by
reason of his fiduciary duties to the Company or its shareholders or by any
federal, state, local or foreign securities, blue-sky or other similar laws,
rules, regulations or ordinances, then, notwithstanding anything in this Section
6.2 to the contrary, Bildner may disclose such Confidential Information to the
extent, and to the persons and entities, so required without any liability
hereunder, without constituting a breach hereunder and without giving rise to a
right of the Company to terminate Bildner's employment (for Cause or otherwise)
hereunder. Bildner shall notify the Company of any disclosure required to be
made in connection with the preceding sentence as soon as practicable after
Bildner becomes aware of such required disclosure.
7. REMEDIES
--------
7.1. Injunctive Relief. Bildner acknowledges and agrees that the
-----------------
covenants and obligations contained in Sections 6.1 and 6.2 relate to special,
unique and extraordinary matters and that a violation of any of the terms of
such sections will cause the Company irreparable injury for which adequate
remedy at law is not available. Therefore, Bildner agrees that the Company shall
be entitled to an injunction, restraining order, or other equitable relief from
any court of competent jurisdiction, restraining Bildner from committing any
violation of the covenants and obligations set forth in Sections 6.1 and 6.2
hereof.
7.2. Remedies Cumulative. The Company's rights and remedies under
-------------------
Section 7.1 hereof are cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity.
10
<PAGE>
8. MISCELLANEOUS
-------------
8.1. Notices. Any written notice, required or permitted under this
-------
Agreement, shall be deemed sufficiently given if either hand delivered or if
sent by fax or overnight courier. Written notices must be delivered to the
receiving party at his or its address on the signature page of this Agreement.
The parties may change the address at which written notices are to be received
in accordance with this section.
8.2. Assignment. Neither the Company nor Bildner may assign, transfer,
----------
or delegate its or his rights or obligations hereunder and any attempt to do so
shall be void. This Agreement shall be binding upon and shall inure to the
benefit of the Company and its successors and assigns.
8.3. Entire Agreement. This Agreement contains the entire agreement of
----------------
the parties with respect to the subject matter hereof, and all other prior
agreements, written or oral, are hereby merged herein and are of no further
force or effect. This Agreement may be modified or amended only by a written
agreement that is signed by the Company and Bildner. No waiver of any section or
provision of this Agreement will be valid unless such waiver is in writing and
signed by the party against whom enforcement of the waiver is sought. The waiver
by the Company of any section or provision of this Agreement shall not apply to
any subsequent breach of this Agreement. Captions to the various sections in
this Agreement are for the convenience of the parties only and shall not affect
the meaning or interpretation of this Agreement. This Agreement may be executed
in several counterparts, each of which shall be deemed an original, but together
they shall constitute one and the same instrument.
8.4. Severability. The provisions of this Agreement shall be deemed
------------
severable, and if any part of any provision is held illegal, void, or invalid
under applicable law such provision may be changed to the extent reasonably
necessary to make the provision, as so changed, legal, valid and binding. If any
provision of this Agreement is held illegal, void, or invalid in its entirety,
the remaining provisions of this Agreement shall not in any way be affected or
impaired but shall remain binding in accordance with their terms.
8.5. Continuing Obligations. Sections 4.2, 6.1 and 6.2 of this
----------------------
Agreement shall continue and survive the termination of this Agreement.
8.6. Applicable Law. This Agreement and the rights and obligations of
--------------
the Company and Bildner thereunder shall be governed by and construed and
enforced under the laws of the State of California applicable to agreements made
and to be performed entirely within such State.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TIER TECHNOLOGIES, INC.
By: /s/ George K. Ross
Title: Senior Vice President and Chief Financial Officer
Address: 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596
/s/ James L. Bildner
JAMES L. BILDNER
Address: 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596
12
<PAGE>
EXHIBIT A
Incentive Compensation Formula
------------------------------
Bildner shall receive annual incentive compensation of at least
$100,000 per year (the "Annual Minimum") or $25,000 per quarter (the "Quarterly
Minimum"), upon the achievement of targeted level of earnings before interest,
taxes, depreciation and amortization ("EBITDA") of the Company. For calendar
1997, the targeted level of EBITDA shall be $412,500 per calendar quarter, or
$1,650,000 for the calendar year. If the targeted level of EBITDA is met for any
calendar quarter (the "Quarterly EBITDA Requirement"), the quarterly incentive
compensation payment shall be made to Bildner on or before thirty days following
the end of such quarter. However, the right to receive such payment shall be
earned by and vested in Bildner on the last day of each such quarter. Assuming
Bildner has achieved the Quarterly EBITDA Requirement, the amount to be paid to
Bildner for that quarter shall be determined by multiplying the Quarterly
Minimum by a fraction, the numerator of which is the actual EBITDA achieved for
such period and the denominator of which is the targeted level of EBITDA for the
quarter. EBITDA for any calendar quarter may not be carried over to the next
calendar quarter; provided, however, if the Quarterly EBITDA Requirement is not
met for one or more calendar quarters during any calendar year for the term of
this Agreement, but the annual target is met for such calendar year, Bildner
shall be entitled to receive the difference between the annual incentive
compensation payment,determined by multiplying the Annual Minimum by a fraction,
the numerator of which is the actual EBITDA achieved for such the calendar year
and the denominator of which is the targeted level of EBITDA for the calendar
year, and the total of all quarterly incentive compensation payments made to
Bildner during such calendar year. Such annual payment will be made to Bildner
by March 31 of the following year. However, the right to receive such payment
shall be earned by and vested in Bildner on the last day of each such calendar
year.
For subsequent calendar years during the Term, the targeted level of
EBITDA shall be fixed by the Board, in consultation with Bildner, prior to
commencement of the year in question. EBITDA will be determined by the Company's
Chief Financial Officer in accordance with the Company's normal accounting
practices consistently applied.
13
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
Benefits for Bildner's Employment Agreement
-------------------------------------------
<S> <C>
1. Group Term and Keyman Life Insurance
2. Standard medical plan.
3. Standard three weeks vacation.
4. Standard 11 holidays.
5. Standard long term disability insurance.
6. Automobile (owned by company) or mutually acceptable allowance in
lieu thereof.
7. Pension supplement.
8. Standard defined benefit pension plan.
9. Incentive Compensation plan.
10. D & O liability insurance.
11. Annual physical examination.
12. Thrift savings (401(k) Plan.)
13. Personal liability insurance.
14. Other.
</TABLE>
14
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
--------------------
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") dated as of
September 30, 1997, by and between TIER TECHNOLOGIES, INC., a California
corporation (the "Company") and JAMES L. BILDNER ("Bildner").
WHEREAS, the Company and Bildner are parties to a First Amended and
Restated Employment Agreement dated as of December 31, 1996 (the "Employment
Agreement"); and
WHEREAS, the parties desire to amend the Employment Agreement in order to
extend the term of the Employment Agreement;
NOW THEREFORE, in consideration of the mutual benefits derived from this
Amendment and of the agreements, covenants and provisions hereof, the parties
hereto agree as follows:
1. Section 3.1 of the Employment Agreement is hereby amended and
restated to read in its entirety as follows:
"3.1. Term. The "Term" of employment under this Agreement
----
means the period commencing on December 31, 1996 and expiring on
August 1, 2001 or the earlier termination hereof pursuant to Section
4.1."
2. This Amendment shall not extend or otherwise modify the vesting
period of Stock Options granted under Section 2.3 of the Employment Agreement,
the terms of loan forgiveness under Section 2.7(a) of the Employment Agreement
or the continuation of the Housing Allowance beyond December 31, 1999.
3. Effective January 1, 2000, the Company agrees to pay Mr. Bildner a
Base Salary of not less than the greater of $375,000 or $50,000 in excess of the
highest Base Salary previously paid to Mr. Bildner by the Company during the
Term of the Employment Agreement.
4. As amended hereby, the Employment Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
TIER TECHNOLOGIES, INC.
By: /s/ George K. Ross
Title: Senior Vice President and Chief Financial Officer
Address: 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596
/s/ James L. Bildner
JAMES L. BILDNER
Address: 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596
<PAGE>
EXHIBIT 10.4
FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------------
FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") dated
as of December 31, 1996, by and between TIER TECHNOLOGIES, INC., a California
corporation (the "Company") and WILLIAM G. BARTON ("Barton").
In consideration of the mutual benefits derived from this Agreement and
of the agreements, covenants and provisions hereof, the parties hereto agree as
follows:
1. EMPLOYMENT
----------
1.1. Position. During the Term (as hereinafter defined) of this
--------
Agreement and subject to the terms and conditions set forth herein, the Company
agrees to employ Barton as its President and Chief Operating Officer, reporting
to the Chief Executive Officer and the Board of Directors of the Company.
1.2. Election to Office. During the Term of this Agreement, the
------------------
Company shall use its best efforts to sustain and continue Barton's position and
designation as President and Chief Operating Officer.
1.3. Fulfillment of Duties. As long as the Company sustains and
---------------------
continues Barton's position and designation as President and Chief Operating
Officer of the Company, Barton shall (i) devote his full-time efforts during
normal business hours to the performance of his services hereunder, except
during vacation periods and periods of illness or incapacity and except that
nothing in this Agreement shall preclude Barton from devoting reasonable periods
required for serving as a director, or member of a committee of, or holding
other positions, in any organization involving no conflict of interest with the
interests of the Company and (ii) perform his services hereunder faithfully,
diligently and to the best of his skill and ability.
1.4. Location. During the Term of this Agreement, Barton will perform
--------
his duties and services at the Company's principal executive offices in Walnut
Creek, California, except that Barton agrees to make such business trips to
other locations as may be reasonable and necessary in the performance of his
services hereunder.
2. COMPENSATION AND BENEFITS
-------------------------
2.1. Salary. In consideration of and as compensation for the services
------
agreed to be performed by Barton hereunder, the Company agrees to pay Barton
during the Term of this Agreement a base salary (the "Base Salary") of not less
than $225,000 per year, payable semi-monthly in accordance with the Company's
regular payroll practices. The Company may review Barton's Base Salary and other
compensation (including bonuses) from time to time during the Term of this
Agreement and, at the discretion of the Board of Directors of the Company, may
increase his Base Salary or other compensation (including bonuses) from time to
time. Any increase in Base Salary or other compensation (including bonuses)
shall in no way limit or reduce any other obligation of
<PAGE>
the Company hereunder and, once established at an increased rate, Barton's Base
Salary hereunder shall not be reduced.
2.2. Incentive Compensation. During the term of this Agreement, in
----------------------
addition to the base salary provided in Section 2.1 above, Barton shall be
eligible to receive additional incentive compensation upon achievement of the
targeted levels of earnings before interest, taxes, depreciation and
amortization ("EBITDA") of the Company as set forth in Exhibit A.
2.3. Stock Option. Barton shall receive, within forty-five (45) days
------------
following execution of this Agreement, an option (the "Option") to purchase
3,000 shares of Company common stock at an exercise price which shall be at
least the minimum exercise price required by law, pursuant to an option
agreement on the Company's standard form. Subject to the terms of the Option,
one-third of the Option (i.e., 1,000 shares) shall vest on each of the first,
second and third anniversary dates of this Agreement; provided, however, that
one-third of the Option (i.e., 1,000 shares) shall vest as provided in Section
4.2 or upon the last day of the month of the closing of an underwritten public
offering of the Company's securities and as otherwise set forth in the option
agreement, with the remaining unvested Option vesting ratably over the remaining
anniversary dates of this Agreement.
2.4. Participation in Benefit Plans. During the Term of this
------------------------------
Agreement, Barton shall be entitled to participate in any pension plans, profit-
sharing plans and group insurance, medical, hospitalization, disability and
other benefit plans presently in effect (a partial list of which is attached
hereto as Exhibit B) or hereinafter adopted, which plans are generally
applicable to the most senior executives of the Company and to the extent he is
eligible under the general provisions thereof.
2.5. Reimbursement of Expenses. The Company will reimburse Barton for
-------------------------
all business expenses, including, without limitation, traveling, entertainment
and similar expenses, incurred by Barton on behalf of the Company during the
Term of this Agreement if such expenses are ordinary and necessary business
expenses incurred on behalf of the Company pursuant to the Company's standard
expense reimbursement policy, provided that Barton shall provide the Company
with such itemized accounts, receipts or documentation for such expenses as are
required under the Company's policy regarding the reimbursement of such
expenses.
2.6. Vacation and Sick Leave. During the Term of this Agreement,
-----------------------
Barton will be entitled to three weeks of paid vacation per year. Barton shall
also be entitled to paid sick leave in accordance with the policy applicable to
the other senior executives of the Company.
2.7. MBA Loan Reimbursement. Following the execution of this
----------------------
Agreement, the Company shall offer an unsecured loan to Barton in the principal
amount not to exceed $50,000 bearing simple interest at 5.75% per annum, which
amount may be taken all at once or in installments (the "MBA Loan"). Repayment
of the principal amount of the MBA Loan and any interest payable thereon shall
be forgiven, as follows: (i) on a pro rata basis, during Barton's employment
with the Company, upon the close of business on the last business day of each
month commencing with the earlier of sixty days after the first full month when
the principal balance first
2
<PAGE>
exceeds five thousand dollars ($5,000) or October 30, 1997 and ending December
31, 1999 and (ii) in its entirety under the circumstances set forth in Section
4.2 hereof. In the event that Barton's employment under this Agreement is
terminated by Barton without Good Reason (as defined herein) or for Cause as
defined in Section 4.1(iii)(C), Barton shall pay the total of unforgiven
principal and interest due under the MBA Loan within ninety (90) days of the
occurrence of such event. The MBA Loan shall be evidenced by a promissory note
in form acceptable to Barton and the Company consistent with the terms of this
Agreement.
3. TERM
----
3.1. Term. The "Term" of employment under this Agreement means the
----
period commencing on the date hereof and expiring on December 31, 1999 or the
earlier termination hereof pursuant to Section 4.1.
4. TERMINATION OF EMPLOYMENT
-------------------------
4.1. Events of Termination. Upon the occurrence of any of the
---------------------
events described in this Section 4.1 during the Term of this Agreement, Barton's
employment hereunder shall terminate and Barton shall be entitled to the
benefits provided in Section 4.2 hereof.
(i) Termination of Barton's employment with the Company
due to Barton's death.
(ii) If, as a result of Barton's incapacity due to physical
or mental illness, injury or disability, Barton shall have been absent from his
duties with the Company on a full-time basis for three consecutive months, and
within thirty days after the receipt of written Notice of Termination (as
hereinafter defined) he shall not have returned to the full-time performance of
his duties, the Company may terminate Barton's employment for "Disability."
"Absent from his duties" means, for the purposes of this Section 4.1( ii ), that
Barton is devoting less than 40 hours per week to his duties under this
Agreement.
(iii) The Company shall be entitled to terminate Barton's
employment for Cause. For purposes of this Agreement, "Cause" shall mean:
(A) the willful and continued failure by Barton to
substantially perform his duties with the Company in good faith
(other than any such failure resulting from his incapacity due to
physical or mental illness, injury or disability or any such
actual or anticipated failure resulting from his termination for
Good Reason (as hereinafter defined)), after a demand for
substantial performance is delivered to him by the Board of
Directors of the Company which identifies, in reasonable detail,
the manner in which the Board of Directors believes that Barton
has not substantially performed his duties in good faith;
(B) the willful engaging by Barton in conduct which causes
material harm to the Company, monetarily or otherwise; or
3
<PAGE>
(C) Barton's conviction of a felony arising from conduct
during the Term of this Agreement.
For purposes of this Subsection 4.1(iii), no act, or failure to
act, on Barton's part shall be considered "willful" unless done, or omitted to
be done, by him not in good faith and without reasonable belief that his action
or omission was in the best interest of the Company or its shareholders.
Notwithstanding the foregoing, Barton shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than two-
thirds of the entire membership of the Board of Directors at a meeting of the
Board of Directors called and held for such purpose (after ten days notice to
him and an opportunity for him, together with his counsel, to appear before the
Board of Directors), finding that Barton was guilty of conduct set forth above
in clauses (A), (B) or (C) of this Subsection 4.1(iii) and setting forth, in
reasonable detail, the basis for such finding.
(iv) Barton shall be entitled to terminate his employment for
Good Reason. For purposes of this Agreement, "Good Reason" shall, without
Barton's express written consent, mean:
(A) the assignment to Barton of any duties substantially
inconsistent with his status as President and Chief Operating
Officer of the Company;
(B) a reduction by the Company in Barton's Base Salary as
in effect on the date hereof or as the same may be increased from
time to time;
(C) the relocation of the Company's principal executive
offices to a location outside of California;
(D) the failure by the Company to continue in effect any
pension, health, compensation or other benefit plan in which
Barton participates (including those listed on Exhibit B), or any
similar plans hereafter adopted, unless an equitable arrangement
(as determined by an employee benefit consultant of national
standing selected by the Company and reasonably satisfactory to
Barton), embodied in an ongoing substitute or alternative plan,
has been made with respect to such plan, or the failure by the
Company to continue his participation therein, or the taking of
any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive Barton of any
material fringe benefit presently enjoyed by him;
(E) the failure of the Company to obtain a satisfactory
agreement from any successor (by means of merger, consolidation,
sale of assets or otherwise) to assume and agree to perform this
Agreement as contemplated by Section 5 hereof; or
(F) any purported termination of Barton's employment which
is not effected pursuant to a Notice of Termination satisfying
the requirements of
4
<PAGE>
Subsection (v) of this Section 4.1 (and, if applicable,
Subsection (iii) of this Section 4.1); and for purposes of this
Agreement, no such purported termination shall be effective.
Barton's right to terminate his employment pursuant to this
Subsection 4.1(iv) shall not be affected by his incapacity due to
physical or mental illness, injury or disability. The Company
may, solely during the period of such incapacity, make
arrangements for the discharge of any of Barton's duties
hereunder by another officer of the Company, but any such
arrangement shall not affect or in any way diminish Barton's
rights hereunder.
(v) Any purported termination by the Company or by Barton shall
be communicated by written Notice of Termination to the other party hereto in
accordance with Sections 4.3 and 8.1 hereof.
(vi) Notwithstanding the pendency of a Notice of Dispute (as
hereinafter defined), the Company will continue to pay Barton his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, Base Salary) and continue his participation in
all compensation, bonus, benefit and insurance plans in which he was
participating when the notice giving rise to the dispute was given (or provide
Barton with benefits substantially similar, as determined by an employee benefit
consultant of national standing selected by the Company and reasonably
satisfactory to Barton, to those under such plans), until the dispute is finally
resolved. Amounts paid under this Section 4.1 (vi) are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement or otherwise. If it is finally determined
that Barton terminated his employment for other than Good Reason or the Company
rightfully terminated Barton's employment for Cause, Barton shall reimburse the
Company for all amounts paid to him under this Section 4.1(vi) (less any amounts
determined to be owing to Barton under any other provision of this Agreement),
with interest thereon calculated at a rate of six percent per annum.
4.2. Effect of Termination.
---------------------
(i) Upon the termination of Barton's employment as a result of
his Disability, Barton shall be entitled to receive:
(A) for an additional twenty-four months after the date of
such termination, his Base Salary and any and all benefits to
which he is entitled on the date of such termination under the
Company's pension, life, disability, accident and health and
other benefit plans in accordance with the provisions of such
plans; and (B) one hundred percent (100%) of the maximum amount
of incentive compensation for which Barton could have become
eligible during the year in which such termination occurs.
(B) the Option, together with any other options to purchase
stock (common or otherwise) in the Company granted pursuant to
any plan or otherwise,
5
<PAGE>
or any equivalent or similar rights which appreciate or tend to
appreciate as the value of the Company's stock appreciates, shall
become immediately accelerated and fully vested and any
restrictions on such options or equivalent or similar rights
shall, to the extent permissible under applicable securities
laws, fully lapse; and the Company shall endeavor to cause any
restrictions on such options or equivalent or similar rights not
lapsed by operation of this clause to so lapse.
(C) forgiveness of the entire MBA Loan balance then
outstanding.
(D) the indemnity described in Section 4.2(vi) hereto.
(ii) Upon the termination of Barton's employment as a result
of his death, Barton's heirs, devisees, executors or other legal representatives
shall receive:
(A) for an additional twenty-four months from the date of
such termination, his Base Salary and any and all benefits to
which he is entitled on the date of such termination under the
Company's pension, life, disability, accident and health and
other benefit plans in accordance with the provisions of such
plans; and (B) one hundred percent (100%) of the maximum amount
of incentive compensation for which Barton could have become
eligible during the year in which such termination occurs.
(B) the Option, together with any other options to
purchase stock (common or otherwise) in the Company granted
pursuant to any plan or otherwise, or any equivalent or similar
rights which appreciate or tend to appreciate as the value of the
Company's stock appreciates, shall become immediately accelerated
and fully vested and any restrictions on such options or
equivalent or similar rights shall, to the extent permissible
under applicable securities laws, fully lapse; and the Company
shall endeavor to cause any restrictions on such options or
equivalent or similar rights not lapsed by operation of this
clause to so lapse.
(C) forgiveness of the entire MBA Loan balance then
outstanding.
(D) the indemnity described in Section 4.2(vi) hereto.
(iii) Subject to Section 4.l (vi) hereof: (a) if Barton's
employment shall be terminated for Cause as described in Section 4.1(iii)(A) or
(B) hereto, the Company shall pay Barton his full Base Salary and other benefits
to which he is entitled for a period of twenty-four months, and shall continue
to provide the indemnity described in Section 4.2(vi) hereto; and (b) if
Barton's employment shall be terminated for Cause as described in Section
4.1(iii)(C) hereto, the Company shall pay Barton his full Base Salary and other
benefits to which he is entitled, through the Date of Termination at the rate in
effect at the time the Notice of Termination is given, and the Company shall
have no further obligations to him under this Agreement, with the exception of
the indemnity described in Section 4.2(vi) hereto.
6
<PAGE>
(iv) If Barton's employment by the Company shall be terminated
(a) by the Company other than for Cause, Death or Disability or (b) by Barton
for Good Reason, then Barton shall be entitled to the benefits provided below:
(A) the Company shall pay Barton, not later than the fifth
day following the Date of Termination, a lump sum in cash equal
to the sum of (i) twenty-four months of Base Salary, at the rate
of Barton's Base Salary on the Date of Termination, discounted to
the then present value at a discount rate of ten percent per
annum applied to each future payment from the time it would have
become payable; and (ii) one hundred percent (100%) of the
maximum amount of incentive compensation for which Barton could
have become eligible during the year in which such termination
occurs;
(B) the Option, together with any other options to
purchase stock (common or otherwise) in the Company granted
pursuant to any plan or otherwise, or any equivalent or similar
rights which appreciate or tend to appreciate as the value of the
Company's stock appreciates, shall become immediately accelerated
and fully vested and any restrictions on such options or
equivalent or similar rights shall, to the extent permissible
under applicable securities laws, fully lapse; and the Company
shall endeavor to cause any restrictions on such options or
equivalent or similar rights not lapsed by operation of this
clause to so lapse; and
(C) forgiveness of the entire MBA Loan balance then
outstanding.
(D) the indemnity described in Section 4.2(vi) hereto.
(v) Barton shall not be required to mitigate the amount of any
payment provided for in this Section 4.2 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Section 4.2 be subject to set-off or reduced by any compensation earned by him
as the result of employment by another employer or by benefits after the Date of
Termination, or otherwise.
(vi) In connection with the termination of Barton's employment
for any reason, the Company will take all necessary action to release Barton
from any obligations under any guarantee by Barton of the Company's corporate
debt. Barton's employment shall not be terminated until such time as he is
removed or replaced with respect to any such guarantee. In addition, after the
Date of Termination, the Company will indemnify Barton for any claims, including
all legal fees and expenses associated therewith, made by any lender with
respect to any such guarantee.
4.3. Certain Definitions. For the purposes of this Section 4, the
-------------------
following terms shall have the meanings set forth in this Section 4.3:
(i) "Notice of Termination" means a written notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail
7
<PAGE>
the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
(ii) "Date of Termination" means (i) if employment is terminated
for Disability, thirty days after Notice of Termination is given (provided that
Barton shall not have returned to the performance of his duties on a full-time
basis during such thirty-day period), and (ii) if employment is terminated
pursuant to Subsection (iii) or (iv) of Section 4.1 or for any other reason, the
date specified in the Notice of Termination (which, in the case of a termination
pursuant to Subsection (iii) of Section 4.1, shall not be less than ten days
and, in the case of a termination pursuant to Subsection (iv) of Section 4.1,
shall not be more than sixty days, respectively, from the date such Notice of
Termination is given); provided that if within thirty days after any Notice of
Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination (a "Notice of
Dispute"), the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected); and provided further that the Date of Termination
shall be extended by a Notice of Dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence.
5. SUCCESSORS
----------
5.1. Assumption by Successors. The Company shall require any successor
------------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Barton to compensation from the Company in the same
amount and on the same terms as he would be entitled hereunder if he terminates
his employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
6. NON-COMPETITION AND CONFIDENTIALITY
-----------------------------------
6.1. Non-Competition. During Barton's employment by the Company
---------------
hereunder and during the period of one year after the termination of Barton's
employment hereunder by the Company for Cause or by Barton for other than Good
Reason:
(i) Barton will not directly compete with the business of the
Company so as to cause the Company to lose material revenue from any client
account which is in existence on the Date of Termination.
8
<PAGE>
(ii) Barton will not directly or indirectly employ or solicit
for employment any person whom he knows to be an employee of the Company or any
subsidiary of the Company.
6.2. Confidential Information.
------------------------
(a) Barton agrees and acknowledges that the Confidential
Information of the Company (as hereinafter defined) is valuable, special and
unique to its business; that such business depends on such Confidential
Information; and that the Company wishes to protect such Confidential
Information by keeping it confidential for the use and benefit of the Company.
Based on the foregoing, Barton agrees to undertake the following obligations
with respect to such Confidential Information:
(i) Barton agrees to keep any and all Confidential
Information in trust for the use and benefit of the Company;
(ii) Barton agrees that, except as required by Barton's
duties hereunder or authorized in writing by the Company, he will
not at any time during and for five years after the termination
of his employment with the Company, disclose or use, directly or
indirectly, any Confidential Information of the Company;
(iii) Barton agrees to take all reasonable steps necessary,
or reasonably requested by the Company, to ensure that all
Confidential Information of the Company is kept confidential for
the use and benefit of the Company; and
(iv) Barton agrees that, upon termination of his employment
by the Company or at any other time the Company may in writing so
request, he will promptly deliver to the Company all materials
constituting Confidential Information (including all copies
thereof) that are in the possession of or under the control of
Barton. Barton further agrees that, if requested by the Company
to return any Confidential Information pursuant to this
Subsection 6.2(a) (iv), he will not make or retain any copy of or
extract from such materials.
(b) For purposes of this Section 6.2, Confidential Information
means any and all information developed by or for the Company of which Barton
gained knowledge by reason of his employment by the Company prior the date
hereof or his employment under this Agreement that is not generally known in any
industry in which the Company is or may become engaged. Confidential Information
includes, but is not limited to, any and all information developed by or for the
Company concerning plans, marketing and sales methods, materials, processes,
business forms, procedures, devices used by the Company, contractors and
customers with which the Company has dealt prior to Barton's termination of
employment with the Company, plans for development of new products, services and
expansion into new areas or markets, internal operations, and any trade secrets
and proprietary information of any type owned by the Company together with all
written, graphic and other materials relating to all or any part of the same.
9
<PAGE>
In the event that Barton is, in the opinion of his legal counsel
(which counsel shall be acceptable to the Company in its reasonable discretion),
required to disclose any Confidential Information to any federal, state, local
or foreign judicial, legislative, administrative or other authority, agency or
instrumentality or is required to disclose such Confidential Information by
reason of his fiduciary duties to the Company or its shareholders or by any
federal, state, local or foreign securities, blue-sky or other similar laws,
rules, regulations or ordinances, then, notwithstanding anything in this Section
6.2 to the contrary, Barton may disclose such Confidential Information to the
extent, and to the persons and entities, so required without any liability
hereunder, without constituting a breach hereunder and without giving rise to a
right of the Company to terminate Barton's employment (for Cause or otherwise)
hereunder. Barton shall notify the Company of any disclosure required to be made
in connection with the preceding sentence as soon as practicable after Barton
becomes aware of such required disclosure.
7. REMEDIES
--------
7.1. Injunctive Relief. Barton acknowledges and agrees that the
-----------------
covenants and obligations contained in Sections 6.1 and 6.2 relate to special,
unique and extraordinary matters and that a violation of any of the terms of
such sections will cause the Company irreparable injury for which adequate
remedy at law is not available. Therefore, Barton agrees that the Company shall
be entitled to an injunction, restraining order, or other equitable relief from
any court of competent jurisdiction, restraining Barton from committing any
violation of the covenants and obligations set forth in Sections 6.1 and 6.2
hereof.
7.2. Remedies Cumulative. The Company's rights and remedies under
-------------------
Section 7.1 hereof are cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity.
8. MISCELLANEOUS
-------------
8.1. Notices. Any written notice, required or permitted under this
-------
Agreement, shall be deemed sufficiently given if either hand delivered or if
sent by fax or overnight courier. Written notices must be delivered to the
receiving party at his or its address on the signature page of this Agreement.
The parties may change the address at which written notices are to be received
in accordance with this section.
8.2. Assignment. Neither the Company nor Barton may assign, transfer,
----------
or delegate its or his rights or obligations hereunder and any attempt to do so
shall be void. This Agreement shall be binding upon and shall inure to the
benefit of the Company and its successors and assigns.
8.3. Entire Agreement. This Agreement contains the entire agreement of
----------------
the parties with respect to the subject matter hereof, and all other prior
agreements, written or oral, are hereby merged herein and are of no further
force or effect. This Agreement may be modified or amended only by a written
agreement that is signed by the Company and Barton. No waiver of any section or
provision of this Agreement will be valid unless such waiver is in writing and
signed by the party against whom enforcement of the waiver is sought. The waiver
by the Company of any
10
<PAGE>
section or provision of this Agreement shall not apply to any subsequent breach
of this Agreement. Captions to the various sections in this Agreement are for
the convenience of the parties only and shall not affect the meaning or
interpretation of this Agreement. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but together they shall
constitute one and the same instrument.
8.4. Severability. The provisions of this Agreement shall be deemed
------------
severable, and if any part of any provision is held illegal, void, or invalid
under applicable law such provision may be changed to the extent reasonably
necessary to make the provision, as so changed, legal, valid and binding. If any
provision of this Agreement is held illegal, void, or invalid in its entirety,
the remaining provisions of this Agreement shall not in any way be affected or
impaired but shall remain binding in accordance with their terms.
8.5. Continuing Obligations. Sections 4.2, 6.1 and 6.2 of this
----------------------
Agreement shall continue and survive the termination of this Agreement.
8.6. Applicable Law. This Agreement and the rights and obligations of
--------------
the Company and Barton thereunder shall be governed by and construed and
enforced under the laws of the State of California applicable to agreements made
and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TIER TECHNOLOGIES, INC.
By: /s/ George K. Ross
Title: Senior Vice President and Chief Financial Officer
Address: 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596
/s/ William G. Barton
WILLIAM G. BARTON
Address:
11
<PAGE>
EXHIBIT A
Incentive Compensation Formula
------------------------------
Barton shall receive annual incentive compensation of at least $75,000
per year (the "Annual Minimum") or $18,750 per quarter (the "Quarterly
Minimum"), upon the achievement of targeted level of earnings before interest,
taxes, depreciation and amortization ("EBITDA") of the Company. For calendar
1997, the targeted level of EBITDA shall be $412,500 per calendar quarter, or
$1,650,000 for the calendar year. If the targeted level of EBITDA is met for any
calendar quarter (the "Quarterly EBITDA Requirement"), the quarterly incentive
compensation payment shall be made to Barton on or before thirty days following
the end of such quarter. However, the right to receive such payment shall be
earned by and vested in Barton on the last day of each such quarter. Assuming
Barton has achieved the Quarterly EBITDA Requirement, the amount to be paid to
Barton for that quarter shall be determined by multiplying the Quarterly Minimum
by a fraction, the numerator of which is the actual EBITDA achieved for such
period and the denominator of which is the targeted level of EBITDA for the
quarter. EBITDA for any calendar quarter may not be carried over to the next
calendar quarter; provided, however, if the Quarterly EBITDA Requirement is not
met for one or more calendar quarters during any calendar year for the term of
this Agreement, but the annual target is met for such calendar year, Barton
shall be entitled to receive the difference between the annual incentive
compensation payment,determined by multiplying the Annual Minimum by a fraction,
the numerator of which is the actual EBITDA achieved for such the calendar year
and the denominator of which is the targeted level of EBITDA for the calendar
year, and the total of all quarterly incentive compensation payments made to
Barton during such calendar year. Such annual payment will be made to Barton by
March 31 of the following year. However, the right to receive such payment shall
be earned by and vested in Barton on the last day of each such calendar year.
For subsequent calendar years during the Term, the targeted level of
EBITDA shall be fixed by the Board, in consultation with Barton, prior to
commencement of the year in question. EBITDA will be determined by the Company's
Chief Financial Officer in accordance with the Company's normal accounting
practices consistently applied.
12
<PAGE>
EXHIBIT B
Benefits for Barton's Employment Agreement
------------------------------------------
1. Group Term and Keyman Life Insurance
2. Standard medical plan.
3. Standard three weeks vacation.
4. Standard 11 holidays.
5. Standard long term disability insurance.
6. Automobile (owned by company) or mutually acceptable allowance
in lieu thereof.
7. Pension supplement.
8. Standard defined benefit pension plan.
9. Incentive Compensation plan.
10. D & O liability insurance.
11. Annual physical examination.
12. Thrift savings (401(k) Plan.)
13. Personal liability insurance.
14. Other.
13
<PAGE>
EXHIBIT B
Benefits for Barton's Employment Agreement
------------------------------------------
1. Group Term and Keyman Life Insurance.
2. Standard medical plan.
3. Standard three weeks vacation.
4. Standard 11 holidays.
5. Standard long term disability insurance.
6. Automobile (owned by company) or mutually acceptable allowance
in lieu thereof.
7. Pension supplement.
8. Standard defined benefit pension plan.
9. Incentive Compensation plan.
10. D & O liability insurance.
11. Annual physical examination.
12. Thrift savings (401(k) Plan.)
13. Personal liability insurance.
14. Other.
14
<PAGE>
EXHIBIT 10.5
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
--------------------
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") dated as of
September 30, 1997, by and between TIER TECHNOLOGIES, INC., a California
corporation (the "Company") and WILLIAM G. BARTON ("Barton").
WHEREAS, the Company and Barton are parties to a First Amended and Restated
Employment Agreement dated as of December 31, 1996 (the "Employment Agreement");
and
WHEREAS, the parties desire to amend the Employment Agreement in order to
extend the term of the Employment Agreement;
NOW THEREFORE, in consideration of the mutual benefits derived from this
Amendment and of the agreements, covenants and provisions hereof, the parties
hereto agree as follows:
1. Section 3.1 of the Employment Agreement is hereby amended and
restated to read in its entirety as follows:
"3.1. Term. The "Term" of employment under this Agreement
----
means the period commencing on December 31, 1996 and expiring on
August 1, 2001 or the earlier termination hereof pursuant to Section
4.1."
2. This Amendment shall not extend or otherwise modify the vesting
period of Stock Options granted under Section 2.3 of the Employment Agreement or
the terms of loan forgiveness under Section 2.7 of the Employment Agreement.
3. As amended hereby, the Employment Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
TIER TECHNOLOGIES, INC.
By: /s/ George K. Ross
Title: Senior Vice President and Chief Financial Officer
Address: 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596
/s/ William G. Barton
WILLIAM G. BARTON
Address: 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596
<PAGE>
EXHIBIT B
Exhibit 10.7
================================================================================
TIER TECHNOLOGIES, INC.
INVESTORS' RIGHTS AGREEMENT
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS............................................................... 1
1. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS.. 1
1.1 Definitions.................................................... 1
1.2 Restrictions on Transfer....................................... 4
1.3 Requested Registration........................................ 6
1.4 Company Registration...........................................11
1.5 Expenses of Registration.......................................14
1.6 Indemnification................................................14
1.7 Information by Holder..........................................20
1.8 Transfer or Assignment of Registration Rights..................20
1.9 "Market Stand-Off" Agreement...................................21
1.10 Rule 144 Reporting............................................22
1.11 Allocation of Registration Opportunities......................23
1.12 Delay of Registration.........................................24
1.13 Termination of Registration Rights............................24
2. INVESTOR CONFIDENTIALITY............................................25
3. INFORMATION RIGHTS..................................................26
3.1 Financial Information..........................................26
3.2 Termination of Certain Rights..................................27
4. MISCELLANEOUS.......................................................27
4.1 Successors and Assigns.........................................27
4.2 Governing Law..................................................27
4.3 Counterparts...................................................27
4.4 Heading........................................................27
4.5 Notices........................................................28
4.6 Amendments and Waivers.........................................28
4.7 Severability...................................................28
4.8 Entire Agreement...............................................28
</TABLE>
i
<PAGE>
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made and entered
into as of July 28, 1997 by and among TIER Technologies, Inc., a California
corporation (the "Company"), and the persons identified on Exhibit A attached
hereto (each individually an "Investor" and collectively, the "Investors").
RECITALS
WHEREAS, the Company and the Investors are parties to that certain Series
A Convertible Preferred Stock Purchase Agreement, dated as of July 28, 1997 (the
"Purchase Agreement"), pursuant to which the Company agreed to sell and the
Investors agreed to purchase shares of the Company's Series A Convertible
Preferred Stock (the "Shares"); and
WHEREAS, the Purchase Agreement contemplates the execution and delivery by
the Company and the Investors of this Agreement:
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto hereby agree as follows:
1. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
REGISTRATION RIGHTS.
---------------------------------------------
1.1 Definitions. For purposes of this Section 2:
-----------
(a) Closing Date. The term "Closing Date" means the date of the
------------
initial sale of the Company's Series A Convertible Preferred Stock.
1
<PAGE>
(b) Exchange Act. The term "Exchange Act" means the Securities
------------
Exchange Act of 1934, as amended.
(c) Holder. The term "Holder" means any Investor who holds
------
Registrable Securities and any holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in
compliance with Section 1.2 and Section 1.8 hereof.
(d) Initiating Holder. The term "Initiating Holder" means any
-----------------
Holder or Holders who in the aggregate hold not less than forty percent (40%) of
the outstanding Registrable Securities.
(e) Investors. The term "Investors" means the persons who
---------
purchased Shares pursuant to the Purchase Agreement.
(f) Purchase Agreement. The term "Purchase Agreement" means
------------------
that certain Series A Convertible Preferred Stock Purchase Agreement, dated as
of July __, 1997 by and among the Company and the Investors.
(g) Registration. The terms "register," "registered," and
------------
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(h) Registrable Securities. The term "Registrable Securities"
----------------------
means: (1) shares of Class B Common Stock issued or issuable pursuant to the
conversion of the Shares and (2) any Class B Common Stock or other Common Stock
issued as a dividend or other
2
<PAGE>
distribution with respect to or in exchange for or in replacement of the shares
referenced in subparagraph (1) above, provided, however, that Registrable
Securities shall not include any shares of Common Stock which have previously
been registered or which have been sold to the public either pursuant to a
registration statement or Rule 144, or which have been sold in a private
transaction in which the transferor's rights under this Agreement are not
assigned.
(i) Registration Expenses. The term "Registration Expenses"
---------------------
means all expenses incurred in effecting any registration pursuant to this
Agreement, including, without limitation, all registration, qualification, and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, and expenses of any regular or
special audits incident to or required by any such registration, but shall not
include Selling Expenses, fees and disbursements of counsel for the Holders and
the compensation of regular employees of the Company.
(j) Restricted Securities. The term "Restricted Securities"
---------------------
means any Registrable Securities required to bear the legend set forth in
Section 1.2(b) hereof.
(k) Rule 144. The term "Rule 144" means Rule 144 promulgated by
--------
the SEC under the Securities Act, as such Rule may be amended from time to time,
or any similar successor rule that may be promulgated by the SEC.
(l) Rule 145. The term "Rule 145" means Rule 145 promulgated by
--------
the SEC under the Securities Act, as such Rule may be amended from time to time,
or any similar successor rule that may be promulgated by the SEC.
3
<PAGE>
(m) SEC. The term "SEC" or "Commission" means the United States
---
Securities and Exchange Commission.
(n) Securities Act. The term "Securities Act" means the
--------------
Securities Act of 1933, as amended, or any similar successor federal statute and
the rules and regulations thereunder, all as the same shall be in effect from
time to time.
(o) Selling Expenses. The term "Selling Expenses" means all
----------------
underwriting discounts, selling commissions and stock transfer taxes applicable
to the sale of the Registrable Securities and fees and disbursements of counsel
for any Holder (other than the fees and disbursements of counsel included in the
Registration Expenses in connection with Section 1.3 hereto).
(p) Shares. The term "Shares" means the Company's Series A
------
Convertible Preferred Stock.
1.2 Restrictions on Transfer.
------------------------
(a) Each Holder agrees not to make any disposition of all or any
portion of the Registrable Securities unless and until the transferee has agreed
in writing for the benefit of the Company to be bound by this Section 1.2,
provided and to the extent such Section is then applicable, and;
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
4
<PAGE>
(ii)(A) Such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (B) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its partners
or retired partners in accordance with partnership interests, (B) a corporation
to its shareholders in accordance with their interest in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, or (D) to the Holder's family
member or trust for the benefit of an individual Holder, provided the transferee
will be subject to the terms of this Section 1.2 to the same extent as if such
transferee were an original Holder hereunder.
(b) Each certificate representing Registrable Securities shall
(unless otherwise permitted by the provisions of this Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws):
"The Shares represented hereby have not been registered under the
Securities Act of 1933, as amended, and may not be sold or
transferred, assigned, pledged or hypothecated unless and until
registered under such Act or unless the Company has received an
opinion of counsel or other evidence, satisfactory to the Company and
its counsel, that such registration is not required."
5
<PAGE>
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any Holder thereof if the Holder shall
have obtained an opinion of counsel at such Holder's expense (which counsel may
be counsel to the Company) reasonably acceptable to the Company to the effect
that the securities proposed to be disposed of may lawfully be so disposed of
without registration, qualification or legend.
1.3 Requested Registration.
----------------------
(a) If the Company shall receive from Initiating Holders at any
time or times not before the earlier of (i) three years after the Closing Date
or (ii) one year after the closing of a firm commitment, underwritten public
offering of the Company's securities registered under the Securities Act of
1933, as amended (the "IPO"), a written request that the Company effect any
registration with respect to all or a part of the Registrable Securities having
an aggregate offering price, net of underwriting discounts and expenses, equal
to or exceeding $10.50 per share of Class B Common Stock (as adjusted for any
stock dividends, combinations or splits with respect to such shares) and the
aggregate proceeds of which (after deduction for underwriter's discounts and
expenses related to the issuance) exceed $2 million the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
6
<PAGE>
(ii) as soon as practicable thereafter, use its best efforts
to effect such registration (including, without limitation, filing post-
effective amendments, appropriate qualifications under applicable blue sky or
other state securities laws, and appropriate compliance with the Securities Act)
and as would permit and facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after such written notice from the
Company is mailed or delivered.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.3:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) After the Company has initiated one such registration
pursuant to this Section 1.3(a) (counting for these purposes only a registration
which has been declared or ordered effective and pursuant to which securities
have been sold or a registration which has been withdrawn by the Holders as to
which the Holders have not elected to bear the Registration Expenses pursuant to
Section 1.5 hereof and would, absent such election, have been required to bear
such expenses); or
7
<PAGE>
(C) During the period starting from the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred and eighty (180) days after the date of an
underwriting agreement relating to, a Company-initiated registration; provided
that the Company is actively employing in good faith reasonable efforts to cause
such registration statement to become effective;
(D) If the IPO has not taken place, if the Initiating
Holders do not request such offering be firmly underwritten by an underwriter
selected by the Initiating Holders (subject to the consent of the Company, which
consent will not be unreasonably withheld); or
(E) If the IPO has not taken place, if the Company and the
Initiating Holders are unable to obtain the commitment of the underwriter
described in clause (D) to firmly underwrite the offer.
(b) Subject to the foregoing clauses (A) through (E), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders; provided, however, that if (i) in
the good faith judgment of the Board of Directors of the Company, such
registration would be seriously detrimental to the Company, and the Board of
Directors concludes, as a result, that it is essential to defer the filing of
such registration statement at such time, or in the good faith judgement of the
Board of Directors of the Company, such registration should be delayed due to
the timing of the Company's annual audit and (ii) the Company shall furnish to
such Holders a
8
<PAGE>
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such registration
statement to be filed in the near future and that it is, therefore, essential to
defer the filing of such registration statement, or, that such registration
should be delayed due to the timing of the Company's annual audit, whichever is
applicable, then the Company shall have the right to defer such filing for a
collective period during any single calendar year of not more than one hundred
and twenty (120) days after the receipt of the request of the Initiating Holders
and, provided further, that the Company shall not defer its obligations in this
manner more than twice in any twelve-month period.
If all the Holders are allowed to include all Registrable Securities
that such Holders requested be included in the registration statement filed
pursuant to the request of the Initiating Holders, the registration statement
filed pursuant to the request of the Initiating Holders may, subject to the
provisions of this Section 1.3(b) and Section 1.11 hereof, include other
securities of the Company, with respect to which registration rights have been
granted, and may include securities of the Company being sold for the account of
the Company.
The Company shall pay the reasonable fees and disbursements of one
counsel selected by a majority in interest of the Holders in connection with any
registration under this Section 1.3.
9
<PAGE>
(c) The right of any Holder to registration pursuant to this
Section 1.3 shall be conditioned upon such Holders' participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
(d) If the Company shall request inclusion in any registration
pursuant to this Section 1.3 of securities being sold for its own account, or if
other persons shall request inclusion in any registration pursuant to this
Section 1.3, and if all of the Holders are allowed to include all Registrable
Securities that such Holders requested to be included in the registration
statement filed pursuant to the request of the Initiating Holders, the
Initiating Holders shall, on behalf of all Holders, offer to include such
securities in the underwriting and may condition such offer on their acceptance
of the further applicable provisions of this Section 1(including this Section
1.3). The Company shall, together with all Holders and other persons proposing
to distribute their securities through such underwriting, enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders (subject to the Company's consent, which
shall not be unreasonably withheld). Notwithstanding any other provision of this
Section 1.3, if the representative of the underwriters advises the Initiating
Holders in writing that marketing factors require a limitation on the number of
shares to be underwritten, the number of shares to be included in the
underwriting or registration shall be allocated as
10
<PAGE>
set forth in Section 1.11 hereof. If a person who has requested inclusion in
such registration as provided above does not agree to the terms of any such
underwriting, such person shall be excluded therefrom by written notice from the
Company, the underwriter or the Initiating Holders. The securities so excluded
shall also be withdrawn from registration. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall also be withdrawn
from such registration. If shares are so withdrawn from registration and if the
number of shares to be included in such registration was previously reduced as a
result of marketing factors pursuant to this Section 1.3(d), then the Company
shall offer to all Holders who have retained rights to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among such Holders requesting additional inclusion in accordance
with Section 1.11.
1.4 Company Registration.
--------------------
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights (other than
pursuant to Section 1.3 hereof), other than a registration relating solely to
employee benefit plans, or a registration relating to a corporate reorganization
or other transaction under Rule 145, or a registration on any registration form
that does not permit secondary sales, then, for a period commencing on the
Closing Date and ending on the fifth anniversary thereof, the Company will:
11
<PAGE>
(i) promptly give to each Holder written notice thereof,
subject to the limitations set forth in Section 1.4(c) hereof; and
(ii) use its best efforts to include in such registration
(and any related qualification under blue sky laws or other compliance), except
as set forth in Section 1.4(b) and (c) below, and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by any Holder and received by the Company within ten (10) days
after the written notice from the Company described in clause (i) above is
mailed or delivered by the Company. Such written request may specify all or a
part of a Holder's Registrable Securities.
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
1.4(a)(i). In such event, the right of any Holder to registration pursuant to
this Section 1.4 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the holders of securities of the Company with registration rights to participate
therein distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
12
<PAGE>
(c) Holders may participate in a maximum of two registered
public offerings under the provisions of this Section 1.4.
Notwithstanding any other provision of this Section 1.4, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being sold for its own
account and thereafter as set forth in Section 1.11. If any person does not
agree to the terms of any such underwriting, he shall be excluded therefrom by
written notice from the Company or the underwriter. Any Registrable Securities
or other securities excluded or withdrawn from such underwriting shall be
withdrawn form such registration.
If shares are so withdrawn from the registration or if the number of
shares of Registrable Securities to be included in such registration was
previously reduced as a as a result of marketing factors, the Company shall then
offer to all persons who have retained rights to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons so requesting additional inclusion in
accordance with Section 1.11 hereof.
13
<PAGE>
1.5 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
Sections 1.3 and 1.4 hereof shall be borne by the Company; provided, however,
that if the Holders bear the Registration Expenses for any registration
proceedings begun pursuant to Section 1.3 hereof and subsequently withdrawn by
the Holders registering shares therein, such registration proceeding shall not
be counted as the requested registration pursuant to Section 1.3 hereof.
Conversely, if the Company bears the Registration Expenses for any registration
proceedings begun pursuant to Section 1.3 hereof, and subsequently withdrawn by
the Holders registering shares therein, other than a withdrawal based on
material adverse information, as described below, such registration proceeding
shall be counted as a requested registration pursuant to Section 1.3 hereof.
Furthermore, in the event that a withdrawal by the Holders is based upon
material adverse information relating to the Company that is different from the
information known or available (upon request from the Company or otherwise) to
the Holders requesting registration at the time of their request for
registration under Section 1.3, such registration shall not be treated as a
counted registration for purposes of Section 1.3, even though the Holders do not
bear the Registration Expenses for such registration. All Selling Expenses
relating to securities so registered shall be borne by the Holders of such
securities pro rata on the basis of the number of shares of securities so
registered on their behalf, as shall any other expenses in connection with the
registration to be borne by the Holders of such securities.
1.6 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 1.3 or 1.4:
14
<PAGE>
(a) By the Company. To the extent permitted by law, the Company
--------------
will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading, or
(iii) any Violation or alleged Violation by the Company of
the Securities Act, the Exchange Act, any federal or state securities law
or any rule or regulation promulgated under the Securities Act, the
Exchange Act or any federal or state securities law in connection with the
offering covered by such registration statement;
15
<PAGE>
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1.6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or in based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each
------------------
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holders' partners, directors or
officers or any person who controls such underwriter or other Holder within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, partner
or director, officer or controlling person of such underwriter or other Holder
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are
16
<PAGE>
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, partner, officer, director or controlling
person of such other Holder or underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.6(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; and provided further that the total
amounts payable in indemnity by a Holder under this Section 1.6(b) in respect of
any Violation shall not exceed the gross proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party
------
under this Section 1.6 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by
17
<PAGE>
the counsel retained by the indemnifying party would be inappropriate due to an
actual conflict of interest between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.6, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.6.
(d) Defect Eliminated in Final Prospectus. The foregoing
-------------------------------------
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
indemnified party if a copy of the Final Prospectus was furnished to the
indemnified party and the indemnified party was required to, but did not,
furnish the Final Prospectus to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 1.6 but it is judicially determined (by the entry
18
<PAGE>
of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 1.6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 1.6; then, and in each such case,
the Company and such Holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion as is appropriate to reflect the relative benefits
and the relative fault of the Company on the one hand and the Holders on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of material fact related to information supplied by the Company
or the Stockholders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The relative benefits received by a Holder or the Company shall be that portion
represented by the percentage that the public offering price of its Registrable
Securities offered by and sold under the registration statement bears to the
public offering price of all securities offered by and sold under such
registration statement; provided, however, that, in any such case, (A) no such
Holder will be required to contribute more than the gross proceeds received by
such holder from all such Registrable Securities offered and sold by such Holder
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be
19
<PAGE>
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under this
--------
Section 1.6 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, and otherwise.
1.7 Information by Holder. Each Holder of Registrable Securities
---------------------
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 1.
1.8 Transfer or Assignment of Registration Rights. The rights to
---------------------------------------------
cause the Company to register securities granted to a Holder by the Company
under this Section 1 may be transferred or assigned by a Holder to a transferee
or assignee who acquires at least the lesser of (i) all of such Holder's
Registrable Securities or (ii) 25,000 shares of Registrable Securities (as
presently constituted and subject to subsequent adjustments for stock splits,
stock dividends, reverse splits and the like), provided that the Company is
given written notice at the time of or within reasonable time after said
transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, and, provided further, that the
transferee or assignee of such rights assumes in writing the obligations of such
Holder under this Section 1.
20
<PAGE>
1.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that
---------------------------
it shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to 180 days following the effective date of a
registration statement of the Company filed under the Securities Act; provided,
however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(b) all executive officers and directors of the Company then
holding Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to impose stop transfer instructions with respect to
the Registrable Securities and such other shares of stock of each Holder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period. Each Holder further agrees that the
provisions of this Section 1.9 shall be applicable to any transferee of shares
from such Holder and such transferee as a condition of the transfer shall agree
to this Section 1.9 and that this Section 1.9 shall be applicable to all
subsequent transferees.
21
<PAGE>
1.10 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its reasonable best efforts to file with the Commission
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request therefrom a written statement by
the Company as to its compliance with the reporting requirements of Rule 144 (at
any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to the reporting requirements of the Exchange Act), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company as a Holder may reasonably request in
availing itself of any rule or regulation of
22
<PAGE>
the Commission allowing a Holder to sell any such securities without
registration (at any time after the Company has become subject to the reporting
requirements of the Exchange Act).
1.11 Allocation of Registration Opportunities. In any circumstance
----------------------------------------
in which all of the Registrable Securities and other securities of the Company
with registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling stockholders cannot be so
included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such Holders and other selling
stockholders, assuming conversion; provided, however, that such allocation shall
not operate to reduce the aggregate number of Registrable Securities and Other
Shares to be included in such registration, if any Holder or other selling
stockholder does not request inclusion of the maximum number of shares of
Registrable Securities and Other Shares allocated to him pursuant to the above-
described procedure, the remaining portion of his allocation shall be
reallocated among those requesting Holders and other selling stockholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Securities and Other Shares which would be held by such
Holders and other selling stockholders, assuming conversion, and this procedure
shall be repeated until all of the shares of Registrable Securities and Other
Shares which may be included in the registration on behalf of the Holders and
other selling stockholders have been so allocated; and provided further, with
respect to the registration provided in Section 1.3(a), the number of shares of
Registrable Securities that may be so
23
<PAGE>
included shall be allocated: (a) First, among the Holders requesting inclusion
of shares pro rata on the basis of the number of shares of Registrable
Securities that would be held by such Holders, assuming conversion; and (b)
Second, if all of the Holders requesting inclusion are able to include all of
the shares requested to be included by such Holders in such offering, then, the
remainder of the shares that may be so included shall be allocated among the
other selling stockholders requesting inclusion of shares pro rata on the basis
of the number of Other Shares that would be held by such other selling
stockholders, assuming conversion. The Company shall not limit the number of
Registrable Securities to be included in a registration pursuant to this
Agreement in order to include shares held by stockholders with no registration
rights.
1.12 Delay of Registration. No Holder shall have any right to take
---------------------
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that may arise with respect to the interpretation or
implementation of this Section 1.
1.13 Termination of Registration Rights.
----------------------------------
(a) No Holder shall be entitled to exercise any right provided
in Section 1.3: (i) prior to the earlier of (A) three (3) years from the Closing
Date or (B) one (1) year after the IPO, and (ii) after the Company has initiated
one such registration pursuant to Section 1.3 (counting for these purposes only
a registration which has been declared effective and pursuant to which
securities have been sold or a registration which has been withdrawn by the
Holders as to which the Holders have not elected to bear Registration Expenses
pursuant to Section 1.5 hereof and would, absent such election, have been
required to bear such expenses).
24
<PAGE>
(b) No Holder shall be entitled to exercise any right provided
in Section 1.4 after the first to occur of : (i) five (5) years following the
Closing Date, and (ii) after Holders have participated in two such registrations
pursuant to Section 1.4 .
2. INVESTOR CONFIDENTIALITY.
------------------------
Each Investor hereby agrees to safeguard against disclosure to third
parties all confidential information concerning the business of the Company that
may be disclosed to such Investor by reason of such Investor's access to the
books, records, properties or personnel of the Company before or after the date
hereof (collectively, "Company Confidential Information") by using reasonable
secrecy measures and in no event less than the same degree of care as such
Investor uses for such Investor's own similar proprietary information. However,
an Investor shall not be obligated to maintain any such Company Confidential
Information in confidence to the extent that: (i) the Company Confidential
Information is or becomes public knowledge other than through the fault of such
Investor; (ii) the Company Confidential Information is or becomes available on
an unrestricted basis to such Investor from a source other than the Company; or
(iii) the Company Confidential Information is required to be disclosed by such
Investor, under a court order or governmental action, provided that such
Investor provides not less than 10 days' prior written notification to the
Company of such obligation and seeks, or allows the Company to seek, an
appropriate protective order, and provided further that disclosure solely
pursuant to this clause (iii) shall not release an Investor from such Investor's
obligation to maintain confidentiality.
25
<PAGE>
3. INFORMATION RIGHTS.
------------------
3.1 Financial Information. The Company agrees that so long as an
---------------------
Investor (together with any affiliated holder) is a holder of at least 1,000
Shares, the Company will:
(a) Annual Reports. Furnish to such Investor, as soon as
--------------
practicable and in any event within 120 days after the end of each fiscal year,
a consolidated Balance Sheet as of the end of such fiscal year, and a
consolidated Statement of Income and a consolidated Statement of Cash Flows of
the Company and its subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal year (if any),
all prepared in accordance with generally accepted accounting principles and
practices and audited by the Company's independent certified public accountants;
(b) Quarterly Reports. Furnish to such Investor, as soon as
-----------------
practicable and in any event within 45 days after the end of each fiscal quarter
of the Company (except the last quarter of the Company's fiscal year), quarterly
unaudited consolidated financial statements, including an unaudited consolidated
Balance Sheet, an unaudited consolidated Statement of Income and an unaudited
Statement of Cash Flows;
(c) Budget. Furnish to each Investor, sixty days prior to the
------
beginning of each fiscal year, a budget for the Company for the upcoming fiscal
year, describing in detail, at a minimum, assumptions with respect to revenues
and key operating expenses. All such budgets shall be provided subject to the
approval of the Company's Board of Directors.
26
<PAGE>
3.2 Termination of Certain Rights. The Company's obligations under
-----------------------------
Section 3.1 will terminate upon the earliest of (i) the closing of the Company's
initial public offering of Common Stock pursuant to a registration statement
filed with and declared effective by the SEC under the Securities Act, or (ii)
the acquisition (by merger, consolidation or otherwise) of the Company where the
surviving entity is subject to the reporting requirements of the Exchange Act.
4. MISCELLANEOUS.
-------------
4.1 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties.
4.2 Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to principles of conflict of laws or choice of
laws.
4.3 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
4.4 Heading. The headings and captions used in this Agreement are
-------
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
27
<PAGE>
4.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified, (ii)
one business day after delivery via facsimile or (iii) three days after deposit
with a United States Post Office, by registered or certified mail, postage
prepaid and addressed to the Company at its principal place of business and to
the Investors at their respective addresses as shown on the stock records of the
Company.
4.6 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and Investors holding a
majority of the Shares and/or Class B Common Stock into which such Shares have
been converted, voting together as a class.
4.7 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provisions shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms to the maximum extent possible.
4.8 Entire Agreement. This Agreement, together with all exhibits and
----------------
schedules hereto, constitutes the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersedes all prior
negotiations, correspondence, agreements, understandings, duties or obligations
among the parties with respect to the subject matter hereof.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TIER TECHNOLOGIES, INC.
a California corporation
By: James L. Bildner
-------------------------------------------
Title: CEO and Chairman of the Board
----------------------------------------
INVESTORS
Name: Bryan McCaul
-----------------------------------------
Signature: /s/ Bryan McCaul
------------------------------------
Name: George K. Ross
-----------------------------------------
Signature: /s/ George K. Ross
------------------------------------
Name: Steven R. Vilas, Chief Financial Officer for Richard N. Goldman & Co.
---------------------------------------------------------------------
Signature: /s/ Steven R. Vilas
------------------------------------
Name: Tucks Point LP
-----------------------------------------
Signature: /s/ John G.L. Cabot, General Partner
------------------------------------
Name: Ronald E. English
-----------------------------------------
Signature: /s/ Ronald E. English
------------------------------------
Name: Merchants' Fund, Inc.
-----------------------------------------
Signature: /s/ Jennifer Newbold, Vice President
------------------------------------
<PAGE>
Name: Allen I. Bildner
---------------------------------------
Signature: /s/ Allen I. Bildner
----------------------------------
Name: Kevin M. McCafferty
---------------------------------------
Signature: /s/ Kevin M. McCafferty
----------------------------------
Name: Bernard K. Chiu
---------------------------------------
Signature: /s/ Bernard K. Chiu
----------------------------------
Name: Scott H. Cummings
---------------------------------------
Signature: /s/ Scott H.Cummings
----------------------------------
Name: Steven Sheftel
---------------------------------------
Signature: /s/ Steven Sheftel
----------------------------------
Name: Sherif Nada
---------------------------------------
Signature: /s/ Sherif Nada
----------------------------------
Name: Albemarle Partners
---------------------------------------
Signature: /s/ Louis Goodman, General Partner
----------------------------------
Name: Eunice Buckland
---------------------------------------
Signature: /s/ Eunice Buckland
----------------------------------
Name: Barry Sylvetsky
---------------------------------------
Signature: /s/ Barry Sylvetsky
----------------------------------
<PAGE>
Name: Ira Stepanian
---------------------------------------
Signature: /s/ Ira Stepanian
----------------------------------
Name: Donald Baron
---------------------------------------
Signature: /s/ Donald Baron
----------------------------------
Name: Ralph Casazzone
---------------------------------------
Signature: /s/ Ralph Casazzone
----------------------------------
Name: Larry Moore
---------------------------------------
Signature: /s/ Larry Moore
----------------------------------
Name: Richard K. Bendetson
---------------------------------------
Signature: /s/ Richard K. Bendetson
----------------------------------
Name: William G. Barton
---------------------------------------
Signature: /s/ William G. Barton
----------------------------------
Name: John W. Adams
---------------------------------------
Signature: /s/ John W. Adams
----------------------------------
Name: Josef von Rickenbach
---------------------------------------
Signature: /s/ Josef von Rickenbach
----------------------------------
Name: Francis H. Zenie
---------------------------------------
Signature: /s/ Francis H. Zenie
----------------------------------
<PAGE>
Name: Nucon Capital Corporation
---------------------------------------
Signature: /s/ Daniel Weener, President
----------------------------------
Name: Samuel Cabot, III
---------------------------------------
Signature: /s/ Samuel Cabot, III
----------------------------------
Name: Peter Goodman
---------------------------------------
Signature: /s/ Peter Goodman
----------------------------------
Name: John L. Newbold
---------------------------------------
Signature: /s/ John Newbold
----------------------------------
Name: Benjamin Marsh
---------------------------------------
Signature: /s/ Benjamin Marsh
----------------------------------
Name: Frederick Mark D'Annolfo
---------------------------------------
Signature: /s/ F. Mark D'Annolfo
----------------------------------
Name: Allyn C. Woodward, Jr.
---------------------------------------
Signature: /s/ Allen Woodward
----------------------------------
Name: Ronald L. Rossetti
---------------------------------------
Signature: /s/ Ronald L. Rossetti
----------------------------------
Name: Bradley H. Nickels
---------------------------------------
Signature: /s/ Bradley H. Nickels
----------------------------------
<PAGE>
EXHIBIT A
INVESTORS
---------
<TABLE>
<S> <C>
1. Richard N. Goldman & Co.
2. Merchants' Fund
3. Bradley H. Nickels
4. Ira Stepanian
5. John L. Newbold
6. Steven J. Sheftel
7. Nucon Capital Corporation
8. Josef von Rickenbach
9. Ronald E. English
10. Eunice Buckland
11. Richard K. Bendetson
12. Kevin M. McCafferty
13. Ralph Casazzone
14. Tucks Point LP
15. Samuel Cabot III
16. Allen I. Bildner
17. Donald Baron
18. Sherif A. Nada
19. Bernard K. Chiu
20. Albemarle Partners
21. Francis H. Zenie
22. Larry Moore
23. Ronald L. Rossetti
24. George K. Ross
25. Bryan McCaul
26. William G. Barton
27. Benjamin A. Marsh
28. Scott H. Cummings
</TABLE>
<PAGE>
<TABLE>
<S> <C>
29. John W. Adams
30. Allyn C. Woodward, Jr.
31. Frederick Mark D'Annolfo
32. Barry A. Sylvetsky
33. Peter Goodman
</TABLE>
<PAGE>
Exhibit 10.8
================================================================================
TIER TECHNOLOGIES, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Purchase and Sale of Shares............................................... 1
1.1 Sale and Issuance of Shares........................................... 1
1.2 Closing............................................................... 2
2. Representations and Warranties of the Company to the Investors............ 2
2.1 Corporate Organization and Authority.................................. 2
2.2 Capitalization........................................................ 3
2.3 Authorization......................................................... 4
2.4 Validity of Shares.................................................... 4
2.5 Subsidiaries.......................................................... 5
2.6 Title to Properties and Assets, Liens, etc............................ 5
2.7 Material Contracts.................................................... 5
2.8 Patents, Trademarks, etc.............................................. 5
2.9 Compliance with Other Instruments..................................... 6
2.10 Employees............................................................ 7
2.11 Litigation, etc...................................................... 8
2.12 Registration Rights.................................................. 8
2.13 Governmental Consent, etc............................................ 8
2.14 Insurance............................................................ 9
2.15 Taxes................................................................ 9
2.16 Transactions with Principals......................................... 9
2.17 Financial Statements.................................................10
2.18 Changes..............................................................10
2.19 Disclosure...........................................................11
3. Representations and Warranties of the Investors...........................11
3.1 Authorization.........................................................11
3.2 Private Offering......................................................11
3.3 Purchase Entirely for Own Account.....................................11
3.4 Restricted Securities.................................................12
3.5 Qualifications........................................................12
4. Legends...................................................................13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5. Conditions to Obligations of the Investors................................14
5.1 Representations and Warranties Correct; Performance of Obligations....14
5.2 Opinion of Company's Counsel..........................................14
5.3 Consents and Waivers..................................................14
5.4 Investors' Rights Agreement...........................................15
5.5 Certificate of Determinations.........................................15
5.6 Secretary's Certificate...............................................15
5.7 Compliance Certificate................................................15
5.8 Proceedings and Documents.............................................15
6. Conditions of the Company's Obligations at Closing........................16
6.1 Representations and Warranties........................................16
6.2 Payment of Purchase Price.............................................16
6.3 Qualifications........................................................16
6.4 Investor's Rights Agreement...........................................16
6.5 Offeree Questionnaire.................................................16
7. Miscellaneous.............................................................16
7.1 Entire Agreement; Successors and Assigns..............................16
7.2 Governing Law.........................................................17
7.3 Counterparts..........................................................17
7.4 Headings..............................................................17
7.5 Notices...............................................................17
7.6 Amendment of Agreement or Waiver......................................18
7.7 Expenses..............................................................18
</TABLE>
EXHIBITS AND SCHEDULES
Exhibit A Certificate of Determination
Exhibit B Investors' Rights Agreement
Exhibit C Offeree Questionnaire
Exhibit D Form of Opinion of Farella Braun & Martel LLP
Schedule 1 Investors
Schedule 2 Company Disclosure Schedule
ii
<PAGE>
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is made as of July 28, 1997, by and among TIER TECHNOLOGIES, INC.,
a California corporation (the "Company"), and the persons listed on Schedule 1
who are signatories to this Agreement (each, an "Investor").
RECITALS:
--------
A. The Board of Directors of the Company has adopted the Certificate of
Determination in the form attached hereto as Exhibit A (the "Certificate of
Determination") which establishes the rights, preferences and privileges of the
Company's Series A Convertible Preferred Stock, no par value (the "Shares").
B. The Company desires to sell the Shares to the Investors, and the
Investors desire to purchase Shares, on the terms and subject to the conditions
set forth in this Agreement.
THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Shares.
---------------------------
1.1 Sale and Issuance of Shares. Subject to the terms and conditions
---------------------------
of this Agreement, each Investor agrees, severally, to purchase at the Closing
and the Company agrees to sell and issue to each Investor at the Closing, that
number of Shares set forth opposite each Investor's name on Schedule 1 hereto,
at a price of $5.25 per share (the "Purchase Price"), for an aggregate not to
exceed 420,953 Shares.
1
<PAGE>
1.2 Closing. The purchase and sale of the Shares shall take place at
-------
_____ p.m. on July 28, 1997, at the offices of Farella Braun & Martel LLP, 235
Montgomery Street, 30th Floor, San Francisco, California 94104, or on such other
dates and at such times as the Company and the Investors mutually agree (the
"Closing"). At the Closing, the Company shall deliver to each Investor a
certificate representing the Shares which such Investor is purchasing against
delivery to the Company by such Investor at such Closing of (a) an executed
counterpart of this Agreement, (b) an executed counterpart of the Shareholders'
Rights Agreement, a copy of which is attached here to as Exhibit B, and (c) the
---------
Purchase Price of such Shares by (i) a wire transfer to the Company, as follows:
WestAmerica Bank
1850 Mt. Diablo Blvd., Suite 160
Walnut Creek, CA 94596
Attn. James P. Burke
ABA # 121140218
Tel: (510) 935-515
Fax: (510) 935-8332
For the account of:
TIER Technologies, Inc.
Operating Account #0704-014497
Contact: George K. Ross
Tel: (510) 937-3950, ext. 167
or (ii) a cashier's check payable to the Company.
2. Representations and Warranties of the Company to the Investors. Except
--------------------------------------------------------------
as set forth on Schedule 2, the Company hereby represents and warrants to the
----------
Investors that:
2.1 Corporate Organization and Authority. The Company:
------------------------------------
2
<PAGE>
(a) is a corporation duly organized, validly existing, authorized
to exercise all its corporate powers, rights and privileges, and in good
standing in the State of California;
(b) has the corporate power and authority to own and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted; and
(c) is qualified as a foreign corporation in all jurisdictions in
which such qualification is required; provided, however, that the Company need
not be qualified in a jurisdiction in which its failure to qualify would not
have a material adverse effect on the business, properties, prospects or
financial condition of the Company.
2.2 Capitalization. Except as set forth in Schedule 2, immediately
-------------- ----------
prior to the Closing, the authorized capital of the Company shall consist of:
(a) Preferred Stock. Five Million (5,000,000) shares of
---------------
Preferred Stock, 420,953 of which are designated as Series A Convertible
Preferred Stock. No Preferred Stock was issued and outstanding immediately prior
to Closing.
(b) Class A Common Stock. Two Million, Four Hundred Thousand
--------------------
(2,400,000) shares of Class A Common Stock, 2,380,000 of which are issued and
outstanding.
(c) Class B Common Stock. Twelve Million, Six Hundred Thousand
--------------------
(12,600,000) shares of Class B Common Stock, 3,240,000 of which are issued and
outstanding.
(d) All outstanding shares of the Company's Class A and Class B
Common Stock, have been duly and validly issued (including, without limitation,
issued in
3
<PAGE>
compliance with applicable federal and state securities laws), and are fully-
paid, nonassessable and held by the persons and in the amounts set forth on
Schedule 2.
- ----------
(e) Other Securities. Except as set forth on Schedule 2, as
---------------- ----------
contemplated by this Agreement, there are no outstanding warrants, options,
conversion privileges, preemptive rights, or other rights or agreements to
purchase or otherwise acquire or issue any equity securities of the Company.
2.3 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and shareholders, necessary for the authorization,
execution, delivery and performance of all obligations under this Agreement and
the Investors' Rights Agreement and for the issuance and delivery of the Shares
and of the Common Stock issuable upon conversion of the Shares has been or will
be taken prior to the Closing, and this Agreement and the Investors' Rights
Agreement constitute legally binding valid obligations of the Company
enforceable in accordance with their terms.
2.4 Validity of Shares. Subject to the truth and accuracy of the
------------------
representations and warranties of the Investors in Section 3 hereof, the Shares,
when issued, sold and delivered in accordance with the terms and for the
consideration expressed in this Agreement, shall be duly and validly issued
(including, without limitation, compliance with applicable federal and state
securities laws), fully-paid and nonassessable. The Class B Common Stock
issuable upon conversion of the Shares, assuming such Class B Common Stock is
issued to the Investors, upon issuance in accordance with the Articles and this
Agreement, shall be duly and validly issued
4
<PAGE>
(including, without limitation, issued in compliance with all applicable federal
and state securities laws), fully paid and nonassessable.
2.5 Subsidiaries. The Company does not control, directly or
------------
indirectly, or have an interest in, any other corporation, association or
business entity and is not a party to any verbal or written agreement relating
to the foregoing.
2.6 Title to Properties and Assets, Liens, etc. The Company owns its
------------------------------------------
property and assets free and clear of all mortgages, liens, loans and
encumbrances, other than encumbrances and liens resulting from taxes which have
not yet become delinquent and liens and encumbrances which arise in the ordinary
course of business and which do not materially impair the Company's ownership or
use of such property or assets.
2.7 Material Contracts. The Company is not a party to any agreement,
------------------
instrument, license, lease, or contract which is not in the ordinary course of
business of the Company requiring payment by or to the Company of an amount in
excess of $500,000 during any 12-month period. The Company has entered into
written or oral agreements with each customer that accounted for more than 1.0%
of the Company's revenue during the six-month period ended June 30, 1997 (the
"Contracts"). Each customer that is a party to a Contract is listed on
Schedule 2.
2.8 Patents, Trademarks, etc. To the Company's knowledge (but without
------------------------
having conducted any special investigation or patent search), the Company owns,
or has the right to use (or reasonably believes that it can obtain the right to
use on reasonable commercial terms), all patents, trademarks, service marks,
trade names, copyrights, trade secrets or other proprietary
5
<PAGE>
rights necessary to its business as now conducted or proposed to be conducted,
the lack of which would have a material adverse effect on the business of the
Company, as a whole. The Company has not received a notice that it is infringing
upon or otherwise acting adversely to the right or claimed right of any person
under or with respect to any patent, trademark, service mark, trade name,
copyright, trade secret, or other proprietary right, and, to the Company's
knowledge, there is no reasonable basis for any such claim. The Company is not
aware of any material violation by a third party of any of the Company's
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights. The Company is not aware that any of its key employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or agreement, or subject to any judgment, decree or order of any
court or administrative agency, that would interfere with their duties to the
Company or that would conflict with the Company's business as currently
conducted as and described in the Memorandum (as defined below). Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any employee is now
obligated.
2.9 Compliance with Other Instruments. The Company is not in
---------------------------------
violation of (i) its charter documents, as amended, or (ii) any mortgage,
indenture, Contract, judgment, decree or order by which the Company is bound or
to which its properties are subject or, to the Company's knowledge, any statute,
rule, or regulation applicable to the Company, except for any violation under
clause (ii) of this sentence that would not materially adversely affect the
6
<PAGE>
business, assets, liabilities, financial condition, operations or prospects of
the Company or for which a waiver has been obtained. Assuming the filing of the
Certificate of Determination, the execution, delivery and performance of and
compliance with this Agreement and the Investors' Rights Agreement and the
transactions provided for herein and therein will not result in any such
violation and will not be in conflict with, require a consent under or
constitute a default under any of the foregoing and will not result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company pursuant to any of the foregoing. To the
Company's knowledge, the Contracts are valid and binding and in full force and
effect in all respects, and the Company has not been notified by any party
thereto of any such party's intention or desire to terminate or modify any of
such Contracts, or of any claim or threat that the Company has breached any of
such Contracts.
2.10 Employees. To the Company's knowledge, no key employee of the
---------
Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the right of
any such key employee to be employed by the Company because of the nature of the
business conducted or to be conducted by the Company or for any other reason,
except for any violation that would not materially, adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company, and, to the Company's knowledge, the continued employment by the
Company of its present key employees will not result in any such violations.
Other than the plans referred to in the Company's Confidential Private Placement
Memorandum dated July 18, 1997 relating to the offer of the Shares (the
'Memorandum'), the Company has no deferred compensation, pension, profit-sharing
or any other similar employee benefit plans or arrangements covering any of its
7
<PAGE>
officers or employees. To the Company's knowledge, there are no asserted
controversies or labor disputes or union organization activities pending or
threatened between it and its employees. To the Company's knowledge, the
Company has complied with all applicable state and federal equal employment
opportunity and other laws related to employment where failure to so comply
would have a material adverse effect on the business of the Company.
2.11 Litigation, etc. There are no actions, suits, proceedings or
---------------
governmental investigations pending or, to the Company's knowledge, threatened
against the Company which, either in any case or in the aggregate, would result
in any material adverse change in the business, prospects, affairs or operations
of the Company, or in any material impairment of the right or ability of the
Company to carry on its business, or in any material liability on the part of
the Company, and none which questions the validity of this Agreement or the
Investors' Rights Agreement or any action taken or to be taken in connection
herewith or therewith. The Company is not a party or subject to any writ,
order, decree or judgment, and there is no action, suit or proceeding currently
pending that the Company has originated.
2.12 Registration Rights. Except as provided in the Investors'
-------------------
Rights Agreement, the Company is not under any obligation to register any
presently outstanding securities under the Securities Act of 1933, as amended
(the "Securities Act").
2.13 Governmental Consent, etc. To the Company's knowledge, no
-------------------------
consent, approval or authorization of, or designation, declaration or filing
with any governmental authority on the part of the Company is required in
connection with the valid execution and delivery of this Agreement or the
Investors' Rights Agreement, or the offer, sale or issuance of
8
<PAGE>
the Shares or the Class B Shares issuable upon conversion of the Shares or the
consummation of any other transaction provided for herein or therein, except the
filing of the Certificate of Determinations with the California Secretary of
State and, if required, qualifications or filings under the Securities Act and
applicable state and foreign securities laws, which qualifications or filings,
if required, will be obtained or made and will be effective within the time
periods required by law.
2.14 Insurance. The insurance coverage of the Company is described,
---------
in summary form, in Schedule 2.
2.15 Taxes. The Company has paid, or made provision for the payment
-----
of, all taxes which are due, except for such amounts due that would not
materially, adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company. No examinations of the
federal, state or local tax returns of the Company are currently in progress
nor, to the best knowledge of the Company, threatened and no deficiencies have
been asserted or assessed against the Company as a result of any audit by the
Internal Revenue Service or any state or local taxing authority and no such
deficiency has been proposed or threatened. No deficiency assessment or
proposed adjustment of the Company's federal, state or local taxes is pending.
2.16 Transactions with Principals. No employee, stockholder or
----------------------------
director of the Company is indebted to the Company in an amount in excess of
$50,000, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of its stockholders, directors or employees in an
amount in excess of $50,000. No stockholder, director or employee
9
<PAGE>
of the Company is, directly or indirectly, interested in any contract,
arrangement or other transaction with the Company. Other than as set forth in
Schedule 2, the Company has no obligation to make any payments to any employee,
stockholder or director other than customary compensation, salary, bonus,
perquisites, director fees and option grants.
2.17 Financial Statements. The Company has delivered to each
--------------------
Purchaser by means of the Memorandum audited balance sheets of the Company at
December 31, 1996 and December 31, 1995, and the related statements of income,
shareholders' equity and cash flows, for the fiscal years ended December 31,
1996 and December 31, 1995, and unaudited statements of operations for the
fiscal quarters ended March 31, 1996 and March 31, 1997 (collectively, the
"Financial Statements") and projected statements of operations for the fiscal
years ended December 31, 1997 and December 31, 1998 . The Financial Statements
have been prepared in accordance with generally accepted accounting principles,
except that the unaudited Financial Statements do not contain the notes and
other disclosures required by generally accepted accounting principles. The
Financial Statements fairly present the financial condition and operating
results of the Company as of those dates, and for the periods, indicated
therein, subject in the case of unaudited Financial Statements to normal year-
end adjustments.
2.18 Changes. Since March 31, 1997, there has not been, except as
-------
specifically set forth in the Memorandum, any material change in the assets,
liabilities, financial condition or operations of the Company, other than
changes in the ordinary course of business, none of which individually or in the
aggregate has had a material adverse effect on such assets, liabilities,
financial condition or operations of the Company.
10
<PAGE>
2.19 Disclosure. The Company represents and warrants that it has
----------
exercised reasonable care and prudence under the circumstances in connection
with the preparation of the Agreement, the schedules thereto and the Memorandum.
3. Representations and Warranties of the Investors. Each Investor
-----------------------------------------------
severally represents and warrants to the Company as follows:
3.1 Authorization. Such Investor has full power and authority to
-------------
enter into this Agreement and the Investors' Rights Agreement, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms.
3.2 Private Offering. Each Investor understands and acknowledges
----------------
that the offering of the Shares pursuant to this Agreement will not be
registered under the Securities Act on the grounds that the offering and sale of
securities contemplated by this Agreement are exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), and Rule 506 of Regulation D promulgated thereunder, and that the
Company's reliance upon such exemption is predicated upon the truth and accuracy
of each Investor's representations set forth in this Agreement and the Offeree
Questionnaire, a copy of which is attached hereto as Exhibit C.
---------
3.3 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
each Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Shares to be purchased by such Investor and the Class B
Common Stock issuable upon conversion thereof will be acquired for investment
for such Investor's own account, not as a nominee or agent, and
11
<PAGE>
not with a view to the resale or distribution of any part thereof, and that such
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, each Investor
further represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person with respect to any of the
Shares.
3.4 Restricted Securities. Each Investor understands that the Shares
---------------------
(and any Class B Common Stock issued upon conversion thereof) may not be sold,
transferred, or otherwise disposed of without registration under the Securities
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Shares (or the Class B Common Stock issued
on conversion thereof) must be held indefinitely. In particular, each Investor
is aware that the Shares (and any Class B Common Stock issuable upon conversion
thereof) may not be sold pursuant to Rule 144 promulgated under the Securities
Act unless all of the conditions of the Rule are met. Among the conditions for
use of Rule 144 may be the availability of current information to the public
about the Company. Such information is not now available and the Company may or
may not make such information available in the future.
3.5 Qualifications. Each Investor represents that: (i) such
--------------
Investor has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of such Investor's prospective
investment in the Shares; (ii) such Investor has received all the information it
has requested from the Company and considers necessary or appropriate for
deciding whether to purchase the Shares; (iii) such Investor has the ability to
bear the economic risks of such Investor's prospective investment; (iv) such
Investor is able, without materially impairing its financial condition, to hold
the Shares for an indefinite period of time
12
<PAGE>
and to suffer complete loss on its investment; and (v) such Investor is an
"accredited investor" within the meaning of Rule 501 of Regulation D under the
Securities Act. Each Investor understands that the Shares are not (and any Class
B Common Stock issued upon conversion thereof may not be) registered under the
Securities Act on the ground that the sale provided for in this Agreement and
the issuance of the securities hereunder is exempt from registration under Rule
506 of Regulation D, promulgated under Section 4(2) of the Securities Act. The
Company's reliance on such exemption is predicated upon the Investors'
representations set forth herein and in the Offeree Questionnaire, a copy of
which is attached hereto as Exhibit C. Each Investor realizes that the basis for
---------
the exemption may not be present if, notwithstanding such representations, the
Investor has in mind merely acquiring the Shares for a fixed or determinable
period in the future, or for a market rise, or for sale if the market does not
rise. No Investor has any such intention.
4. Legends.
-------
(a) All certificates for the Shares shall bear the following legend:
"The Shares represented hereby have not been registered under the
Securities Act of 1933, as amended, and may not be sold or transferred,
assigned, pledged or hypothecated unless and until registered under
such Act or unless the Company has received an opinion of counsel or
other evidence, satisfactory to the Company and its counsel, that such
registration is not required."
(b) The certificates evidencing the Shares shall also bear any legend
required by the Commissioner of Corporations of the State of California or
required pursuant to any state, local or foreign law governing such securities.
13
<PAGE>
5. Conditions to Obligations of the Investors. The obligation of each
------------------------------------------
Investor to purchase Shares at the Closing is subject to the fulfillment on or
prior to the Closing Date of the following conditions:
5.1 Representations and Warranties Correct; Performance of
------------------------------------------------------
Obligations. The representations and warranties made by the Company in Section
- -----------
2 shall be true and complete in all material respects (i) on the date hereof
(except where explicitly made as of a different date, in which case such
representations and warranties shall be true and complete as of such date) and
(ii) on the Closing Date with the same force and effect as if they had been made
on and as of the Closing Date (except where explicitly made as of a different
date, in which case such representations and warranties shall be true and
complete as of such date); the Company's business and assets shall not have been
materially adversely affected prior to the Closing Date, and the Company shall
have performed all obligations and conditions herein required to be performed or
observed by it on or prior to the Closing Date.
5.2 Opinion of Company's Counsel. The Investors shall have received
----------------------------
from Farella Braun & Martel LLP an opinion, dated as of the Closing Date, as to
the matters set forth in Exhibit D hereto.
---------
5.3 Consents and Waivers. The Company shall have obtained any and
--------------------
all consents (including all governmental or regulatory consents, approvals or
authorizations required in connection with the valid execution and delivery of
this Agreement or the Investors' Rights Agreement), permits and waivers
necessary or appropriate for consummation of the transactions provided for in
this Agreement or the Investors' Rights Agreement.
14
<PAGE>
5.4 Investors' Rights Agreement. The Company and each Investor and
---------------------------
the other parties required as signatories thereto shall have executed and
delivered the Investors' Rights Agreement.
5.5 Certificate of Determination. The Certificate of Determination
----------------------------
shall have been filed with the California Secretary of State and shall have
become effective.
5.6 Secretary's Certificate. The Company shall have delivered to
-----------------------
the Investors a certificate, executed on behalf of the Company by its Secretary,
dated the Closing Date, certifying as to the Company's (i) Articles of
Incorporation; (ii) Bylaws; (iii) Board Resolutions approving the transactions
contemplated by this Agreement and the Investors' Rights Agreement; and (iv)
incumbency of officers.
5.7 Compliance Certificate. The Company shall have delivered to the
----------------------
Investors a certificate, executed on behalf of the Company by its Chief
Executive Officer, dated the Closing Date, certifying to the fulfillment of the
conditions specified in Sections 5.1 through Section 5.6.
5.8 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated to take place at the Closing
and all documents and instruments incident to such transactions shall be
reasonably satisfactorily in substance and form to the Investors, and the
Investors shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
15
<PAGE>
6. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to each Investor under this Agreement are subject to fulfillment
on or before Closing of each of the following conditions by that Investor:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 Payment of Purchase Price. Each Investor shall have delivered
-------------------------
the purchase price specified in Section 1.1 hereto with respect to the Shares
purchased by such Investor.
6.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Shares pursuant to this Agreement shall be duly obtained and effective as of
the Closing.
6.4 Investors' Rights Agreement. Each Investor shall have executed
---------------------------
the signature page to the Investors'Rights Agreement in the form attached hereto
as Exhibit B.
6.5 Offeree Questionnaire. Each Investor shall have completed,
---------------------
executed and delivered the Offeree Questionnaire in the form attached hereto as
Exhibit C.
7. Miscellaneous.
-------------
7.1 Entire Agreement; Successors and Assigns. This Agreement
----------------------------------------
constitutes the entire contract between the Company and the Investors relative
to the subject matter hereof
16
<PAGE>
Any previous agreement between the Company and the Investors is superseded by
this Agreement. Subject to the exceptions specifically set forth in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective executors, administrators, heirs,
successors and assigns of the parties.
7.2 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California applicable to contracts
entered into and wholly to be performed within the State of California by
California residents.
7.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.4 Headings. The headings of the Sections of this Agreement are for
--------
convenience and shall not by themselves determine the interpretation of this
Agreement.
7.5 Notices. Any notice required or permitted hereunder shall be
-------
given in writing and shall be conclusively deemed effectively given upon
personal delivery, or five days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed (i) if to the Company,
as set forth below the Company's name on the signature page of this Agreement,
and (ii) if to an Investor, at such Investor's address as set forth on Schedule
1.1 , or at such other address as the Company or such Investor may designate by
ten (10) days' advance written notice to the Investors or the Company,
respectively.
17
<PAGE>
7.6 Amendment of Agreement or Waiver. Any term of this Agreement may
--------------------------------
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Class B Common Stock issued or issuable upon conversion of the
Shares. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any securities purchased under this
Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
7.7 Expenses. The Company and the Investors will each bear their
--------
respective legal and other fees and expenses in connection with the transactions
contemplated in this Agreement; provided, however, that in connection with the
offer and sale of the Shares to the Investors (the "Offering"), the Company has
agreed to pay to Adams, Harkness & Hill, Inc. (the "Placement Agent"), a
placement fee of 5.0% of the Offering, with the exception of the following:
(a) No fee will be due and payable on funds raised from the Placement
Agent's Partners' Fund or from the Placement Agent's employees individually.
(b) No fee will be due and payable on funds raised from Company employees
or directors individually or from Company vendors, customers or suppliers.
In addition, the Company has agreed to reimburse the Placement Agent for (i)
reasonable out-of-pocket expenses associated with the Offering, and (ii) legal
fees of up to $10,000 associated with the Offering.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
The Company: TIER TECHNOLOGIES, INC., a California corporation
By: /s/ James L. Bildher
------------------------------------
Title: CEO & Chairman of the Board
Address: 1350 Treat Blvd., Suite 250
Walnut Creek, CA 94596
The Investors: Bryan McCaul
----------------------------------------
Name of Investor
/s/ Bryan McCaul
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
8018 Meadow Lane
Leawood, KS 66206
----------------------------------------
Address
George K. Ross
----------------------------------------
Name of Investor
/s/ George K. Ross
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
57 Hillcrest Avenue
Summit, NJ 07901
----------------------------------------
Address
<PAGE>
Richard N. Goldman & Co.
----------------------------------------
Name of Investor
/s/ Steven R. Vilas
----------------------------------------
Signature
Chief Financial Officer
----------------------------------------
Title (if Entity)
One Bush Street
San Francisco, CA 94104
----------------------------------------
Address
Tucks Point LP
----------------------------------------
Name of Investor
/s/ John G.L. Cabot
----------------------------------------
Signature
General Partner
----------------------------------------
Title (if Entity)
1 Center Plaza, #270
Boston, MA 02108
----------------------------------------
Address
Ronald E. English
----------------------------------------
Name of Investor
/s/ Ronald E. English
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
c/o Romac International
120 W. Hyde Park Place
Tampa, FL 33606
----------------------------------------
Address
<PAGE>
Merchants' Fund, Inc.
----------------------------------------
Name of Investor
/s/ Jennifer Newbold
----------------------------------------
Signature
Vice President
----------------------------------------
Title (if Entity)
4805 St. Elmo Avenue
Bethesda, MD 20814
----------------------------------------
Address
Allen I. Bildner
----------------------------------------
Name of Investor
/s/ Allen I. Bildner
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
10 Farbrook Drive
Short Hills, NJ 07078
----------------------------------------
Address
Kevin M. McCafferty
----------------------------------------
Name of Investor
/s/ Kevin M. McCafferty
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
2 Trodden Path
Lexington, MA 02173
----------------------------------------
Address
<PAGE>
Bernard K. Chiu
----------------------------------------
Name of Investor
/s/ Bernard K. Chiu
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
170 Pond Road
Wellesley, MA 02181
----------------------------------------
Address
Scott H. Cummings
----------------------------------------
Name of Investor
/s/ Scott H. Cummings
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
72 Cliff Road
Weston, MA 02193
----------------------------------------
Address
Steven J. Sheftel
----------------------------------------
Name of Investor
/s/ Steven J. Sheftel
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
61 Cedar Tree Neck Road
P.O. Box 399
Marstons Mills, MA 02648
----------------------------------------
Address
<PAGE>
Sherif Nada
----------------------------------------
Name of Investor
/s/ Sherif Nada
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
469 Walnut Street
Brookline, MA 02141
----------------------------------------
Address
Albemarle Partners
----------------------------------------
Name of Investor
/s/ Louis Goodman
----------------------------------------
Signature
General Partner
----------------------------------------
Title (if Entity)
One Beacon Street, 31st Floor
Boston, MA 02108
----------------------------------------
Address
Eunice Buckland
----------------------------------------
Name of Investor
/s/ Eunice Buckland
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
263 Elm Street
Concord, MA 01742-2251
----------------------------------------
Address
<PAGE>
Barry Sylvetsky
----------------------------------------
Name of Investor
/s/ Barry Sylvetsky
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
88 Stratford Road
Needham, MA 02192
----------------------------------------
Address
Ira Stepanian
----------------------------------------
Name of Investor
/s/ Ira Stepanian
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
300 Boylston Street, Apt. #705
Boston, MA 02116
-------------------------------------------------
Address
Donald Baron
----------------------------------------
Name of Investor
/s/ Donald Baron
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
2 Michael Terrace
South Natick, MA 01760
----------------------------------------
Address
<PAGE>
Ralph Casazzone
----------------------------------------
Name of Investor
/s/ Ralph Casazzone
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
170 Round Hill Road
Greenwich, CT 06831
----------------------------------------
Address
Larry Moore
----------------------------------------
Name of Investor
/s/ Larry Moore
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
22 Olde Lantern Road
Acton, MA 01720
----------------------------------------
Address
Richard K. Bendetson
----------------------------------------
Name of Investor
/s/ Richard K. Bendetson
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
c/o Diversified Funding, Inc.
63 Atlantic Avenue
Boston, MA 02110
----------------------------------------
Address
<PAGE>
William G. Barton
----------------------------------------
Name of Investor
/s/ William G. Barton
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
5248 Boulder Court
Concord, CA 94521
----------------------------------------
Address
John W. Adams
----------------------------------------
Name of Investor
/s/ John W. Adams
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
Adams, Harkness & Hill
60 State Street
Boston, MA 02109
----------------------------------------
Address
Josef von Rickenbach
----------------------------------------
Name of Investor
/s/ Josef von Rickenbach
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
31 Fairbanks Road
Lexington, MA 02173
----------------------------------------
Address
<PAGE>
Francis H. Zenie
----------------------------------------
Name of Investor
/s/ Francis H. Zenie
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
186 Old Farm Lane
Attleboro, MA 02703
----------------------------------------
Address
Nucon Capital Corporation
----------------------------------------
Name of Investor
/s/ Donald Weener
----------------------------------------
Signature
President
----------------------------------------
Title (if Entity)
225 Franklin Street, 27th Floor
Boston, MA 02110
----------------------------------------
Address
Samuel Cabot, III
----------------------------------------
Name of Investor
/s/ Samuel Cabot, III
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
9 Highland Avenue
Manchester, MA 01944
-------------------------------------------------
Address
<PAGE>
Peter Goodman
----------------------------------------
Name of Investor
/s/ Peter Goodman
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
22 Rachel Road
Newton Centre, MA 02159
----------------------------------------
Address
John L. Newbold
----------------------------------------
Name of Investor
/s/ John Newbold
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
47 Hillcrest Avenue
Summit, NJ 07901
----------------------------------------
Address
Benjamin Marsh
----------------------------------------
Name of Investor
/s/ Benjamin Marsh
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
Adams, Harkness & Hill
60 State Street, 12th Floor
Boston, MA 02109
----------------------------------------
Address
<PAGE>
Frederick Mark D'Annolfo
----------------------------------------
Name of Investor
/s/ F. Mark D'Annolfo
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
95 Suffolk Road
Chestnut Hill, MA 02107
----------------------------------------
Address
Allyn C. Woodward, Jr.
----------------------------------------
Name of Investor
/s/ Allen Woodward
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
14 Meadowbrook Road
Wellesley, MA 02181
----------------------------------------
Address
Ronald L. Rossetti
----------------------------------------
Name of Investor
/s/ Ronald Rossetti
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
60 State Street, Suite 1200
Boston, MA 02109
----------------------------------------
Address
<PAGE>
Bradley H. Nickels
----------------------------------------
Name of Investor
/s/ Bradley H. Nickels
----------------------------------------
Signature
----------------------------------------
Title (if Entity)
5442 East Muriel Drive
Scottsdale, AZ 85254
-------------------------------------------------
Address
<PAGE>
EXHIBIT 10.9
FULL RECOURSE
PROMISSORY NOTE
$50,000.00 December 31, 1996
- ----------
Walnut Creek, California
FOR VALUE RECEIVED, James L. Bildner, an individual ("MAKER") promises to
pay Tier Technologies, Inc., a California corporation ("HOLDER"), or order, at
1350 Treat Boulevard, Suite 250, Walnut Creek, California or such other place as
Holder may from time to time designate, in lawful money of the United States,
the principal sum of fifty-thousand dollars ($50,000.00), plus interest thereon
from the date hereof until paid in full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall accrue at
--------
the rate of 5.75% per annum, compounded annually, based on a 365-day year and
the actual number of days elapsed.
2. Payments/ Forgiveness. The entire principal sum and all accrued but
---------------------
unpaid interest and any other sums payable hereunder shall be due and payable in
full on December 31, 1999; provided, however, that the entire principal sum and
all accrued but unpaid interest shall be forgiven by Holder, as provided in that
certain Amended and
1
<PAGE>
Restated Employment Agreement by and between Holder and Maker, dated as of the
date hereof.
3. Prepayment. This Note may be prepaid in whole or in part, at any time,
----------
without penalty or premium
4. Application of Payments. All payments received by Holder shall be
-----------------------
applied first to accrued interest, then to other charges due with respect to
this Note, the Pledge Agreement (as defined below) or any other document
executed by Maker in connection therewith, and then to then-unpaid principal
balance.
5. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i) Maker
-------
fails to make a payment of principal and/or interest hereunder when due, or (ii)
Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon fifteen (15)
--------
days' written notice to Maker, declare the entire principal sum and all accrued
and unpaid interest hereunder immediately due and payable and (ii) exercise any
and all of the remedies provided by law.
6. Waivers. Maker, and any endorsers or guarantors hereof, severally
-------
waive diligence, presentment, protest and demand and also notice of dishonor of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time without notice, all without in any way affecting the
liability of Maker or any endorsers or guarantors hereof. No extension of time
for the payment of this Note, or any
2
<PAGE>
installment hereof, agreed to by Holder with any person now or hereafter liable
for the payment of this Note, shall affect the original liability of Maker under
this Note, even if Maker is not a party to such agreement. Holder may waive its
right to require performance of or compliance with any term, covenant or
condition of this Note only by express written waiver.
7. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder, whether or not any legal action is actually filed, litigated or
prosecuted to judgment or award. In the event of any action or legal proceeding
concerning this Note or the enforcement of any rights hereunder, Holder shall be
entitled to, in addition to any other relief to which Holder may be entitled,
all legal and court costs and expenses, including reasonable attorneys' fees,
incurred by Holder in connection with such action.
b. This Note may be modified only by a written agreement executed by
Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and bind
Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set forth in
this Note.
3
<PAGE>
f. If this Note is destroyed, lost or stolen, Maker will deliver a
new Note to Holder on the same terms and conditions as this Note, with a
notation of the unpaid principal and accrued and unpaid interest in substitution
of the prior Note. Holder shall furnish to Maker reasonable evidence that the
Note was destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Maker in connection with the replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
Maker: /s/ James L. Bildner
----------------------------
James L. Bildner
4
<PAGE>
EXHIBIT 10.10
FULL RECOURSE
PROMISSORY NOTE
$161,652.00 January 2, 1997
- ----------- Walnut Creek, California
FOR VALUE RECEIVED, James L. Bildner, an individual ("Maker") promises to
pay Tier Technologies, Inc., a California corporation ("Holder"), or order, at
1350 Treat Boulevard, Suite 250, Walnut Creek, California or such other place as
Holder may from time to time designate, in lawful money of the United States,
the principal sum of one sixty-one thousand six hundred and fifty-two dollars
($161,652.00), plus interest thereon from the date hereof until paid in full, as
set forth below.
1. Interest. Interest on the principal sum of this Note shall accrue at
--------
the rate of 6.54% per annum, compounded annually, based on a 365 day year and
the actual number of days elapsed.
2. Payments. The entire principal sum and all accrued but unpaid interest
--------
and any other sums payable hereunder shall be due and payable in full on January
2, 2007.
3. Prepayment. This Note may be prepaid in whole or in part, at any time,
----------
without penalty or premium
4. Application of Payments. All payments received by Holder shall be
-----------------------
applied first to accrued interest, then to other charges due with respect to
this Note or any other document executed by Maker in connection therewith, and
then to then-unpaid principal balance.
5. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i) Maker
-------
fails to make a payment of principal and/or interest hereunder when due, or (ii)
Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon fifteen (15)
--------
days' written notice to Maker, declare the entire principal sum and all accrued
and unpaid interest hereunder immediately due and payable and (ii) exercise any
and all of the remedies provided in the Pledge Agreement and law.
6. Waivers. Maker, and any endorsers or guarantors hereof, severally
-------
waive diligence, presentment, protest and demand and also notice of dishonor of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time without notice, all without in any way affecting the
liability of Maker or any endorsers or guarantors hereof. No extension of time
for the payment of this Note, or any installment hereof, agreed to by Holder
with any person now or hereafter liable for the payment of this Note, shall
affect the original liability of Maker under this Note, even if
1
<PAGE>
Maker is not a party to such agreement. Holder may waive its right to require
performance of or compliance with any term, covenant or condition of this Note
only by express written waiver.
7. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder, whether or not any legal action is actually filed, litigated or
prosecuted to judgment or award. In the event of any action or legal proceeding
concerning this Note or the enforcement of any rights hereunder, Holder shall be
entitled to, in addition to any other relief to which Holder may be entitled,
all legal and court costs and expenses, including reasonable attorneys' fees,
incurred by Holder in connection with such action.
b. This Note may be modified only by a written agreement executed by
Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and bind
Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set forth in
this Note.
f. If this Note is destroyed, lost or stolen, Maker will deliver a
new Note to Holder on the same terms and conditions as this Note, with a
notation of the unpaid principal and accrued and unpaid interest in substitution
of the prior Note. Holder shall furnish to Maker reasonable evidence that the
Note was destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Maker in connection with the replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
Maker: /s/ James L. Bildner
James L. Bildner
2
<PAGE>
Exhibit 10.11
FULL RECOURSE
SECURED
PROMISSORY NOTE
$1,218,800.00 August 1, 1997
- -------------
Walnut Creek, California
WHEREAS, on February 28, 1997, James L. Bildner ("Maker") entered into that
certain Promissory Note payable to Tier Technologies, Inc. ("Holder") in the
amount of $82,500.00 due February 28, 2007 (the "First Note"), secured by a
mortgage filed upon Maker's residence in Manchester, Massachusetts; and
WHEREAS, on February 28, 1997, Maker entered into that certain Promissory Note
payable to Holder in the amount of $1,136,300.00, due February 28, 2007 (the
"Second Note"), secured by that certain Pledge Agreement by and between Maker
and Holder dated as of February 28, 1997 ("Pledge Agreement"); and
WHEREAS, pursuant to Section 11(b)of the Pledge Agreement, if at the end of any
fiscal quarter, the Fair Market Value of the Pledged Collateral (as defined
therein), exceeds the balance due under the Note, upon the request of Maker, the
Company must release any excess collateral; and
1
<PAGE>
WHEREAS, as of July 30, 1997, the Fair Market Value (as defined in the Pledge
Agreement) of the securities under the Pledge Agreement had appreciated from
$1,137,500.00 to $1,837,500.00; and
WHEREAS, Maker and Holder wish to combine the First Note and the Second Note
into one new note and to amend and restate the Pledge Agreement in order to
release any excess collateral, determined as of the date hereof, and to release
the lien on Maker's residence (the "Amended and Restated Pledge Agreement"):
FOR VALUE RECEIVED, Maker promises to pay Holder, or order, at 1350
Treat Boulevard, Suite 250, Walnut Creek, California or such other place as
Holder may from time to time designate, in lawful money of the United States,
the principal sum of one million, two hundred and eighteen thousand, eight
hundred dollars ($1,218,800.00), plus interest thereon from the date hereof
until paid in full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall
--------
accrue at the rate of 6.99% per annum, compounded annually, based on a 365-day
year and the actual number of days elapsed.
2. Payments. The entire principal sum and all accrued but unpaid
--------
interest and any other sums payable hereunder shall be due and payable in full
on February 28, 2007.
3. Prepayment. This Note may be prepaid in whole or in part, at
----------
any time, without penalty or premium
4. Application of Payments. All payments received by Holder
-----------------------
shall be applied first to accrued interest, then to other charges due with
respect to this Note, the
2
<PAGE>
Amended and Restated Pledge Agreement or any other document executed by Maker in
connection therewith, and then to then-unpaid principal balance.
5. Security. This Note is secured by a first priority security
--------
interest in 120,000 shares of Tier Technologies, Inc. Class A Common Stock and
112,153 shares of Tier Technologies, Inc. Class B Common Stock, pursuant to
the Amended and Restated Pledge Agreement.
6. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i)
-------
Maker fails to make a payment of principal and/or interest hereunder when due,
(ii) Maker breaches any other covenant or agreement under this Note, or (iii) an
event of default occurs under the Amended and Restated Pledge Agreement.
b. Remedies. Upon Maker's default, Holder may (i) upon
--------
fifteen (15) days' written notice to Maker, declare the entire principal sum and
all accrued and unpaid interest hereunder immediately due and payable and (ii)
exercise any and all of the remedies provided in the Amended and Restated Pledge
Agreement and law.
7. Waivers. Except as otherwise expressly provided in the
-------
Amended and Restated Pledge Agreement, Maker, and any endorsers or guarantors
hereof, severally waive diligence, presentment, protest and demand and also
notice of dishonor of this Note, and expressly agrees that this Note, or any
payment hereunder, may be extended from time to time without notice, and consent
to the acceptance of further security or the release of any security for this
Note, all without in any way affecting the liability of
3
<PAGE>
Maker or any endorsers or guarantors hereof. No extension of time for the
payment of this Note, or any installment hereof, agreed to by Holder with any
person now or hereafter liable for the payment of this Note, shall affect the
original liability of Maker under this Note, even if Maker is not a party to
such agreement. Holder may waive its right to require performance of or
compliance with any term, covenant or condition of this Note only by express
written waiver.
8. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder or in connection with the release of any security for this Note
whether or not any legal action is actually filed, litigated or prosecuted to
judgment or award. In the event of any action or legal proceeding concerning
this Note or the enforcement of any rights hereunder, Holder shall be entitled
to, in addition to any other relief to which Holder may be entitled, all legal
and court costs and expenses, including reasonable attorneys' fees, incurred by
Holder in connection with such action.
b. This Note may be modified only by a written agreement
executed by Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and
bind Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
4
<PAGE>
e. Time is of the essence with respect to all matters set
forth in this Note.
f. If this Note is destroyed, lost or stolen, Maker will
deliver a new Note to Holder on the same terms and conditions as this Note, with
a notation of the unpaid principal and accrued and unpaid interest in
substitution of the prior Note. Holder shall furnish to Maker reasonable
evidence that the Note was destroyed, lost or stolen and any security or
indemnity that may be reasonably required by Maker in connection with the
replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the
date and year first above written.
Maker:/s/ James L. Bildner
_______________________________
James L. Bildner
5
<PAGE>
AMENDED AND RESTATED PLEDGE AGREEMENT
This AMENDED AND RESTATED PLEDGE AGREEMENT ("Agreement"), dated as of August
1, 1997, is between TIER TECHNOLOGIES, INC. (the "Company"), and JAMES L.
BILDNER ("Bildner").
WHEREAS, on February 28, 1997, Bildner entered into that certain Promissory Note
payable to Company in the amount of $82,500.00 due February 28, 2007 (the "First
Note"), secured by a mortgage filed upon Bildner's residence in Manchester,
Massachusetts; and
WHEREAS, on February 28, 1997, Bildner entered into that certain Promissory Note
payable to Company in the amount of $1,136,300.00, due February 28, 2007 (the
"Second Note"), secured by that certain Pledge Agreement by and between Bildner
and the Company dated as of February 28, 1997 ("Pledge Agreement"); and
WHEREAS, pursuant to Section 11(b) of the Pledge Agreement, Company agreed that
if at the end of any fiscal quarter, the Fair Market Value of the Pledged
Collateral (as defined therein), should exceed the balance due under the Note,
Company would release any excess collateral; and
WHEREAS, as of July 30, 1997, the Fair Market Value (as defined in the Pledge
Agreement) of the securities under the Pledge Agreement had appreciated from
$1,137,500.00 to $1,837,500.00; and
WHEREAS, Bildner and Company wish to combine the First Note and the Second Note
into one new note and to amend and restate the Pledge Agreement in order to
release any excess collateral, determined as of the date hereof, and to release
the lien on Bildner's residence:
For good and valuable consideration and to secure the payment of Bildner's
indebtedness to Company, the parties agree as follows:
1. Bildner's Indebtedness.
(a) In connection herewith Bildner has delivered a new promissory note dated
as of August 1, 1997 (the "Note") payable to the order of the Company in an
aggregate principal amount of one million, two hundred and eighteen thousand,
eight hundred dollars ($1,218,800.00).
(b) One hundred and twenty thousand shares (120,000) of Class A Common Stock
of the Company and one hundred and twelve thousand, one hundred and fifty-three
(112,153) shares of Class B Common Stock of the Company, which are currently
owned
1
<PAGE>
by Bildner, shall serve as the security for the Note (the "Shares"). As of the
date hereof, the Fair Market Value (as defined in Section 11 hereto) of the
Shares is $1,218,803.30.
(c) Bildner has executed the Note and is required to secure the Note by
delivery of this Agreement.
2. Pledge. Bildner hereby pledges to the Company, and grants to the Company a
security interest in, the following (the "Pledged Collateral"): (i) the Shares
and the certificates representing the Shares; and (ii) securities of the Company
associated with the Shares issued in connection with any stock dividend or stock
split, or securities of the Company issued in connection with a
recapitalization, merger, reorganization or similar transaction.
3. Security for Obligations.
(a) This Agreement secures the payment of all of Bildner's present and future
obligations, duties, and liabilities under the Note and under this Agreement
(all referred to as the "Obligations").
(b) This Agreement shall create continuing security interest in the Pledged
Collateral and shall (i) remain in full force and effect until payment in full
of the Obligations; (ii) be binding upon Bildner and his successors and assigns;
and (iii) inure to the benefit of the Company and its successors, transferees,
and assigns.
4. Delivery of Pledged Shares. All certificates or instruments representing or
evidencing the Shares shall be held by or on behalf of the Company under this
Agreement and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to the Company. If Bildner fails to perform
any Obligation contained in this Agreement, the Company may itself perform, or
cause performance of, that Obligation, and the expenses of the Company incurred
in connection with that performance shall be payable by Bildner under Section 9.
5. Representations and Warranties. Bildner represents and warrants as follows:
(a) Bildner is the legal, record, and beneficial owner of the Pledged
Collateral free and clear of any lien on the Pledged Collateral except for the
security interest created by this Agreement and the other terms and conditions
set forth in the Stock Option Agreements.
(b) The pledge of the Pledged Collateral under this Agreement creates a valid
and perfected first priority interest in the Pledged Collateral, securing the
payment of the Obligations.
(c) No authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the pledge by Bildner of the Pledged Collateral under this Agreement or
for the execution, delivery, or
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performance of this Agreement by Bildner; or (ii) for the exercise by the
Company of the voting or other rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral under this Agreement (other than
restrictions under any federal or state securities law applicable to the offer
or sale of unregistered securities).
6. Rights in Absence of Default.
(a) So long as there has been and is no Event of Default: (i) involving
failure to make the payment described in Section 2 of the Note, or (ii)
involving the voluntary placement by Bildner of a lien upon all or a significant
portion of the Pledged Collateral:
(i) Bildner shall be entitled to exercise any and all voting and other
consensual rights pertaining to any or all of the Shares.
(ii) Securities of the Company associated with the Shares issued in
connection with any stock dividend or stock split, or securities of the Company
issued in connection with a recapitalization, merger, reorganization or similar
transaction shall be immediately delivered to the Company as Pledged Collateral
in the same form as so received (with any necessary endorsement). Any other
dividends, distributions, or interest paid or payable in respect of, or
instruments and other property received, receivable, or otherwise distributed in
respect of, or in exchange for, any Pledged Collateral shall constitute, and
shall be paid to Bildner.
(iii) Company shall execute and deliver (or cause to be executed and
delivered) to Bildner all such proxies and other instruments as Bildner may
reasonably request for the purpose of enabling him to exercise the voting and
other rights that he is entitled to exercise pursuant to paragraph (i) of this
Section 6(a).
(b) When and so long as there is an Event of Default (i) involving failure to
make the payment described in Section 2 of the Note, or (ii) involving the
voluntary placement by Bildner of a lien upon all or a significant portion of
the Pledged Collateral, all rights of Bildner to exercise the voting and other
rights that he would otherwise be entitled to exercise pursuant to Section
6(a)(i) shall cease, and all those rights shall become vested in the Company,
which shall then have the sole right to exercise those voting and other rights.
7. Transfers and Liens. Bildner agrees that he will not (i) sell or otherwise
dispose of, or grant any option with respect to, any of the Pledged Collateral
without the prior written consent of the Company; or (ii) voluntarily create any
lien upon or with respect to any of the Pledged Collateral, except for the
security interest under this Agreement and any other restrictions set forth in
the Stock Option Agreements.
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8. Events of Default; Remedies upon Default.
(a) The following shall constitute Events of Default ("Events of Default")
under this Agreement:
(i) If Bildner fails to perform or observe any term, covenant, or Obligation
under this Agreement or the Note, or if any representation or warranty made by
Bildner in this Agreement or the Note is untrue or misleading in any material
respect as of the date with respect to which that representation or warranty was
made;
(ii) If a notice of lien, levy, or assessment is filed or recorded with
respect to all or a substantial part of the Pledged Collateral, except for a
lien that relates to current taxes not yet due and payable, and if the
applicable claim is not discharged or satisfied within ninety (90) days of
Bildner's actual knowledge of that filing or recordation (such effected Pledged
Collateral shall hereinafter be referred to as the "Effected Collateral");
(iii) If all or a substantial part of the Pledged Collateral is attached,
seized, or subjected to a writ or distress warrant, or is levied upon, or comes
within the possession of any receiver, trustee, custodian, or assignee for the
benefit of creditors, and that Pledged Collateral is not returned to Bildner or
the writ, distress warrant, or levy is not dismissed, stayed, or lifted within
ninety (90) days (such effected Pledged Collateral shall hereinafter be referred
to as the "Effected Collateral").
(iv) Provided; however, with respect to subparagraphs 8(a)(ii) and (iii)
hereto, that if prior to the end of such ninety (90) day period, Bildner
provides the Company with additional collateral to secure the Note with a Fair
Market Value (as defined in Section 11 hereto) equal to or exceeding the Fair
Market Value of the Effected Collateral, which collateral may be Shares or cash
(or such other collateral, subject to the consent of the Company, which consent
shall not be unreasonably withheld) at the discretion of Bildner and which
collateral Bildner hereby agrees shall be subject to the terms of this
Agreement, no Event of Default shall be deemed to have occurred.
(b) When and so long as there is any Event of Default, the Company may
exercise in respect of the Pledged Collateral, in addition to other rights and
remedies provided for in this Agreement or otherwise available to it, all the
rights and remedies of a secured party upon a default under the Uniform
Commercial Code in effect in the State of California at that time.
(c) Notwithstanding anything else contained herein to the contrary, so long
as there has been and is no Event of Default: (i) involving failure to make the
payment described in Section 2 of the Note, or (ii) involving the voluntary
placement by Bildner of a lien upon all or a significant portion of the Pledged
Collateral, Bildner shall be entitled to exercise any and all voting and other
consensual rights pertaining to any or all of the Shares.
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<PAGE>
9. Expenses. On demand, Bildner will pay the Company all reasonable expenses,
including attorneys' fees and costs, which the Company may incur in connection
with (i) the exercise or enforcement of any of the rights of the Company under
this Agreement; or (ii) Bildner's failure to perform or observe any of the
provisions of this Agreement.
10. Security Interest Absolute. All rights and security interests of the
Company, and all Obligations of Bildner, under this Agreement shall be absolute
and unconditional irrespective of: (i) any lack of validity or enforceability
of the Note or any other agreement or instrument relating to it; (ii) any change
in the time, manner, or place of payment of, or in any other term of, any of the
Obligations, or any other amendment or waiver of or consent to any departure
from the Note; (iii) any exchange, release, or non-perfection of any other
collateral, or any release, amendment, or waiver of any of the Obligations; or
(iv) any other circumstance that might otherwise constitute a defense available
to, or a discharge of, Bildner in respect of the Obligations or of this
Agreement.
11. Adjustments; Release of Security. The Company and Bildner hereby agree:
(a) If at the end of any fiscal quarter of the Company, the Fair
Market Value of the Pledged Collateral is less than the Purchase Price, the
Company shall notify Bildner within ten (10) days. Bildner shall, within forty-
five (45) days of receipt of such notice, deposit with the Company such
additional cash, shares of common stock of the Company, or both, at the option
of Bildner, with a value equal or greater than the deficiency, which additional
collateral shall be subject to the terms of this Agreement.
(b) If at the end of any fiscal quarter of the Company, the Fair
Market Value of the Pledged Collateral is greater than the balance due under the
Note (the "Excess Collateral"), upon ten (10) days notice, Bildner may withdraw
or cause the withdrawal of all or a portion of the Excess Collateral, provided
that no fractional Shares shall be released pursuant to this subparagraph 11(b).
In lieu of any fractional Shares to which Bildner would otherwise be entitled,
the Company shall pay cash equal to such fraction multiplied by the Fair Market
Value.
(c) Upon fifteen (15) days prior written notice from Bildner of his
intent to sell all or a portion of the Pledged Collateral, the Company may
release such Pledged Collateral (such Pledged Collateral shall be referred to
herein as the "Released Collateral"), provided that prior to such release
Bildner provides the Company with an undertaking that Bildner will pay to the
Company in cash an amount equal to the Fair Market Value of such Released
Collateral and any interest relating thereto under the Note as of the date of
such payment (which payment shall be reflected in the balance due to the Company
from Bildner under the Note) within five (5) business days of such sale.
(d) For the purposes of this Agreement, the term "Fair Market Value"
shall mean; (i) if the Company's stock is not publicly traded on a national
securities exchange or the Nasdaq National Market System, as determined by the
most recent third-party valuation relating to the Shares, or (ii) if the
Company's stock is publicly traded on a national
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securities exchange or the Nasdaq National Market System, as determined by the
most recent closing price of the Company's stock.
12. Further Assurances. Bildner agrees that at any time and from time to time,
at his expense, Bildner will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Company may request, in order to perfect and protect any
security interest granted or purported to be granted by this Agreement or to
enable the Company to exercise and enforce its rights and remedies under this
Agreement with respect to any Pledged Collateral.
13. Entire Agreement; Amendment; Waiver. This Agreement, the Note, the Stock
Option Agreements and the Company's Amended and Restated 1996 Equity Incentive
Plan, embody the entire agreement of the parties hereto with respect to the
subject matter of this Agreement and supersede all prior agreements with respect
to that subject matter. This Agreement may not be amended or modified except in
a writing signed by both parties. No waiver of any provision of this Agreement
shall be deemed to, or shall, operate as a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
Except as expressly provided in this Agreement, no waiver shall be binding
unless executed in writing by the party making the waiver.
14. Notices. All notices and other communications provided for under this
Agreement shall be given as follows:
If to Company:
TIER TECHNOLOGIES, INC.
1350 Treat Boulevard, Suite 250
Walnut Creek, CA 94596
Attn: Chief Financial Officer
If to Bildner:
JAMES L. BILDNER
5 Boardman Avenue
Manchester, MA 01944
15. Captions. Captions are used for reference purposes only and should be
ignored in the interpretation of the Agreement. Unless the context requires
otherwise, all references in this Agreement to Sections are to the sections of
this Agreement.
16. Governing Law; Terms. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
wholly made and performed in the State of California. Unless otherwise defined
above, terms defined in Division 9 of the Uniform Commercial Code as adopted in
the State of California are used in this Agreement with their statutory
meanings.
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The parties have duly executed this Agreement as of the date first written
above.
TIER TECHNOLOGIES, INC.
By: /s/ George K. Ross
____________________________
George K. Ross
Its: Chief Financial Officer and
Senior Vice President
JAMES L. BILDNER
/s/ James L. Bildner
_________________________
James L. Bildner
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<PAGE>
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain AMENDED AND RESTATED PLEDGE
AGREEMENT dated as of August 1, 1997 (the "Agreement"), the undersigned hereby
sells, assigns, and transfers to TIER Technologies, Inc., ____________
(__________) shares of Class A Common Stock and _________________________
(____________) shares of Class B Common Stock of TIER TECHNOLOGIES, INC., a
California corporation ("the Company"), standing in the undersigned's name on
the books of the Company represented by Certificate No(s). ______ delivered
herewith. The undersigned does hereby irrevocably constitute and appoint the
Secretary of the Company as the undersigned's attorney-in-fact, with full power
of substitution, to transfer this stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
DATED: August 1, 1997
JAMES L. BILDNER
/s/ James L. Bildner
____________________________
James L. Bildner
Instructions: Please sign this Stock Power above, but do not fill in any blanks
other than the signature lines.
The purpose of this Stock Power and Assignment Separate from Stock Certificate
is to enable the Company to acquire the Shares in accordance with the terms of
the Agreement.
<PAGE>
EXHIBIT 10.12
FULL RECOURSE
SECURED
PROMISSORY NOTE
$283,600.00 February 28, 1997
- ----------- Walnut Creek, California
FOR VALUE RECEIVED, James L. Bildner, an individual ("MAKER") promises
to pay TIER Technologies, Inc., a California corporation ("HOLDER"), or order,
at 1350 Treat Boulevard, Suite 250, Walnut Creek, California or such other place
as Holder may from time to time designate, in lawful money of the United States,
the principal sum of two hundred and eighty-three thousand, six hundred dollars
($283,600.00), plus interest thereon from the date hereof until paid in full, as
set forth below.
1. Interest. Interest on the principal sum of this Note shall
--------
accrue at the rate of 6.78% per annum, compounded annually, based on a 365 day
year and the actual number of days elapsed.
2. Payments. The entire principal sum and all accrued but unpaid
--------
interest and any other sums payable hereunder shall be due and payable in full
on February 28, 2007.
3. Prepayment. This Note may be prepaid in whole or in part, at any
----------
time, without penalty or premium.
4. Application of Payments. All payments received by Holder shall
-----------------------
be applied first to accrued interest, then to other charges due with
respect to this Note, the Pledge Agreement (as defined below) or any other
document executed by Maker in connection therewith, and then to then-unpaid
principal balance.
5. Security. This Note is secured by a first priority security
--------
interest in 87,262 shares of TIER Technologies, Inc. Class A Common Stock
pursuant to a Stock Pledge Agreement (the "Pledge Agreement").
6. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if
-------
(i) Maker fails to make a payment of principal and/or interest hereunder when
due, (ii) Maker breaches any other covenant or agreement under this Note, or
(iii) an event of default occurs under the Pledge Agreement.
b. Remedies. Upon Maker's default, Holder may (i) upon
--------
fifteen (15) days' written notice to Maker, declare the entire principal sum and
all accrued and unpaid interest hereunder immediately due and payable and (ii)
exercise any and all of the remedies provided in the Pledge Agreement and law.
7. Waivers. Except as otherwise expressly provided in the Pledge
-------
Agreement, Maker, and any endorsers or guarantors hereof, severally waive
diligence,
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presentment, protest and demand and also notice of dishonor of this Note, and
expressly agrees that this Note, or any payment hereunder, may be extended from
time to time without notice, and consent to the acceptance of further security
or the release of any security for this Note, all without in any way affecting
the liability of Maker or any endorsers or guarantors hereof. No extension of
time for the payment of this Note, or any installment hereof, agreed to by
Holder with any person now or hereafter liable for the payment of this Note,
shall affect the original liability of Maker under this Note, even if Maker is
not a party to such agreement. Holder may waive its right to require
performance of or compliance with any term, covenant or condition of this Note
only by express written waiver.
8. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder or in connection with the release of any security for this Note
whether or not any legal action is actually filed, litigated or prosecuted to
judgment or award. In the event of any action or legal proceeding concerning
this Note or the enforcement of any rights hereunder, Holder shall be entitled
to, in addition to any other relief to which Holder may be entitled, all legal
and court costs and expenses, including reasonable attorneys' fees, incurred by
Holder in connection with such action.
b. This Note may be modified only by a written agreement
executed by Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and
bind Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set
forth in this Note.
f. If this Note is destroyed, lost or stolen, Maker will
deliver a new Note to Holder on the same terms and conditions as this Note, with
a notation of the unpaid principal and accrued and unpaid interest in
substitution of the prior Note. Holder shall furnish to Maker reasonable
evidence that the Note was destroyed, lost or stolen and any security or
indemnity that may be reasonably required by Maker in connection with the
replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date
and year first above written.
Maker: /s/ James L. Bildner
--------------------------
James L. Bildner
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<PAGE>
PLEDGE AGREEMENT
This PLEDGE AGREEMENT ("Agreement"), dated as of February 28, 1997, is
between TIER TECHNOLOGIES, INC. (the "Company"), and JAMES L. BILDNER
("Purchaser").
For good and valuable consideration and to secure the payment of
Purchaser's indebtedness to the Company, the parties agree as follows:
1. Purchaser's Indebtedness.
(a) Pursuant to the terms of those certain Stock Option Agreements between
the Company and Purchaser dated December 31, 1996, December 31, 1996 and
February 28, 1997, respectively (the "Stock Option Agreements"), the Company has
issued and sold and Purchaser has purchased two hundred and sixty thousand
(260,000) shares of Class A Common Stock and three hundred thousand (300,000)
shares of Class B Common Stock of the Company (the "Exercise").
(b) The taxes due in association with the Exercise were paid by Purchaser
by delivery of a promissory note dated as of February 28, 1997 ("the Note")
payable to the order of the Company in an aggregate principal amount of two
hundred and eighty-three thousand, six hundred dollars ($283,600.00).
(c) Fifty-four thousand and twenty (54,020) shares of Class A Common Stock
of the Company, which are currently owned by Purchaser, shall serve as the
security for the Note (the "Shares"). As of the date hereof, the Fair Market
Value (as defined in Section 11 hereto) of the Shares is $283,605.00.
(d) Purchaser has executed the Note and is required to secure the Note by
delivery of this Agreement.
2. Pledge. Purchaser hereby pledges to the Company, and grants to the Company
a security interest in, the following (the "Pledged Collateral"): (i) the Shares
and the certificates representing the Shares; and (ii) securities of the Company
associated with the Shares issued in connection with any stock dividend or stock
split, or securities of the Company issued in connection with a
recapitalization, merger, reorganization or similar transaction.
3. Security for Obligations.
(a) This Agreement secures the payment of all of Purchaser's present and
future obligations, duties, and liabilities under the Note and under this
Agreement (all referred to as the "Obligations").
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(b) This Agreement shall create continuing security interest in the
Pledged Collateral and shall (i) remain in full force and effect until payment
in full of the Obligations; (ii) be binding upon Purchaser and his successors
and assigns; and (iii) inure to the benefit of the Company and its successors,
transferees, and assigns.
4. Delivery of Pledged Shares. All certificates or instruments representing or
evidencing the Shares shall be held by or on behalf of the Company under this
Agreement and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to the Company. If Purchaser fails to
perform any Obligation contained in this Agreement, the Company may itself
perform, or cause performance of, that Obligation, and the expenses of the
Company incurred in connection with that performance shall be payable by
Purchaser under Section 9.
5. Representations and Warranties. Purchaser represents and warrants as
follows:
(a) Purchaser is the legal, record, and beneficial owner of the Pledged
Collateral free and clear of any lien on the Pledged Collateral except for the
security interest created by this Agreement and the other terms and conditions
set forth in the Stock Option Agreements.
(b) The pledge of the Pledged Collateral under this Agreement creates a
valid and perfected first priority interest in the Pledged Collateral, securing
the payment of the Obligations.
(c) No authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the pledge by Purchaser of the Pledged Collateral under this Agreement
or for the execution, delivery, or performance of this Agreement by Purchaser;
or (ii) for the exercise by the Company of the voting or other rights provided
for in this Agreement or the remedies in respect of the Pledged Collateral under
this Agreement (other than restrictions under any federal or state securities
law applicable to the offer or sale of unregistered securities).
6. Rights in Absence of Default.
(a) So long as there has been and is no Event of Default: (i) involving
failure to make the payment described in Section 2 of the Note, or (ii)
involving the voluntary placement by Purchaser of a lien upon all or a
significant portion of the Pledged Collateral:
(i) Purchaser shall be entitled to exercise any and all voting and
other consensual rights pertaining to any or all of the Shares.
(ii) Securities of the Company associated with the Shares issued in
connection with any stock dividend or stock split, or securities of the Company
issued in connection with a recapitalization, merger, reorganization or similar
transaction shall be immediately
2
<PAGE>
delivered to the Company as Pledged Collateral in the same form as so received
(with any necessary endorsement). Any other dividends, distributions, or
interest paid or payable in respect of, or instruments and other property
received, receivable, or otherwise distributed in respect of, or in exchange
for, any Pledged Collateral shall constitute, and shall be paid to the
Purchaser.
(iii) The Company shall execute and deliver (or cause to be executed
and delivered) to Purchaser all such proxies and other instruments as Purchaser
may reasonably request for the purpose of enabling him to exercise the voting
and other rights that he is entitled to exercise pursuant to paragraph (i) of
this Section 6(a).
(b) When and so long as there is an Event of Default (i) involving
failure to make the payment described in Section 2 of the Note, or (ii)
involving the voluntary placement by Purchaser of a lien upon all or a
significant portion of the Pledged Collateral, all rights of Purchaser to
exercise the voting and other rights that he would otherwise be entitled to
exercise pursuant to Section 6(a)(i) shall cease, and all those rights shall
become vested in the Company, which shall then have the sole right to exercise
those voting and other rights.
7. Transfers and Liens. Purchaser agrees that he will not (i) sell or
otherwise dispose of, or grant any option with respect to, any of the Pledged
Collateral without the prior written consent of the Company; or (ii) voluntarily
create any lien upon or with respect to any of the Pledged Collateral, except
for the security interest under this Agreement and any other restrictions set
forth in the Stock Option Agreements.
8. Events of Default; Remedies upon Default.
(a) The following shall constitute Events of Default ("Events of Default")
under this Agreement:
(i) If Purchaser fails to perform or observe any term, covenant, or
Obligation under this Agreement or the Note, or if any representation or
warranty made by Purchaser in this Agreement or the Note is untrue or misleading
in any material respect as of the date with respect to which that representation
or warranty was made;
(ii) If a notice of lien, levy, or assessment is filed or recorded
with respect to all or a substantial part of the Pledged Collateral, except for
a lien that relates to current taxes not yet due and payable, and if the
applicable claim is not discharged or satisfied within ninety (90) days of
Purchaser's actual knowledge of that filing or recordation (such effected
Pledged Collateral shall hereinafter be referred to as the "Effected
Collateral");
(iii) If all or a substantial part of the Pledged Collateral is
attached, seized, or subjected to a writ or distress warrant, or is levied upon,
or comes within the possession of any receiver, trustee, custodian, or assignee
for the benefit of creditors, and that Pledged Collateral is not returned to
Purchaser or the writ, distress warrant, or levy is not
3
<PAGE>
dismissed, stayed, or lifted within ninety (90) days (such effected Pledged
Collateral shall hereinafter be referred to as the "Effected Collateral").
(iv) Provided; however, with respect to subparagraphs 8(a)(ii) and
(iii) hereto, that if prior to the end of such ninety (90) day period, Purchaser
provides the Company with additional collateral to secure the Note with a Fair
Market Value (as defined in Section 11 hereto) equal to or exceeding the Fair
Market Value of the Effected Collateral, which collateral may be Shares or cash
(or such other collateral, subject to the consent of the Company, which consent
shall not be unreasonably withheld) at the discretion of Purchaser and which
collateral Purchaser hereby agrees shall be subject to the terms of this
Agreement, no Event of Default shall be deemed to have occurred.
(b) When and so long as there is any Event of Default, the Company may
exercise in respect of the Pledged Collateral, in addition to other rights and
remedies provided for in this Agreement or otherwise available to it, all the
rights and remedies of a secured party upon a default under the Uniform
Commercial Code in effect in the State of California at that time.
(c) Notwithstanding anything else contained herein to the contrary, so
long as there has been and is no Event of Default: (i) involving failure to make
the payment described in Section 2 of the Note, or (ii) involving the voluntary
placement by Purchaser of a lien upon all or a significant portion of the
Pledged Collateral, Purchaser shall be entitled to exercise any and all voting
and other consensual rights pertaining to any or all of the Shares.
9. Expenses. On demand, Purchaser will pay the Company all reasonable
expenses, including attorneys' fees and costs, which the Company may incur in
connection with (i) the exercise or enforcement of any of the rights of the
Company under this Agreement; or (ii) Purchaser's failure to perform or observe
any of the provisions of this Agreement.
10. Security Interest Absolute. All rights and security interests of the
Company, and all Obligations of Purchaser, under this Agreement shall be
absolute and unconditional irrespective of: (i) any lack of validity or
enforceability of the Note or any other agreement or instrument relating to it;
(ii) any change in the time, manner, or place of payment of, or in any other
term of, any of the Obligations, or any other amendment or waiver of or consent
to any departure from the Note; (iii) any exchange, release, or non-perfection
of any other collateral, or any release, amendment, or waiver of any of the
Obligations; or (iv) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, Purchaser in respect of the Obligations
or of this Agreement.
11. Adjustments; Release of Security. The Company and Purchaser hereby agree:
(a) If at the end of any fiscal quarter of the Company, the Fair
Market Value of the Pledged Collateral is less than the Purchase Price, the
Company shall notify Purchaser
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<PAGE>
within ten (10) days. Purchaser shall, within forty-five (45) days of receipt
of such notice, deposit with the Company such additional cash, shares of common
stock of the Company, or both, at the option of the Purchaser, with a value
equal or greater than the deficiency, which additional collateral shall be
subject to the terms of this Agreement.
(b) If at the end of any fiscal quarter of the Company, the Fair
Market Value of the Pledged Collateral is greater than the balance due under the
Note (the "Excess Collateral"), upon ten (10) days notice, Purchaser may
withdraw or cause the withdrawal of all or a portion of the Excess Collateral,
provided that no fractional Shares shall be released pursuant to this
subparagraph 11(b). In lieu of any fractional Shares to which Purchaser would
otherwise be entitled, the Company shall pay cash equal to such fraction
multiplied by the Fair Market Value.
(c) Upon fifteen (15) days prior written notice from Purchaser of his
intent to sell all or a portion of the Pledged Collateral, the Company may
release such Pledged Collateral (such Pledged Collateral shall be referred to
herein as the "Released Collateral"), provided that prior to such release
Purchaser provides the Company with an undertaking that Purchaser will pay to
the Company in cash an amount equal to the Fair Market Value of such Released
Collateral and any interest relating thereto under the Note as of the date of
such payment (which payment shall be reflected in the balance due to the Company
from Purchaser under the Note) within five (5) business days of such sale.
(d) For the purposes of this Agreement, the term "Fair Market Value"
shall mean; (i) if the Company's stock is not publicly traded on a national
securities exchange or the Nasdaq National Market System, as determined by the
most recent third-party valuation relating to the Shares, or (ii) if the
Company's stock is publicly traded on a national securities exchange or the
Nasdaq National Market System, as determined by the most recent closing price of
the Company's stock.
12. Further Assurances. Purchaser agrees that at any time and from time to
time, at his expense, Purchaser will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Company may request, in order to perfect and protect any
security interest granted or purported to be granted by this Agreement or to
enable the Company to exercise and enforce its rights and remedies under this
Agreement with respect to any Pledged Collateral.
13. Entire Agreement; Amendment; Waiver. This Agreement, the Note, the Stock
Option Agreements and the Company's 1996 Equity Incentive Plan, embody the
entire agreement of the parties hereto with respect to the subject matter of
this Agreement and supersede all prior agreements with respect to that subject
matter. This Agreement may not be amended or modified except in a writing
signed by both parties. No waiver of any provision of this Agreement shall be
deemed to, or shall, operate as a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. Except as
expressly provided in this Agreement, no waiver shall be binding unless executed
in writing by the party making the waiver.
5
<PAGE>
14. Notices. All notices and other communications provided for under this
Agreement shall be given as follows:
If to the Company:
TIER TECHNOLOGIES, INC.
1350 Treat Boulevard, Suite 250
Walnut Creek, CA 94596
Attn: Chief Financial Officer
If to the Purchaser:
JAMES L. BILDNER
5 Boardman Avenue
Manchester, MA 01944
15. Captions. Captions are used for reference purposes only and should be
ignored in the interpretation of the Agreement. Unless the context requires
otherwise, all references in this Agreement to Sections are to the sections of
this Agreement.
16. Governing Law; Terms. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
wholly made and performed in the State of California. Unless otherwise defined
above, terms defined in Division 9 of the Uniform Commercial Code as adopted in
the State of California are used in this Agreement with their statutory
meanings.
The parties have duly executed this Agreement as of the date first written
above.
TIER TECHNOLOGIES, INC.
By: /s/ George K. Ross
----------------------------
George K. Ross
Its: Chief Financial Officer and
Senior Vice President
JAMES L. BILDNER
/s/ James L. Bildner
- ----------------------------
James L. Bildner
6
<PAGE>
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain PLEDGE AGREEMENT dated as
of February 28, 1997 (the "Agreement"), the undersigned hereby sells, assigns,
and transfers to TIER Technologies, Inc., __________ (__________) shares of
Class A Common Stock of TIER TECHNOLOGIES, INC., a California corporation ("the
Company"), standing in the undersigned's name on the books of the Company
represented by Certificate No(s). ______ delivered herewith. The undersigned
does hereby irrevocably constitute and appoint the Secretary of the Company as
the undersigned's attorney-in-fact, with full power of substitution, to transfer
this stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT.
DATED: February 28, 1997
JAMES L. BILDNER
/s/ James L. Bildner
- -------------------------
James L. Bildner
Instructions: Please sign this Stock Power above, but do not fill in any blanks
other than the signature lines.
The purpose of this Stock Power and Assignment Separate from Stock Certificate
is to enable the Company to acquire the Shares in accordance with the terms of
the Agreement.
<PAGE>
Exhibit 10.13
FULL RECOURSE
PROMISSORY NOTE
$25,000.00 May 31, 1997
- ---------- Walnut Creek, California
FOR VALUE RECEIVED, James L. Bildner, an individual ("Maker") promises to
pay Tier Technologies, Inc., a California corporation ("Holder"), or order, at
1350 Treat Boulevard, Suite 250, Walnut Creek, California or such other place as
Holder may from time to time designate, in lawful money of the United States,
the principal sum of twenty-five thousand dollars ($25,000.00), plus interest
thereon from the date hereof until paid in full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall accrue at
--------
the rate of 7.18% per annum, compounded annually, based on a 365 day year and
the actual number of days elapsed.
2. Payments. The entire principal sum and all accrued but unpaid interest
--------
and any other sums payable hereunder shall be due and payable in full on May 31,
2007.
3. Prepayment. This Note may be prepaid in whole or in part, at any time,
----------
without penalty or premium
4. Application of Payments. All payments received by Holder shall be
-----------------------
applied first to accrued interest, then to other charges due with respect to
this Note or any other document executed by Maker in connection therewith, and
then to then-unpaid principal balance.
5. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i) Maker
-------
fails to make a payment of principal and/or interest hereunder when due or (ii)
Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon fifteen (15)
--------
days' written notice to Maker, declare the entire principal sum and all accrued
and unpaid interest hereunder immediately due and payable and (ii) exercise any
and all of the remedies provided by law.
6. Waivers. Maker, and any endorsers or guarantors hereof, severally
-------
waive diligence, presentment, protest and demand and also notice of dishonor of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time without notice, and consent to the acceptance of
further security or the release of any security for this Note, all without in
any way affecting the liability of Maker or any endorsers or guarantors hereof.
No extension of time for the payment of this Note, or any installment hereof,
agreed to by Holder with any person now or hereafter liable for the payment of
this Note, shall affect the original liability of Maker under this Note, even if
1
<PAGE>
Maker is not a party to such agreement. Holder may waive its right to require
performance of or compliance with any term, covenant or condition of this Note
only by express written waiver.
7. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder or in connection with the release of any security for this Note
whether or not any legal action is actually filed, litigated or prosecuted to
judgment or award. In the event of any action or legal proceeding concerning
this Note or the enforcement of any rights hereunder, Holder shall be entitled
to, in addition to any other relief to which Holder may be entitled, all legal
and court costs and expenses, including reasonable attorneys' fees, incurred by
Holder in connection with such action.
b. This Note may be modified only by a written agreement executed by
Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and bind
Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set forth in
this Note.
f. If this Note is destroyed, lost or stolen, Maker will deliver a
new Note to Holder on the same terms and conditions as this Note, with a
notation of the unpaid principal and accrued and unpaid interest in substitution
of the prior Note. Holder shall furnish to Maker reasonable evidence that the
Note was destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Maker in connection with the replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
Maker: /s/ James L. Bildner
James L. Bildner
2
<PAGE>
Exhibit 10.14
FULL RECOURSE
PROMISSORY NOTE
$85,250.00 May 31, 1997
- ---------- Walnut Creek, California
FOR VALUE RECEIVED, James L. Bildner, an individual ("MAKER") promises
to pay Tier Technologies, Inc., a California corporation ("HOLDER"), or order,
at 1350 Treat Boulevard, Suite 250, Walnut Creek, California or such other place
as Holder may from time to time designate, in lawful money of the United States,
the principal sum of eighty five thousand, two hundred fifty dollars
($85,250.00), plus interest thereon from the date of issuance until paid in
full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall
--------
accrue at the rate of 6.23% per annum, compounded annually, based on a 365 day
year and the actual number of days elapsed.
2. Payments/ Forgiveness. The entire principal sum and all accrued
---------------------
but unpaid interest and any other sums payable hereunder shall be due and
payable in full on December 31, 1999; provided, however, that the entire
principal sum advanced and all accrued but unpaid interest shall be forgiven by
Holder at the rate of $2,750, per month plus accrued interest, as provided in
that certain Amended and Restated Employment Agreement by and between Holder and
Maker.
3. Prepayment. This Note may be prepaid in whole or in part, at any
----------
time, without penalty or premium
4. Application of Payments. All payments received by Holder shall
-----------------------
be applied first to accrued interest, then to other charges due with respect to
this Note or any other document executed by Maker in connection therewith, and
then to then-unpaid principal balance.
5. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i)
-------
Maker fails to make a payment of principal and/or interest hereunder when due,
or (ii) Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon fifteen
--------
(15) days' written notice to Maker, declare the entire principal sum and all
accrued and unpaid interest hereunder immediately due and payable and (ii)
exercise any and all of the remedies provided in the Pledge Agreement and law.
6. Waivers. Maker, and any endorsers or guarantors hereof,
-------
severally waive diligence, presentment, protest and demand and also notice of
dishonor of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time without notice, all without in any
way affecting the liability of Maker or any endorsers or
<PAGE>
guarantors hereof. No extension of time for the payment of this Note, or any
installment hereof, agreed to by Holder with any person now or hereafter liable
for the payment of this Note, shall affect the original liability of Maker under
this Note, even if Maker is not a party to such agreement. Holder may waive its
right to require performance of or compliance with any term, covenant or
condition of this Note only by express written waiver.
7. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder, whether or not any legal action is actually filed, litigated or
prosecuted to judgment or award. In the event of any action or legal proceeding
concerning this Note or the enforcement of any rights hereunder, Holder shall be
entitled to, in addition to any other relief to which Holder may be entitled,
all legal and court costs and expenses, including reasonable attorneys' fees,
incurred by Holder in connection with such action.
b. This Note may be modified only by a written agreement
executed by Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and
bind Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set forth
in this Note.
f. If this Note is destroyed, lost or stolen, Maker will
deliver a new Note to Holder on the same terms and conditions as this Note, with
a notation of the unpaid principal and accrued and unpaid interest in
substitution of the prior Note. Holder shall furnish to Maker reasonable
evidence that the Note was destroyed, lost or stolen and any security or
indemnity that may be reasonably required by Maker in connection with the
replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date
and year first above written.
Maker: /s/ James L. Bildner
-------------------------
James L. Bildner
<PAGE>
EXHIBIT 10.15
FULL RECOURSE
PROMISSORY NOTE
$35,000.00 July 15, 1997
- ---------- Walnut Creek, California
FOR VALUE RECEIVED, James L. Bildner, an individual ("Maker") promises to
pay Tier Technologies, Inc., a California corporation ("Holder"), or order, at
1350 Treat Boulevard, Suite 250, Walnut Creek, California or such other place as
Holder may from time to time designate, in lawful money of the United States,
the principal sum of thirty-five thousand dollars ($35,000.00), plus interest
thereon from the date hereof until paid in full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall accrue at
--------
the rate of 6.99% per annum, compounded annually, based on a 365 day year and
the actual number of days elapsed.
2. Payments. The entire principal sum and all accrued but unpaid
--------
interest and any other sums payable hereunder shall be due and payable in full
on July 15, 2007.
3. Prepayment. This Note may be prepaid in whole or in part, at any
----------
time, without penalty or premium
4. Application of Payments. All payments received by Holder shall be
-----------------------
applied first to accrued interest, then to other charges due with respect to
this Note or any other document executed by Maker in connection therewith, and
then to then-unpaid principal balance.
5. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i) Maker
-------
fails to make a payment of principal and/or interest hereunder when due or (ii)
Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon fifteen
--------
(15) days' written notice to Maker, declare the entire principal sum and all
accrued and unpaid interest hereunder immediately due and payable and (ii)
exercise any and all of the remedies provided by law.
6. Waivers. Maker, and any endorsers or guarantors hereof, severally
-------
waive diligence, presentment, protest and demand and also notice of dishonor of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time without notice, and consent to the acceptance of
further security or the release of any security for this Note, all without in
any way affecting the liability of Maker or any endorsers or guarantors hereof.
No extension of time for the payment of this Note, or any installment hereof,
agreed to by Holder with any person now or hereafter liable for the payment of
this Note, shall affect the original liability of Maker under this Note, even if
1
<PAGE>
Maker is not a party to such agreement. Holder may waive its right to require
performance of or compliance with any term, covenant or condition of this Note
only by express written waiver.
7. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder or in connection with the release of any security for this Note
whether or not any legal action is actually filed, litigated or prosecuted to
judgment or award. In the event of any action or legal proceeding concerning
this Note or the enforcement of any rights hereunder, Holder shall be entitled
to, in addition to any other relief to which Holder may be entitled, all legal
and court costs and expenses, including reasonable attorneys' fees, incurred by
Holder in connection with such action.
b. This Note may be modified only by a written agreement executed
by Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and bind
Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set forth in
this Note.
f. If this Note is destroyed, lost or stolen, Maker will deliver a
new Note to Holder on the same terms and conditions as this Note, with a
notation of the unpaid principal and accrued and unpaid interest in substitution
of the prior Note. Holder shall furnish to Maker reasonable evidence that the
Note was destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Maker in connection with the replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
Maker: /s/ James L Bildner
James L. Bildner
2
<PAGE>
Exhibit 10.16
FULL RECOURSE
PROMISSORY NOTE
Up to $50,000.00 December 31, 1996
- ---------------- Walnut Creek, California
FOR VALUE RECEIVED, William G. Barton, an individual ("MAKER")
promises to pay Tier Technologies, Inc., a California corporation ("HOLDER"), or
order, at 1350 Treat Boulevard, Suite 250, Walnut Creek, California or such
other place as Holder may from time to time designate, in lawful money of the
United States, the principal sum of up to fifty thousand dollars ($50,000.00),
plus interest thereon from the date of issuance as described on Exhibit A hereto
until paid in full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall
--------
accrue at the rate of 5.75% per annum, compounded annually, based on a 365 day
year and the actual number of days elapsed.
2. Payments/ Forgiveness. The entire principal sum and all
---------------------
accrued but unpaid interest and any other sums payable hereunder shall be due
and payable in full on December 31, 1999; provided, however, that the entire
principal sum advanced and all accrued but unpaid interest shall be forgiven by
Holder, as provided in that certain Amended and Restated Employment Agreement by
and between Holder and Maker, dated as of the date hereof.
3. Prepayment. This Note may be prepaid in whole or in part, at
----------
any time, without penalty or premium
4. Application of Payments. All payments received by Holder
-----------------------
shall be applied first to accrued interest, then to other charges due with
respect to this Note, the Pledge Agreement (as defined below) or any other
document executed by Maker in connection therewith, and then to then-unpaid
principal balance.
5. Issuances. Maker may borrow the principal sum of up to
---------
$50,000.00, which sum may be borrowed in one installment or in multiple
installments, upon fifteen (15) days' notice to Holder's Chief Financial Officer
(the "CFO"). Such installments shall be recorded by the CFO on Exhibit A
hereto, as issued, and such entries shall be presumptively correct.
6. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i)
-------
Maker fails to make a payment of principal and/or interest hereunder when due,
or (ii) Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon
--------
fifteen (15) days' written notice to Maker, declare the entire principal sum and
all accrued and unpaid interest hereunder immediately due and payable and (ii)
exercise any and all of the remedies provided in the Pledge Agreement and law.
1
<PAGE>
7. Waivers. Maker, and any endorsers or guarantors hereof,
-------
severally waive diligence, presentment, protest and demand and also notice of
dishonor of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time without notice, all without in any
way affecting the liability of Maker or any endorsers or guarantors hereof. No
extension of time for the payment of this Note, or any installment hereof,
agreed to by Holder with any person now or hereafter liable for the payment of
this Note, shall affect the original liability of Maker under this Note, even if
Maker is not a party to such agreement. Holder may waive its right to require
performance of or compliance with any term, covenant or condition of this Note
only by express written waiver.
8. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder, whether or not any legal action is actually filed, litigated or
prosecuted to judgment or award. In the event of any action or legal proceeding
concerning this Note or the enforcement of any rights hereunder, Holder shall be
entitled to, in addition to any other relief to which Holder may be entitled,
all legal and court costs and expenses, including reasonable attorneys' fees,
incurred by Holder in connection with such action.
b. This Note may be modified only by a written agreement
executed by Maker and Holder, except with respect to Exhibit A hereto, which may
be modified by the CFO.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and
bind Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set
forth in this Note.
f. If this Note is destroyed, lost or stolen, Maker will
deliver a new Note to Holder on the same terms and conditions as this Note, with
a notation of the unpaid principal and accrued and unpaid interest in
substitution of the prior Note. Holder shall furnish to Maker reasonable
evidence that the Note was destroyed, lost or stolen and any security or
indemnity that may be reasonably required by Maker in connection with the
replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the
date and year first above written.
Maker: /s/ William G. Barton
----------------------------
William G. Barton
2
<PAGE>
EXHIBIT A
Date Amount
- ---- ------
1/1/97 $ 835.55
1/16/97 $ 68.45
7/22/97 $ 564.46
8/11/97 $45,990.84
9/5/97 $ 217.88
3
<PAGE>
Exhibit 10.17
FULL RECOURSE
SECURED
PROMISSORY NOTE
$939,800.00 February 28, 1997
- -----------
Walnut Creek, California
FOR VALUE RECEIVED, William G. Barton, an individual ("MAKER")
promises to pay TIER Technologies, Inc., a California corporation ("HOLDER"), or
order, at 1350 Treat Boulevard, Suite 250, Walnut Creek, California or such
other place as Holder may from time to time designate, in lawful money of the
United States, the principal sum of nine hundred and thirty-nine thousand, eight
hundred dollars ($939,800), plus interest thereon from the date hereof until
paid in full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall
--------
accrue at the rate of 6.99% per annum, compounded annually, based on a 365 day
year and the actual number of days elapsed.
2. Payments. The entire principal sum and all accrued but unpaid
--------
interest and any other sums payable hereunder shall be due and payable in full
on February 28, 2007.
1
<PAGE>
3. Prepayment. This Note may be prepaid in whole or in part, at
----------
any time, without penalty or premium
4. Application of Payments. All payments received by Holder
-----------------------
shall be applied first to accrued interest, then to other charges due with
respect to this Note, the Pledge Agreement (as defined below) or any other
document executed by Maker in connection therewith, and then to then-unpaid
principal balance.
5. Security. This Note is secured by a first priority security
--------
interest in 289,170 shares of TIER Technologies, Inc. Class B Common Stock,
pursuant to a Stock Pledge Agreement (the "Pledge Agreement").
6. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i)
-------
Maker fails to make a payment of principal and/or interest hereunder when due,
(ii) Maker breaches any other covenant or agreement under this Note, or (iii) an
event of default occurs under the Pledge Agreement.
b. Remedies. Upon Maker's default, Holder may (i) upon
--------
fifteen (15) days' written notice to Maker, declare the entire principal sum and
all accrued and unpaid interest hereunder immediately due and payable and (ii)
exercise any and all of the remedies provided in the Pledge Agreement and law.
7. Waivers. Except as otherwise expressly provided in the Pledge
-------
Agreement, Maker, and any endorsers or guarantors hereof, severally waive
diligence, presentment, protest and demand and also notice of dishonor of this
Note, and expressly
2
<PAGE>
agrees that this Note, or any payment hereunder, may be extended from time to
time without notice, and consent to the acceptance of further security or the
release of any security for this Note, all without in any way affecting the
liability of Maker or any endorsers or guarantors hereof. No extension of time
for the payment of this Note, or any installment hereof, agreed to by Holder
with any person now or hereafter liable for the payment of this Note, shall
affect the original liability of Maker under this Note, even if Maker is not a
party to such agreement. Holder may waive its right to require performance of or
compliance with any term, covenant or condition of this Note only by express
written waiver.
8. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder or in connection with the release of any security for this Note
whether or not any legal action is actually filed, litigated or prosecuted to
judgment or award. In the event of any action or legal proceeding concerning
this Note or the enforcement of any rights hereunder, Holder shall be entitled
to, in addition to any other relief to which Holder may be entitled, all legal
and court costs and expenses, including reasonable attorneys' fees, incurred by
Holder in connection with such action.
b. This Note may be modified only by a written agreement
executed by Maker and Holder.
c. This Note shall be governed by California law.
3
<PAGE>
d. The terms of this Note shall inure to the benefit of and
bind Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set
forth in this Note.
f. If this Note is destroyed, lost or stolen, Maker will
deliver a new Note to Holder on the same terms and conditions as this Note, with
a notation of the unpaid principal and accrued and unpaid interest in
substitution of the prior Note. Holder shall furnish to Maker reasonable
evidence that the Note was destroyed, lost or stolen and any security or
indemnity that may be reasonably required by Maker in connection with the
replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the
date and year first above written.
Maker: /s/ William G. Barton
-----------------------
William G. Barton
4
<PAGE>
AMENDED AND RESTATED PLEDGE AGREEMENT
This AMENDED AND RESTATED PLEDGE AGREEMENT ("Agreement"), dated as of August
1, 1997, is between TIER TECHNOLOGIES, INC. (the "Company"), and WILLIAM G.
BARTON ("Purchaser").
WHEREAS, on February 28, 1997, Purchaser entered into that certain Promissory
Note payable to Company in the amount of $939,800.00, due February 28, 2007 (the
"Second Note"), secured by that certain Pledge Agreement by and between
Purchaser and Company dated as of February 28, 1997 ("Pledge Agreement"); and
WHEREAS, pursuant to Section 11(b) of the Pledge Agreement, Company agreed that
if at the end of any fiscal quarter, the Fair Market Value of the Pledged
Collateral (as defined therein), should exceed the balance due under the Note,
Company would release any excess collateral; and
WHEREAS, as of July 30, 1997, the Fair Market Value (as defined in the Pledge
Agreement) of the securities under the Pledge Agreement had appreciated from
$939,802.50 to $1,518,142.50; and
WHEREAS, Purchaser and Company wish to amend the Pledge Agreement in order to
release the excess collateral, determined as of the date hereof:
For good and valuable consideration and to secure the payment of Purchaser's
indebtedness to Company, the parties agree as follows:
1. Purchaser's Indebtedness.
(a) Pursuant to the terms of those certain Stock Option Agreements between
the Company and Purchaser dated December 31, 1996 and February 28, 1997,
respectively (the "Stock Option Agreements"), the Company has issued and sold
and Purchaser has purchased two hundred and thirty thousand (230,000) shares of
Class A Common Stock and one hundred and eighty thousand (180,000) shares of
Class B Common Stock of the Company for an aggregate Exercise Price of nine
hundred and thirty-nine thousand, eight hundred dollars ($939,800.00) (the
"Purchase Price").
(b) Pursuant to the terms of the Stock Option Agreements, the Purchase Price
was paid by Purchaser by delivery of a promissory note dated as of February 28,
1997 ("the Note") payable to the order of the Company in an aggregate principal
amount of nine hundred and thirty-nine thousand, eight hundred dollars
($939,800.00).
(c) One hundred and seventy-nine thousand, ten (179,010) shares of Class B
Common Stock of the Company, which are currently owned by Purchaser, shall serve
as the
1
<PAGE>
security for the Note (the "Shares"). As of the date hereof, the Fair
Market Value (as defined in Section 11 hereto) of the Shares is $939,802.50.
2. Pledge. Purchaser hereby pledges to the Company, and grants to the Company a
security interest in, the following (the "Pledged Collateral"): (i) the Shares
and the certificates representing the Shares; and (ii) securities of the Company
associated with the Shares issued in connection with any stock dividend or stock
split, or securities of the Company issued in connection with a
recapitalization, merger, reorganization or similar transaction.
3. Security for Obligations.
(a) This Agreement secures the payment of all of Purchaser's present and
future obligations, duties, and liabilities under the Note and under this
Agreement (all referred to as the "Obligations").
(b) This Agreement shall create continuing security interest in the Pledged
Collateral and shall (i) remain in full force and effect until payment in full
of the Obligations; (ii) be binding upon Purchaser and his successors and
assigns; and (iii) inure to the benefit of the Company and its successors,
transferees, and assigns.
4. Delivery of Pledged Shares. All certificates or instruments representing or
evidencing the Shares shall be held by or on behalf of the Company under this
Agreement and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to the Company. If Purchaser fails to
perform any Obligation contained in this Agreement, the Company may itself
perform, or cause performance of, that Obligation, and the expenses of the
Company incurred in connection with that performance shall be payable by
Purchaser under Section 9.
5. Representations and Warranties. Purchaser represents and warrants as
follows:
(a) Purchaser is the legal, record, and beneficial owner of the Pledged
Collateral free and clear of any lien on the Pledged Collateral except for the
security interest created by this Agreement and the other terms and conditions
set forth in the Stock Option Agreements.
(b) The pledge of the Pledged Collateral under this Agreement creates a valid
and perfected first priority interest in the Pledged Collateral, securing the
payment of the Obligations.
2
<PAGE>
(c) No authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the pledge by Purchaser of the Pledged Collateral under this Agreement
or for the execution, delivery, or performance of this Agreement by Purchaser;
or (ii) for the exercise by the Company of the voting or other rights provided
for in this Agreement or the remedies in respect of the Pledged Collateral under
this Agreement (other than restrictions under any federal or state securities
law applicable to the offer or sale of unregistered securities).
6. Rights in Absence of Default.
(a) So long as there has been and is no Event of Default: (i) involving
failure to make the payment described in Section 2 of the Note, or (ii)
involving the voluntary placement by Purchaser of a lien upon all or a
significant portion of the Pledged Collateral:
(i) Purchaser shall be entitled to exercise any and all voting and other
consensual rights pertaining to any or all of the Shares.
(ii) Securities of the Company associated with the Shares issued in
connection with any stock dividend or stock split, or securities of the Company
issued in connection with a recapitalization, merger, reorganization or similar
transaction shall be immediately delivered to the Company as Pledged Collateral
in the same form as so received (with any necessary endorsement). Any other
dividends, distributions, or interest paid or payable in respect of, or
instruments and other property received, receivable, or otherwise distributed in
respect of, or in exchange for, any Pledged Collateral shall constitute, and
shall be paid to the Purchaser.
(iii) The Company shall execute and deliver (or cause to be executed and
delivered) to Purchaser all such proxies and other instruments as Purchaser may
reasonably request for the purpose of enabling him to exercise the voting and
other rights that he is entitled to exercise pursuant to paragraph (i) of this
Section 6(a).
(b) When and so long as there is an Event of Default (i) involving failure to
make the payment described in Section 2 of the Note, or (ii) involving the
voluntary placement by Purchaser of a lien upon all or a significant portion of
the Pledged Collateral, all rights of Purchaser to exercise the voting and other
rights that he would otherwise be entitled to exercise pursuant to Section
6(a)(i) shall cease, and all those rights shall become vested in the Company,
which shall then have the sole right to exercise those voting and other rights.
7. Transfers and Liens. Purchaser agrees that he will not (i) sell or otherwise
dispose of, or grant any option with respect to, any of the Pledged Collateral
without the prior written consent of the Company; or (ii) voluntarily create any
lien upon or with respect to any of the Pledged Collateral, except for the
security interest under this Agreement and any other restrictions set forth in
the Stock Option Agreements.
3
<PAGE>
8. Events of Default; Remedies upon Default.
(a) The following shall constitute Events of Default ("Events of Default")
under this Agreement:
(i) If Purchaser fails to perform or observe any term, covenant, or
Obligation under this Agreement or the Note, or if any representation or
warranty made by Purchaser in this Agreement or the Note is untrue or misleading
in any material respect as of the date with respect to which that representation
or warranty was made;
(ii) If a notice of lien, levy, or assessment is filed or recorded with
respect to all or a substantial part of the Pledged Collateral, except for a
lien that relates to current taxes not yet due and payable, and if the
applicable claim is not discharged or satisfied within ninety (90) days of
Purchaser's actual knowledge of that filing or recordation (such effected
Pledged Collateral shall hereinafter be referred to as the "Effected
Collateral");
(iii) If all or a substantial part of the Pledged Collateral is attached,
seized, or subjected to a writ or distress warrant, or is levied upon, or comes
within the possession of any receiver, trustee, custodian, or assignee for the
benefit of creditors, and that Pledged Collateral is not returned to Purchaser
or the writ, distress warrant, or levy is not dismissed, stayed, or lifted
within ninety (90) days (such effected Pledged Collateral shall hereinafter be
referred to as the "Effected Collateral").
(iv) Provided; however, with respect to subparagraphs 8(a)(ii) and (iii)
hereto, that if prior to the end of such ninety (90) day period, Purchaser
provides the Company with additional collateral to secure the Note with a Fair
Market Value (as defined in Section 11 hereto) equal to or exceeding the Fair
Market Value of the Effected Collateral, which collateral may be Shares or cash
(or such other collateral, subject to the consent of the Company, which consent
shall not be unreasonably withheld) at the discretion of Purchaser and which
collateral Purchaser hereby agrees shall be subject to the terms of this
Agreement, no Event of Default shall be deemed to have occurred.
(b) When and so long as there is any Event of Default, the Company may
exercise in respect of the Pledged Collateral, in addition to other rights and
remedies provided for in this Agreement or otherwise available to it, all the
rights and remedies of a secured party upon a default under the Uniform
Commercial Code in effect in the State of California at that time.
(c) Notwithstanding anything else contained herein to the contrary, so long
as there has been and is no Event of Default: (i) involving failure to make the
payment described in Section 2 of the Note, or (ii) involving the voluntary
placement by Purchaser of a lien upon all or a significant portion of the
Pledged Collateral, Purchaser shall be entitled to exercise any and all voting
and other consensual rights pertaining to any or all of the Shares.
4
<PAGE>
9. Expenses. On demand, Purchaser will pay the Company all reasonable expenses,
including attorneys' fees and costs, which the Company may incur in connection
with (i) the exercise or enforcement of any of the rights of the Company under
this Agreement; or (ii) Purchaser's failure to perform or observe any of the
provisions of this Agreement.
10. Security Interest Absolute. All rights and security interests of the
Company, and all Obligations of Purchaser, under this Agreement shall be
absolute and unconditional irrespective of: (i) any lack of validity or
enforceability of the Note or any other agreement or instrument relating to it;
(ii) any change in the time, manner, or place of payment of, or in any other
term of, any of the Obligations, or any other amendment or waiver of or consent
to any departure from the Note; (iii) any exchange, release, or non-perfection
of any other collateral, or any release, amendment, or waiver of any of the
Obligations; or (iv) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, Purchaser in respect of the Obligations
or of this Agreement.
11. Adjustments; Release of Security. The Company and Purchaser hereby agree:
(a) If at the end of any fiscal quarter of the Company, the Fair
Market Value of the Pledged Collateral is less than the Purchase Price, the
Company shall notify Purchaser within ten (10) days. Purchaser shall, within
forty-five (45) days of receipt of such notice, deposit with the Company such
additional cash, shares of common stock of the Company, or both, at the option
of the Purchaser, with a value equal or greater than the deficiency, which
additional collateral shall be subject to the terms of this Agreement.
(b) If at the end of any fiscal quarter of the Company, the Fair
Market Value of the Pledged Collateral is greater than the balance due under the
Note (the "Excess Collateral"), upon ten (10) days notice, Purchaser may
withdraw or cause the withdrawal of all or a portion of the Excess Collateral,
provided that no fractional Shares shall be released pursuant to this
subparagraph 11(b). In lieu of any fractional Shares to which Purchaser would
otherwise be entitled, the Company shall pay cash equal to such fraction
multiplied by the Fair Market Value.
(c) Upon fifteen (15) days prior written notice from Purchaser of his
intent to sell all or a portion of the Pledged Collateral, the Company may
release such Pledged Collateral (such Pledged Collateral shall be referred to
herein as the "Released Collateral"), provided that prior to such release
Purchaser provides the Company with an undertaking that Purchaser will pay to
the Company in cash an amount equal to the Fair Market Value of such Released
Collateral and any interest relating thereto under the Note as of the date of
such payment (which payment shall be reflected in the balance due to the Company
from Purchaser under the Note) within five (5) business days of such sale.
(d) For the purposes of this Agreement, the term "Fair Market Value"
shall mean; (i) if the Company's stock is not publicly traded on a national
securities exchange or the Nasdaq National Market System, as determined by the
most recent third-party valuation
5
<PAGE>
relating to the Shares, or (ii) if the Company's stock is publicly traded on a
national securities exchange or the Nasdaq National Market System, as determined
by the most recent closing price of the Company's stock.
12. Further Assurances. Purchaser agrees that at any time and from time to
time, at his expense, Purchaser will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Company may request, in order to perfect and protect any
security interest granted or purported to be granted by this Agreement or to
enable the Company to exercise and enforce its rights and remedies under this
Agreement with respect to any Pledged Collateral.
13. Entire Agreement; Amendment; Waiver. This Agreement, the Note, Stock Option
Agreements and the Company's 1996 Equity Incentive Plan, embody the entire
agreement of the parties hereto with respect to the subject matter of this
Agreement and supersede all prior agreements with respect to that subject
matter. This Agreement may not be amended or modified except in a writing
signed by both parties. No waiver of any provision of this Agreement shall be
deemed to, or shall, operate as a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. Except as
expressly provided in this Agreement, no waiver shall be binding unless executed
in writing by the party making the waiver.
14. Notices. All notices and other communications provided for under this
Agreement shall be given as follows:
If to the Company:
TIER TECHNOLOGIES, INC.
1350 Treat Boulevard, Suite 250
Walnut Creek, CA 94596
Attn: Chief Financial Officer
If to the Purchaser:
WILLIAM G. BARTON
5248 Boulder Court
Concord, CA 94521
15. Captions. Captions are used for reference purposes only and should be
ignored in the interpretation of the Agreement. Unless the context requires
otherwise, all references in this Agreement to Sections are to the sections of
this Agreement.
16. Governing Law; Terms. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
wholly made and performed in the State of California. Unless otherwise defined
above, terms defined in Division 9 of the Uniform Commercial Code as adopted in
the State of California are used in this Agreement with their statutory
meanings.
6
<PAGE>
The parties have duly executed this Agreement as of the date first written
above.
TIER TECHNOLOGIES, INC.
By: /s/ George K. Ross
--------------------------------
George K. Ross
Its: Chief Financial Officer and
Senior Vice President
WILLIAM G. BARTON
/s/ William G. Barton
- -----------------------------------
William G. Barton
7
<PAGE>
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain PLEDGE AGREEMENT dated as of
August 1, 1997 (the "Agreement"), the undersigned hereby sells, assigns, and
transfers to TIER Technologies, Inc., __________ (__________) shares of Class A
Common Stock and ____________________________ (____________) shares of Class B
Common Stock of TIER TECHNOLOGIES, INC., a California corporation ("the
Company"), standing in the undersigned's name on the books of the Company
represented by Certificate No(s). ______ delivered herewith. The undersigned
does hereby irrevocably constitute and appoint the Secretary of the Company as
the undersigned's attorney-in-fact, with full power of substitution, to transfer
this stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT.
DATED: August 1, 1997
WILLIAM G. BARTON
/s/ William G. Barton
- ----------------------------
William G. Barton
Instructions: Please sign this Stock Power above, but do not fill in any blanks
other than the signature lines.
The purpose of this Stock Power and Assignment Separate from Stock Certificate
is to enable the Company to acquire the Shares in accordance with the terms of
the Agreement.
<PAGE>
Exhibit 10.18
FULL RECOURSE
PROMISSORY NOTE
$152,081.00 February 28, 1997
- -----------
Walnut Creek, California
FOR VALUE RECEIVED, William G. Barton, an individual ("MAKER")
promises to pay Tier Technologies, Inc., a California corporation ("HOLDER"), or
order, at 1350 Treat Boulevard, Suite 250, Walnut Creek, California or such
other place as Holder may from time to time designate, in lawful money of the
United States, the principal sum of two hundred and fifty-two thousand, eighty-
one dollars ($152,081.00), plus interest thereon from the date hereof until paid
in full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall
--------
accrue at the rate of 6.78% per annum, compounded annually, based on a 365 day
year and the actual number of days elapsed.
2. Payments. The entire principal sum and all accrued but unpaid
--------
interest and any other sums payable hereunder shall be due and payable in full
on February 28, 2007.
3. Prepayment. This Note may be prepaid in whole or in part, at
----------
any time, without penalty or premium
4. Application of Payments. All payments received by Holder
-----------------------
shall be applied first to accrued interest, then to other charges due with
respect to this Note or any other document executed by Maker in connection
therewith, and then to then-unpaid principal balance.
5. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i)
-------
Maker fails to make a payment of principal and/or interest hereunder when due or
(ii) Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon
--------
fifteen (15) days' written notice to Maker, declare the entire principal sum and
all accrued and unpaid interest hereunder immediately due and payable and (ii)
exercise any and all of the remedies provided under law.
6. Waivers. Maker, and any endorsers or guarantors hereof,
-------
severally waive diligence, presentment, protest and demand and also notice of
dishonor of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time without notice, and consent to the
acceptance of further security or the release of any security for this Note, all
without in any way affecting the liability of Maker or any endorsers or
guarantors hereof. No extension of time for the payment of this Note, or any
installment hereof, agreed to by Holder with any person now or hereafter liable
for the payment of this Note, shall affect the original liability of Maker under
this Note, even if
1
<PAGE>
Maker is not a party to such agreement. Holder may waive its right to require
performance of or compliance with any term, covenant or condition of this Note
only by express written waiver.
7. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder or in connection with the release of any security for this Note
whether or not any legal action is actually filed, litigated or prosecuted to
judgment or award. In the event of any action or legal proceeding concerning
this Note or the enforcement of any rights hereunder, Holder shall be entitled
to, in addition to any other relief to which Holder may be entitled, all legal
and court costs and expenses, including reasonable attorneys' fees, incurred by
Holder in connection with such action.
b. This Note may be modified only by a written agreement
executed by Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and
bind Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set
forth in this Note.
f. If this Note is destroyed, lost or stolen, Maker will
deliver a new Note to Holder on the same terms and conditions as this Note, with
a notation of the unpaid principal and accrued and unpaid interest in
substitution of the prior Note. Holder shall furnish to Maker reasonable
evidence that the Note was destroyed, lost or stolen and any security or
indemnity that may be reasonably required by Maker in connection with the
replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the
date and year first above written.
Maker: /s/ William G. Barton
--------------------------
William G. Barton
2
<PAGE>
Exhibit 10.19
FULL RECOURSE
PROMISSORY NOTE
$25,000.00 July 15, 1997
- ---------- Walnut Creek, California
FOR VALUE RECEIVED, William G. Barton, an individual ("MAKER") promises to
pay Tier Technologies, Inc., a California corporation ("HOLDER"), or order, at
1350 Treat Boulevard, Suite 250, Walnut Creek, California or such other place as
Holder may from time to time designate, in lawful money of the United States,
the principal sum of twenty-five thousand dollars ($25,000.00), plus interest
thereon from the date hereof until paid in full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall accrue at
--------
the rate of 6.99% per annum, compounded annually, based on a 365 day year and
the actual number of days elapsed.
2. Payments. The entire principal sum and all accrued but unpaid interest
--------
and any other sums payable hereunder shall be due and payable in full on July
15, 2007.
3. Prepayment. This Note may be prepaid in whole or in part, at any time,
----------
without penalty or premium
4. Application of Payments. All payments received by Holder shall be
-----------------------
applied first to accrued interest, then to other charges due with respect to
this Note or any other document executed by Maker in connection therewith, and
then to then-unpaid principal balance.
5. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i) Maker
-------
fails to make a payment of principal and/or interest hereunder when due or (ii)
Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon fifteen (15)
--------
days' written notice to Maker, declare the entire principal sum and all accrued
and unpaid interest hereunder immediately due and payable and (ii) exercise any
and all of the remedies provided by law.
6. Waivers. Maker, and any endorsers or guarantors hereof, severally
-------
waive diligence, presentment, protest and demand and also notice of dishonor of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time without notice, and consent to the acceptance of
further security or the release of any security for this Note, all without in
any way affecting the liability of Maker or any endorsers or guarantors hereof.
No extension of time for the payment of this Note, or any installment hereof,
agreed to by Holder with any person now or hereafter liable for the payment of
this Note, shall affect the original liability of Maker under this Note, even if
Maker is not a party to such agreement. Holder may waive its right to require
1
<PAGE>
performance of or compliance with any term, covenant or condition of this Note
only by express written waiver.
7. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder or in connection with the release of any security for this Note
whether or not any legal action is actually filed, litigated or prosecuted to
judgment or award. In the event of any action or legal proceeding concerning
this Note or the enforcement of any rights hereunder, Holder shall be entitled
to, in addition to any other relief to which Holder may be entitled, all legal
and court costs and expenses, including reasonable attorneys' fees, incurred by
Holder in connection with such action.
b. This Note may be modified only by a written agreement executed by
Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and bind
Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set forth in
this Note.
f. If this Note is destroyed, lost or stolen, Maker will deliver a
new Note to Holder on the same terms and conditions as this Note, with a
notation of the unpaid principal and accrued and unpaid interest in substitution
of the prior Note. Holder shall furnish to Maker reasonable evidence that the
Note was destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Maker in connection with the replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
Maker: /s/ William G. Barton
---------------------------
William G. Barton
2
<PAGE>
EXHIBIT 10.20
FULL RECOURSE
PROMISSORY NOTE
$10,000.00 December 6, 1996
- ---------- Walnut Creek, California
FOR VALUE RECEIVED, F. Thomas Latham, an individual ("Maker") promises to
pay Tier Technologies, Inc., a California corporation ("Holder"), or order, at
1350 Treat Boulevard, Suite 250, Walnut Creek, California or such other place as
Holder may from time to time designate, in lawful money of the United States,
the principal sum of ten-thousand dollars ($10,000.00), plus interest thereon
from the date hereof until paid in full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall accrue at
--------
the rate of 9% per annum, compounded monthly, based on a 365-day year and the
actual number of days elapsed.
2. Payments/Forgiveness. The entire principal sum and all accrued but
---------------------
unpaid interest and any other sums payable hereunder shall be due and payable in
full on December 6, 1999; provided, however, that the entire principal sum and
all accrued but unpaid interest (the "Outstanding Amount") shall be forgiven by
Holder as follows, on the second annual anniversary of Maker's employment 50% of
the Outstanding Amount shall be forgiven and on the third annual anniversary of
Maker's employment any remaining Outstanding Amount shall be forgiven. In the
event that Maker's employment with Holder terminates for any reason, the entire
unforgiven Outstanding Amount shall be due and payable within 30-days of such
termination.
3. Prepayment. This Note may be prepaid in whole or in part, at any time,
----------
without penalty or premium.
4. Application of Payments. All payments received by Holder shall be
-----------------------
applied first to accrued interest, then to other charges due with respect to
this Note or any other document executed by Maker in connection therewith, and
then to then-unpaid principal balance.
5. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i) Maker
-------
fails to make a payment of principal and/or interest hereunder when due, or (ii)
Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon fifteen (15)
--------
days' written notice to Maker, declare the entire principal sum and all accrued
and unpaid interest hereunder immediately due and payable and (ii) exercise any
and all of the remedies provided by law.
<PAGE>
6. Waivers. Maker, and any endorsers or guarantors hereof, severally
-------
waive diligence, presentment, protest and demand and also notice of dishonor of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time without notice, all without in any way affecting the
liability of Maker or any endorsers or guarantors hereof. No extension of time
for the payment of this Note, or any installment hereof, agreed to by Holder
with any person now or hereafter liable for the payment of this Note, shall
affect the original liability of Maker under this Note, even if Maker is not a
party to such agreement. Holder may waive its right to require performance of
or compliance with any term, covenant or condition of this Note only by express
written waiver.
7. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder, whether or not any legal action is actually filed, litigated or
prosecuted to judgment or award. In the event of any action or legal proceeding
concerning this Note or the enforcement of any rights hereunder, Holder shall be
entitled to, in addition to any other relief to which Holder may be entitled,
all legal and court costs and expenses, including reasonable attorneys' fees,
incurred by Holder in connection with such action.
b. This Note may be modified only by a written agreement executed by
Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and bind
Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set forth in
this Note.
f. This Note shall not be construed as an employment contract nor
shall it modify Maker's status as an at will employee of Holder.
g. If this Note is destroyed, lost or stolen, Maker will deliver a
new Note to Holder on the same terms and conditions as this Note, with a
notation of the unpaid principal and accrued and unpaid interest in substitution
of the prior Note. Holder shall furnish to Maker reasonable evidence that the
Note was destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Maker in connection with the replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
Maker: /s/ F. Thomas Latham
F. Thomas Latham
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") dated as of February 1, 1997, by and
between TIER TECHNOLOGIES, INC., a California corporation (the "Company") and
GEORGE K. ROSS ("Ross").
In consideration of the mutual benefits derived from this Agreement and of
the agreements, covenants and provisions hereof, the parties hereto agree as
follows:
1. EMPLOYMENT
----------
1.1. Position. During the Term (as hereinafter defined) of this Agreement
--------
and subject to the terms and conditions set forth herein, the Company agrees to
employ Ross as its Senior Vice President and Chief Financial Officer, reporting
to the Chief Executive Officer.
1.2. Election to Office. During the Term of this Agreement, the Company
------------------
shall use its best efforts to sustain and continue Ross's position and
designation as Senior Vice President and Chief Financial Officer, subject to
Section 1.3 hereof.
1.3. Fulfillment of Duties. Ross shall devote his full-time efforts to
---------------------
the performance of his services hereunder, except during vacation periods and
periods of illness or incapacity, and shall perform his services hereunder
faithfully, diligently and to the best of his skill and ability. If Ross
desires to serve as a director, or member of a committee of, any organization
involving no conflict of interest with the interests of the Company, he shall
first obtain the written consent of the Company's Chief Executive Officer.
1.4. Location. During the Term of this Agreement, Ross will perform his
--------
duties and services at the Company's principal executive offices in Walnut
Creek, California, or such other location as designated by the Chief Executive
Officer, and Ross agrees to make such business trips to other locations as may
be reasonable and necessary in the performance of his services hereunder.
2. COMPENSATION AND BENEFITS
-------------------------
2.1. Salary. In consideration of and as compensation for the services
------
agreed to be performed by Ross hereunder, the Company agrees to pay Ross during
the Term of this Agreement a base salary (the "Base Salary") of not less than
$175,000 per year, payable semi-monthly in accordance with the Company's regular
payroll practices. The Company may review Ross's Base Salary and other
compensation (including bonuses) from time to time during the Term of this
Agreement and, at the discretion of the Board of Directors of the Company, may
increase his Base Salary or other compensation (including bonuses) from time to
time. Any increase in Base Salary or other compensation (including bonuses)
shall in no way limit or reduce any other obligation of the Company hereunder.
2.2. Incentive Compensation. During the term of this Agreement, in
----------------------
addition to the base salary provided in Section 2.1 above, Ross shall be
eligible to receive additional incentive
<PAGE>
compensation upon achievement of the targeted levels of earnings before
interest, taxes, depreciation and amortization ("EBITDA") of the Company as set
forth in Exhibit A.
2.3. Stock Option. Ross shall receive, within forty-five (45) days
------------
following execution of this Agreement, an option (the "Option") to purchase
105,000 shares of Company Class B common stock at an exercise price which shall
be at least the minimum exercise price required by law, pursuant to an option
agreement on the Company's standard form. Subject to the terms of the Option,
one-third of the Option (i.e., 35,000 shares) shall vest on each of the first,
second and third anniversary dates of this Agreement; provided, however, the
Option shall vest as provided in Section 4.2 or as otherwise set forth in the
option agreement. Notwithstanding anything to the contrary, the Option shall
vest in its entirety immediately upon the sale of substantially all of the
assets of the Company, upon a change in control of the Company or upon the
termination, for any reason, of the services of James L. Bildner as the
Company's Chief Executive Officer.
2.4. Participation in Benefit Plans. During the Term of this Agreement,
------------------------------
Ross shall be entitled to participate in any pension plans, profit-sharing plans
and group insurance, medical, hospitalization, disability and other benefit
plans presently in effect (a partial list of which is attached hereto as Exhibit
B) or hereinafter adopted, which plans are generally applicable to the most
senior executives of the Company and to the extent he is eligible under the
general provisions thereof.
2.5. Reimbursement of Expenses. The Company will reimburse Ross for all
-------------------------
business expenses, including, without limitation, traveling, entertainment and
similar expenses, incurred by Ross on behalf of the Company during the Term of
this Agreement if such expenses are ordinary and necessary business expenses
incurred on behalf of the Company pursuant to the Company's standard expense
reimbursement policy, provided that Ross shall provide the Company with such
itemized accounts, receipts or documentation for such expenses as are required
under the Company's policy regarding the reimbursement of such expenses.
2.6. Vacation and Sick Leave. During the Term of this Agreement, Ross
-----------------------
will be entitled to three weeks of paid vacation per year. Ross shall also be
entitled to paid sick leave in accordance with the policy applicable to the
other senior executives of the Company.
2.7. Relocation Loan. Following the execution of this Agreement, the
---------------
Company shall offer an unsecured loan to Ross in the principal amount not to
exceed $20,000 bearing simple interest at 5.81% per annum, which amount may be
taken all at once or in installments (the "Relocation Loan"). Repayment of the
principal amount of the Relocation Loan and any interest payable thereon shall
be forgiven, as follows: (i) on a pro rata basis, during Ross's employment with
the Company, upon the close of business on the last business day of each month
commencing with the first full month in which sums are advanced under this
Agreement and ending January 31, 2000 and (ii) in its entirety under the
circumstances set forth in Section 4.2 hereof. In the event that Ross's
employment under this Agreement is terminated by Ross without Good Reason (as
defined herein) or for Cause as defined in Section 4.1(iii), Ross shall pay the
total of unforgiven principal and interest due under the Relocation Loan within
ninety (90) days of the occurrence of such event. The Relocation Loan shall be
evidenced by a promissory note in form acceptable to Ross and the Company
consistent with the terms of this Agreement.
2
<PAGE>
3. TERM
----
3.1. Term. The "Term" of employment under this Agreement means the
----
period commencing on the date hereof and expiring on August 1, 2001 or the
earlier termination hereof pursuant to Section 4.1.
4. TERMINATION OF EMPLOYMENT
-------------------------
4.1. Events of Termination. Upon the occurrence of any of the
---------------------
events described in this Section 4.1 during the Term of this Agreement, Ross's
employment hereunder shall terminate and Ross shall be entitled to the benefits
provided in Section 4.2 hereof.
(i) Termination of Ross's employment with the Company due to Ross's
death.
(ii) If, as a result of Ross's incapacity due to physical or mental
illness, injury or disability, Ross shall have been absent from his duties with
the Company on a full-time basis for thirty consecutive days, and within five
days after the receipt of written Notice of Termination (as hereinafter defined)
he shall not have returned to the full-time performance of his duties, the
Company may terminate Ross's employment for "Disability." "Absent from his
duties" means, for the purposes of this Section 4.1( ii ), that Ross is devoting
less than 30 hours per week to his duties under this Agreement.
(iii) The Company shall be entitled to terminate Ross's employment
for Cause. For purposes of this Agreement, "Cause" shall mean:
(A) the willful and continued failure by Ross to substantially
perform his duties with the Company in good faith (other than any such
failure resulting from his incapacity due to physical or mental
illness, injury or disability or any such actual or anticipated
failure resulting from his termination for Good Reason (as hereinafter
defined)), after a demand for substantial performance is delivered to
him by the Board of Directors of the Company which identifies, in
reasonable detail, the manner in which the Board of Directors believes
that Ross has not substantially performed his duties in good faith;
(B) the willful engaging by Ross in conduct which causes
material harm to the Company, monetarily or otherwise; or
(C) Ross's conviction of a felony arising from conduct during
the Term of this Agreement.
(iv) Ross shall be entitled to terminate his employment for Good
Reason. For purposes of this Agreement, "Good Reason" shall, without Ross's
express written consent, mean:
3
<PAGE>
(A) the assignment to Ross of any duties substantially
inconsistent with his status as Senior Vice President and Chief
Financial Officer of the Company;
(B) a reduction by the Company in Ross's Base Salary as in
effect on the date hereof;
(C) the failure of the Company to obtain a satisfactory
agreement from any successor (by means of merger, consolidation, sale
of assets or otherwise) to assume and agree to perform this Agreement
as contemplated by Section 5 hereof; or
Ross's right to terminate his employment pursuant to this Subsection
4.1(iv) shall not be affected by his incapacity due to physical or mental
illness, injury or disability. The Company may, solely during the period of
such incapacity, make arrangements for the discharge of any of Ross's duties
hereunder by another officer of the Company, but any such arrangement shall not
affect or in any way diminish Ross's rights hereunder.
(v) Any purported termination by the Company or by Ross shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Sections 4.3 and 8.1 hereof.
4.2. Effect of Termination.
---------------------
(i) Upon the termination of Ross's employment as a result of his
Disability, Ross shall be entitled to receive:
(A) for an additional six months after the date of such
termination, his Base Salary and any and all benefits to which he is
entitled on the date of such termination under the Company's pension,
life, disability, accident and health and other benefit plans in
accordance with the provisions of such plans; and (B) a pro rata
portion of the maximum amount of incentive compensation for which Ross
could have become eligible during the year in which such termination
occurs.
(B) the Option shall become immediately accelerated and
fully vested and any restrictions on such Option shall, to the extent
permissible under applicable securities laws, fully lapse; and the
Company shall endeavor to cause any restrictions on such options or
equivalent or similar rights not lapsed by operation of this clause to
so lapse.
(C) forgiveness of the entire outstanding balance of the
Relocation Loan.
(D) the indemnity described in Section 4.2(vi) hereto.
(ii) Upon the termination of Ross's employment as a result of his
death, Ross's heirs, devisees, executors or other legal representatives shall
receive:
4
<PAGE>
(A) for an additional six months from the date of such
termination, his Base Salary and any and all benefits to which he is
entitled on the date of such termination under the Company's pension,
life, disability, accident and health and other benefit plans in
accordance with the provisions of such plans; and (B) a pro rata
portion of the maximum amount of incentive compensation for which Ross
could have become eligible during the year in which such termination
occurs.
(B) the Option shall become immediately accelerated and
fully vested and any restrictions on such Option shall, to the extent
permissible under applicable securities laws, fully lapse; and the
Company shall endeavor to cause any restrictions on such options or
equivalent or similar rights not lapsed by operation of this clause to
so lapse.
(C) forgiveness of the entire outstanding balance of the
Relocation Loan.
(D) the indemnity described in Section 4.2(vi) hereto.
(iii) Subject to Section 4.l (vi) hereof if Ross's employment shall
be terminated by the Company for Cause or by Ross without good reason, the
Company shall pay Ross his full Base Salary and other benefits to which he is
entitled, through the Date of Termination at the rate in effect at the time the
Notice of Termination is given, and the Company shall have no further
obligations to him under this Agreement, with the exception of the indemnity
described in Section 4.2(vi) hereto.
(iv) If Ross's employment by the Company shall be terminated (a) by
the Company other than for Cause, Death or Disability or (b) by Ross for Good
Reason, then Ross shall be entitled to the benefits provided below:
(A) the Company shall pay Ross, not later than the fifth day
following the Date of Termination, a lump sum in cash equal to the sum
of (i) six months of Base Salary, at the rate of Ross's Base Salary on
the Date of Termination, discounted to the then present value at a
discount rate of ten percent per annum applied to each future payment
from the time it would have become payable; and (ii) a pro rata
portion of the maximum amount of incentive compensation for which Ross
could have become eligible during the year in which such termination
occurs;
(B) the Option, together with any other options to purchase
stock (common or otherwise) in the Company granted pursuant to any
plan or otherwise, or any equivalent or similar rights which
appreciate or tend to appreciate as the value of the Company's stock
appreciates, shall become immediately accelerated and fully vested and
any restrictions on such options or equivalent or similar rights
shall, to the extent permissible under applicable securities laws,
fully lapse; and the Company shall endeavor to cause any restrictions
on such options or equivalent or similar rights not lapsed by
operation of this clause to so lapse; and
5
<PAGE>
(C) forgiveness of the entire outstanding balance of the
Relocation Loan.
(D) the indemnity described in Section 4.2(vi) hereto.
(v) Ross shall not be required to mitigate the amount of any payment
provided for in this Section 4.2 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4.2 be
subject to set-off or reduced by any compensation earned by him as the result of
employment by another employer or by benefits after the Date of Termination, or
otherwise.
(vi) In connection with the termination of Ross's employment for any
reason, the Company will take all necessary action to release Ross from any
obligations under any guarantee by Ross of the Company's corporate debt. Ross's
employment shall not be terminated until such time as he is removed or replaced
with respect to any such guarantee. In addition, after the Date of
Termination, the Company will indemnify Ross for any claims, including all legal
fees and expenses associated therewith, made by any lender with respect to any
such guarantee.
4.3. Certain Definitions. For the purposes of this Section 4, the
-------------------
following terms shall have the meanings set forth in this Section 4.3:
(i) "Notice of Termination" means a written notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment under the provision so indicated.
(ii) "Date of Termination" means (i) if employment is terminated for
Disability, five days after Notice of Termination is given (provided that Ross
shall not have returned to the performance of his duties on a full-time basis
during such five-day period), and (ii) if employment is terminated pursuant to
Subsection (iii) or (iv) of Section 4.1 or for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination
pursuant to Subsection (iii) of Section 4.1, shall not be less than ten days
and, in the case of a termination pursuant to Subsection (iv) of Section 4.1,
shall not be more than sixty days, respectively, from the date such Notice of
Termination is given); provided that if within thirty days after any Notice of
Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination (a "Notice of
Dispute"), the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected); and provided further that the Date of Termination
shall be extended by a Notice of Dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence.
6
<PAGE>
5. SUCCESSORS
----------
5.1. Assumption by Successors. The Company shall require any successor
------------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Ross to compensation from the Company in the same
amount and on the same terms as he would be entitled hereunder if he terminates
his employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
6. NON-COMPETITION AND CONFIDENTIALITY
-----------------------------------
6.1. Non-Competition. During Ross's employment by the Company hereunder
---------------
and during the period of one year after the termination of Ross's employment
hereunder by the Company for Cause or by Ross for other than Good Reason:
(i) Ross will not directly compete with the business of the Company
so as to cause the Company to lose material revenue from any client account
which is in existence on the Date of Termination.
(ii) Ross will not directly or indirectly employ or solicit for
employment any person whom he knows to be an employee of the Company or any
subsidiary of the Company.
6.2. Confidential Information.
------------------------
(a) Ross agrees and acknowledges that the Confidential Information of
the Company (as hereinafter defined) is valuable, special and unique to its
business; that such business depends on such Confidential Information; and that
the Company wishes to protect such Confidential Information by keeping it
confidential for the use and benefit of the Company. Based on the foregoing,
Ross agrees to undertake the following obligations with respect to such
Confidential Information:
(i) Ross agrees to keep any and all Confidential Information in
trust for the use and benefit of the Company;
(ii) Ross agrees that, except as required by Ross's duties
hereunder or authorized in writing by the Company, he will not at any
time during and for five years after the termination of his employment
with the Company, disclose or use, directly or indirectly, any
Confidential Information of the Company;
7
<PAGE>
(iii) Ross agrees to take all reasonable steps necessary, or
reasonably requested by the Company, to ensure that all Confidential
Information of the Company is kept confidential for the use and
benefit of the Company; and
(iv) Ross agrees that, upon termination of his employment by the
Company or at any other time the Company may in writing so request, he
will promptly deliver to the Company all materials constituting
Confidential Information (including all copies thereof) that are in
the possession of or under the control of Ross. Ross further agrees
that, if requested by the Company to return any Confidential
Information pursuant to this Subsection 6.2(a) (iv), he will not make
or retain any copy of or extract from such materials.
(b) For purposes of this Section 6.2, Confidential Information means
any and all information developed by or for the Company of which Ross gained
knowledge by reason of his employment by the Company prior the date hereof or
his employment under this Agreement that is not generally known in any industry
in which the Company is or may become engaged. Confidential Information
includes, but is not limited to, any and all information developed by or for the
Company concerning plans, marketing and sales methods, materials, processes,
business forms, procedures, devices used by the Company, contractors and
customers with which the Company has dealt prior to Ross's termination of
employment with the Company, plans for development of new products, services and
expansion into new areas or markets, internal operations, and any trade secrets
and proprietary information of any type owned by the Company together with all
written, graphic and other materials relating to all or any part of the same.
In the event that Ross is, in the opinion of his legal counsel (which
counsel shall be acceptable to the Company in its reasonable discretion),
required to disclose any Confidential Information to any federal, state, local
or foreign judicial, legislative, administrative or other authority, agency or
instrumentality or is required to disclose such Confidential Information by
reason of his fiduciary duties to the Company or its shareholders or by any
federal, state, local or foreign securities, blue-sky or other similar laws,
rules, regulations or ordinances, then, notwithstanding anything in this Section
6.2 to the contrary, Ross may disclose such Confidential Information to the
extent, and to the persons and entities, so required without any liability
hereunder, without constituting a breach hereunder and without giving rise to a
right of the Company to terminate Ross's employment (for Cause or otherwise)
hereunder. Ross shall notify the Company of any disclosure required to be made
in connection with the preceding sentence as soon as practicable after Ross
becomes aware of such required disclosure.
7. REMEDIES
--------
7.1. Injunctive Relief. Ross acknowledges and agrees that the covenants
-----------------
and obligations contained in Sections 6.1 and 6.2 relate to special, unique and
extraordinary matters and that a violation of any of the terms of such sections
will cause the Company irreparable injury for which adequate remedy at law is
not available. Therefore, Ross agrees that the Company shall be entitled to an
injunction, restraining order, or other equitable relief from any court of
competent
8
<PAGE>
jurisdiction, restraining Ross from committing any violation of the covenants
and obligations set forth in Sections 6.1 and 6.2 hereof.
7.2. Remedies Cumulative. The Company's rights and remedies under
-------------------
Section 7.1 hereof are cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity.
8. MISCELLANEOUS
-------------
8.1. Notices. Any written notice, required or permitted under this
-------
Agreement, shall be deemed sufficiently given if either hand delivered or if
sent by fax or overnight courier. Written notices must be delivered to the
receiving party at his or its address on the signature page of this Agreement.
The parties may change the address at which written notices are to be received
in accordance with this section.
8.2. Assignment. Neither the Company nor Ross may assign, transfer, or
----------
delegate its or his rights or obligations hereunder and any attempt to do so
shall be void. This Agreement shall be binding upon and shall inure to the
benefit of the Company and its successors and assigns.
8.3. Entire Agreement. This Agreement contains the entire agreement of
----------------
the parties with respect to the subject matter hereof, and all other prior
agreements, written or oral, are hereby merged herein and are of no further
force or effect. This Agreement may be modified or amended only by a written
agreement that is signed by the Company and Ross . No waiver of any section or
provision of this Agreement will be valid unless such waiver is in writing and
signed by the party against whom enforcement of the waiver is sought. The
waiver by the Company of any section or provision of this Agreement shall not
apply to any subsequent breach of this Agreement. Captions to the various
sections in this Agreement are for the convenience of the parties only and shall
not affect the meaning or interpretation of this Agreement. This Agreement may
be executed in several counterparts, each of which shall be deemed an original,
but together they shall constitute one and the same instrument.
8.4. Severability. The provisions of this Agreement shall be deemed
------------
severable, and if any part of any provision is held illegal, void, or invalid
under applicable law such provision may be changed to the extent reasonably
necessary to make the provision, as so changed, legal, valid and binding. If
any provision of this Agreement is held illegal, void, or invalid in its
entirety, the remaining provisions of this Agreement shall not in any way be
affected or impaired but shall remain binding in accordance with their terms.
8.5. Continuing Obligations. Sections 4.2, 6.1 and 6.2 of this
----------------------
Agreement shall continue and survive the termination of this Agreement.
8.6. Applicable Law. This Agreement and the rights and obligations of
--------------
the Company and Ross thereunder shall be governed by and construed and enforced
under the laws of the State of California applicable to agreements made and to
be performed entirely within such State.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TIER TECHNOLOGIES, INC.
By: /s/ James L. Bildner
---------------------------------
Title: Chairman & CEO
------------------------------
Address: 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596
/s/ George K. Ross
------------------------------------
GEORGE K. ROSS
Address: 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596
10
<PAGE>
EXHIBIT A
Incentive Compensation Formula
------------------------------
Ross shall receive annual incentive compensation of at least $25,000 per
year (the "Annual Minimum") or $6,250 per quarter (the "Quarterly Minimum"),
upon the achievement of targeted level of earnings before interest, taxes,
depreciation and amortization ("EBITDA") of the Company. For calendar 1997,
the targeted level of EBITDA shall be $412,500 per calendar quarter, or
$1,650,000 for the calendar year. If the targeted level of EBITDA is met for
any calendar quarter (the "Quarterly EBITDA Requirement"), the quarterly
incentive compensation payment shall be made to Ross on or before thirty days
following the end of such quarter. However, the right to receive such payment
shall be earned by and vested in Ross on the last day of each such quarter.
Assuming Ross has achieved the Quarterly EBITDA Requirement, the amount to be
paid to Ross for that quarter shall be determined by multiplying the Quarterly
Minimum by a fraction, the numerator of which is the actual EBITDA achieved for
such period and the denominator of which is the targeted level of EBITDA for the
quarter. EBITDA for any calendar quarter may not be carried over to the next
calendar quarter; provided, however, if the Quarterly EBITDA Requirement is not
met for one or more calendar quarters during any calendar year for the term of
this Agreement, but the annual target is met for such calendar year, Ross shall
be entitled to receive the difference between the annual incentive compensation
payment, determined by multiplying the Annual Minimum by a fraction, the
numerator of which is the actual EBITDA achieved for such the calendar year and
the denominator of which is the targeted level of EBITDA for the calendar year,
and the total of all quarterly incentive compensation payments made to Ross
during such calendar year. Such annual payment will be made to Ross by March 31
of the following year. However, the right to receive such payment shall be
earned by and vested in Ross on the last day of each such calendar year.
For subsequent calendar years during the Term, the targeted level of EBITDA
shall be fixed by the Board prior to commencement of the year in question.
EBITDA will be determined by the Company's Chief Executive Officer in accordance
with the Company's normal accounting practices consistently applied.
11
<PAGE>
EXHIBIT B
Benefits for Ross's Employment Agreement
----------------------------------------
1. Group Term Insurance
2. Standard medical plan.
3. Standard three weeks vacation.
4. Standard company-approved holidays.
5. Standard long term disability insurance.
6. Standard defined benefit pension plan.
7. D & O liability insurance.
8. 401(k) Plan
12
<PAGE>
EXHIBIT 10.22
FULL RECOURSE
PROMISSORY NOTE
Up to $20,000.00 February 3, 1997
Walnut Creek, California
FOR VALUE RECEIVED, George K. Ross, an individual ("Maker") promises to pay
Tier Technologies, Inc., a California corporation ("Holder"), or order, at 1350
Treat Boulevard, Suite 250, Walnut Creek, California or such other place as
Holder may from time to time designate, in lawful money of the United States,
the principal sum of up to twenty thousand dollars ($20,000.00), plus interest
thereon from the date of issuance as described on Exhibit A hereto until paid in
full, as set forth below.
1. Interest. Interest on the principal sum of this Note shall accrue at
--------
the rate of 5.81% per annum, compounded annually, based on a 365 day year and
the actual number of days elapsed.
2. Payments/ Forgiveness. The entire principal sum and all accrued but
---------------------
unpaid interest and any other sums payable hereunder shall be due and payable in
full on January 31, 2000; provided, however, that the entire principal sum
advanced and all accrued but unpaid interest shall be forgiven by Holder on a
pro rata basis, during Ross's employment with the Company, upon the close of
business on the last business day of each month commencing with the month ending
February 28, 1997 and ending January 31, 2000. In the event Ross's employment
with the Company terminates, Ross shall pay the total unforgiven principal and
interest due under this Note within ninety (90) days of such event.
3. Prepayment. This Note may be prepaid in whole or in part, at any
----------
time, without penalty or premium.
4. Application of Payments. All payments received by Holder shall be
-----------------------
applied first to accrued interest, then to other charges due with respect to
this Note, the Pledge Agreement (as defined below) or any other document
executed by Maker in connection therewith, and then to then-unpaid principal
balance.
5. Issuances. Maker may borrow the principal sum of up to $20,000.00,
---------
which sum may be borrowed in one installment or in multiple installments, upon
fifteen (15) days' notice to Holder's Chief Executive Officer (the "CEO"). Such
installments shall be recorded by the CEO Exhibit A hereto, as issued, and such
entries shall be presumptively correct.
6. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i) Maker
-------
fails to make a payment of principal and/or interest hereunder when due, or (ii)
Maker breaches any other covenant or agreement under this Note.
b. Remedies. Upon Maker's default, Holder may (i) upon fifteen
--------
(15) days' written notice to Maker, declare the entire principal sum and all
accrued and unpaid interest
1
<PAGE>
hereunder immediately due and payable and (ii) exercise any and all of the
remedies provided in the Pledge Agreement and law.
7. Waivers. Maker, and any endorsers or guarantors hereof, severally
-------
waive diligence, presentment, protest and demand and also notice of dishonor of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time without notice, all without in any way affecting the
liability of Maker or any endorsers or guarantors hereof. No extension of time
for the payment of this Note, or any installment hereof, agreed to by Holder
with any person now or hereafter liable for the payment of this Note, shall
affect the original liability of Maker under this Note, even if Maker is not a
party to such agreement. Holder may waive its right to require performance of
or compliance with any term, covenant or condition of this Note only by express
written waiver.
8. Miscellaneous.
-------------
a. Maker shall pay all costs, including, without limitation,
reasonable attorneys' fees and costs incurred by Holder in collecting the sums
due hereunder, whether or not any legal action is actually filed, litigated or
prosecuted to judgment or award. In the event of any action or legal proceeding
concerning this Note or the enforcement of any rights hereunder, Holder shall be
entitled to, in addition to any other relief to which Holder may be entitled,
all legal and court costs and expenses, including reasonable attorneys' fees,
incurred by Holder in connection with such action.
b. This Note may be modified only by a written agreement executed
by Maker and Holder, except with respect to Exhibit A hereto, which may be
modified by the CEO.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and bind
Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. Time is of the essence with respect to all matters set forth in
this Note.
f. If this Note is destroyed, lost or stolen, Maker will deliver a
new Note to Holder on the same terms and conditions as this Note, with a
notation of the unpaid principal and accrued and unpaid interest in substitution
of the prior Note. Holder shall furnish to Maker reasonable evidence that the
Note was destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Maker in connection with the replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
Maker: /s/ George K. Ross
George K. Ross
2
<PAGE>
Exhibit 10.23
OFFICE LEASE
------------
Urban West Business Park
------------------------
COLONY MB PARTNERS, L.P.
as Landlord,
and
TIER CORPORATION,
a California Corporation
as Tenant.
<PAGE>
URBAN WEST BUSINESS PARK
------------------------
1350 TREAT BOULEVARD
WALNUT CREEK, CA 94596
SUMMARY OF BASIC LEASE INFORMATION
----------------------------------
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). This Summary is hereby incorporated
into and made a part of the attached Office Lease (this Summary and the Office
Lease to be known collectively as the "Lease") which pertains to the office
building (the "Building") which is located at 1350 Treat Boulevard, Walnut
Creek, California. Each reference in the Office Lease to any term of this
Summary shall have the meaning as set forth in this Summary for such term. In
the event of a conflict between the terms of this Summary and the Office Lease,
the terms of the Office Lease shall prevail. Any capitalized terms used herein
and not otherwise defined herein shall have the meaning as set forth in the
Office Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE DESCRIPTION
- -------------- -----------
(References are to the Office Lease)
<S> <C>
1. Date: June 3, 1995
2. Landlord: Colony MB Partners, L.P.
By: Colony Advisors, Inc., its agent
3. Address of Landlord Colony Advisors, Inc.
(Section 29.19): 1999 Avenue of the Stars, Suite 1200
Los Angeles, CA 90067
Attn: Ms. MaryAnn Rounds
(310) 282-8820
Mr. Michael Lippman
Transamerica Real Estate Management Co.
600 Montgomery Street, 4th Floor
San Francisco, CA 94111-2790
(415) 983-4100
Attention: Mr. Michael Lippman
and
Allen, Matkins, Leck, Gamble & Mallory
515 South Figueroa Street, Eighth Floor
Los Angeles, CA 90071
Attention: Anton N. Natsis, Esq.
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4. Tenant: Tier Corporation, Inc., a California Corporation
5. Address of Tenant Tier Corporation, Inc.
(Section 29.19): 1280 Civic Drive, Suite 206
Walnut Creek, CA 94596
(510) 937-3950
Attention: Mr. William G. Barton
(Prior to Lease Commencement Date)
and
Urban West Business Park
1350 Treat Boulevard, Suite 250
Walnut Creek, CA 94596
Attention: Mr. William G. Barton
(After Lease Commencement Date)
6. Premises, Expansion Space, First Offer
Space (Article 1):
6.1 Premises: Approximately 6,715 rentable (5,990
usable) square feet of space.
6.2 Expansion Space: N/A
6.3 First Offer Space: Approximately 1,206 rentable square
feet (1,076 usable square feet)
located on the second floor, as set
forth in Exhibit A attached hereto.
First offer space is located
directly to the east of the initial
premises. See Article 15.1 of this
Summary.
7. Term
(Article 2).
7.1 Lease Term: Five (5) years and no months.
7.2 Lease Commencement Date: The earlier of (i) the date Tenant
commences business in the Premises,
and (ii) the date the Premises are
Ready for Occupancy, which Lease
Commencement Date is anticipated to
be July 1, 1995.
7.3 Lease Expiration Date: The last day of the month in which
the fifth anniversary of the Lease
Commencement Date occurs.
</TABLE>
ii
<PAGE>
7.4 Option Term(s): One (1) options to extend the Lease Term
for a period of five (5) years each. See
Article 15.2 of this summary.
8. Base Rent The Base Rent shall be payable as
(Article 3): follows:
<TABLE>
<CAPTION>
Annual Rental Rate
Monthly Installment per Rentable Square
Lease Year Annual Base Rent of Base Rent Foot
- ---------- ---------------- ------------------- ----------------------
<S> <C> <C> <C>
Premises: One (1) $145,044.00 $12,087.00 $ 1.80
through five (5)
Parking Rent: $ 3,300.00 $ 275.00 $12.50/space/mo.
-------------------------------------
$148,344.00 $12,362.00
</TABLE>
9. Additional Rent
(Article 4).
9.1 Base Year: Calendar year 1995. The Tenant's
first adjustment will take place
twelve (12) months after initial
occupancy.
9.2 Tenant's Share of Direct Approximately 5.62%
Expenses:
10. Permitted Use General office and training
(Article 5) purposes consistent with the
character of the Building as a first
class office building.
11. Security Deposit $12,362.00
(Article 21):
12. Parking Pass Ratio Twenty-two (22) parking non-
(Article 28): assigned spaces at a cost of $12.50
per month, per space. See Article 8
above, Parking Rent.
Visitor Parking: Visitor parking
charges are based on market rate and
are currently $.50 per one-half
(1/2) hour. Market rates are
subject to change from time to time.
iii
<PAGE>
<TABLE>
<S> <C>
13. Brokers LANDLORD'S BROKER
(Section 29.25): CB Commercial Real Estate Group, Inc.
201 N. Civic Drive, Suite 240
Walnut Creek, CA 94596
(510) 930-2000
Attn: Carter J. Corbitt
TENANT'S BROKER
R & D Commercial Properties
101 Ygnacio Valley Road, Suite 303
Walnut Creek, CA 94596
(510) 945-1116
Attn: John Donatoni
14. Tenant Improvements LANDLORD IS TO CONSTRUCT THE
(Tenant Work Letter attached as TENANT IMPROVEMENTS AND THE AMOUNT
Exhibit B) OF THE ESTIMATED COST OF THE
IMPROVEMENTS IS:
$39,139.00 const. and permits
$ 8,394.00 architectural ($1.25 PSF)
$ 1,957.00 management (5)
$ 1,957.00 contingency (5%)
----------
$51,447.00
15. Additional Significant Provisions:
15.1 Terms for Right of First Offer Tenant shall be granted a one-time
Space Right of First Offer to lease the
contiguous approximately 1,206
rentable square feet (1,076 usable
square feet) located immediately to
the east of the leased premises,
subject to terms accepted by a bona
fide third party. Tenant shall have
ten (10) business days to accept the
same terms and notify Landlord in
writing. In the event Tenant expands
into this space or other space in
the building within the initial
twelve (12) months of their lease
term, a leasing commission will be
paid per the leasing contract for
vacant, marketed premises.
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
15.2 Terms for Option Term Tenant, by providing nine (9) month's advance
written notice to Landlord, shall have one (1)
Option to Renew the lease for a term of five
(5) years at ninety-five percent (95%) of the
then current market rate for comparable
premises in the building and/or submarket area.
</TABLE>
The foregoing terms of this Summary are hereby agreed to by Landlord and Tenant.
"Landlord": "Tenant":
Colony MB Partners, L.P. Tier Corporation
By: Colony Advisors, Inc. a California Corporation
Its: Agent
By: /s/ George R. Bravante, Jr. /s/ William G. Barton
------------------------------- By: ---------------------------
William G. Barton
Its: George R. Bravante, Jr.
President Its: President
------------------------------
Date: June 19, 1995 Date: 6/7/95
------------------------------ -------------------------
The foregoing terms of this Summary are hereby agreed to by Landlord and Tenant:
"Landlord": "Tenant":
Colony MB Partners, L.P. Tier Corporation
By: Colony Advisors, Inc. a California Corporation
Its: Agent
By: /s/ George R. Bravante, Jr. By: /s/ William G. Barton
------------------------------- ---------------------------
Its: George R. Bravante, Jr. William G. Barton
President Its: President
--------------------------------
Date: June 19, 1995 Date: 6/16/95
------------------------------ -------------------------
v
<PAGE>
URBAN WEST BUSINESS PARK
------------------------
1350 TREAT BOULEVARD, SUITE 250
WALNUT CREEK, CA 94596
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES................................1
ARTICLE 2 LEASE TERM..........................................................2
ARTICLE 3 BASE RENT...........................................................2
ARTICLE 4 ADDITIONAL RENT.....................................................2
ARTICLE 5 USE OF PREMISES.....................................................8
ARTICLE 6 SERVICES AND UTILITIES..............................................8
ARTICLE 7 REPAIRS............................................................10
ARTICLE 8 ADDITIONS AND ALTERATIONS..........................................11
ARTICLE 9 COVENANT AGAINST LIENS.............................................13
ARTICLE 10 INSURANCE..........................................................13
ARTICLE 11 DAMAGE AND DESTRUCTION.............................................16
ARTICLE 12 NONWAIVER..........................................................17
ARTICLE 13 CONDEMNATION.......................................................18
ARTICLE 14 ASSIGNMENT AND SUBLETTING..........................................18
ARTICLE 15 SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES.....22
ARTICLE 16 HOLDING OVER.......................................................22
ARTICLE 17 ESTOPPEL CERTIFICATES..............................................23
ARTICLE 18 SUBORDINATION......................................................23
ARTICLE 19 DEFAULTS; REMEDIES.................................................24
ARTICLE 20 COVENANT OF QUIET ENJOYMENT........................................26
ARTICLE 21 SECURITY DEPOSIT...................................................26
ARTICLE 22 SUBSTITUTION OF OTHER PREMISES.....................................27
ARTICLE 23 SIGNS..............................................................27
ARTICLE 24 COMPLIANCE WITH LAW................................................28
ARTICLE 25 LATE CHARGES.......................................................28
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT...............28
ARTICLE 27 ENTRY BY LANDLORD..................................................29
ARTICLE 28 TENANT PARKING.....................................................29
ARTICLE 29 MISCELLANEOUS PROVISIONS...........................................30
vi
<PAGE>
URBAN WEST BUSINESS PARK
------------------------
1350 TREAT BOULEVARD
WALNUT CREEK, CA 94596
OFFICE LEASE
------------
This Office Lease, which includes the preceding Summary of Basic Lease
Information (the "Summary") attached hereto and incorporated herein by this
reference (the Office Lease and Summary to be known sometimes collectively
hereafter as the "Lease"), dated as of the date set forth in Section I of the
Summary, is made by and between Colony MB Partners, L.P., By: Colony Advisors,
Inc. its Agent ("Landlord'), and Tier Corporation, Inc., a California
corporation ("Tenant").
ARTICLE 1
---------
REAL PROPERTY, BUILDING AND PREMISES
------------------------------------
1.1 Real Property, Building and Premises. Upon and subject to the terms,
------------------------------------
covenants and conditions hereinafter set forth in this Lease, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the premises set forth
in Section 6.1 of the Summary (the "Premises"), which Premises are located in
the "Building," as that term is defined in this Section 1.1. The outline of the
floor plan of the Premises is set forth in Exhibit A attached hereto. The
Premises are a part of the building (the "Building") located at [INSERT BUILDING
ADDRESS]. The Building, the Building's parking facility ("Building Parking
Facility"), any outside plaza areas, land and other improvements surrounding the
Building which are designated from time to time by Landlord as common areas
appurtenant to or servicing the Building, and the land upon which any of the
foregoing are situated, are herein sometimes collectively referred to as the
"Real Property." Tenant is hereby granted the right to the nonexclusive use of
the common corridors and hallways, stairwells, elevators, restrooms and other
public or common areas located on the Real Property; provided, however, that the
manner in which such public and common areas are maintained and operated shall
be at the sole discretion of Landlord and the use thereof shall be subject to
such reasonable/non-discriminatory rules, regulations and restrictions as
Landlord may make from time to time. Landlord reserves the right to make
alterations or additions to or to change the location of elements of the Real
Property and the common areas thereof as long as it does not materially affect
Tenant's access.
1.2 Condition of the Premises. Except as specifically set forth in this
-------------------------
Lease and in the Tenant Work Letter attached hereto as Exhibit B, Landlord shall
not be obligated to provide or pay for any improvement work or services related
to the improvement of the Premises. Tenant also acknowledges that Landlord has
made no representation or warranty regarding the condition of the Premises or
the Building except as specifically set forth in this Lease and the Tenant Work
Letter. See Work Letter: "Punch List" items Article 5.1.
ARTICLE 2
---------
1
<PAGE>
LEASE TERM
----------
The terms and provisions of this Lease shall be effective as of the date of
this Lease except for the provisions of this Lease relating to the payment of
Rent. The term of this Lease (the "Lease Term") shall be as set forth in
Section 7.1 of the Summary and shall commence on the date (the "Lease
Commencement Date") set forth in Section 7.2 of the Summary (subject, however,
to the terms of the Tenant Work Letter), and shall terminate on the date (the
"Lease Expiration Date") set forth in Section 7.3 of the Summary, unless this
Lease is sooner terminated as hereinafter provided. For purposes of this Lease,
the term "Lease Year" shall mean each consecutive twelve (12) month period
during the Lease Term; provided, however, that the first Lease Year shall
commence on the Lease Commencement Date and end on the last day of the eleventh
month thereafter and the second and each succeeding Lease Year shall commence on
the first day of the next calendar month; and further provided that the last
Lease Year shall end on the Lease Expiration Date. At any time during the Lease
Term, Landlord may deliver to Tenant a notice of Lease Term dates in the form as
set forth in Exhibit C, attached hereto, which notice Tenant shall execute and
return to Landlord within five (5) days of receipt thereof.
ARTICLE 3
---------
BASE RENT
---------
Tenant shall pay, without notice or demand, to Landlord or Landlord's agent
at the management office of the Building, or at such other place as Landlord may
from time to time designate in writing, in currency or a check for currency
which, at the time of payment, is legal tender for private or public debts in
the United States of America, base rent ("Base Rent") as set forth in Section 8
of the Summary, payable in equal monthly installments as set forth in Section 8
of the Summary in advance on or before the first day of each and every month
during the Lease Term, without any set-off or deduction whatsoever. The Base
Rent for the first full month of the Lease Term, which occurs after the
expiration of any free rent period, shall be paid at the time of Tenant's
execution of this Lease. If any rental payment date (including the Lease
Commencement Date) falls on a day of the month other than the first day of such
month or if any rental payment is for a period which is shorter than one month,
then the rental for any such fractional month shall be a proportionate amount of
a full calendar month's rental based on the proportion that the number of days
in such fractional month bears to the number of days in the calendar month
during which such fractional month occurs. All other payments or adjustments
required to be made under the terms of this Lease that require proration on a
time basis shall be prorated on the same basis.
ARTICLE 4
---------
ADDITIONAL RENT
---------------
4.1 Additional Rent. In addition to paying the Base Rent specified in
---------------
Article 3 of this Lease, Tenant shall pay as additional rent "Tenant's Share" of
the annual "Direct Expenses," as those terms are defined in Sections 4.2.8 and
4.2.3 of this Lease, respectively, which are in excess of the amount of Direct
Expenses applicable to the "Base Year," as that term is defined in
2
<PAGE>
Section 4.2.1 of this Lease. Such additional rent, together with any and all
other amounts payable by Tenant to Landlord pursuant to the terms of this Lease,
shall be hereinafter collectively referred to as the "Additional Rent." The
Base Rent and Additional Rent are herein collectively referred to as the "Rent."
All amounts due under this Article 4 as Additional Rent shall be payable for the
same periods and in the same manner, time and place as the Base Rent. Without
limitation on other obligations of Tenant which shall survive the expiration of
the Lease Term, the obligations of Tenant to pay the Additional Rent provided
for in this Article 4 shall survive the expiration of the Lease Term.
4.2 Definitions. As used in this Article 4, the following terms shall
-----------
have the meanings hereinafter set forth:
4.2.1 "Base Year" shall mean the year set forth in Section 9.1 of the
Summary.
4.2.2 "Calendar Year" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.3 "Direct Expenses" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.4 "Expense Year" shall mean each Calendar Year, provided that
Landlord, upon notice to Tenant, may change the Expense Year from time to time
to any other twelve (12) consecutive-month period, and, in the event of any such
change, Tenant's Share of Direct Expenses shall be equitably adjusted for any
Expense Year involved in any such change.
4.2.5 "Operating Expenses" shall mean all expenses, costs and amounts
of every kind and nature which Landlord shall pay during any Expense Year
because of or in connection with the ownership, management, maintenance, repair,
replacement, restoration or operation of the Real Property, including, without
limitation, any amounts paid for (i) the cost of supplying all utilities, the
cost of operating, maintaining, repairing and managing the utility systems,
mechanical systems, sanitary and storm drainage systems, and any escalator
and/or elevator systems, and the cost of supplies and equipment other than any
capital improvements and maintenance and service contracts in connection
therewith; (ii) the cost of licenses, certificates, permits, other than any
tenant improvement work and inspections and the reasonable cost of contesting
the validity or applicability of any governmental enactments which may affect
Operating Expenses, and the costs incurred in connection with the implementation
and operation of a transportation system management program or similar program;
(iii) the cost of insurance carried by Landlord, in such amounts as Landlord may
reasonably determine or as may be required by any mortgagees or the lessor of
any underlying or ground lease affecting the Real Property and/or the Building;
(iv) the cost of landscaping, relamping, and all supplies, tools, equipment
other than any capital improvements and materials used in the operation, repair
and maintenance of the Building; (v) the cost of parking area repair,
restoration, and maintenance, including, but not limited to, resurfacing,
repainting, restriping, and cleaning; (vi) fees, charges and other costs,
including consulting fees, legal fees and accounting fees, of all contractors
engaged by Landlord or otherwise reasonably incurred by Landlord in connection
with the management, operation, maintenance and repair of the Building and Real
Property; (vii) any equipment rental agreements or management agreements
(including the cost of any management
3
<PAGE>
fee not to exceed five percent (5%) and the fair rental value of any office
space provided thereunder); (viii) reasonable industry standard wages, salaries
and other compensation and benefits of all persons engaged in the operation,
management, maintenance or security of the Building, and employer's Social
Security taxes, unemployment taxes or insurance, and any other taxes which may
be levied on such wages, salaries, compensation and benefits; provided, that if
any employees of Landlord provide services for more than one building of
Landlord, then a prorated portion of such employees' wages, benefits and taxes
shall be included in Operating Expenses based on the portion of their working
time devoted to the Building; (ix) payments under any easement, license,
operating agreement, declaration, restrictive covenant, underlying or ground
lease (excluding rent), or instrument pertaining to the sharing of costs by the
Building; (x) operation, repair, maintenance and of all "Systems and Equipment,"
as that term is defined in Section 4.2.6 of this Lease, and components thereof;
(xi) the cost of janitorial service, alarm and security service, window
cleaning, trash removal, replacement of wall and floor coverings, ceiling tiles
and fixtures in lobbies, corridors, restrooms and other common or public areas
or facilities, maintenance and replacement of curbs and walkways, repair to
roofs; (xii) amortization (including interest on the unamortized cost) of the
cost of acquiring or the rental expense of personal property used in the
maintenance, operation and repair of the Building and Real Property; and (xiii)
the cost of any capital improvements or other costs (I) which are reasonably and
objectively intended as a labor-saving device or to effect other economies in
the operation or maintenance of the Building, or (II) made to the Building after
the Lease Commencement Date that are required under any governmental law or
regulation, except for capital improvements or costs to remedy a condition
existing as of the date of construction of the Building which a federal, state
or municipal governmental authority, if it had knowledge of such condition as of
the date of construction of the Building, would have then required to be
remedied pursuant to governmental laws or regulations in their form existing as
of the date of construction of the Building; provided, however, that if any such
cost described in (I) or (II) above is a capital expenditure, such cost shall be
amortized (including interest on the unamortized cost) over its useful life as
Landlord shall reasonably determine. If Landlord is not furnishing any
particular work or service (the cost of which, if performed by Landlord, would
be included in Operating Expenses) to a tenant who has undertaken to perform
such work or service in lieu of the performance thereof by Landlord, Operating
Expenses shall be deemed to be increased by an amount equal to the additional
Operating Expenses which would reasonably have been incurred during such period
by Landlord if it had at its own expense furnished such work or service to such
tenant. If the Building is not fully occupied during all or a portion of any
Expense Year, Landlord shall make an appropriate adjustment to the variable
components of the actual Operating Expenses for such year or applicable portion
thereof, employing sound accounting and management principles, to determine the
amount of Operating Expenses that would have been paid had the Building been
fully occupied; and the amount so determined shall be deemed to have been the
amount of Operating Expenses for such year, or applicable portion thereof. Such
adjustment, however, shall not result in Landlord receiving from Tenant and
other tenants more than 100% of the actual cost of such variable components.
Landlord shall have the right, from time to time, to equitably allocate some or
all of the Operating Expenses among different tenants of the Building (the "Cost
Pools"). Such Cost Pools may include, but shall not be limited to, the office
space tenants of the Building and the retail space tenants of the Building.
Notwithstanding anything to the contrary set forth in this Article 4, when
calculating Direct Expenses for the Base
4
<PAGE>
Year, Operating Expenses shall exclude market-wide labor-rate increases due to
extraordinary circumstances, including but not limited to, boycotts and strikes,
and utility rate increases due to extraordinary circumstances including, but not
limited to, conservation surcharges, boycotts, embargoes or other shortages.
4.2.6 "Systems and Equipment" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment which
serve the Building in whole or in part.
4.2.7 "Tax Expenses" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary,
(including, without limitation, real estate taxes, general and special
assessments, transit taxes, leasehold taxes or taxes based upon the receipt of
rent, including gross receipts or sales taxes applicable to the receipt of rent,
unless required to be paid by Tenant, personal property taxes imposed upon the
fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances,
furniture and other personal property used in connection with the Building),
which Landlord shall pay during any Expense Year because of or in connection
with the ownership, leasing and operation of the Real Property or Landlord's
interest therein. For purposes of this Lease, ________.
4.2.7.1 Tax Expenses shall include, without limitation:
(i) Any tax on Landlord's rent, right to rent or other income from
the Real Property or as against Landlord's business of leasing any of the Real
Property;
(ii) Any assessment, tax, fee, levy or charge in addition to, or in
substitution, partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of real property tax, it being
acknowledged by Tenant and Landlord that Proposition 13 was adopted by the
voters of the State of California in the June 1978 election ("Proposition 13")
and that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such services as fire protection, street, sidewalk and
road maintenance, refuse removal and for other governmental services formerly
provided without charge to property owners or occupants. It is the intention of
Tenant and Landlord that all such new and increased assessments, taxes, fees,
levies and charges and all similar assessments, taxes, fees, levies and charges
be included within the definition of Tax Expenses for purposes of this Lease;
(iii) Any assessment, tax, fee, levy, or charge allocable to or
measured by the area of the Premises or the rent payable hereunder, including,
without limitation, any gross income tax with respect to the receipt of such
rent, or upon or with respect to the possession, leasing, operating, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or
any portion thereof; and
5
<PAGE>
(iv) Any assessment, tax, fee, levy or charge, upon this transaction
or any document to which Tenant is a party, creating or transferring an interest
or an estate in the Premises.
4.2.7.2 In no event shall Tax Expenses for any Expense Year be less
than the component of Tax Expenses comprising a portion of the Base Year.
4.2.7.3 Any expenses incurred by Landlord in attempting to protest,
reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense
Year such expenses are paid. Tax refunds shall be deducted from Tax Expenses in
the Expense Year they are received by Landlord. If Tax Expenses for any period
during the Lease Term or any extension thereof are increased after payment
thereof by Landlord for any reason, including, without limitation, error or
reassessment by applicable governmental or municipal authorities, Tenant shall
pay Landlord upon demand Tenant's Share of such increased Tax Expenses.
4.2.7.4 Notwithstanding anything to the contrary contained in this
Section 4.2.7 (except as set forth in Sections 4.2.7.1 and 4.2.7.2, above),
there shall be excluded from Tax Expenses (i) all excess profits taxes,
franchise taxes, gift taxes, capital stock taxes, inheritance and succession
taxes, estate taxes, federal and state income taxes, and other taxes to the
extent applicable to Landlord's general or net income (as opposed to rents,
receipts or income attributable to operations at the Building), (ii) any items
included as Operating Expenses, and (iii) any items paid by Tenant under Section
4.4 of this Lease.
4.2.7.5 Notwithstanding anything to the contrary set forth in this
Article 4, when calculating Direct Expenses for the Base Year, such Direct
Expenses shall not include any increase in Tax Expenses attributable to special
assessments, charges, costs, or fees, or due to modifications or changes in
governmental laws or regulations, including, but not limited to, the institution
of a split tax roll.
4.2.8 "Tenant's Share" shall mean the percentage set forth in Section
9.2 of the Summary. Tenant's Share was calculated by multiplying the number of
rentable square feet of the Premises by 100 and dividing the product by the
total rentable square feet in the Building. In the event either the rentable
square feet of the Premises and/or the total rentable square feet of the
Building is changed, Tenant's Share shall be appropriately adjusted, and, as to
the Expense Year in which such change occurs, Tenant's Share for such year shall
be determined on the basis of the number of days during such Expense Year that
each such Tenant's Share was in effect.
4.3 Calculation and Payment of Additional Rent.
------------------------------------------
4.3.1 Calculation of Excess. If for any Expense Year ending or
---------------------
commencing within the Lease Term, Tenant's Share of Direct Expenses for such
Expense Year exceeds Tenant's Share of Direct Expenses for the Base Year, then
Tenant shall pay to Landlord, in the manner set forth in Section 4.3.2, below,
and as Additional Rent, an amount equal to the excess (the "Excess").
6
<PAGE>
4.3.2 Statement of Actual Direct Expenses and Payment by Tenant.
---------------------------------------------------------
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year, a statement (the "Statement") which
shall state the Direct Expenses incurred or accrued for such preceding Expense
Year, and which shall indicate the amount, if any, of any Excess. Upon receipt
of the Statement for each Expense Year ending during the Lease Term, if an
Excess is present, Tenant shall pay, with its next installment of Base Rent due,
the full amount of the Excess for such Expense Year, less the amounts, if any,
paid during such Expense Year as "Estimated Excess," as that term is defined in
Section 4.3.3 of this Lease. The failure of Landlord to timely furnish the
Statement for any Expense Year shall not prejudice Landlord from enforcing its
rights under this Article 4. Even though the Lease Term has expired and Tenant
has vacated the Premises, when the final determination is made of Tenant's Share
of the Direct Expenses for the Expense Year in which this Lease terminates, if
an Excess is present, Tenant shall immediately pay to Landlord an amount as
calculated pursuant to the provisions of Section 4.3.1 of this Lease. The
provisions of this Section 4.3.2 shall survive the expiration or earlier
termination of the Lease Term, however, not longer than one (1) year.
4.3.3 Statement of Estimated Direct Expenses. In addition, Landlord
--------------------------------------
shall endeavor to give Tenant a yearly expense estimate statement (the "Estimate
Statement") which shall set forth Landlord's reasonable estimate (the
"Estimate") of what the total amount of Direct Expenses for the then-current
Expense Year shall be and the estimated Excess (the "Estimated Excess") as
calculated by comparing Tenant's Share of Direct Expenses, which shall be based
upon the Estimate, to Tenant's Share of Direct Expenses for the Base Year. The
failure of Landlord to timely furnish the Estimate Statement for any Expense
Year shall not preclude Landlord from enforcing its rights to collect any
Estimated Excess under this Article 4. If pursuant to the Estimate Statement an
Estimated Excess is calculated for the then-current Expense Year, Tenant shall
pay, with its next installment of Base Rent due, a fraction of the Estimated
Excess for the then-current Expense Year (reduced by any amounts paid pursuant
to the last sentence of this Section 4.3.3). Such fraction shall have as its
numerator the number of months which have elapsed in such current Expense Year
to the month of such payment, both months inclusive, and shall have twelve (12)
as its denominator. Until a new Estimate Statement is furnished, Tenant shall
pay monthly, with the monthly Base Rent installments, an amount equal to one-
twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate
Statement delivered by Landlord to Tenant.
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible.
----------------------------------------------------------------
Tenant shall reimburse Landlord within thirty (30) days for any and all taxes or
assessments required to be paid by Landlord (except to the extent included in
Tax Expenses by Landlord), excluding state, local and federal personal or
corporate income taxes measured by the net income of Landlord from all sources
and estate and inheritance taxes, whether or not now customary or within the
contemplation of the parties hereto, when:
4.4.1 Said taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the cost or value of a
7
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building standard build-out as determined by Landlord regardless of whether
title to such improvements shall be vested in Tenant or Landlord;
4.4.2 Said taxes are assessed upon or with respect to the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion of the Real Property
(including the Building Parking Facility);
4.4.3 Said taxes are assessed upon this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises; or
4.4.4 Said assessments are levied or assessed upon the Real Property
or any part thereof or upon Landlord and/or by any governmental authority or
entity, and relate to the construction, operation, management, use, alteration
or repair of mass transit improvements.
ARTICLE 5
---------
USE OF PREMISES
---------------
Tenant shall use the Premises solely for the Permitted Use set forth in
Section 10 of the Summary and Tenant shall not use or permit the Premises to be
used for any other purpose or purposes whatsoever. Tenant further covenants and
agrees that it shall not use, or suffer or permit any person or persons to use,
the Premises or any part thereof for any use or purpose contrary to the
provisions of Exhibit D, attached hereto, or in violation of the laws of the
United States of America, the state in which the Building is located or the
ordinances, regulations or requirements of the local municipal or county
governing body or other lawful authorities having jurisdiction over the
Building. Tenant shall comply with all recorded covenants, conditions, and
restrictions, and the provisions of all ground or underlying leases, now or
hereafter affecting the Real Property. Tenant shall not use or allow another
person or entity to use any part of the Premises for the storage, use,
treatment, manufacture or sale of "Hazardous Material," as that term is defined
in Section 29.29 of this Lease.
ARTICLE 6
---------
SERVICES AND UTILITIES
----------------------
6.1 Standard Tenant Services. Landlord shall provide the following
------------------------
services on all days during the Lease Term, unless otherwise stated below.
6.1.1 Subject to all governmental rules, regulations and guidelines
applicable thereto, Landlord shall provide heating and air conditioning for
normal comfort for normal office use in the Premises, from Monday through
Friday, during the period from 7:00 a.m. to 6:00 p.m., and on Saturday during
the period from 7:00 a.m. to 6:00 p.m., except for the date of observation of
New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day and other locally or nationally recognized
holidays (collectively, the "Holidays").
8
<PAGE>
6.1.2 Landlord shall provide adequate electrical wiring and
facilities and power for normal general office use as determined by Landlord.
Tenant shall bear the cost of replacement of lamps, starters and ballasts for
lighting fixtures within the Premises.
6.1.3 Landlord shall provide city water from the regular Building
outlets for drinking, lavatory and toilet purposes.
6.1.4 Landlord shall provide janitorial services five (5) days per
week, except the date of observation of the Holidays, in and about the Premises
and window washing services in a manner consistent with other comparable
buildings in the vicinity of the Building.
6.1.5 Landlord shall provide nonexclusive automatic passenger
elevator service at all times.
6.1.6 Landlord shall provide nonexclusive freight elevator service
subject to scheduling by Landlord.
6.2 Overstandard Tenant Use. Tenant shall not, without Landlord's prior
-----------------------
written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of Section
6.1 of this Lease. If such consent is given, Landlord shall have the right to
install supplementary air conditioning units or other facilities in the
Premises, including supplementary or additional metering devices, and the cost
thereof, including the cost of installation, operation and maintenance,
increased wear and tear on existing equipment and other similar charges, shall
be paid by Tenant to Landlord upon billing by Landlord. If Tenant uses water or
heat or air conditioning in excess of that supplied by Landlord pursuant to
Section 6.1 of this Lease, above, Tenant shall pay to Landlord, upon billing,
the cost of such excess consumption, the cost of the installation, operation,
and maintenance of equipment which is installed in order to supply such excess
consumption, and the cost of the increased wear and tear on existing equipment
caused by such excess consumption; and Landlord may install devices to
separately meter any increased use and in such event Tenant shall pay the
increased cost directly to Landlord, on demand, including the cost of such
additional metering devices. If Tenant desires to use heat, ventilation or air
conditioning during hours other than those for which Landlord is obligated to
supply such utilities pursuant to the terms of Section 6.1 of this Lease, Tenant
shall give Landlord such prior notice, as Landlord shall from time to time
establish as appropriate, of Tenant's desired use and Landlord shall supply such
utilities to Tenant at such hourly cost to Tenant as Landlord shall from time to
time establish. Amounts payable by Tenant to Landlord for such use of
additional utilities shall be deemed Additional Rent hereunder and shall be
billed on a monthly basis. Landlord may increase the hours or days during which
air conditioning, heating and ventilation are provided to the Premises and the
Building to accommodate the usage by tenants occupying two-thirds or more of the
rentable square feet of the Building or to conform to practices of other
buildings in the area comparable to the Building.
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6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable
-------------------
for damages, by abatement of Rent or otherwise, for failure to furnish or delay
in furnishing any service (including telephone and telecommunication services),
or for any diminution in the quality or quantity thereof, when such failure or
delay or diminution is occasioned, in whole or in part, by repairs,
replacements, or improvements, by any strike, lockout or other labor trouble, by
inability to secure electricity, gas, water, or other fuel at the Building after
reasonable effort to do so, by any accident or casualty whatsoever, by act or
default of Tenant or other parties, or by any other cause beyond Landlord's
reasonable control; and such failures or delays or diminution shall never be
deemed to constitute an eviction or disturbance of Tenant's use and possession
of the Premises or relieve Tenant from paying Rent or performing any of its
obligations under this Lease. Furthermore, Landlord shall not be liable under
any circumstances for a loss of, or injury to, property or for injury to, or
interference with, Tenant's business, including, without limitation, loss of
profits, however occurring, through or in connection with or incidental to a
failure to furnish any of the services or utilities as set forth in this Article
6.
6.4 Additional Services. Landlord shall also have the exclusive right,
-------------------
but not the obligation, to provide any additional services which may be required
by Tenant, including, without limitation, locksmithing, lamp replacement,
additional janitorial service, and additional repairs and maintenance, provided
that Tenant shall pay to Landlord upon billing, the sum of all costs to Landlord
of such additional services plus an administration fee. Charges for any service
for which Tenant is required to pay from time to time hereunder, shall be deemed
Additional Rent hereunder and shall be billed on a monthly basis.
6.5 After Hours Lighting and Heating, Air Conditioning, and Ventilation.
-------------------------------------------------------------------
After hours service is defined as any service after 6:00 p.m. and before 7:00
a.m., Monday through Friday and twenty-four hours per day on weekdays and
Landlord recognized legal holidays. After-hours charges are $2.00 per hour for
lighting and $30.00 per hour for HVAC. Hourly rates are subject to adjustment
per changes in actual utility rate adjustments.
ARTICLE 7
---------
REPAIRS
-------
Tenant shall, at Tenant's own expense, keep the Premises, including all
improvements, fixtures and furnishings therein, in good order, repair and
condition at all times during the Lease Term. In addition, Tenant shall, at
Tenant's own expense but under the supervision and subject to the prior approval
of Landlord, and within any reasonable period of time specified by Landlord,
promptly and adequately repair all damage to the Premises and replace or repair
all damaged or broken fixtures and appurtenances; provided however, that, at
Landlord's option, or if Tenant fails to make such repairs, Landlord may, but
need not, make such repairs and replacements, and Tenant shall pay Landlord the
cost thereof, including a percentage of the cost thereof (to be uniformly
established for the Building) sufficient to reimburse Landlord for all overhead,
general conditions, fees and other costs or expenses arising from Landlord's
involvement with such repairs and replacements forthwith upon being billed for
same. Landlord may, but shall not be required to, enter the Premises at all
reasonable times to make such repairs, alterations, improvements and additions
to the Premises or to the Building or to any equipment
10
<PAGE>
located in the Building as Landlord shall desire or deem necessary or as
Landlord may be required to do by governmental or quasi-governmental authority
or court order or decree. Tenant hereby waives and releases its right to make
repairs at Landlord's expense under Sections 1941 and 1942 of the California
Civil Code; or under any similar law, statute, or ordinance now or hereafter in
effect.
ARTICLE 8
---------
ADDITIONS AND ALTERATIONS
-------------------------
8.1 Landlord's Consent to Alterations. Tenant may not make any
---------------------------------
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld by Landlord. The construction of the initial
improvements to the Premises shall be governed by the terms of the Tenant Work
Letter and not the terms of this Article 8.
8.2 Manner of Construction. Landlord may impose, as a condition of its
----------------------
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in its sole discretion may deem desirable,
including, but not limited to, the requirement that upon Landlord's request,
Tenant shall, at Tenant's expense, remove such Alterations upon the expiration
or any early termination of the Lease Term, and/or the requirement that Tenant
utilize for such purposes only contractors, materials, mechanics and materialmen
selected by Landlord. In any event, a contractor of Landlord's selection shall
perform all mechanical, electrical, plumbing, structural, and heating,
ventilation and air conditioning work, and such work shall be performed at
Tenant's cost. Tenant shall construct such Alterations and perform such repairs
in conformance with any and all applicable rules and regulations of any federal,
state, county or municipal code or ordinance and pursuant to a valid building
permit, issued by the city in which the Building is located, in conformance with
Landlord's construction rules and regulations. Landlord's approval of the
plans, specifications and working drawings for Tenant's Alterations shall create
no responsibility or liability on the part of Landlord for their completeness,
design sufficiency, or compliance with all laws, rules and regulations of
governmental agencies or authorities. All work with respect to any Alterations
must be done in a good and workmanlike manner and diligently prosecuted to
completion to the end that the Premises shall at all times be a complete unit
except during the period of work. In performing the work of any such
Alterations, Tenant shall have the work performed in such manner as not to
obstruct access to the Building or the common areas for any other tenant of the
Building, and as not to obstruct the business of Landlord or other tenants in
the Building, or interfere with the labor force working in the Building. In the
event that Tenant makes any Alterations, Tenant agrees to carry "Builder's All
Risk" insurance in an amount approved by Landlord covering the construction of
such Alterations, and such other insurance as Landlord may require, it being
understood and agreed that all of such Alterations shall be insured by Tenant
pursuant to Article 10 of this Lease immediately upon completion thereof. In
addition, Landlord may, in its discretion, require Tenant to obtain a lien and
completion bond or some alternate form of security satisfactory to Landlord in
an amount sufficient to ensure the lien-free completion of such Alterations and
11
<PAGE>
naming Landlord as a co-obligee. Upon completion of any Alterations, Tenant
agrees to cause a Notice of Completion to be recorded in the office of the
Recorder of the county in which the Building is located in accordance with
Section 3093 of the Civil Code of the State of California or any successor
statute, and Tenant shall deliver to the Building management office a
reproducible copy of the "as built" drawings of the Alterations.
8.3 Payment for Improvements. In the event Tenant orders any Alteration
------------------------
or repair work directly from Landlord, or from the contractor selected by
Landlord, the charges for such work shall be deemed Additional Rent under this
Lease, payable upon billing therefor, either periodically during construction or
upon the substantial completion of such work, at Landlord's option. Upon
completion of such work, Tenant shall deliver to Landlord, if payment is made
directly to contractors, evidence of payment, contractors' affidavits and full
and final waivers of all liens for labor, services or materials. Whether or not
Tenant orders any work directly from Landlord, Tenant shall pay to Landlord a
percentage of the cost of such work (such percentage, which shall vary depending
upon whether or not Tenant orders the work directly from Landlord, to be
established on a uniform basis for the Building) sufficient to compensate
Landlord for all overhead, general conditions, fees and other costs and expenses
arising from Landlord's involvement with such work.
8.4 Landlord's Property. All Alterations, improvements, fixtures and/or
-------------------
equipment which may be installed or placed in or about the Premises, and all
signs installed in, on or about the Premises, from time to time, shall be at the
sole cost of Tenant and shall be and become the property of Landlord, except
that Tenant may remove any Alterations, improvements, fixtures and/or equipment
which Tenant can substantiate to Landlord have not been paid for with any tenant
improvement allowance funds provided to Tenant by Landlord, provided Tenant
repairs any damage to the Premises and Building caused by such removal.
Furthermore, if Landlord, as a condition to Landlord's consent to any
Alteration, requires that Tenant remove any Alteration upon the expiration or
early termination of the Lease Term, Landlord may, by written notice to Tenant
prior to the end of the Lease Term, or given upon any earlier termination of
this Lease, require Tenant at Tenant's expense to remove such Alterations and to
repair any damage to the Premises and Building caused by such removal. If
Tenant fails to complete such removal and/or to repair any damage caused by the
removal of any Alterations, Landlord may do so and may charge the cost thereof
to Tenant. Tenant hereby indemnifies and holds Landlord harmless from any
liability, cost, obligation, expense or claim of lien in any manner relating to
the installation, placement, removal or financing of any such Alterations,
improvements, fixtures and/or equipment in, on or about the premises.
12
<PAGE>
ARTICLE 9
- ---------
COVENANT AGAINST LIENS
----------------------
Tenant has no authority or power to cause or permit any lien or encumbrance
of any kind whatsoever, whether created by act of Tenant, operation of law or
otherwise, to attach to or be placed upon the Real Property, Building or
Premises, and any and all liens and encumbrances created by Tenant shall attach
to Tenant's interest only. Landlord shall have the right at all times to post
and keep posted on the Premises any notice which it deems necessary for
protection from such liens. Tenant covenants and agrees not to suffer or permit
any lien of mechanics or materialmen or others to be placed against the Real
Property, the Building or the Premises with respect to work or services claimed
to have been performed for or materials claimed to have been furnished to Tenant
or the Premises, and, in case of any such lien attaching or notice of any lien,
Tenant covenants and agrees to cause it to be immediately released and removed
of record. Notwithstanding anything to the contrary set forth in this Lease, in
the event that such lien is not released and removed on or before the date
notice of such lien is delivered by Landlord to Tenant, Landlord, at its sole
option, may immediately take all action necessary to release and remove such
lien, without any duty to investigate the validity thereof, and all sums, costs
and expenses, including reasonable attorneys' fees and costs, incurred by
Landlord in connection with such lien shall be deemed Additional Rent under this
Lease and shall immediately be due and payable by Tenant.
ARTICLE 10
----------
INSURANCE
---------
10.1 Indemnification and Waiver. To the extent not prohibited by law, and
--------------------------
except to the extent caused by the negligence or wilful misconduct of "Landlord
Parties," as that term is defined below, or a breach of the Lease by Landlord
parties, Landlord, its partners, trustees, ancillary trustees and their
respective officers, directors, shareholders, beneficiaries, agents, servants,
employees, and independent contractors (collectively, the "Landlord Parties")
shall not be liable for any damage either to person or property or resulting
from the lose of use thereof, which damage is sustained by Tenant or the "Tenant
Parties" as the term is defined below. To the extent not prohibited by law, and
except to the extent caused by the negligence or wilful misconduct of Tenant
Parties or a breach of the Lease by Tenant Parties, Tenant, its officers,
directors, shareholders, agents, servants, employees, and independent
contractors (collectively, the "Tenant Parties") shall not be liable for any
damage either to person or property or resulting from the loss of use thereof,
which damage is sustained by Landlord or the Landlord Parties. Tenant shall
indemnify, defend, protect, and hold harmless Landlord Parties from any and all
loss, cost, damage, expense and liability (including without limitation court
costs and reasonable attorneys' fees) (collectively, "Claims") incurred in
connection with or arising from any cause in, on or about the Premises or any
acts, omissions or negligence of Tenant Parties, in, on or about the Real
Property, or a breach of this Lease by the Tenant Parties, either prior to,
during, or after the expiration of the Lease Term, provided that the terms of
the foregoing indemnity shall not apply to the negligence, gross negligence or
wilful misconduct of Landlord or the Landlord Parties. Landlord shall
indemnify, defend, protect, and hold harmless Tenant and the Tenant
13
<PAGE>
Parties from any and all Claims arising from any act or omission or negligence
of the Landlord Parties in, on or about the Real Property, or a breach of this
Lease by the Landlord Parties, except to the extent caused by the negligence,
gross negligence or wilful misconduct of the Tenant Parties or a breach of this
Lease by the Tenant Parties. Notwithstanding anything to the contrary set forth
in this Lease, either party's agreement to indemnify the other party as set
forth in this Article 10, above, shall be ineffective to the extent the matters
for which such party agreed to indemnify the other party are covered by
insurance required to be carried by the other party pursuant to this lease.
Further, Tenant's agreement to indemnify Landlord and Landlord's agreement to
indemnify Tenant pursuant to this Article 10 are not intended and shall not
relieve any insurance carrier of its obligations under policies required
pursuant to the provisions of this Lease, to the extent such policies cover the
matters subject to the parties' respective indemnification obligations; nor
shall they supersede any inconsistent agreement of the parties set forth in any
other provision of this Lease. Should Landlord or Tenant be named as a
defendant in any suit brought against Landlord or Tenant in connection with or
arising out of an event covered by one of the party's indemnity obligations set
forth above, the indemnifying party shall pay to the other party its costs and
expenses incurred in such suit, including without limitation, its actual
professional fees such as appraisers', accountants' and attorneys' fees. The
provision of this Section 10.1 shall survive the expiration or sooner
------------
termination of this Lease with respect to any claims or liability occurring
prior to such expiration or termination.
10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance.
---------------------------------------------------------------
Tenant shall, at Tenant's expense, comply as to the Premises with all insurance
company requirements pertaining to the use of the Premises. If Tenant's conduct
or use of the Premises causes any increase in the premium for such insurance
policies, then Tenant shall reimburse Landlord for any such increase. Tenant,
at Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body.
10.3 Tenant's Insurance. Tenant shall maintain the following coverages in
-------------------
the following amounts.
10.3.1 Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage arising out
of Tenant's operations, assumed liabilities or use of the Premises, including a
Broad Form Commercial General Liability endorsement covering the insuring
provisions of this Lease and the performance by Tenant of the indemnity
agreements set forth in Section 10.1 of this Lease, for limits of liability not
less than:
Bodily Injury and $2,000,000 each occurrence
Property Damage Liability $1,000,000 annual aggregate
Personal Injury Liability $2,000,000 each occurrence
$1,000,000 annual aggregate
0% Insured's participation
10.3.2 Physical Damage Insurance covering (i) all office furniture,
trade fixtures, office equipment, merchandise and all other items of Tenant's
property on the Premises
14
<PAGE>
installed by, for, or at the expense of Tenant, (ii) the Tenant Improvements,
including any Tenant Improvements which Landlord permits to be installed above
the ceiling of the Premises or below the floor of the Premises, and (iii) all
other improvements, alterations and additions to the Premises, including any
improvements, alterations or additions installed at Tenant's request above the
ceiling of the Premises or below the floor of the Premises. Such insurance
shall be written on an "all risks" of physical loss or damage basis, for the
full replacement cost value new without deduction for depreciation of the
covered items and in amounts that meet any co-insurance clauses of the policies
of insurance and shall include a vandalism and malicious mischief endorsement,
sprinkler leakage coverage and earthquake sprinkler leakage coverage.
10.3.3 Form of Policies. The minimum limits of policies of insurance
----------------
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. Such insurance shall (i) name Landlord, and any other
party it so specifies, as an additional insured; (ii) specifically cover the
liability assumed by Tenant under this Lease, including, but not limited to,
Tenant's obligations under Section 10.1 of this Lease; (iii) be issued by an
insurance company having a rating of not less than A-X in Best's Insurance Guide
or which is otherwise acceptable to Landlord and licensed to do business in the
state in which the Building is located; (iv) be primary insurance as to all
claims thereunder and provide that any insurance carried by Landlord is excess
and is non-contributing with any insurance requirement of Tenant; (v) provide
that said insurance shall not be canceled or coverage changed unless thirty (30)
days' prior written notice shall have been given to Landlord and any mortgagee
or ground or underlying lessor of Landlord; and (vi) contain a cross-liability
endorsement or severability of interest clause acceptable to Landlord. Tenant
shall deliver said policy or policies or certificates thereof to Landlord on or
before the Lease Commencement Date and at least thirty (30) days before the
expiration dates thereof. In the event Tenant shall fail to procure such
insurance, or to deliver such policies or certificate, Landlord may, at its
option, procure such policies for the account of Tenant, and the cost thereof
shall be paid to Landlord as Additional Rent within five (5) days after delivery
to Tenant of bills therefor.
10.4 Subrogation. Landlord and Tenant agree to have their respective
-----------
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are
contained in their respective insurance policies, Landlord and Tenant hereby
waive any right that either may have against the other on account of any loss or
damage to their respective property to the extent such loss or damage is
insurable under policies of insurance for fire and all risk coverage, theft,
public liability, or other similar insurance.
10.5 Additional Insurance Obligations. Tenant shall carry and maintain
--------------------------------
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord.
ARTICLE 11
----------
15
<PAGE>
DAMAGE AND DESTRUCTION
----------------------
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
----------------------------------------
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any common areas of the Building serving or
providing access to the Premises shall be damaged by fire or other casualty,
Landlord shall promptly and diligently, subject to reasonable delays for
insurance adjustment or other matters beyond Landlord's reasonable control, and
subject to all other terms of this Article 11, restore the Base, Shell, and Core
of the Premises and such common areas. Such restoration shall be to
substantially the same condition of the Base, Shell, and Core of the Premises
and common areas prior to the casualty, except for modifications required by
zoning and building codes and other laws or by the holder of a mortgage on the
Building, or the lessor of a ground or underlying lease with respect to the Real
Property and/or the Building, or any other modifications to the common areas
deemed desirable by Landlord, provided access to the Premises and any common
restrooms serving the Premises shall not be materially impaired.
Notwithstanding any other provision of this Lease, upon the occurrence of any
damage to the Premises, Tenant shall assign to Landlord (or to any party
designated by Landlord) all insurance proceeds payable to Tenant under Tenant's
insurance required under Section 10.3 of this Lease, and Landlord shall repair
any injury or damage to the Tenant Improvements installed in the Premises and
shall return such Tenant Improvements to their original condition; provided that
if the cost of such repair by Landlord exceeds the amount of insurance proceeds
received by Landlord from Tenant's insurance carrier, as assigned by Tenant, the
cost of such repairs shall be paid by Tenant to Landlord prior to Landlord's
repair of the damage. In connection with such repairs and replacements, Tenant
shall, prior to the commencement of construction, submit to Landlord, for
Landlord's review and approval, all plans, specifications and working drawings
relating thereto, and Landlord shall select the contractors to perform such
improvement work. Such submittal of plans and construction of improvements
shall be performed in substantial compliance with the terms of the Tenant Work
Letter as though such construction of improvements were the initial construction
of the Tenant Improvements. Landlord shall not be liable for any inconvenience
or annoyance to Tenant or its visitors, or injury to Tenant's business resulting
in any way from such damage or the repair thereof, provided however, that if
such fire or other casualty shall have damaged the Premises or common areas
necessary to Tenant's occupancy, and if such damage is not the result of the
negligence or wilful misconduct of Tenant or Tenant's employees, contractors,
licensees, or invitees, Landlord shall allow Tenant a proportionate abatement of
Rent to the extent Landlord is reimbursed from the proceeds of rental
interruption insurance purchased by Landlord as part of Operating Expenses,
during the time and to the extent the Premises are unfit for occupancy for the
purposes permitted under this Lease, and not occupied by Tenant as a result
thereof.
11.2 Landlord's Option to Repair. Notwithstanding the terms of Section
---------------------------
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises and/or Building and instead terminate this Lease by notifying Tenant in
writing of such termination within sixty (60) days after the date of damage,
such notice to include a termination date giving Tenant ninety (90) days to
vacate the Premises, but Landlord may so elect only if the Building shall be
damaged by fire or other casualty or cause, whether or not the Premises are
affected, and one or more of the following conditions is present: (i) repairs
cannot reasonably be completed within one hundred twenty (120) days of the date
of damage (when such repairs are made without the payment of
16
<PAGE>
overtime or other premiums); (ii) the holder of any mortgage on the Building or
ground or underlying lessor with respect to the Real Property and/or the
Building shall require that the insurance proceeds or any portion thereof be
used to retire the mortgage debt, or shall terminate the ground or underlying
lease, as the case may be; or (iii) the damage is not fully covered, except for
deductible amounts, by Landlord's insurance policies. In addition, in the event
that the Premises or the Building is destroyed or damaged to any substantial
extent during the last twenty-four (24) months of the Lease Term, then
notwithstanding anything contained in this Article 11, Landlord shall have the
option to terminate this Lease by giving written notice to Tenant of the
exercise of such option within thirty (30) days after such damage or
destruction, in which event this Lease shall cease and terminate as of the date
of such notice. Upon any such termination of this Lease pursuant to this
Section 11.2, Tenant shall pay the Base Rent and Additional Rent properly
apportioned up to such date of termination, and both parties hereto shall
thereafter be freed and discharged of all further obligations hereunder, except
as provided for in provisions of this Lease which by their terms survive the
expiration or earlier termination of the Lease Tenn.
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
------------------------------
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion of the Real Property, and any
statute or regulation of the state in which the Building is located, including,
without limitation, Sections 1932(2) and 1933(4) of the California Civil Code,
with respect to any rights or obligations concerning damage or destruction in
the absence of an express agreement between the parties, and any other statute
or regulation, now or hereafter in effect, shall have no application to this
Lease or any damage or destruction to all or any part of the Premises, the
Building or any other portion of the Real Property.
ARTICLE 12
----------
NONWAIVER
---------
No waiver of any provision of this Lease shall be implied by any failure of
Landlord to enforce any remedy on account of the violation of such provision,
even if such violation shall continue or be repeated subsequently, any waiver by
Landlord of any provision of this Lease may only be in writing, and no express
waiver shall affect any provision other than the one specified in such waiver
and that one only for the time and in the manner specifically stated. No
receipt of monies by Landlord from Tenant after the termination of this Lease
shall in any way alter the length of the Lease Term or of Tenant's right of
possession hereunder or after the giving of any notice shall reinstate, continue
or extend the Lease Term or affect any notice given Tenant prior to the receipt
of such monies, it being agreed that after the service of notice or the
commencement of a suit or after final judgment for possession of the Premises,
Landlord may receive and collect any Rent due, and the payment of said Rent
shall not waive or affect said notice, suit or judgment.
ARTICLE 13
----------
CONDEMNATION
------------
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13.1 Permanent Taking. If the whole or any part of the Premises or
----------------
Building shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if any adjacent
property or street shall be so taken or condemned, or reconfigured or vacated by
such authority in such manner as to require the use, reconstruction or
remodeling of any part of the Premises or Building, or if Landlord shall grant a
deed or other instrument in lieu of such taking by eminent domain or
condemnation, Landlord shall have the option to terminate this Lease upon ninety
(90) days' notice, provided such notice is given no later than one hundred
eighty (180) days after the date of such taking, condemnation, reconfiguration,
vacation, deed or other instrument. If more than twenty-five percent (25%) of
the rentable square feet of the Premises is taken, or if access to the Premises
is substantially impaired, Tenant shall have the option to terminate this Lease
upon ninety (90) days' notice, provided such notice is given no later than one
hundred eighty (180) days after the date of such taking. Landlord shall be
entitled to receive the entire award or payment in connection therewith, except
that Tenant shall have the right to file any separate claim available to Tenant
for any taking of Tenant's property and such claim is payable separately to
Tenant. All Rent shall be apportioned as of the date of such termination, or
the date of such taking, whichever shall first occur. If any part of the
Premises shall be taken, and this Lease shall not be so terminated, the Rent
shall be proportionately abated. Tenant hereby waives any and all rights it
might otherwise have pursuant to Section 1265.130 of The California Code of
Civil Procedure.
13.2 Temporary Taking. Notwithstanding anything to the contrary contained
----------------
in this Article 13, in the event of a temporary taking of all or any portion of
the Premises for a period of one hundred and eighty (180) days or less, then
this Lease shall not terminate but the Base Rent and the Additional Rent shall
be abated for the period of such taking in proportion to the ratio that the
amount of rentable square feet of the Premises taken bears to the total rentable
square feet of the Premises. Landlord shall be entitled to receive the entire
award made in connection with any such temporary taking.
ARTICLE 14
----------
ASSIGNMENT AND SUBLETTING
-------------------------
14.1 Transfers. Tenant shall not, without the prior written consent of
---------
Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder, permit
any assignment or other such foregoing transfer of this Lease or any interest
hereunder by operation of law, sublet the Premises or any part thereof, or
permit the use of the Premises by any persons other than Tenant and its
employees (all of the foregoing are hereinafter sometimes referred to
collectively as "Transfers" and any person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a "Transferee"). If
Tenant shall desire Landlord's consent to any Transfer, Tenant shall notify
Landlord in writing, which notice (the "Transfer Notice") shall include (i) the
proposed effective date of the Transfer, which shall not be less than forty-five
(45) days nor more than one hundred eighty (180) days after the date of delivery
of the Transfer Notice, (ii) a description of the portion of the Premises to be
transferred (the "Subject Space"), (iii) all of the terms of the proposed
Transfer and the consideration therefor, including a calculation of the
"Transfer Premium," as that term is defined in Section 14.3 below, in connection
with such Transfer, the name and
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address of the proposed Transferee, and a copy of all existing and/or proposed
documentation pertaining to the proposed Transfer, including all existing
operative documents to be executed to evidence such Transfer or the agreements
incidental or related to such Transfer, and (iv) current financial statements of
the proposed Transferee certified by an officer, partner or owner thereof, and
any other information required by Landlord, which will enable Landlord to
determine the financial responsibility, character, and reputation of the
proposed Transferee, nature of such Transferee's business and proposed use of
the Subject Space, and such other information as Landlord may reasonably
require. Any Transfer made without Landlord's prior written consent shall, at
Landlord's option, be null, void and of no effect, and shall, at Landlord's
option, constitute a default by Tenant under this Lease. Whether or not
Landlord shall grant consent, Tenant shall pay Landlord's review and processing
fees, as well as any reasonable legal fees incurred by Landlord, within thirty
(30) days after written request by Landlord.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold its
------------------
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. The parties hereby agree that it shall
be reasonable under this Lease and under any applicable law for Landlord to
withhold consent to any proposed Transfer where one or more of the following
apply, without limitation as to other reasonable grounds for withholding
consent:
14.2.1 The Transferee is of a character or reputation or engaged in a
business which is not consistent with the quality of the Building, or would be a
significantly less prestigious occupant of the Building than Tenant;
14.2.2 The Transferee intends to use the Subject Space for purposes
which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof;
14.2.4 The Transfer will result in more than a reasonable and safe
number of occupants per floor within the Subject Space;
14.2.5 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities involved under the
Lease on the date consent is requested;
14.2.6 The proposed Transfer would cause Landlord to be in violation
of another lease or agreement to which Landlord is a party, or would give an
occupant of the Building a right to cancel its lease;
14.2.7 The terms of the proposed Transfer will allow the Transferee
to exercise a right of renewal, right of expansion, right of first offer, or
other similar right held by Tenant (or will allow the Transferee to occupy space
leased by Tenant pursuant to any such right);
14.2.8 Either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control
with, the proposed Transferee, (i) occupies space in the Building at the time of
the request for consent, (ii) is negotiating with
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Landlord to lease space in the Building at such time, or (iii) has negotiated
with Landlord during the twelve (12)-month period immediately preceding the
Transfer Notice; or
If Landlord consents to any Transfer pursuant to the terms of this Section
14.2 (and does not exercise any recapture rights Landlord may have under Section
14.4 of this Lease), Tenant may within six (6) months after Landlord's consent,
but not later than the expiration of said six-month period, enter into such
Transfer of the Premises or portion thereof, upon substantially the same terms
and conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to Section 14.1 of this Lease, provided that if there are any
changes in the terms and conditions from those specified in the Transfer Notice
(i) such that Landlord would initially have been entitled to refuse its consent
to such Transfer under this Section 14.2, or (ii) which would cause the proposed
Transfer to be more favorable to the Transferee than the terms set forth in
Tenant's original Transfer Notice, Tenant shall again submit the Transfer to
Landlord for its approval and other action under this Article 14 (including
Landlord's right of recapture, if any, under Section 14.4 of this Lease).
14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition
----------------
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord any "Transfer Premium," as that term is defined in this Section 14.3,
received by Tenant from such Transferee. "Transfer Premium" shall mean all
rent, additional rent or other consideration payable by such Transferee in
excess of the Rent and Additional Rent payable by Tenant under this Lease on a
per rentable square foot basis if less than all of the Premises is transferred,
after deducting the reasonable expenses incurred by Tenant for (i) any changes,
alterations and improvements to the Premises in connection with the Transfer,
and (ii) any brokerage commissions in connection with the Transfer
(collectively, the "Subleasing Costs"). "Transfer Premium" shall also include,
but not be limited to, key money and bonus money paid by Transferee to Tenant in
connection with such Transfer, and any payment in excess of fair market value
for services rendered by Tenant to Transferee or for assets, fixtures,
inventory, equipment or furniture transferred by Tenant to Transferee in
connection with such Transfer.
14.4 Landlord's Option as to Subject Space. Notwithstanding anything to
-------------------------------------
the contrary contained in this Article 14, Landlord shall have the option, by
giving written notice to Tenant within thirty (30) days after receipt of any
Transfer Notice, to (i) recapture the Subject Space, or (ii) take an assignment
or sublease of the Subject Space from Tenant. Such recapture, or sublease or
assignment notice shall cancel and terminate this Lease, or create a sublease or
assignment, as the case may be, with respect to the Subject Space as of the date
stated in the Transfer Notice as the effective date of the proposed Transfer
until the last day of the term of the Transfer as set forth in the Transfer
Notice. In the event of a recapture by Landlord, if this Lease shall be
canceled with respect to less than the entire Premises, the Rent reserved herein
shall be prorated on the basis of the number of rentable square feet retained by
Tenant in proportion to the number of rentable square feet contained in the
Premises, and this Lease as so amended shall continue thereafter in full force
and effect, and upon request of either party, the parties shall execute written
confirmation of the same. If the Subject Space shall be assigned or subleased
by Tenant to Landlord, the rent for the Subject Space payable by Landlord to
Tenant shall be the lesser of (i) the effective Base Rent plus the Additional
Rent payable by Tenant under this Lease for the Subject Space on a prorated
basis based upon the number of rentable square feet in the
20
<PAGE>
Subject Space, or (ii) the effective rent (taking into account all concessions
made by Tenant to the Transferee) set forth in the Transfer Notice, and all
other provisions of this Lease shall remain in full force and effect, and upon
request of either party, the parties shall execute a written confirmation of the
same. If Landlord declines, or fails to elect in a timely manner to recapture,
sublease or take an assignment of the Subject Space under this Section 14.4,
then, provided Landlord has consented to the proposed Transfer, Tenant shall be
entitled to proceed to transfer the Subject Space to the proposed Transferee,
subject to provisions of the last paragraph of Section 14.2 of this Lease.
14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the
------------------
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or Tenant's
chief financial officer, setting forth in detail the computation of any Transfer
Premium Tenant has derived and shall derive from such Transfer, and (v) no
Transfer relating to this Lease or agreement entered into with respect thereto,
whether with or without Landlord's consent, shall relieve Tenant or any
guarantor of the Lease from liability under this Lease. Landlord or its
authorized representatives shall have the right at all reasonable times to audit
the books, records and papers of Tenant relating to any Transfer, and shall have
the right to make copies thereof. If the Transfer Premium respecting any
Transfer shall be found understated, Tenant shall, within thirty (30) days after
demand, pay the deficiency and Landlord's costs of such audit, and if
understated by more than ten percent (10%), Landlord shall have the right to
cancel this Lease upon thirty (30) days' notice to Tenant.
14.6 Additional Transfers. For purposes of this Lease, the term
--------------------
"Transfer" shall also include (i) if Tenant is a partnership, the withdrawal or
change, voluntary, involuntary or by operation of law, of twenty-five percent
(25%) or more of the partners, or transfer of twenty-five percent or more of
partnership interests, within a twelve (12)-month period, or the dissolution of
the partnership without immediate reconstitution thereof, and (ii) if Tenant is
a closely held corporation (i.e., whose stock is not publicly held and not
traded through an exchange or over the counter), (A) the dissolution, merger,
consolidation or other reorganization of Tenant, the sale or other transfer of
more than an aggregate of twenty-five percent (25%) of the voting shares of
Tenant (other than to immediate family members by reason of gift or death),
within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or
pledge of more than an aggregate of twenty-five percent (25%) of the value of
the unencumbered assets of Tenant within a twelve (12) month period.
ARTICLE 15
----------
SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES
--------------------------------------------------------------
15.1 Surrender of Premises. No act or thing done by Landlord or any agent
---------------------
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in a
21
<PAGE>
writing signed by Landlord. The delivery of keys to the Premises to Landlord or
any agent or employee of Landlord shall not constitute a surrender of the
Premises or effect a termination of this Lease, whether or not the keys are
thereafter retained by Landlord, and notwithstanding such delivery Tenant shall
be entitled to the return of such keys at any reasonable time upon request until
this Lease shall have been properly terminated. The voluntary or other
surrender of this Lease by Tenant, whether accepted by Landlord or not, or a
mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
------------------------------------
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs which are specifically made the responsibility of Landlord
hereunder excepted. Upon such expiration or termination, Tenant shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, and such items of furniture, equipment, free-standing cabinet work,
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
ARTICLE 16
----------
HOLDING OVER
------------
If Tenant holds over after the expiration of the Lease Term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case Base Rent shall be payable at a monthly
rate equal to one hundred twenty-five percent (125%) of the Base Rent applicable
during the last rental period of the Lease Term under this Lease. Such month-
to-month tenancy shall be subject to every other term, covenant and agreement
contained herein. Nothing contained in this Article 16 shall be construed as
consent by Landlord to any holding over by Tenant, and Landlord expressly
reserves the right to require Tenant to surrender possession of the Premises to
Landlord as provided in this Lease upon the expiration or other termination of
this Lease. The provisions of this Article 16 shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein
or at law. If Tenant fails to surrender the Premises upon the termination or
expiration of this Lease, in addition to any other liabilities to Landlord
accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord
harmless from all loss, costs (including reasonable attorneys' fees) and
liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any succeeding tenant founded
upon such failure to surrender, and any lost profits to Landlord resulting
therefrom.
ARTICLE 17
----------
22
<PAGE>
ESTOPPEL CERTIFICATES
---------------------
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of Exhibit E, attached
hereto, (or such other form as may be required by any prospective mortgagee or
purchaser of the Project, or any portion thereof), indicating therein any
exceptions thereto that may exist at that time, and shall also contain any other
information reasonably requested by Landlord or Landlord's mortgagee or
prospective mortgagee, Tenant shall execute and deliver whatever other
instruments may be reasonably required for such purposes. Failure of Tenant to
timely execute and deliver such estoppel certificate or other instruments shall
constitute an acceptance of the Premises and an acknowledgment by Tenant that
statements included in the estoppel certificate are true and correct, without
exception.
ARTICLE 18
----------
SUBORDINATION
-------------
This Lease is subject and subordinate to all present and future ground or
underlying leases of the Real Property and to the lien of any mortgages or trust
deeds, now or hereafter in force against the Real Property and the Building, if
any, and to all renewals, extensions, modifications, consolidations and
replacements thereof, and to all advances made or hereafter to be made upon the
security of such mortgages or trust deeds, unless the holders of such mortgages
of trust deeds, or the lessors under such ground lease or underlying leases,
require in writing that this Lease be superior thereto. Tenant covenants and
agrees in the event any proceeding are brought for the foreclosure of any such
mortgage, or if any ground or underlying lease is terminated, to attorn, without
any deductions or set-offs whatsoever, to the purchaser upon any such
foreclosure sale, or to the lessor of such ground or underlying lease, as the
case may be, if so requested to do so by such purchaser or lessor, and to
recognize such purchaser or lessor as the lessor under this Lease. Tenant
shall, within five (5) days of request by Landlord, execute such further
instruments or assurances as Landlord may reasonably deem necessary to evidence
or confirm the subordination or superiority of this Lease to any such mortgages,
trust deeds, ground leases or underlying leases. Tenant hereby irrevocably
authorizes Landlord to execute and deliver in the name of Tenant any such
instrument or instruments if Tenant fails to do so, provided that such
authorization shall in no way relieve Tenant from the obligation of executing
such instruments of subordination or superiority. Tenant waives the provisions
of any current or future statute, rule or law which may give or purport to give
Tenant any right or election to terminate or otherwise adversely affect this
Lease and the obligations of the Tenant hereunder in the event of any
foreclosure proceeding or sale.
ARTICLE 19
----------
DEFAULTS; REMEDIES
------------------
19.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute a default of this Lease by Tenant:
23
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19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for fifteen (15) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 or any similar or successor law; and provided
further that if the nature of such default is such that the same cannot
reasonably be cured within a fifteen (15)-day period, Tenant shall not be deemed
to be in default if it diligently commences such cure within such period and
thereafter diligently proceeds to rectify and cure said default as soon as
possible; or
19.1.3 Abandonment or vacation of the Premises by Tenant.
Abandonment is herein defined to include, but is not limited to, any absence by
Tenant from the Premises for three (3) business days or longer while in default
of any provision of this Lease.
19.2 Remedies Upon Default. Upon the occurrence of any event of default
---------------------
by Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive,
without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor; and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, specifically including but not limited to, brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and
24
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(v) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i)
and (ii), above, the "worth at the time of award" shall be computed by allowing
interest at the rate set forth in Article 25 of this Lease, but in no case
greater than the maximum amount of such interest permitted by law. As used in
Paragraph 19.2.1(iii) above, the "worth at the time of award" shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.3 Sublessees of Tenant. Whether or not Landlord elects to terminate
--------------------
this Lease on account of any default by Tenant as set forth in this Article 19,
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
19.4 Form of Payment After Default. Following the occurrence of an event
-----------------------------
of default by Tenant, Landlord shall have the right to require that any or all
subsequent amounts paid by Tenant to Landlord hereunder, whether in the cure of
the default in question or otherwise, be paid in the form of cash, money order,
cashier's or certified check drawn on an institution acceptable to Landlord. or
by other means approved by Landlord, notwithstanding any prior practice of
accepting payments in any different form.
19.5 Waiver of Default. No waiver by Landlord or Tenant of any violation
-----------------
or breach of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other or later violation or
breach of the same or any other of the terms, provisions, and covenants herein
contained. Forbearance by Landlord in enforcement of one or more of the
remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default. The acceptance of any Rent
hereunder by Landlord following the occurrence of any default, whether or not
known to Landlord, shall not be deemed a waiver of any such default, except only
a default in the payment of the Rent so accepted.
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19.6 Efforts to Relet. For the purposes of this Article 19, Tenant's
----------------
right to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
ARTICLE 20
----------
COVENANT OF QUIET ENJOYMENT
---------------------------
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, shall,
during the Lease Term, peaceably and quietly have, hold and enjoy the Premises
subject to the terms, covenants, conditions, provisions and agreements hereof
without interference by any persons lawfully claiming by or through Landlord.
The foregoing covenant is in lieu of any other covenant express or implied.
ARTICLE 21
----------
SECURITY DEPOSIT
----------------
Concurrent with Tenant's execution of this Lease, Tenant shall deposit with
Landlord a security deposit (the "Security Deposit") in the amount set forth in
Section II of the Summary. The Security Deposit shall be held by Landlord as
security for the faithful performance by Tenant of all the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the Lease
Term. If Tenant defaults with respect to any provisions of this Lease,
including, but not limited to, the provisions relating to the payment of Rent,
Landlord may, but shall not be required to, use, apply or retain all or any part
of the Security Deposit for the payment of any Rent or any other sum in default,
or for the payment of any amount that Landlord may spend or become obligated to
spend by reason of Tenant's default, or to compensate Landlord for any other
loss or damage that Landlord may suffer by reason of Tenant's default. If any
portion of the Security Deposit is so used or applied, Tenant shall, within five
(5) days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount, and Tenant's
failure to do so shall be a default under this Lease. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
Security Deposit, or any balance thereof, shall be returned to Tenant, or, at
Landlord's option, to the last assignee of Tenant's interest hereunder, within
sixty (60) days following the expiration of the Lease Term. Tenant shall not be
entitled to any interest on the Security Deposit.
ARTICLE 22
----------
SUBSTITUTION OF OTHER PREMISES
------------------------------
Landlord shall have the right to move Tenant to other space in the Building
comparable to the Premises, and all terms hereof shall apply to the new space
with equal force. In such event,
26
<PAGE>
Landlord shall give Tenant sixty (60) days' prior notice, shall provide Tenant,
at Landlord's sole cost and expense, with tenant improvements at lease equal in
quality to those in the Premises and comparable elevator identity signage, and
shall move Tenant's effects to the new space at Landlord's sole cost and expense
at such time and in such manner as to inconvenience Tenant as little as
practicable. Landlord agrees that any such relocation shall be to space with
substantially similar views as the current Premises. In addition, Landlord
shall pay for Tenant's reasonable costs to reprint Tenant's stationary
containing its new premises' address and to reconnect Tenant's telephone and
computer systems. In the event that the rentable square footage of the new
space varies from the square footage (in the Premises, the Base Rent and
Tenant's Share shall be equitably adjusted. Simultaneously with such relocation
of the Premises, the parties shall immediately execute an amendment to this
Lease stating the relocation of the Premises. In the event Tenant chooses not
to accept such relocation, Tenant may, at Tenant's sole discretion terminate
this Lease by providing notice in writing to Landlord within ten (10) business
days from receipt of initial notice from Landlord. Tenant shall vacate Premises
within ninety (90) days of receipt of initial notice from the Landlord.
ARTICLE 23
----------
SIGNS
-----
23.1 In General. Tenant shall be entitled, at Landlord's sole cost and
----------
expense, to identification signage outside of Tenant's Premises on the floor on
which Tenant's Premises are located. The location, quality, design, style,
lighting and size of such signage shall be consistent with the Landlord's
Building standard signage program and shall be subject to Landlord's prior
written approval, in its sole discretion. Upon the expiration or earlier
termination of this Lease, Tenant shall be responsible, at its sole cost and
expense, for the removal of such signage and the repair of all damage to the
Building caused by such removal.
23.2 Building Directory. Tenant shall be entitled to one (1) line on the
------------------
Building directory to display Tenant's name and location in the Building [MUST
BE CONFIRMED].
23.3 Prohibited Signage and Other Items. Any signs, notices, logos,
----------------------------------
pictures, names or advertisements which are installed and that have not been
individually approved by Landlord may be removed without notice by Landlord at
the sole expense of Tenant. Tenant may not install any signs on the exterior or
roof of the Building or the common areas of the Building or the Real Property.
Any signs, window coverings, or blinds (even if the same are located behind the
Landlord approved window coverings for the Building), or other items visible
from the exterior of the Premises or Building are subject to the prior approval
of Landlord, in its sole discretion.
ARTICLE 24
----------
COMPLIANCE WITH LAW
-------------------
Tenant shall not do anything or suffer anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or
27
<PAGE>
requirement now in force or which may hereafter be enacted or promulgated. At
its sole cost and expense, Tenant shall promptly comply with all such
governmental measures, other than the making of structural changes or changes to
the Building's life safety system. Should any standard or regulation now or
hereafter be imposed on Landlord or Tenant by a state, federal or local
governmental body charged with the establishment, regulation and enforcement of
occupational, health or safety standards for employers, employees, landlords or
tenants, then Tenant agrees, at its sole cost and expense, to comply promptly
with such standards or regulations. The judgment of any court of competent
jurisdiction or the admission of Tenant in any judicial action, regardless of
whether Landlord is a party thereto, that Tenant has violated any of said
governmental measures, shall be conclusive of that fact as between Landlord and
Tenant.
ARTICLE 25
----------
LATE CHARGES
------------
If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within five (5) days after said
amount is due, then Tenant shall pay to Landlord a late charge equal to five
percent (5%) of the amount due plus any attorneys' fees incurred by Landlord by
reason of Tenant's failure to pay Rent and/or other charges when due hereunder.
The late charge shall be deemed Additional Rent and the right to require it
shall be in addition to all of Landlord's other rights and remedies hereunder or
at law and shall not be construed as liquidated damages or as limiting
Landlord's remedies in any manner. In addition to the late charge described
above, any Rent or other amounts owing hereunder which are not paid within three
(3) days after the date they are due shall thereafter bear interest until paid
at a rate equal to eighteen percent (18%) per annum, provided that in no case
shall such rate be higher than the highest rate permitted by applicable law.
ARTICLE 26
----------
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
----------------------------------------------------
26.1 Landlord's Cure. All covenants and agreements to be kept or
---------------
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent. If Tenant shall fail
to perform any of its obligations under this Lease, within a reasonable time
after such performance is required by the terms of this Lease, Landlord may, but
shall not be obligated to, after reasonable prior notice to Tenant, make any
such payment or perform any such act on Tenant's part without waiving its right
based upon any default of Tenant and without releasing Tenant from any
obligations hereunder.
26.2 Tenant's Reimbursement. Except as may be specifically provided to
----------------------
the contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15)
days after delivery by Landlord to Tenant of statements therefor: (i) sums equal
to expenditures reasonably made and obligations incurred by Landlord in
connection with the remedying by Landlord of Tenant's defaults pursuant to the
provisions of Section 26.1; (ii) sums equal to all losses, costs, liabilities,
damages and expenses referred to in Article 10 of this Lease; and (iii) sums
equal to all expenditures made and obligations incurred by Landlord in
collecting or attempting to collect the Rent or in
28
<PAGE>
enforcing or attempting to enforce any rights of Landlord under this Lease or
pursuant to law, including, without limitation, all legal fees and other amounts
so expended. Tenant's obligations under this Section 26.2 shall survive the
expiration or sooner termination of the Lease Term.
ARTICLE 27
----------
ENTRY BY LANDLORD
-----------------
Landlord reserves the right at all reasonable times and upon reasonable
notice to the Tenant to enter the Premises to (i) inspect them; (ii) show the
Premises to prospective purchasers, mortgagees or tenants, or to the ground or
underlying lessors; (iii) post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises or the Building if necessary to comply with
current building codes or other applicable laws, or for structural alterations,
repairs or improvements to the Building. Notwithstanding anything to the
contrary contained in this Article 27, Landlord may enter the Premises at any
time to (A) perform services required of Landlord; (B) take possession due to
any breach of this Lease in the manner provided herein; and (C) perform any
covenants of Tenant which Tenant fails to perform. Any such entries shall be
without the abatement of Rent and shall include the right to take such
reasonable steps as required to accomplish the stated purposes. Tenant hereby
waives any claims for damages or for any injuries or inconvenience to or
interference with Tenant's business, lost profits, any loss of occupancy or
quiet enjoyment of the Premises, and any other loss occasioned thereby. For
each of the above purposes, Landlord shall at all times have a key with which to
unlock all the doors in the Premises, excluding Tenant's vaults, safes and
special security areas designated in advance by Tenant. In an emergency,
Landlord shall have the right to use any means that Landlord may deem proper to
open the doors in and to the Premises. Any entry into the Premises in the
manner hereinbefore described shall not be deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or an actual or constructive
eviction of Tenant from any portion of the Premises.
ARTICLE 28
----------
TENANT PARKING
--------------
Tenant shall rent parking passes on a monthly basis throughout the Lease
Term in the amount set forth in Section 12 of the Summary to park in the
Building Parking Facility. Tenant shall pay to Landlord for automobile parking
passes on a monthly basis the prevailing rate charged for parking passes at the
location of such passes. Tenant's continued right to use the parking passes is
conditioned upon Tenant abiding by all rules and regulations which are
prescribed from time to time for the orderly operation and use of the Building
Parking Facility and upon Tenant's cooperation in seeing that Tenant's employees
and visitors also comply with such rules and regulations. Landlord specifically
reserves the right to change the size, configuration, design, layout, location
and all other aspects of the Building Parking Facility and Tenant acknowledges
and agrees that Landlord may, without incurring any liability to Tenant and
without any abatement of Rent under this Lease, from time to time, close-off or
restrict access to the Building Parking Facility, or relocate Tenant's parking
passes to other parking structures and/or surface parking areas within a
reasonable distance of the Premises, for purposes of permitting or facilitating
any such construction, alteration or improvements with respect to the
29
<PAGE>
Building Parking Facility or to accommodate or facilitate renovation,
alteration, construction or other modification of other improvements or
structures located on the Real Property. Landlord may delegate its
responsibilities hereunder to a parking operator in which case such parking
operator shall have all the rights of control attributed hereby to the Landlord
and such owner. The parking rates charged by Landlord for Tenant's parking
passes shall be exclusive of any parking tax or other charges imposed by
governmental authorities in connection with the use of such parking, which taxes
and/or charges shall be paid directly by Tenant or the parking users, or, if
directly imposed against Landlord, Tenant shall reimburse Landlord for all such
taxes and/or charges concurrent with its payment of the parking rates described
herein.
ARTICLE 29
----------
MISCELLANEOUS PROVISIONS
------------------------
29.1 Terms. The necessary grammatical changes required to make the
-----
provisions hereof apply either to corporations or partnerships or individuals,
men or women, as the case may require, shall in all cases be assumed as though
in each case fully expressed.
29.2 Binding Effect. Each of the provisions of this Lease shall extend to
--------------
and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
29.3 No Air Rights. No rights to any view or to light or air over any
-------------
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease. If at any time any windows of the Premises are
temporarily darkened or the light or view therefrom is obstructed by reason of
any repairs, improvements, maintenance or cleaning in or about the Building, the
same shall be without liability to Landlord and without any reduction or
diminution of Tenant's obligations under this Lease.
29.4 Modification of Lease. Should any current or prospective mortgagee
---------------------
or ground lessor for the Building require a modification or modifications of
this Lease, which modification or modifications will not cause an increased cost
or expense to Tenant or in any other way materially and adversely change the
rights and obligations of Tenant hereunder, then and in such event, Tenant
agrees that this Lease may be so modified and agrees to execute whatever
documents are required therefor and deliver the same to Landlord within ten (10)
days following the request therefor. Should Landlord or any such current or
prospective mortgagee or ground lessor require execution of a short form of
Lease for recording, containing, among other customary provisions, the names of
the parties, a description of the Premises and the Lease Term, Tenant agrees to
execute such short form of Lease and to deliver the same to Landlord within ten
(10) days following the request therefor.
29.5 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
-------------------------------
has the right to transfer all or any portion of its interest in the Real
Property and Building and in this Lease, and Tenant agrees that in the event of
any such transfer, Landlord shall automatically be released from all liability
under this Lease and Tenant agrees to look solely to such transferee for the
30
<PAGE>
performance of Landlord's obligations hereunder after the date of transfer. The
liability of any transferee of Landlord shall be limited to the interest of such
transferee in the Real Property and Building and such transferee shall be
without personal liability under this Lease, and Tenant hereby expressly waives
and releases such personal liability on behalf of itself and all persons
claiming by, through or under Tenant. Tenant further acknowledges that Landlord
may assign its interest in this Lease to a mortgage lender as additional
security and agrees that such an assignment shall not release Landlord from its
obligations hereunder and that Tenant shall continue to look to Landlord for the
performance of its obligations hereunder.
29.6 Prohibition Against Recording. Except as provided in Section 29.4 of
-----------------------------
this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through,
under or on behalf of Tenant, and the recording thereof in violation of this
provision shall make this Lease null and void at Landlord's election.
29.7 Landlord's Title. Landlord's title is and always shall be paramount
----------------
to the title of Tenant. Nothing herein contained shall empower Tenant to do any
act which can, shall or may encumber the title of Landlord.
29.8 Captions. The captions of Articles and Sections are for convenience
--------
only and shall not be deemed to limit, construe, affect or alter the meaning of
such Articles and Sections.
29.9 Relationship of Parties. Nothing contained in this Lease shall be
-----------------------
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
29.10 Application of Payments. Landlord shall have the right to apply
-----------------------
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord, in its sole discretion, may elect.
29.11 Time of Essence. Time is of the essence of this Lease and each of
---------------
its provisions.
29.12 Partial Invalidity. If any term, provision or condition contained
------------------
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
29.13 No Warranty. In executing and delivering this Lease, Tenant has not
-----------
relied on any representation, including, but not limited to, any representation
whatsoever as to the amount of any item comprising Additional Rent or the amount
of the Additional Rent in the aggregate or that Landlord is furnishing the same
services to other tenants, at all, on the same level or on the
31
<PAGE>
same basis, or any warranty or any statement of Landlord which is not set forth
herein or in one or more of the exhibits attached hereto.
29.14 Landlord Exculpation. It is expressly understood and agreed that
--------------------
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord and the Landlord
Parties hereunder (including any successor landlord) and any recourse by Tenant
against Landlord or the Landlord Parties shall be limited solely and exclusively
to an amount which is equal to the interest of Landlord in the Building and
neither Landlord, nor any of the Landlord Parties shall have any personal
liability therefor, and Tenant hereby expressly waives and releases such
personal liability on behalf of itself and all persons claiming by, through or
under Tenant.
29.15 Entire Agreement. It is understood and acknowledged that there are
----------------
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate agreement executed by Landlord and Tenant in
connection with this Lease and dated of even date herewith contain all of the
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Premises, shall be
considered to be the only agreement between the parties hereto and their
representatives and agents, and none of the terms, covenants, conditions or
provisions of this Lease can be modified, deleted or added to except in writing
signed by the parties hereto. All negotiations and oral agreements acceptable
to both parties have been merged into and are included herein. There are no
other representations or warranties between the parties, and all reliance with
respect to representations is based totally upon the representations and
agreements contained in this Lease.
29.16 Right to Lease. Landlord reserves the absolute right to effect such
--------------
other tenancies in the Building as Landlord in the exercise of its sole business
judgment shall determine to best promote the interests of the Building. Tenant
does not rely on the fact, nor does Landlord represent, that any specific tenant
or type or number of tenants shall, during the Lease Term, occupy any space in
the Building.
29.17 Force Majeure. Any prevention, delay or stoppage due to strikes,
-------------
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, the "Force Majeure"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
32
<PAGE>
29.18 Waiver of Redemption by Tenant. Tenant hereby waives for Tenant and
------------------------------
for all those claiming under Tenant all right now or hereafter existing to
redeem by order or judgment of any court or by any legal process or writ,
Tenant's right of occupancy of the Premises after any termination of this Lease.
29.19 Notices. All notices, demands, statements or communications
-------
(collectively, "Notices") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by United States certified or
registered mail, postage prepaid, return receipt requested, or delivered
personally (i) to Tenant at the appropriate address set forth in Section 5 of
the Summary, or to such other place as Tenant may from time to time designate in
a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section
3 of the Summary, or to such other firm or to such other place as Landlord may
from time to time designate in a Notice to Tenant. Any Notice will be deemed
given on the date it is mailed as provided in this Section 29.19 or upon the
date personal delivery is made. If Tenant is notified of the identity and
address of Landlord's mortgagee or ground or underlying lessor, Tenant shall
give to such mortgagee or ground or underlying lessor written notice of any
default by Landlord under the terms of this Lease by registered or certified
mail, and such mortgagee or ground or underlying lessor shall be given a
reasonable opportunity to cure such default prior to Tenant's exercising any
remedy available to Tenant.
29.20 Joint and Several. If there is more than one Tenant, the
-----------------
obligations imposed upon Tenant under this Lease shall be joint and several.
29.21 Authority. If Tenant is a corporation or partnership, each
---------
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in the state in which the Building is located and that Tenant has full
right and authority to execute and deliver this Lease and that each person
signing on behalf of Tenant is authorized to do so.
29.22 Attorneys' Fees. If either party commences litigation against the
---------------
other for the specific performance of this Lease, for damages for the breach
hereof or otherwise for enforcement of any remedy hereunder, the parties hereto
agree to and hereby do waive any right to a trial by jury and, in the event of
any such commencement of litigation, the prevailing party shall be entitled to
recover from the other party such costs and reasonable attorneys' fees as may
have been incurred, including any and all costs incurred in enforcing,
perfecting and executing such judgment.
29.23 Governing Law. This Lease shall be construed and enforced in
-------------
accordance with the laws of the state in which the Building is located.
29.24 Submission of Lease. Submission of this instrument for examination
-------------------
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
29.25 Brokers. Landlord and Tenant hereby warrant to each other that they
-------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease,
33
<PAGE>
excepting only the real estate brokers or agents specified in Section 13 of the
Summary (the "Brokers"), and that they know of no other real estate broker or
agent who is entitled to a commission in connection with this Lease. Each party
agrees to indemnify and defend the other party against and hold the other party
harmless from any and all claims, demands, losses, liabilities, lawsuits,
judgments, and costs and expenses (including without limitation reasonable
attorneys' fees) with respect to any leasing commission or equivalent
compensation alleged to be owing on account of the indemnifying party's dealings
with any real estate broker or agent other than the Brokers.
29.26 Independent Covenants. This Lease shall be construed as though the
---------------------
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any set-off of the Rent or other amounts owing
hereunder against Landlord; provided, however, that the foregoing shall in no
way impair the right of Tenant to commence a separate action against Landlord
for any violation by Landlord of the provisions hereof so long as notice is
first given to Landlord and holder of a mortgage or deed of trust covering the
Building, Real Property or any portion thereof, of whose address Tenant has
theretofore been notified, and an opportunity is granted to Landlord and such
holder to correct such violations as provided above.
29.27 Building Name and Signage. Landlord shall have the right at any
-------------------------
time to change the name of the Building and to install, affix and maintain any
and all signs on the exterior and on the interior of the Building as Landlord
may, in Landlord's sole discretion, desire. Tenant shall not use the name of
the Building or use pictures or illustrations of the Building in advertising or
other publicity, without the prior written consent of Landlord.
29.28 Transportation Management. Tenant shall fully comply with all
-------------------------
present or future programs intended to manage parking, transportation or traffic
in and around the Building, and in connection therewith, Tenant shall take
responsible action for the transportation planning and management of all
employees located at the Premises by working directly with Landlord, any
governmental transportation management organization or any other transportation-
related committees or entities. Such programs may include, without limitation:
(i) restrictions on the number of peak-hour vehicle trips generated by Tenant;
(ii) increased vehicle occupancy; (iii) implementation of an in-house
ridesharing program and an employee transportation coordinator; (iv) working
with employees and any Building or area-wide ridesharing program manager; (v)
instituting employer-sponsored incentives (financial or in-kind) to encourage
employees to rideshare; and (vi) utilizing flexible work shifts for employees.
29.29 Hazardous Material. As used herein, the term "Hazardous Material"
------------------
means any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the state in which the Building
is located or the United States Government. Tenant acknowledges that Landlord
may incur costs (A) for complying with laws, codes, regulations or ordinances
relating to Hazardous Material, or (B) otherwise in connection with Hazardous
Material, including, without limitation, the following: (i) Hazardous Material
present in soil or ground water; (ii) Hazardous Material that migrates, flows,
percolates, diffuses
34
<PAGE>
or in any way moves onto or under the Real Property; (iii) Hazardous Material
present on or under the Real Property as a result of any discharge, dumping or
spilling (whether accidental or otherwise) on the Real Property by other tenants
of the Real Property or their agents, employees, contractors or invitees, or by
others; and (iv) material which becomes Hazardous Material due to a change in
laws, codes, regulations or ordinances which relate to hazardous or toxic
material, substances or waste. Tenant agrees that the costs incurred by
Landlord with respect to, or in connection with, complying with laws, codes,
regulations or ordinances relating to Hazardous Material shall be an Operating
Expense, unless the cost of such compliance, as between Landlord and Tenant, is
made the responsibility of Tenant under this Lease. To the extent any such
Operating Expense relating to Hazardous Material is subsequently recovered or
reimbursed through insurance, or recovery from responsible third parties, or
other action, Tenant shall be entitled to a proportionate share of such
Operating Expense to which such recovery or reimbursement relates.
29.30 Confidentiality. Tenant acknowledges that the content of this Lease
---------------
and any related documents are confidential information. Tenant shall keep such
confidential information strictly confidential and shall not disclose such
confidential information to any person or entity other than Tenant's financial,
legal, and space planning consultants.
29.31 Landlord Renovations. It is specifically understood and agreed that
--------------------
Landlord has no obligation and has made no promises to alter, remodel, improve,
renovate, repair or decorate the Premises, Building, or any part thereof and
that no representations respecting the condition of the Premises or the Building
have been made by Landlord to Tenant except as specifically set forth herein or
in the Tenant Work Letter. However, Tenant acknowledges that Landlord is
currently renovating or may during the Lease Term renovate, improve, alter, or
modify (collectively, the "Renovations") the Building, Premises, and/or Real
Property, including without limitation the Building Parking Facility, common
areas, systems and equipment, roof, and structural portions of the same, which
Renovations may include, without limitation, (i) modifying the common areas and
tenant spaces to comply with applicable laws and regulations, including
regulations relating to the physically disabled, seismic conditions, and
building safety and security, and (ii) installing new carpeting, lighting, and
wall coverings in the Building common areas, and in connection with such
Renovations, Landlord may, among other things, erect scaffolding or other
necessary structures in the Building, limit or eliminate access to portions of
the Real Property, including portions of the common areas, or perform work in
the Building, which work may create noise, dust or leave debris in the Building.
Tenant hereby agrees that such Renovations and Landlord's actions in connection
with such Renovations shall in no way constitute a constructive eviction of
Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no
responsibility or for any reason be liable to Tenant for any direct or indirect
injury to or interference with Tenant's business arising from the Renovations,
nor shall Tenant be entitled to any compensation or damages from Landlord for
loss of the use of the whole or any part of the Premises or of Tenant's personal
property or improvements resulting from the Renovations or Landlord's actions in
connection with such Renovations, or for any inconvenience or annoyance
occasioned by such Renovations or Landlord's actions in connection with such
Renovations.
35
<PAGE>
29.32 No Discrimination. Tenant covenants by and for itself, its heirs,
-----------------
executors, administrators and assigns, and all persons claiming under or through
Tenant, and this Lease is made and accepted upon and subject to the following
conditions: that there shall be no discrimination against or segregation of any
person or group of persons, on account of race, color, creed, sex, religion,
marital status, ancestry or national origin in the leasing, subleasing,
transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any
person claiming under or through Tenant, establish or permit such practice or
practices of discrimination or segregation with reference to the selection,
location, number, use or occupancy, of tenants, lessees, sublessees, subtenants
or vendees in the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
Colony MB Partners, L.P.
By: Colony Advisors, Inc.
Its: Agent
By: /s/ George R. Bravante, Jr.
------------------------------
Its: George R. Bravante, Jr.
President
-----------------------
Date: June 19, 1995
-----------------------
"Tenant":
Tier Corporation
a California Corporation
By: /s/ William G. Barton
-----------------------
William G. Barton
Its: President
36
<PAGE>
EXHIBIT A
---------
URBAN WEST BUSINESS PARK
------------------------
1350 TREAT BOULEVARD, SUITE 250
WALNUT CREEK, CA 94596
TIER CORPORATION, INC. PREMISES
-------------------------------
6,175 RSF (5,508 USF)
OUTLINE OF FLOOR PLAN OF PREMISES
---------------------------------
/Sketch of Floor Plan/
1
<PAGE>
EXHIBIT B
---------
URBAN WEST BUSINESS PARK
------------------------
1350 TREAT BOULEVARD, SUITE 250
WALNUT CREEK, CA 94596
TENANT WORK LETTER
------------------
This Tenant Work Letter shall set forth the terms and conditions relating
to the construction of the tenant improvements in the Premises. This Tenant
Work Letter is essentially organized chronologically and addresses the issues of
the construction of the Premises, in sequence, as such issues will arise during
the actual construction of the Premises. All references in this Tenant Work
Letter to Articles or Sections of "this Lease" shall mean the relevant portion
of Articles 1 through 29 of the Office Lease to which this Tenant Work Letter is
attached as Exhibit B and of which this Tenant Work Letter forms a part, and all
references in this Tenant Work Letter to Sections of "this Tenant Work Letter"
shall mean the relevant portion of Sections 1 through 6 of this Tenant Work
Letter.
SECTION 1
---------
CONSTRUCTION DRAWINGS FOR THE PREMISES
--------------------------------------
Landlord shall construct the improvements in the Premises (the "Tenant
Improvements") pursuant to that certain (collectively, the "Approved Working
Drawings"). Tenant shall make no changes or modifications to the Approved
Working Drawings without the prior written consent of Landlord, which consent
may be withheld in Landlord's sole discretion if such change or modification
would directly or indirectly delay the "Substantial Completion," as that term is
defined in Section 5.1 of this Tenant Work Letter, of the Premises or increase
-----------
the cost of designing or constructing the Tenant Improvements.
SECTION 5
---------
COMPLETION OF THE TENANT IMPROVEMENTS;
--------------------------------------
LEASE COMMENCEMENT DATE
-----------------------
5.1 Ready for Occupancy. The Premises shall be deemed "Ready for
-------------------
Occupancy" upon the Substantial Completion of the Premises. For purposes of
this Lease, "Substantial Completion" of the Premises shall occur upon the
completion of construction of the Tenant Improvements in the Premises pursuant
to the Approved Working Drawings, with the exception of any punch list items and
any tenant fixtures, work-stations, built-in furniture, or equipment to be
installed by Tenant or under the supervision of Contractor.
5.2 Delay of the Substantial Completion of the Premises. Except as
---------------------------------------------------
provided in this Section 5.2, the Lease Commencement Date shall occur as set
-----------
forth in the Lease and Section 5.1,
-----------
1
<PAGE>
above. If there shall be a delay or there are delays in the Substantial
Completion of the Premises or in the occurrence of any of the other conditions
precedent to the Commencement Date, as set forth in of the Lease, as a direct,
indirect, partial, or total result of:
5.2.1 Tenant's failure to timely approve any matter requiring
Tenant's approval;
5.2.2 A breach by Tenant of the terms of this Tenant Work Letter or
the Lease;
5.2.3 Tenant's request for changes in the Approved Working Drawings;
5.2.4 Changes in any of the Approved Working Drawings because the
same do not comply with applicable laws;
5.2.5 Tenant's requirement for materials, components, finishes or
improvements which are not available in a commercially reasonable time given the
anticipated date of Substantial Completion of the Premises, as set forth in the
Lease, or which are different from, or not included in, Landlord's standard
improvement package items for the Building;
5.2.6 Changes to the base, shell and core work of the Building
required by the Approved Working Drawings; or
5.2.7 Any other acts or omissions of Tenant, or its agents, or
employees;
then, notwithstanding anything to the contrary set forth in the Lease or this
Tenant Work Letter and regardless of the actual date of the Substantial
Completion of the Premises, the Lease Commencement Date shall be deemed to be
the date the Lease Commencement Date would have occurred if no Tenant delay or
delays, as set forth above, had occurred.
SECTION 6
---------
MISCELLANEOUS
-------------
6.1 Tenant's Entry Into the Premises Prior to Substantial Completion.
----------------------------------------------------------------
Provided that Tenant and its agents do not interfere with Contractor's work in
the Building and the Premises, Contractor shall allow Tenant access to the
Premises prior to the Substantial Completion of the Premises for the purpose of
Tenant installing overstandard equipment or fixtures (including Tenant's data
and telephone equipment) in the Premises. Prior to Tenant's entry into the
Premises as permitted by the terms of this Section 6.1, Tenant shall submit a
-----------
schedule to Landlord and Contractor, for their approval, which schedule shall
detail the timing and purpose of Tenant's entry. Tenant shall hold Landlord
harmless from and indemnify, protect and defend Landlord against any loss or
damage to the Building or Premises and against injury to any persons caused by
Tenant's actions pursuant to this Section 6.1.
-----------
6.2 Freight Elevators. Landlord shall, consistent with its obligations to
-----------------
other tenants of the Building, make the freight elevator reasonably available to
Tenant in connection with initial decorating, furnishing and moving into the
Premises.
2
<PAGE>
6.3 Tenant's Representative. Tenant has designated
-----------------------
__________________________ as its sole representative with respect to the
matters set forth in this Tenant Work Letter, who, until further notice to
Landlord, shall have full authority and responsibility to act on behalf of the
Tenant as required in this Tenant Work Letter.
6.4 Landlord's Representative. Landlord has designated Maria Hatcher as
-------------------------
its sole representative with respect to the matters set forth in this Tenant
Work Letter who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Tenant Work
Letter.
6.5 Tenant's Agents. All subcontractors, laborers, materialmen, and
---------------
suppliers retained directly by Tenant shall all be union labor in compliance
with the then existing master labor agreements.
6.6 Time of the Essence in This Tenant Work Letter. Unless otherwise
----------------------------------------------
indicated, all references herein to a "number of days" shall mean and refer to
calendar days. In all instances where Tenant is required to approve or deliver
an item, if no written notice of approval is given or the item is not delivered
within the stated time period, at Landlord's sole option, at the end of such
period the item shall automatically be deemed approved or delivered by Tenant
and the next succeeding time period shall commence.
6.7 Tenant's Lease Default. Notwithstanding any provision to the contrary
----------------------
contained in this Lease, if an event of default as described in the Lease, or a
default by Tenant under this Tenant Work Letter, has occurred at any time on or
before the Substantial Completion of the Premises, then (i) in addition to all
other rights and remedies granted to Landlord pursuant to the Lease, Landlord
shall have the right to cause Contractor to cease the construction of the
Premises (in which case, Tenant shall be responsible for any delay in the
Substantial Completion of the Premises caused by such work stoppage as set forth
in Section 5 of this Tenant Work Letter), and (ii) all other obligations of
---------
Landlord under the terms of this Tenant Work Letter shall be forgiven until such
time as such default is cured pursuant to the terms of the Lease.
3
<PAGE>
EXHIBIT C
---------
URBAN WEST BUSINESS PARK
------------------------
1350 TREAT BOULEVARD
WALNUT CREEK, CA 94596
NOTICE OF LEASE TERM DATES
--------------------------
To: Mr. Bill Barton
Tier Corporation
1350 Treat Boulevard, Suite 250
Walnut Creek, CA 94596
Re: Office Lease dated June 3, 1995, between COLONY MB PARTNERS, L.P., By:
Colony Advisors, Inc. its Agent ("Landlord"), and Tier Corporation, Inc., a
California corporation ("Tenant") concerning Suite 250 on floor two (2) of the
Office Building located at 1350 Treat Boulevard, Walnut Creek, California.
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise you
and/or confirm as follows:
1. That the Premises are Ready for Occupancy, and that the Lease Term
shall commence as of _______________ for a term of _______________ ending on
_______________.
2. That in accordance with the Lease, Rent commenced to accrue on
_______________.
3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.
4. Rent is due and payable in advance on the first day of each and every
month during the Lease Term. Your rent checks should be made payable to
_______________ at _______________.
5. The exact number of rentable square feet within the Premises is
_______________ square feet.
6. Tenant's Share as adjusted based upon the exact number of rentable
square feet within the Premises is __________%.
1
<PAGE>
"Landlord":
COLONY MB PARTNERS, L.P.
By:
Its:
Agreed to and Accepted as of _______________, 19__
"Tenant":
TIER CORPORATION, INC.
By:
Its:
2
<PAGE>
EXHIBIT D
---------
URBAN WEST BUSINESS PARK
------------------------
1350 TREAT BOULEVARD
WALNUT CREEK, CA 94596
RULES AND REGULATIONS
---------------------
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Building.
1. Tenant shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the Premises without obtaining Landlord's
prior written consent. Tenant shall bear the cost of any lock changes or
repairs required by Tenant other than the original lock/key changes. Thirty
(30) keys to access premises and building will be furnished by Landlord for the
Premises, and any additional keys required by Tenant must be obtained from
Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all times
except for normal ingress and egress to the Premises, unless electrical hold
backs have been installed.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the vicinity of the Building. Tenant, its employees and agents
shall use their best effort to ensure that the doors to the Building are
securely closed and locked when leaving the Premises if it is after the normal
hours of business for the Building. Any tenant, its employees, agents or any
other persons entering or leaving the Building at any time when it is so locked,
or any time when it is considered to be after normal business hours for the
Building, may be required to sign the Building register when so doing. Access
to the Building may be refused unless the person seeking access has proper
identification or has a previously arranged pass for access to the Building.
The Landlord and his agents shall in no case be liable for damages for any error
with regard to the admission to or exclusion from the Building of any person.
In case of invasion, mob, riot, public excitement or other commotion, Landlord
reserves the right to prevent access to the Building during the continuance of
same by any means it deems appropriate for the safety and protection of life and
property.
4. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy property brought into the Building. Safes
and other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property in any case. All damage done to any part of the Building, its
contents, occupants or
1
<PAGE>
visitors by moving or maintaining any such safe or other property shall be the
sole responsibility of Tenant and any expense of said damage or injury shall be
borne by Tenant.
5. No furniture, freight, packages, supplies, equipment or merchandise
will be brought into or removed from the Building or carried up or down in the
elevators, except upon prior notice to Landlord, and in such manner, in such
specific elevator, and between such hours as shall be designated by Landlord.
Tenant shall provide Landlord with not less than 24 hours prior notice of the
need to utilize an elevator for any such purpose, so as to provide Landlord with
a reasonable period to schedule such use and to install such padding or take
such other actions or prescribe such procedures as are appropriate to protect
against damage to the elevators or other parts of the Building. In no event
shall Tenant's use of the elevators for any such purpose be permitted during the
hours of 7:00 a.m. - 9:00 a.m., 11:30 a.m.-1:30 p.m. and 4:30 p.m. - 6:30 p.m.,
Monday through Friday.
6. Landlord shall have the right to control and operate the public
portions of the Building, the public facilities, the heating and air
conditioning, and any other facilities furnished for the common use of tenants,
in such manner as is customary for comparable buildings in the vicinity of the
Building.
7. The requirements of Tenant will be attended to only upon application at
the Office of the Building or at such office location designated by Landlord.
Employees of Landlord shall not perform any work or do anything outside their
regular duties unless under special instructions from Landlord.
8. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate with Landlord or Landlord's agents to prevent same.
9. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who, or whose employees or agents, shall have
caused it.
10. Tenant shall not overload the floor of the Premises, nor mark, drive
nails or screws, or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof without Landlord's consent first had and
obtained. The Tenant may hang reasonable weight pictures and artifacts that
will not cause any permanent damage to wall surfaces.
11. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines of any description other
than fractional horsepower office machines shall be installed, maintained or
operated upon the Premises without the written consent of Landlord.
12. Tenant shall not use or keep in or on the Premises or the Building any
kerosene, gasoline or other inflammable or combustible fluid or material.
2
<PAGE>
13. Tenant shall not use any method of heating or air conditioning other
than that which may be supplied by Landlord, without the prior written consent
of Landlord.
14. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in or on the Premises, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors, or vibrations, or
interfere in any way with other Tenants or those having business therein.
15. Tenant shall not bring into or keep within the Building or the
Premises any animals, birds, bicycles or other vehicles.
16. No cooking shall be done or permitted by any tenant on the Premises,
nor shall the Premises be used for the storage of merchandise, for lodging or
for any improper, objectionable or immoral purposes. Notwithstanding the
foregoing, Underwriters' laboratory-approved equipment and microwave ovens may
be used in the Premises for heating food and brewing coffee, tea, hot chocolate
and similar beverages, provided that such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations, and does not cause odors which are objectionable to Landlord and
other Tenants.
17. Landlord will approve where and how telephone and telegraph wires are
to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
18. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
19. Tenant, its employees and agents shall not loiter in the entrances or
corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use the same only as a means ingress and egress for the
Premises.
20. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective operation
of the Building's heating and air conditioning system, and shall refrain from
attempting to adjust any controls. This includes the closing of exterior
blinds, disallowing the sun rays to shine directly into areas adjacent to
exterior windows.
21. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in the city
in which the Building is located without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provide for such purposes at such times as
Landlord shall designate.
3
<PAGE>
22. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
23. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed, when the Premises are not
occupied.
24. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules or Regulations against any or all tenants of the Building.
25. No awnings or other projection shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No curtains,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises without the prior written consent of
Landlord. All electrical ceiling fixtures hung in offices or spaces along the
perimeter of the Building must be fluorescent and/or of a quality, type, design
and bulb color approved by Landlord.
26. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels or other articles be placed on the windowsills.
27. The washing and/or detailing of or, the installation of windshields,
radios, telephones in or general work on, automobiles shall not be allowed on
the Real Property.
28. Food vendors shall be allowed in the Building upon receipt of a
written request from the Tenant. The food vendor shall service only the tenants
that have a written request on file in the Building Management Office, Under no
circumstance shall the food vendor display their products in a public or common
area including corridors and elevator lobbies. Any failure to comply with this
rule shall result in immediate permanent withdrawal of the vendor from the
Building.
29. Tenant must comply with requests by the Landlord concerning the
informing of their employees of items of importance to the Landlord.
30. Tenant shall comply with any non-smoking ordinance adopted by any
applicable governmental authority.
31. Landlord reserves the right at any time to reasonably and non-
discriminately change or rescind any one or more of these Rules and Regulations,
or to make such other and further reasonable Rules and Regulations as in
Landlord's judgment may from time to time be necessary for the management,
safety, care and cleanliness of the Premises and Building, and for the
preservation of good order therein, as well as for the convenience of other
occupants and tenants therein. Landlord shall not be responsible to Tenant or
to any other person for the nonobservance of the Rules and Regulations by
another tenant or other person so long as such
4
<PAGE>
action does not persist and effect Tenant's business. Tenant shall be deemed to
have read these Rules and Regulations and to have agreed to abide by them as a
condition of its occupancy of the Premises.
5
<PAGE>
EXHIBIT E
---------
URBAN WEST BUSINESS PARK
------------------------
1350 TREAT BOULEVARD
WALNUT CREEK, CA 94596
FORM OF TENANT'S ESTOPPEL CERTIFICATE
-------------------------------------
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of _______________, 19__ and between Colony MB
Partners, L.P. as Landlord, and the undersigned as Tenant, for Premises on the
_______________ floor(s) of the Office Building located at 1350 Treat Boulevard,
Walnut Creek, CA 94596 certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in
Exhibit A represent the entire agreement between the parties as to the Premises.
2. The undersigned has commenced occupancy of the Premises described in
the Lease, currently occupies the Premises, and the Lease Term commenced on
________________.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
5. Tenant shall not modify the documents contained in Exhibit A or prepay
any amounts owing under the Lease to Landlord in excess of thirty (30) days
without the prior written consent of Landlord's mortgagee.
6. Base Rent became payable on _________________________________________.
7. The Lease Term expires on ___________________________________________.
8. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and Landlord is not in
default thereunder.
9. No rental has been paid in advance and no security has been deposited
with Landlord except as provided in the Lease.
10. As of the date hereof, there are no existing defenses or offsets that
the undersigned has, which preclude enforcement of the Lease by Landlord.
1
<PAGE>
11. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through ________________. The current monthly installment of Base Rent is
$_______________.
12. The undersigned acknowledges that this Estoppel certificate may be
delivered to Landlord's prospective mortgagee, or a prospective purchaser, and
acknowledges that it recognizes that if same is done, said mortgagee,
prospective mortgagee, or prospective purchaser will be relying upon the
statements contained herein in making the loan or acquiring the property of
which the Premises are a part, and in accepting an assignment of the Lease as
collateral security, and that receipt by it of this certificate is a condition
of making of the loan or acquisition of such property.
13. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in the
state in which the Building is located and that Tenant has full right and
authority to execute and deliver this Estoppel Certificate and that each person
signing on behalf of Tenant is authorized to do so.
Executed at _______________ the _____ day of _______________, 19__.
"Tenant":
_______________________________________,
a _____________________________________
By: ___________________________________
Its: __________________________________
By: ___________________________________
Its: __________________________________
2
<PAGE>
FIRST AMENDMENT TO OFFICE LEASE
-------------------------------
THIS FIRST AMENDMENT TO OFFICE LEASE (this "Amendment"), made as of October
7, 1996, by and between TIER CORPORATION, a California corporation ("Tenant")
- -
and PERA URBAN WEST CORP., a Delaware corporation ("Landlord").
WHEREAS, Landlord's predecessor-in-interest and Tenant entered into that
certain Lease, dated as of June 3, 1995 (the "Lease"), with respect to certain
premises described in the Lease (the "Original Premises") in an office building
located at 1350 Treat Boulevard in Walnut Creek, California, known as Urban West
Business Park; and
WHEREAS, Section 15.1 of Article 1 of the Lease provides Tenant with a
right of first offer to lease approximately 1,206 rentable square feet
contiguous to the Original Premises, as shown on the floor plan attached hereto
as Exhibit A (the "Expansion Premises").
---------
WHEREAS, Tenant desires to exercise its right of first offer with respect
to the Expansion Premises and Landlord and Tenant desire to extend the term of
the Lease for the Original Premises and otherwise amend the Lease as hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the parties hereinafter set forth, it is hereby agreed that the
Lease shall be amended as follows:
A. Capitalized Terms. Capitalized terms used herein and not otherwise
-----------------
defined shall have the meanings given to such terms in the Lease.
B. Notices. Effective as of the date of this Amendment, Section 3 of
-------
Article 1 of the Lease is hereby amended in full as follows:
"3. Address of Landlord LaSalle Advisors Limited
(Section 29.19) 1225 17th Street, Suite 1650
Denver, Colorado 80202
With copy to: LaSalle Partners Management Limited
1350 Treat Boulevard, Suite 140
Walnut Creek, California 94596"
C. Leasing of Expansion Premises. Landlord hereby leases to Tenant and
-----------------------------
Tenant hereby hires from Landlord the Expansion Premises for the term, at the
rental and upon all of the conditions and agreements described herein. Unless
otherwise provided in this Amendment or required by the context of the Lease as
amended hereby, from and after the date Landlord delivers the Expansion Premises
to Tenant (the "Expansion Premises Commencement Date"), Tenant shall observe or
perform, with respect to the Expansion Premises, all obligations of Tenant
pursuant to the Lease with respect to the Original Premises. Effective as of
the Expansion Premises Commencement Date, the following Sections of the Summary
of Basic Lease Information of the Lease are hereby amended in full as follows:
1
<PAGE>
"6.1 Premises: Approximately 7,921 rentable
square feet of space
"6.3 First Offer Space: N/A
"7.1 Lease Term: Five (5) years and no months commencing
on the Expansion Premises Commencement
Date.
"7.3 Lease Expiration Date: The last day of the month in which the
fifth anniversary of the Expansion
Premises Commencement Date occurs.
"8. Base Rent (Article 3): The Base Rent shall be payable as
follows:
<TABLE>
<CAPTION>
Monthly Installment
of Base Rent Monthly Rental Rate
------------------- -------------------
<S> <C> <C>
Expansion Premises $14,378.40 $1.80/rsf for 6,715 rsf
Commencement Date through
August 4, 2000 $1.90/rsf for 1,206 rsf
August 5, 2000 through $15,049.90 $1.90/rsf for 7,921 rsf
Lease Expiration Date
</TABLE>
"9.1 Base Year: Calendar year 1995 for the Original
Premises;
Calendar year 1996 for the Expansion
Premises
"9.2 Tenant's Share Approximately 5.62% for the Original
of Direct Expenses Premises; Approximately 1.005% for the
Expansion Premises
"12. Number of Parking Passes Twenty-five (25) non-assigned spaces at
a cost of $12.50 per month, per space.
"15.1 Terms for Right of N/A"
First Offer Space
D. Free Rent. Notwithstanding anything to the contrary in Section 8 of
---------
the Summary of Basic Lease Information of the Lease, as amended in Paragraph C
above, Base Rent shall be abated on the Expansion Premises only for the first
two (2) months after the Expansion Premises Commencement Date.
E. Expansion Premises Commencement Date. At any time during the Lease
------------------------------------
Term, Landlord may deliver to Tenant a notice identifying the Expansion Premises
Commencement Date and the Lease Expiration Date in the form as set forth in
Exhibit B attached hereto, which notice Tenant shall execute and return to
- ---------
Landlord within five (5) days of receipt thereof. All references in the Lease
(including the Exhibits thereto) to the "Lease Commencement Date" shall, with
respect to the Expansion Premises, be deemed to refer to the Expansion Premises
Commencement Date.
2
<PAGE>
F. Tenant Improvements. Landlord agrees to construct in the Expansion
-------------------
Premises building standard tenant improvements in accordance with the working
drawings (the "Working Drawings') prepared by Interform, Inc. dated
______________, 1996, which have been approved by Landlord and Tenant
("Landlord's Work"). Landlord shall have no responsibility, either as to
performance or payment of costs, to perform any other work in, or remodel or
renovate, the Expansion Premises for Tenant's use. In all other respects, the
terms and conditions set forth in Exhibit B to the Lease shall apply to
Landlord's Work, except that the term "Approved Working Drawings" therein shall
be deemed to refer to the Working Drawings, the term "Tenant Improvements"
therein shall be deemed to refer to Landlord's Work, the term "Premises" therein
shall be deemed to refer to the Expansion Premises, and the references to
Tenant's representative and Landlord's representative shall be deemed deleted.
G. Corrections.
-----------
(i) The third sentence of Section 1.1 of the Lease is hereby amended in
full to read as follows: "The Premises are part of the Building (the
"Building") located at 1350 Treat Boulevard, Walnut Creek, CA 94596."
(ii) Section 23.2 of the Lease is hereby amended in full to read as
follows: "23.2 Building Directory. Tenant shall be entitled to one (1)
------------------
line on the Building directory to display Tenant's name and location in the
Building."
H. Floor Plan. Exhibit A to the Lease shall be amended to include
---------- ---------
therein the depiction of the Expansion Premises attached to this Amendment as
Exhibit A.
- ---------
I. Counterparts. This Amendment may be executed in several counterparts,
------------
each of which shall be deemed an original, but all of which shall constitute one
and the same document.
J. Effectiveness. This Amendment shall be effective as of the date of
-------------
this Amendment. Except as amended by this Amendment, the Lease shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
3
<PAGE>
"Tenant": "Landlord":
TIER CORPORATION PERA URBAN WEST CORP.,
a California corporation a Delaware corporation
By: /s/ James L. Bildner By: LaSALLE ADVISORS LIMITED,
------------------------- a Delaware limited partnership, Advisor
Name: James L. Bildner to Public Employees' Retirement
---------------- Association of Colorado, the sole
Its: Chairman & CEO stockholder of PERA URBAN WEST CORP.
-----------------
By: /s/ James P. Creighton
----------------------
Name: James P. Creighton
-------------------
Its: Principal
---------
4
<PAGE>
Exhibit A
---------
/Map/
1
<PAGE>
EXHIBIT B
---------
VERIFICATION OF TERM AND BASE RENT
----------------------------------
RE: Lease dated ____________, as amended ______________, between PERA URBAN WEST
CORP., ("Landlord") and _______________, a ____________ ("Tenant"), for Premises
located at _________________, Suite _____, City of Walnut Creek, California.
Tenant hereby verifies that the dates and amounts stated below are correct and
further acknowledges and accepts possession of the Premises.
Premises:
_______________ square feet, more or less
Expansion Premises Commencement Date: ______________________________
Lease Expiration Date: ______________________________
Base Rent as of Expansion Premises ______________________________
Commencement Date:
TENANT LANDLORD:
PERA URBAN WEST CORP.,
By:_________________________ a Delaware corporation
Name:_______________________
Its:________________________ By: LaSALLE ADVISORS LIMITED,
a Delaware limited partnership,
Employees' Retirement Association of
Colorado, the sole stockholder of PERA
URBAN WEST CORP.
By:___________________________
Name:_________________________
Its:__________________________
Executed this __ day of Executed this __ day of
___________________, 199_ ___________________, 199_
1
<PAGE>
SECOND AMENDMENT TO OFFICE LEASE
--------------------------------
THIS SECOND AMENDMENT TO OFFICE LEASE (this "Amendment"), made as of
July 29, 1997, by and between a California corporation ("Tenant") and PERA URBAN
WEST CORP., a Delaware corporation ("Landlord").
WHEREAS, Landlord's predecessor-in-interest and Tenant entered into that
certain Lease, dated as of June 3, 1995 as amended by that certain First
Amendment to Lease, dated October 7, 1996 (as so amended, the "Lease"), with
respect to certain premises described in the Lease (the "Original Premises") in
an office building located at 1350 Treat Boulevard in Walnut Creek, California,
known as Urban West Business Park; and
WHEREAS, Tenant desires to further expand the Original Premises to include
approximately 1,824 rentable square feet contiguous to the Original Premises, as
shown on the floor plan attached hereto as Exhibit A (the "Additional Premises")
---------
and Landlord and Tenant desire to otherwise amend the Lease as hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the parties hereinafter set forth, it is hereby agreed that the
Lease shall be amended as follows:
A. Capitalized Terms. Capitalized terms used herein and not otherwise
-----------------
defined shall have the meanings given to such terms in the Lease.
B. Leasing of Additional Premises. Landlord hereby leases to Tenant and
------------------------------
Tenant hereby hires from Landlord the Additional Premises for the term, at the
rental and upon all of the conditions and agreements described herein. Unless
otherwise provided in this Amendment or required by the context of the Lease as
amended hereby, from and after the first to occur of September 1, 1997 or the
date Landlord delivers the Additional Premises to Tenant (the "Additional
Premises Commencement Date"), Tenant shall observe or perform, with respect to
the Additional Premises, all obligations of Tenant pursuant to the Lease with
respect to the Original Premises. All references in the Lease (including the
Exhibits thereto) to the "Lease Commencement Date" shall, with respect to the
Additional Premises, be deemed to refer to the Additional Premises Commencement
Date.
C. Summary of Basic Lease Information. Effective as of the Additional
----------------------------------
Premises Commencement Date, the following Sections of the Summary of Basic Lease
Information of the Lease are hereby amended in full as follows:
"6.1 Premises: Approximately 9,745 rentable square feet of space
"7.3 Lease Expiration Date: November 30, 2001
"8. Base Rent (Article 3): The Base Rent shall be payable as follows:
<PAGE>
<TABLE>
<CAPTION>
Monthly Installment of Base Rent Monthly Rental Rate
-------------------------------- -------------------
<S> <C> <C>
Additional Premises $18,026.40 $1.80/rsf for 6,715 rsf
Commencement Date $1.90/rsf for 1,206 rsf
through August 4, 2000 $2.00/rsf for 1,824 rsf
August 5, 2000 through $18,697.90 $1.90/rsf for 7,921 rsf
Lease Expiration Date $2.00/rsf for 1,824 rsf
</TABLE>
"9.1 Base Year: Calendar year 1995 for the Original Premises
Calendar year 1996 for the Expansion Premises
Calendar year 1997 for the Additional Premises
"9.2 Tenant's Share Approximately 5.62% for the Original Premises
of Direct Expenses Approximately 1.005% for the Expansion Premises
Approximately 1.53% for the Additional Premises
"12. Number of Parking Passes Twenty-five (25) non-assigned spaces at a cost
of $12.50 per month, per space; Five (5) non-
assigned spaces at a cost of $25.00 per month,
per space
D. Remodeling of Additional Premises. Landlord shall cause to be
---------------------------------
performed remodeling work in the Additional Premises in accordance with a space
plan for the Additional Premises acceptable to Landlord and Tenant (the
"Additional Premises Remodeling"). The terms and conditions set forth in
Exhibit B to the Lease shall apply to the Additional Premises Remodeling, except
- ---------
that the term "Approved Working Drawings" therein shall be deemed to refer to
the space plan and any related drawings specifying the Additional Premises
Remodeling, the term "Tenant Improvements" therein shall be deemed to refer to
Additional Premises Remodeling, the term "Premises" therein shall be deemed to
refer to the Additional Premises, and the references to Tenant's representative
and Landlord's representative shall be deemed deleted. Landlord shall pay up to
$3,648.00 in respect of the Additional Premises Remodeling. Other than such
remodeling, the Additional Premises shall be delivered to Tenant in their "AS-
IS" condition, and Landlord shall have no obligation to alter or remodel the
same for occupancy by Tenant.
E. Responsibilities of Tenant. Tenant shall pay or reimburse Landlord,
--------------------------
as additional rental under the Lease, for the excess over $3,648.00 of the costs
and expenses incurred in connection with the Additional Premises Remodeling,
including the fees and costs incurred in connection with space planning
therefor. Tenant shall, at Landlord's request, advance to Landlord the amount
of any anticipated costs and expenses in excess of such amount, prior to
commencement of the Additional Premises Remodeling.
F. Floor Plan. Exhibit A to the Lease shall be amended to include
---------- ---------
therein the depiction of the Additional Premises attached to this Amendment as
Exhibit A.
- ---------
2
<PAGE>
G. Counterparts. This Amendment may be executed in several counterparts,
------------
each of which shall be deemed an original, but all of which shall constitute one
and the same document.
H. Effectiveness. This Amendment shall be effective as of the date of
-------------
this Amendment. Except as amended by this Amendment, the Lease shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
"Tenant": "Landlord":
TIER CORPORATION, PERA URBAN WEST CORP.,
a California corporation a Delaware corporation
By: /s/ John W. Reasner By: LaSALLE ADVISORS LIMITED,
------------------------------ a Delaware limited partnership,
Name: John W. Reasner Employees' Retirement Association of
---------------------------- Colorado, the sole stockholder of
Its: V.P. Human Resources PERA URBAN WEST CORP.
----------------------------
By: /s/ Kathryn G. Spritzer
------------------------------------
Name: Kathryn G. Spritzer
-----------------------------------
Its: Vice President
------------------------------------
3
<PAGE>
EXHIBIT A
---------
FLOOR PLAN FOR SECOND FLOOR
URBAN WEST BUSINESS PARK
------------------------
[MAP OF FLOOR PLAN]
4
<PAGE>
Exhibit 10.24
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made and entered into
as of the _____ day of _______________, 19__ by and between Tier Technologies,
Inc., a California corporation (the "Corporation"), and _______________
("Indemnitee").
RECITALS
--------
WHEREAS, Indemnitee performs valuable services for the Corporation in
Indemnitee's capacity as a _______________ of the Corporation;
WHEREAS, the shareholders of the Corporation have adopted provisions in the
Amended and Restated Articles of Incorporation (the "Articles") and the Amended
and Restated Bylaws (the "Bylaws") permitting or providing for the
indemnification of the directors, executive officers, officers, employees, and
other agents of the Corporation, including persons serving at the request of the
Corporation in such capacities with other corporations or enterprises, as
authorized by the California General Corporation Law, as amended (the "Code");
WHEREAS, the Articles, the Bylaws, and the Code, by their non-exclusive
nature, permit contracts between the Corporation and its directors, executive
officers, officers, employees, and other agents with respect to indemnification
of such persons; and
WHEREAS, in order to induce Indemnitee to continue to serve as a
_______________ of the Corporation, the Corporation has determined and agreed to
enter into this Agreement with Indemnitee.
AGREEMENT
---------
NOW, THEREFORE, in consideration of Indemnitee's continued service as a
_______________ after the date hereof, the parties hereto agree as follows:
1. Services to the Corporation. Indemnitee will serve, at the will of the
---------------------------
Corporation or under separate contract, if any such contract exists, as a
_______________ of the Corporation or an affiliate of the Corporation (including
any employee benefit plan of the Corporation) faithfully and to the best of
Indemnitee's ability so long as he or she is duly elected and qualified in
accordance with the provisions of the Bylaws or other applicable charter
documents of the Corporation or such affiliate; provided, however, that
Indemnitee may at any time and for any reason resign from such position (subject
to any contractual obligation that Indemnitee may have assumed apart from this
Agreement) and that the Corporation or any affiliate shall have no obligation
under this Agreement to continue Indemnitee in any such position.
2. Indemnity. Subject to a determination pursuant to Section 8 hereof,
---------
the Corporation hereby agrees to hold harmless and indemnify Indemnitee:
a. against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement, and any other
amounts that
1
<PAGE>
Indemnitee becomes legally obligated to pay because of any claim or claims made
against or by him or her in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Indemnitee is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Indemnitee is, was or
at any time becomes a director, executive officer, officer, employee, or other
agent of the Corporation, or is or was serving or at any time serves at the
request of the Corporation as a director, executive officer, officer, employee,
or other agent of another corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise; and
b. otherwise to the fullest extent not prohibited by the Articles,
the Bylaws, or the Code.
3. Limitations on Additional Indemnity. To the extent that any of the
-----------------------------------
matters set forth in subsections (a) through (l) of this Section 3 are
successfully established by the Corporation as defenses in accordance with the
provisions of Section 9 hereof, no indemnity pursuant to Section 2(a) hereof
will be payable by the Corporation:
a. on account of any claim against Indemnitee for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state, or local statutory law;
b. on account of Indemnitee's conduct from which Indemnitee derived
an improper personal benefit;
c. on account of Indemnitee's conduct that he or she believed to be
contrary to the best interests of the Corporation or its shareholders or that
involved the absence of good faith on the part of Indemnitee;
d. on account of Indemnitee's conduct that constituted intentional
misconduct or a knowing and culpable violation of law;
e. on account of Indemnitee's conduct that showed a reckless
disregard for the Indemnitee's duty to the Corporation or its shareholders in
circumstances in which Indemnitee was aware, or should have been aware, in the
ordinary course of performing his or her duties, of a risk of serious injury to
the Corporation or its shareholders;
f. on account of Indemnitee's conduct that constituted an unexcused
pattern of inattention that amounted to an abdication of the Indemnitee's duty
to the Corporation or its shareholders;
g. on account of Indemnitee's conduct which constituted a violation
of the Indemnitee's duties under Section 310 or Section 316 of the Code;
2
<PAGE>
h. for which payment is actually made to Indemnitee under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw, or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw, or agreement;
i. if indemnification is not lawful (and, in this respect, both the
Corporation and Indemnitee have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication);
j. in connection with any proceeding (or part thereof) initiated by
Indemnitee, or any proceeding by Indemnitee against the Corporation or its
directors, executive officers, officers, employees, or other agents, unless (i)
such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the Corporation, (iii)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 9 hereof;
k. with respect to any action by or in the right of the Corporation:
i. if the Indemnitee is adjudged to be liable to the
Corporation in performance of the Indemnitee's duty to the Corporation and its
shareholders, unless and only to the extent that the court in which such action
is or was pending shall determine upon application that, in view of all of the
circumstances of the case, the Indemnitee is fairly and reasonably entitled to
indemnity for expenses, and then only to the extent that the court shall
determine;
ii. for expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval; or
iii. for amounts paid in settling or otherwise disposing of a
pending action without court approval; and
l. to the extent, and only to the extent, that indemnification with
respect to such action (i) would be inconsistent with the Articles or Bylaws, or
a resolution of the shareholders or agreement of the Corporation prohibiting or
otherwise limiting such indemnification and in effect at the time of the accrual
of the action or (ii) would be inconsistent with any condition expressly imposed
by a court in approving a settlement, unless Indemnitee has been successful on
the merits or unless the indemnification has been approved by the shareholders
of the corporation in accordance with Section 153 of the Code (with the shares
of the Indemnitee not being entitled to vote thereon).
4. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Corporation contained herein shall continue during the period Indemnitee is a
director, executive officer, officer, employee, or other agent of the
corporation (or is serving or had served at the request of the Corporation as a
director, executive officer, officer, employee, or other agent of another
3
<PAGE>
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise) and shall continue thereafter so long as Indemnitee shall be subject
to any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal, arbitrational, administrative or
investigative, by reason of the fact that Indemnitee had served in the capacity
referred to herein.
5. Partial Indemnification. Indemnitee shall be entitled under this
-----------------------
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement, and any other amounts that Indemnitee becomes legally
obligated to pay in connection with any action, suit, or proceeding referred to
in Section 2 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled.
6. Notification and Defense of Claim. Not later than thirty (30) days
---------------------------------
after receipt by Indemnitee of notice of the commencement of any action, suit,
or proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Corporation under this Agreement, notify the Corporation of the
commencement thereof, but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Indemnitee otherwise than
under this Agreement. With respect to any such action, suit, or proceeding as
to which Indemnitee notifies the Corporation of the commencement thereof:
a. the Corporation will be entitled to participate therein at its own
expense;
b. except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation to
Indemnitee of its election to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof
except for reasonable costs of investigation or otherwise as provided below.
Indemnitee shall have the right to employ separate counsel in such action, suit,
or proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Corporation, (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
Indemnitee in the conduct of the defense of such action, or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of Indemnitee's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit, or proceeding
brought by or on behalf of the Corporation or as to which Indemnitee shall have
made the conclusion provided for in clause (ii) above; and
c. the Corporation shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle
4
<PAGE>
any action except that it shall not settle any action or claim in any manner
which would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent, which may be given or withheld in Indemnitee's sole discretion.
7. Expenses. The Corporation shall advance, prior to the final
--------
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Indemnitee in connection with such proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay said amounts if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified under
the provisions of this Agreement, the Articles, the Bylaws, the Code, or
otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant
to Section 8, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board of Directors by a majority vote of a
quorum consisting of directors who are not parties to the proceeding (or, if no
such quorum exists, by independent legal counsel in a written opinion) that the
facts known to the decision-making party at the time such determination is made
demonstrate clearly and convincingly that the Indemnitee acted in bad faith or
in a manner that the Indemnitee did not believe to be in the best interests of
the Corporation and its shareholders.
8. Determination by the Corporation. To the extent required by the Code,
--------------------------------
promptly after receipt of a request for indemnification hereunder made by
Indemnitee (and in any event within 90 days), the Corporation shall make a
reasonable, good faith determination as to whether indemnification of Indemnitee
is proper under the Code by means of:
a. a majority vote of a quorum consisting of directors who are not
parties to such proceeding;
b. if such quorum is not obtainable, by independent legal counsel in
a written opinion; or
c. approval or ratification by the affirmative vote of a majority of
the shares of the Corporation represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also constitute at
least a majority of the required quorum) or by written consent of a majority of
the outstanding shares entitled to vote; where in each case the shares owned by
the person to be indemnified shall not be considered entitled to vote thereon.
Such determination shall be reasonably made in good faith by the decision-
making party based upon the facts known to the decision-making party at the time
such determination is made.
9. Enforcement. Any right to indemnification or advances granted by this
-----------
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
the forum in which the proceeding is or was pending, or, if such forum is not
available or a determination is made that such forum is not convenient, in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Indemnitee, in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also the
expense of prosecuting his or her claim. The Corporation shall be entitled to
raise by pleading as an affirmative defense to any
5
<PAGE>
action for which a claim for indemnification is made under Section 2 hereof that
Indemnitee is not entitled to indemnification because of the limitations set
forth in Section 3 hereof. Neither the failure of the Corporation (including its
Board of Directors, its shareholders, or independent legal counsel) to have made
a determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors, its
shareholders, or independent legal counsel) that such indemnification is
improper shall be a defense to the action or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement or otherwise.
10. Subrogation. In the event of payment under this Agreement, the
-----------
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on Indemnitee by this
-------------------------
Agreement shall not be exclusive of any other right which Indemnitee may have or
hereafter acquire under any statute, provision of the Articles or Bylaws,
agreement, vote of shareholders or directors, or otherwise, both as to action in
his or her official capacity and as to action in another capacity while holding
office.
12. Survival of Rights.
------------------
a. The rights conferred on Indemnitee by this Agreement shall
continue after Indemnitee has ceased to be a director, executive officer,
officer, employee, or other agent of the Corporation or to serve at the request
of the Corporation as a director, executive officer, officer, employee, or other
agent of another corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise and shall inure to the benefit of Indemnitee's
heirs, executors, and administrators.
b. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. Separability. Each of the provisions of this Agreement is a separate
------------
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Articles, the Bylaws, the Code,
or any other applicable law.
14. Governing Law. This Agreement shall be interpreted and enforced in
-------------
accordance with the laws of the State of California.
6
<PAGE>
15. Amendment and Termination. No amendment, modification, termination,
-------------------------
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. Identical Counterparts. This Agreement may be executed in one or more
----------------------
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. Headings. The headings of the sections of this Agreement are inserted
--------
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or, (ii) upon the next business day after delivery by facsimile, or
(iii) if delivered by nationally-recognized courier company under circumstances
wherein such courier company guarantees next business day delivery, then on the
next business day following the day of delivery of the notice to the courier
company.
a. if to Indemnitee, at the address indicated below his or her
signature hereunder.
b. if to the Corporation, to
Tier Technologies, Inc.
1350 Treat Boulevard, Suite 250
Walnut Creek, CA 94596
Attention: _________________
or to such other address as may have been furnished to Indemnitee by the
Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"CORPORATION"
TIER TECHNOLOGIES, INC.
By:
Its:
-----------------------------------
7
<PAGE>
"INDEMNITEE"
---------------------------------------
(signature)
---------------------------------------
(print or type name)
ADDRESS
---------------------------------------
----------------------
8
<PAGE>
Exhibit 10.25
TIER CORPORATION 401(k) PLAN
SUMMARY PLAN DESCRIPTION
------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION........................................................................................ 1
PLAN TYPE........................................................................................... 1
1. What is a 401(k) and Profit Sharing Plan?................................................. 1
PLAN PARTICIPATION.................................................................................. 1
2. Are all employees eligible to participate in the Plan?.................................... 1
3. What are the requirements for participation in the Plan?.................................. 1
4. When will I become a Participant in the Plan?............................................. 1
5. What happens if I leave my job and then I am re-employed by my Employer?.................. 2
PLAN CONTRIBUTIONS.................................................................................. 2
6. Am I required to contribute to the Plan?.................................................. 2
7. May I voluntarily contribute to the Plan?................................................. 2
8. How can I request that my Employer make Elective Deferrals to the Plan on my behalf?...... 3
9. Can I change the amount of my Elective Deferrals to the Plan?............................. 3
10. Are there legal limits on my Elective Deferrals?.......................................... 4
11. Aside from Elective Deferrals, will my Employer make other types of contributions to
the Plan?................................................................................ 4
12. What are Employer Matching Contributions?................................................. 4
13. Are there legal limits on Matching Contributions?......................................... 5
14. What are Profit Sharing Contributions?.................................................... 5
15. Must I meet any special requirements in order to share in Profit Sharing Contributions?... 5
16. How will my share of a Profit Sharing Contribution be determined?......................... 6
17. What are Qualified Matching Contributions?................................................ 6
18. What are Qualified Non-Elective Contributions?............................................ 6
19. Am I entitled to any minimum contribution?................................................ 6
20. Who is responsible for accounting to me for my benefits in the Plan?...................... 7
21. Will I receive all the funds in my Account when I leave employment?....................... 7
22. Can I lose all or part of my Account?..................................................... 8
DISTRIBUTION OF BENEFITS............................................................................ 9
23. How do I become entitled to receive a distribution from the Plan?......................... 9
24. When will my benefit distribution occur?.................................................. 9
25. What if I want to postpone distribution of my benefits?................................... 9
26. May I assign or pledge my interest in the Plan?........................................... 10
27. Who is entitled to receive my Account if I die before it is distributed?.................. 10
28. How will my benefits be distributed?...................................................... 10
29. How will my benefits be taxed?............................................................ 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
INVESTMENT OF PLAN ASSETS........................................................................... 11
30. How are contributions to the Plan invested?............................................... 11
WITHDRAWALS AND LOANS............................................................................... 11
31. Is any of my Account available to me while I am still working for the Employer?........... 11
32. Are loans available to Participants under the Plan?....................................... 12
CLAIMS PROCEDURES................................................................................... 13
33. How may I file a claim for benefits?...................................................... 13
ADDITIONAL INFORMATION.............................................................................. 13
34. May changes be made to the Plan?.......................................................... 13
35. Who has the authority to make decisions in connection with the Plan?...................... 13
36. Are there limitations on my rights under the Plan?........................................ 13
37. Are my benefits guaranteed by the Pension Benefit Guaranty Corporation (PBGC)?............ 13
38. Do I have legal rights as a Participant in the Plan?...................................... 14
</TABLE>
ii
<PAGE>
Name of Plan: Tier Corporation 401(K) Plan
Employer: Tier Corporation
1350 Treat Boulevard, #250
Walnut Creek, CA 94596
(510) 937-3950
Plan Administrator: Retirement Committee (or Name)
c/o Tier Corporation
1350 Treat Boulevard, #250
Walnut Creek, CA 94596
(510) 937-3950
Employer's Federal Tax 94-3145844
Identification Number:
Plan Number: 001
Plan Year Begins: January 1
Plan Year Ends: December 31
Plan Effective Date: January 1, 1997
This Plan replaces an existing
plan, originally effective
March 1, 1995.
Trustee: Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
Agent for Service of Legal Process: Retirement Committee
c/o Tier Corporation
1350 Treat Boulevard, #250
Walnut Creek, CA 94596
Service of legal process may
also be made upon the Plan
Administrator or the Trustee
iii
<PAGE>
INTRODUCTION
This is a general summary of the Tier Corporation 401(k) Plan, a Putnam
prototype retirement plan that has been adopted by your Employer. The Plan is
designed to allow you to save for your retirement on a tax-deferred basis by
making a salary reduction agreement with your Employer to provide you with the
opportunity to share in your Employer's contributions to the Plan.
This summary highlights the most important provisions of the Plan, but it is not
the complete Plan. In case of any difference between this summary and the Plan,
the provisions of the Plan will control. A copy of the complete Plan is
available for inspection at your Employer's office.
PLAN TYPE
1. What is a 401(k) and Profit Sharing Plan?
A 401(k) Plan is a deferred compensation plan designed to allow you to save
for your retirement on a tax-deferred basis by entering into a salary
reduction agreement with your Employer.
A Profit Sharing Plan is a deferred compensation plan designed to provide
retirement income and other benefits. Your Employer may make contributions
under a formula providing for contributions as defined in the Plan. Your
Employer is not required to have current and accumulated profits in order
to contribute.
All contributions under the Plan will be held in a Trust Fund. A separate
Account will be established to record your share of the amount held in the
Trust Fund.
PLAN PARTICIPATION
2. Are all employees eligible to participate in the Plan?
All employees of the Employer are eligible to participate in the Plan
except members of collective bargaining units and nonresident aliens with
no U.S. source income.
3. What are the requirements for participation in the Plan?
You will begin to participate in the Plan after you have reached age 21.
4. When will I become a Participant in the Plan?
If you were a Participant in a Plan of the Employer on the day before the
Effective Date, you automatically continue to participate in the Plan.
Otherwise, you will begin to participate in the Plan on the month following
the date you fulfill the requirement.
If you are a member of an ineligible group of employees when you satisfy
the eligibility requirements, you will become a Participant on the date
when you change to an eligible group.
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5. What happens if I leave my job and then I am re-employed by my Employer?
If you were not a Participant in the Plan before you left your job, you
must satisfy the eligibility requirements described in Questions 2 and 3
before you can participate in the Plan after your re-employment. If you
were a Participant in the Plan before you left your job, and some portion
of your Contribution Account and Employer Matching Account had become
vested (see Question 21), you will become a Participant again as soon as
you become a member of an eligible group of employees of the Employer.
If you were a Participant in the Plan before you left your job, but no
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portion of your Employer Contribution Account and Employer Matching Account
had become vested (see Question 21), you will become a Participant again
when you become a member of an eligible group of employees of the Employer
only if your time away from the Employer did not extend for five
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consecutive One-Year Eligibility Breaks. A One-Year Eligibility Break is a
period of 12 consecutive months, starting on your first day of work or any
anniversary of that day, in which you are credited with not more than 500
Hours of Service. If you return to work with the Employer after you have
five consecutive One-Year Eligibility Breaks, you will be considered a new
employee.
PLAN CONTRIBUTIONS
6. Am I required to contribute to the Plan?
You are not required to contribute to the Plan. You will be eligible to
share in Profit Sharing Contributions made by the Employer whether or not
you contribute. However, you will receive Employer Matching Contributions
under the Plan only if you contribute.
7. May I voluntarily contribute to the Plan?
You may save for your retirement on a tax-deferred basis by requesting that
your Employer make Elective Deferrals to the Plan on your behalf through
payroll deductions. The amount you choose to have contributed as an
Elective Deferral reduces the amount of compensation on which you must pay
federal income tax. However, in order to make Elective Deferrals under the
Plan, you are required to make a minimum Elective Deferral of 3% of your
Earnings.
You may only make Elective Deferrals to the Plan. You may not make
voluntary after-tax contributions. Any after-tax contributions you made in
prior Plan Years will remain in the Plan until they are distributed or
withdrawn. Your voluntary after-tax contributions will be accounted for
separately from employer contributions, and the earnings on these
contributions will not be taxed until they are distributed or withdrawn.
If you are in a group of employees eligible to participate in the Plan, you
may contribute to the Plan as a "rollover" contribution certain amounts
distributed to you from another employer's qualified retirement plan. You
do not have to satisfy the Plan's age and
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service requirements before you make a rollover contribution. Amounts so
contributed will be credited to a Rollover Account for your benefit.
8. How can I request that my Employer make Elective Deferrals to the Plan on
my behalf?
You can arrange to make Elective Deferrals to the Plan by entering into a
salary reduction agreement with your Employer. The amount you designate in
your salary reduction agreement will be contributed by your Employer to the
Plan as an Elective Deferral on your behalf.
You may enter into a salary reduction agreement effective as of the first
business day of each month.
You will be required to make a minimum Elective Deferral if you want to
make Elective Deferrals under the Plan. The minimum Elective Deferral is
3% of your Earnings.
In your salary reduction agreement, you can elect to reduce your pay by an
amount up to 15% of your Earnings for the Plan Year.
You may not separately elect to have separate Elective Deferrals taken out
of cash bonuses you receive from your Employer.
For purposes of determining the amount and allocation of Elective Deferrals
and Employer Matching Contributions under the Plan, your Earnings include
the first $160,000 (for 1997) of Form W-2 earnings as defined in section
2.8 of the Plan and any amounts you contribute to a 401(k) plan, Section
125 plan, Section 403(b) plan, SARSEP, Section 457 plan or Section
414(h)(2) plan.
Compensation is based on what you earn during the Plan Year. However, for
your initial year of participation in the Plan, compensation is recognized
from the date you enter the Plan.
The $160,000 limit on compensation will be adjusted periodically to reflect
charges in the cost of living. This limit is also applied to certain
highly compensated employees and their family members as if they were a
single Participant. If you or a member of your family is affected by this
rule, ask the Plan Administrator for further details. For any short plan
year, the $160,000 limit will be prorated based upon the number of full
months in the short Plan Year.
9. Can I change the amount of my Elective Deferrals to the Plan?
Once you enter into a salary reduction agreement with your Employer, you
can change the amount of Elective Deferrals being made on your behalf by
entering into a new salary reduction agreement effective as of any date
listed in Question 8. You can stop Elective
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Deferrals altogether at any time by terminating your salary reduction
agreement with your Employer, effective as soon as administratively
feasible.
10. Are there legal limits on my Elective Deferrals?
There are legal limits on the amount of Elective Deferrals that may be made
to the Plan on your behalf. First, the total amount of Elective Deferrals
that can be made during any calendar year, to this Plan and any other
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401(k) plan in which you participate, is $9,500 for 1996 and for 1997.
(This figure is adjusted periodically for inflation.) If you exceed this
limit in any calendar year, you can request that the excess amount be
returned to you from this Plan. To do so, you must notify your Employer
that you made excess Elective Deferrals during the calendar year, and
specify the amount of excess Elective Deferrals to be distributed from this
Plan. Your Employer must receive your notice no later than March 15
following the end of the calendar year in which you contributed the excess
amount. The amount of your excess Elective Deferrals, adjusted for income
or loss, will be returned to you by April 15.
A second limitation applies only to certain highly-paid Participants. The
maximum amount of Elective Deferrals that may be made on behalf of those
Participants in any Plan Year depends on the amount of Elective Deferrals
made for all other Plan Participants for the Plan Year. If the Elective
Deferrals for any highly-paid Participant exceed this limit during any Plan
Year, then the excess Elective Deferrals (adjusted for income or loss) will
be returned to the highly-paid Participant by the last day of the following
Plan Year.
If you are or have ever been a Participant in another Qualified Plan
maintained by your Employer, certain limitations may apply to allocations
under this Plan. If these limitations apply to you, your Employer will
contact you.
11. Aside from Elective Deferrals, will my Employer make other types of
contributions to the Plan?
Yes, your Employer may also make the following contributions to the Plan:
a. Employer Matching Contributions.
b. Profit Sharing Contributions.
c. Qualified Matching Contributions.
d. Qualified Non-Elective Contributions.
12. What are Employer Matching Contributions?
Your Employer may make Employer Matching Contributions to the Plan on
behalf of all Qualified Participants.
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The amount of Employer Matching contributions for each eligible Participant
will be a variable amount, selected by the Employer, of the Participant's
Elective Deferrals for the Plan Year.
To be a Qualified Participant eligible to receive Employer Matching
Contributions for a Plan Year, an Employee must either be employed on the
last day of the Plan Year, complete more than 500 Hours of Service in the
Plan Year, retire, die or become disabled in the Plan Year.
Forfeitures of Employer Matching Contributions by Participants who leave
employment will be reallocated as additional Profit Sharing Contributions.
13. Are there legal limits on Matching Contributions?
There are legal limits on the amount of Matching Contributions that can be
made for certain highly-paid Participants, based on the Matching
Contributions made for all other Participants. If the Matching
Contributions for any highly-paid Participant exceed the limit during any
Plan Year, the excess amount (adjusted for income or loss) shall be
forfeited if forfeitable under the Plan, or if not forfeitable, distributed
to the highly-paid Participant no later than the end of the following Plan
Year.
14. What are Profit Sharing Contributions?
Profit Sharing Contributions are contributions made at the discretion of
your Employer each Plan Year.
The amount of Profit Sharing Contributions made by your Employer each Plan
Year is determined by your Employer each year.
Profit Sharing Contributions to the Plan are not limited to the current and
accumulated profits of your business.
Forfeitures of Profit Sharing Contributions by Participants who leave
employment will be reallocated as additional Profit Sharing Contributions.
15. Must I meet any special requirements in order to share in Profit Sharing
Contributions?
Each Plan Year in which your Employer makes a Profit Sharing Contribution
to the Plan, you will be entitled to a share of the Profit Sharing
Contribution only if you are a Qualified Participant for this purpose.
To be a Qualified Participant you must either be employed on the last day
of the Plan Year, complete more than 500 Hours of Service in the Plan Year,
retire, die or become disabled in the Plan Year.
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16. How will my share of a Profit Sharing Contribution be determined?
The share of the Profit Sharing Contribution allocated to your Account will
be a pro-rata amount, based on your compensation for the Plan Year. The
amount will be the ratio of your earnings to the total earnings of all
Qualified Participants for the Plan Year.
For purposes of determining the amount and allocation of Profit Sharing
Contributions under the Plan, your earnings include the first $160,000 (for
1997) of Form W-2 earnings as defined in section 2.8 of the Plan and any
amounts you contribute to a 401(k) plan, Section 125 plan, Section 403(b)
plan, SARSEP, Section 457 plan or Section 414(h)(2) plan.
Compensation is based on what you earn during the Plan year. However, for
your initial year of participation in the Plan, compensation is recognized
from the date you enter the Plan.
17. What are Qualified Matching Contributions?
Your Employer may make Qualified Matching Contributions to the Plan on
behalf of all Qualified Participants who are non-highly paid Participants
and who have made Elective Deferrals to the Plan.
The amount of Qualified Matching Contributions, if any, for each eligible
Qualified Participant for each Plan Year will be a variable amount,
selected by the Employer of the Participant's Elective Deferrals for the
Plan Year.
18. What are Qualified Non-Elective Contributions?
Your Employer may make Qualified Non-Elective Contributions to the Plan on
behalf of all Qualified Participants who are non-highly compensated
employees.
The amount of Qualified Non-Elective Contributions made by your Employer
each Plan Year is an amount determined by your Employer each year, to be
shared in proportion to the earnings by Participants on whose behalf the
Qualified Non-Elective Contributions are made.
19. Am I entitled to any minimum contribution?
For any year when the Plan is a "top heavy" plan, certain Participants
(called non-Key Employees) who are employed on the last day of the year
must receive a minimum contribution. The minimum contribution for these
Participants is three percent of their earnings (or the highest percentage
of earnings that is allocated to any Key Employee, if that is less than
three percent). A plan is "top-heavy" if more than 60% of the assets in
its Trust Fund are held in the Accounts of certain owners or officers of
the Employer. In the event the Plan becomes "top-heavy", your Account(s)
will vest according to an accelerated vesting schedule.
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20. Who is responsible for accounting to me for my benefits in the Plan?
The Plan Administrator is required to account for each Participant's
interest in the Plan. When you become a Participant, a separate Account
will be set up for you on the records of the Plan, showing the different
types of contributions to the Plan allocated to your Account, such as:
a. Elective Deferrals;
b. Employer Matching Contributions;
c. Profit Sharing Contributions;
d. Qualified Matching Contributions;
e. Qualified Non-Elective Contributions; and
f. Rollover Contributions.
Your Employer will provide you with a periodic statement of your Account in
the Plan.
21. Will I receive all the funds in my Account when I leave employment?
You will receive the funds in your Elective Deferral Account and Rollover
Account when you reach Normal Retirement Age (which is age 65), or when you
die or become disabled, or when your employment terminates for any other
reason. You are always 100% vested in your Elective Deferral and Rollover
Accounts.
You will receive only that portion of your Employer Contribution Account
and Employer Matching Account that has become vested under the vesting
schedule below. You will have a 100% vested interest in your Accounts when
you reach Normal Retirement Age (age 65), when you reach Early Retirement
Age (age 55) you have 5 Years of Service, or when you die or become
disabled. If you leave your job with the Employer before one of these
events occurs, you will be vested in your Employer Contribution Account and
Employer Matching Account in accordance with the following schedule:
Employer Matching Account and Employer Contribution Account
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Seven-Year Graded Schedule:
<TABLE>
<S> <C> <C> <C> <C> <C>
Vested Percentage 20% 40% 60% 80% 100%
----- ----- ----- ----- ------
Years of Service 3 4 5 6 7
</TABLE>
Each Plan Year in which you complete at least 1,000 Hours of Service is a
Year of Service.
An Hour of Service is any hour for which you are paid or entitled to be
paid by the Employer (for example, holidays and vacation days). You will be
credited with less than an Hour of Service for each hour that you are paid.
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Years of Service include all of an employee's service except service for a
business acquired by the Employer, before the date of acquisition.
If you were a Participant in the Plan during a prior period of employment
and you became vested then in any portion of your Employer Contribution
Account and Employer Matching Account, all your prior Years of Service will
continue to count in determining the vested portion of your Account after
you complete one Year of Service following your return to work with the
Employer.
If you were a Participant in the Plan during a prior period of employment
and you were not vested then in any portion of your Employer Matching
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Account and Employer Contribution Account, your prior Years of Service will
continue to count in determining the vested portion of your Account only if
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you complete a Year of Service after you return to eligible employment, and
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if you have no more than four consecutive One-Year Breaks in Service. A
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One-Year Break in Service is a Plan Year in which you are not credited with
more than 500 Hours of Service.
22. Can I lose all or part of my Account?
Upon termination of employment, you can lose only the portion of your
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Account that is not vested. Any part of your Employer Matching Account and
Employer Contribution Account in which you are not vested will be
forfeited, and lost to you as a benefit, at the end of the Plan Year in
which you incur five consecutive One-Year Breaks in Service, unless you
take a distribution of your vested balance before the five-year break, in
which case the nonvested portion is considered forfeited in the year of
distribution. If you return to work with the Employer before you have five
consecutive One-Year Breaks in Service, you will not forfeit any portion of
your Account. (Exception: If the vested portion of your Account was
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distributed to you upon your termination of employment, you must repay the
distributed amount back to the Plan in order to reclaim the non-vested
portion when you return to employment.)
Forfeited amounts will be reallocated among the Accounts of Qualified
Participants as additional contributions by the Employer.
You can lose only the portion of your Account that is not vested. You will
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always be 100% vested in any amounts in the following Accounts:
a. Elective Deferral Account;
b. Rollover Account;
c. Qualified Matching Contribution Account; and
d. Qualified Non-Elective Contribution Account
In addition, if you made after-tax contributions to a plan your Employer
formerly maintained, those contributions and their earnings will be 100%
vested at all times and will be held in a separate Account under this Plan.
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DISTRIBUTION OF BENEFITS
23. How do I become entitled to receive a distribution from the Plan?
You (or your beneficiary) will be entitled to receive a distribution of
your vested Account in the Plan upon termination of your employment; your
retirement, death or disability; termination of the Plan, without the
establishment of a successor plan; the Employer's sale to an unrelated
corporation of the business in which you are employed; upon your request
after you reach age 59 1/2.
24. When will my benefit distribution occur?
Unless you choose to postpone distribution of your benefits as described in
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Question 25, distribution of your benefits will be made according to the
following rules:
a. A distribution made because of your retirement after Normal Retirement
Age (age 65) or Early Retirement Age (age 55) ) with at least 5 Years
of Service), or your death or disability, will begin not later than 60
days after the end of the Plan Year in which you leave employment.
b. If you continue to be employed after you reach Normal Retirement Age,
you will continue to be eligible to make Elective Deferrals.
Distribution of your Account will be deferred until you actually
retire, or if earlier, until the minimum distribution requirements of
Question 25 apply to you.
c. If you continue to be employed after you reach Normal Retirement Age,
you will continue to be eligible to share in the allocation of
Employer Contributions. Distribution of your Account will be deferred
until you actually retire, or if earlier, until the minimum
distribution requirements of Question 25 apply to you.
d. You will be eligible for a distribution on account of disability if
you have terminated employment with the Employer and you are unable to
engage in substantial gainful activity on account of a mental or
physical impairment that can be expected to last for at least 12
months, or result in your death.
If your termination of employment occurs for any other reason,
distributions will begin within 60 days after your request for payment and
your consent to such distribution, unless you elect to postpone
distribution as explained in Question 25.
25. What if I want to postpone distribution of my benefits?
If the value of the vested portion of your Account is more than $3,500, you
may elect to postpone distribution of your benefits to (a) age 62 or (b)
Normal Retirement Age under the Plan, whichever is later.
If you continue to work after reaching Normal Retirement Age, you must
begin taking minimum distributions from your Account no later than the
April 1 following the close of
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the calendar year in which you reach age 70 1/2. (Exception: If you are not
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a five percent owner of the Employer and you reached age 70 1/2 before
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January 1, 1988, distribution may be postponed until no later than April 1
following the close of the taxable year in which you retire.)
The Plan will automatically distribute in a lump sum any vested account
balance that does not exceed $3,500, within 60 days after the end of the
Plan Year in which you separate from employment.
26. May I assign or pledge my interest in the Plan?
No. However, your interest in the Plan may be subject to claims under a
"qualified domestic relations order" issued by a court, granting to your
spouse, former spouse, children or other dependents a right to receive all
or part of your Account as support, alimony, or property settlement.
27. Who is entitled to receive my Account if I die before it is distributed?
If you are married at the time of your death, your Account will be
distributed to your surviving spouse unless your spouse has previously
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consented in writing, before a Plan representative or notary public, to
payment of the death benefit to another beneficiary you have named. If you
are unmarried at the time of your death, the death benefit will be
distributed to your named beneficiary.
You may name a beneficiary only by completing a form provided to you for
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this purpose by the Employer, and returning the completed form to the
Employer. If you wish to change the beneficiary you have named, you must
complete a second form and return it to the Employer. The latest form you
have completed and returned to the Employer before your death will control.
If you do not have a spouse or a named beneficiary living at the time of
your death, your death benefit will be distributed to the personal
representative (executor or administrator) of your estate.
28. How will my benefits be distributed?
You may elect any of the following forms of payment:
a. a single cash payment; or
b. a series of cash payments, in substantially equal installments; or
c. any other optional form of distribution available under the Plan of
the Employer in effect prior to the Effective Date.
Exception: If the value of the vested portion of your Account is not more
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than $3,500, your benefits will be distributed in a single payment in cash.
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If you choose a form other than a single payment, the period over which
payments are made cannot be longer than one of the following:
i. your lifetime, or
ii. the lifetime of you and your designated beneficiary, or
iii. a number of years no longer than your life expectancy, or the joint
life expectancy of you or your designated beneficiary.
If you die after payments begin but before they are finished, payments will
continue to your beneficiary at least as rapidly as under the method of
distribution you selected.
29. How will my benefits be taxed?
Income tax withholding rules apply to distributions from the Plan. If your
Account distributions will continue over a period of at least 10 years in
substantially equal installments, you may elect whether to have federal
income tax withheld. If your Account will be distributed in any other form
- such as a single payment - then the Plan must withhold federal income tax
equal to 20% of the distribution unless you arrange for a direct transfer
to an individual retirement account (IRA) or another employer's retirement
plan. You will receive a special tax notice explaining the choices
available to you about withholding before any payment is made to you from
the Plan.
INVESTMENT OF PLAN ASSETS
30. How are contributions to the Plan invested?
Contributions to the Plan are invested by the Trustee in shares of Putnam
mutual funds or other investments available under the Plan as chosen by
your Employer. The Plan Administrator will provide you with current copies
of the prospectus describing each investment option on request to the Plan
Administrator.
Investments for your Accounts will be selected by you and may be changed
daily. Please see your Plan Administrator for an explanation of the
procedures you must follow to direct the investment of your Account.
WITHDRAWALS AND LOANS
31. Is any of my Account available to me while I am still working for the
Employer?
If you have made after-tax contributions to the Plan prior to the Plan Year
in which your Employer adopted this Plan, you may withdraw all or part of
them on the same terms that applied under your Employer's prior plan.
You may withdraw from your Elective Deferral Account (adjusted for income
or loss through December 31, 1988) and Rollover Account, if you demonstrate
to the Plan
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Administrator that you are experiencing financial need. Hardship
distributions can be made only for uninsured medical expenses, purchase of
your principal residence, payment of the next 12 months of post-secondary
education for you or a member of your immediate family, or to prevent the
loss of your residence. You must stop making Elective Deferrals for 12
months after a hardship distribution, and your yearly dollar limit for
Elective Deferrals in the calendar year you resume participation will be
reduced by the amount of Elective Deferrals you made in the calendar year
of your hardship distribution.
If you have reached age 59 1/2 you may withdraw all or part of the vested
portion of your Account.
32. Are loans available to Participants under the Plan?
You may borrow from your Account, subject to the Loan Program established
by your Employer and the following requirements:
(i) If your vested Account balance is not over $100,000, you can borrow up
to half of your vested Account balance;
(ii) If your vested Account balance is over $100,000, you can borrow up to
$50,000.
The amount you can borrow is reduced by the outstanding balance of any
loans already made to you from the Plan or from other tax qualified
retirement plans of the Employer. The $50,000 maximum loan amount in (ii)
above is reduced by the highest outstanding balance of your previous
loan(s) in the one-year period before the latest loan is made.
A loan must be repaid over a period of no more than five years, unless it
is used to acquire your principal residence, in which case the repayment
period may exceed five years. You must make substantially equal quarterly
payments of principal and interest over the term of your loan. Payment
will be made through payroll deduction and must be made at least quarterly.
Interest will be charged at a rate established by the Employer, on a
nondiscriminatory basis, taking into consideration the interest rates then
being charged on similar loans by independent commercial lenders (for
example, savings and loan companies in your locality).
You will be required to sign a promissory note pledging up to half of the
value of your vested Plan Account as collateral for the loan. If you do
not repay your loan on time, the value of your unpaid loan balance can be
deducted from your Account. No distribution of your Account will be made
to you (or your beneficiary) until all principal and interest on your loan
has either been repaid or deducted from the value of your Account.
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CLAIMS PROCEDURES
33. How may I file a claim for benefits?
You or your beneficiary may notify the Plan Administrator in writing of a
claim for benefits under the Plan. If your claim is denied, the Plan
Administrator will provide you with written notice specifying the reason
for denial and pointing out the Plan provisions on which the denial is
based, and explaining what additional evidence (if any) you should submit
to prove that you are entitled to the benefit claimed. You must be given a
reasonable opportunity for a full and fair review of your claim, and you
are entitled to examine Plan documents and records and to submit issues and
comments in support of your claim in writing or orally. The Plan
Administrator's decision on review of your denied claim will be made and
communicated in writing no later than 120 days after receipt of your
request for review.
ADDITIONAL INFORMATION
34. May changes be made to the Plan?
Although it intends to continue the Plan indefinitely, your Employer
specifically reserves the right to amend or to terminate the Plan, but no
amendment to the Plan may take away any amount already credited to your
Account. If the Plan is terminated, every Participant's Account will
become fully vested and will be distributed from the Trust in one of the
forms described in Question 28.
35. Who has the authority to make decisions in connection with the Plan?
The Plan Administrator has discretionary authority to interpret the written
terms of the Plan and to apply them to specific situations (for example, to
determine whether a person has completed the requirements for Plan
participation).
36. Are there limitations on my rights under the Plan?
The Plan does not give any person the right to remain as an employee of the
Employer. It creates only those rights specifically provided in the Plan.
Section 415 of the Internal Revenue Code of 1986 limits the amount of
benefits and contributions that may be made to qualified retirement plans
for a person in a given year. If this limit ever affects your Account in
the Plan, the Employer will notify you.
37. Are my benefits guaranteed by the Pension Benefit Guaranty Corporation
(PBGC)?
Benefits under the Plan are not insured by the Pension Benefit Guaranty
Corporation, because the Plan is a "defined contribution" plan. The
retirement benefit you receive will depend on how long you work for the
Employer, the amount you and the Employer contribute, the amount of your
earnings and the investment performance of your Account.
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38. Do I have legal rights as a Participant in the Plan?
As a Participant in the Plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974
(ERISA). ERISA provides that all Plan Participants shall be entitled to:
1. Examine, without charge, at the Plan Administrator's office, all Plan
documents, including insurance contracts and copies of all documents,
filed by the Plan with the U.S. Department of Labor, such as detailed
annual reports and plan descriptions.
2. Obtain copies of all Plan documents, and other Plan information upon
written request to the Plan Administrator. The Administrator may make
a reasonable charge for the copies.
3. Receive a summary of the Plan's annual financial report. The Plan
Administrator is required under ERISA to furnish each Participant with
a copy of this summary annual report.
4. Obtain a statement telling you whether you have a right to receive a
benefit at the Normal Retirement Age and, if so, what your benefits
would be at such date if you stopped working under the Plan as of the
date of the statement. If you do not have a right to a benefit, the
statement will tell you how many more years you have to work to get
such a right. This statement must be requested in writing and is not
required to be given more than once a year. The Plan must provide the
statement free of charge.
In addition to creating rights for Plan Participants, ERISA imposes duties
upon the individuals who are responsible for the operation of the Plan.
These individuals, called "fiduciaries" of the Plan, have a duty to act
prudently in your interest and that of the other Plan Participants and
beneficiaries. No one, including your Employer, may terminate you or
otherwise discriminate against you in any way to prevent you from obtaining
a benefit or exercising your rights under ERISA. If your claim for a
benefit is denied, in whole or in part, you must receive a written
explanation of the reason for the denial. You have the right to have the
Plan Administrator review and reconsider your claim.
Under ERISA, there are steps you can take to enforce the above rights. The
following examples will show you action that you may take.
. First, if you request materials from the Plan and do not receive them
within 30 days, you may file suit in a federal court. In such a case,
the court may require the Plan Administrator to provide the materials
and pay up to $ 100 a day until you receive the materials, unless the
materials were not sent because of reasons beyond the control of the
Plan Administrator.
14
<PAGE>
. Second, if you have a claim for benefits which is denied or ignored,
in whole or in part, you may file suit in a state or federal court.
. Third, if it should happen that Plan fiduciaries misuse the Plan's
money, or if you are discriminated against for asserting your rights,
you may seek assistance from the U.S. Department of Labor or you may
file suit in a federal court. The court will decide who should pay
court and legal fees. If you are successful, the court may order the
person you have sued to pay these costs and fees. If you lose, the
court may order you to pay these costs and fees, for example, if it
finds your claim is frivolous.
If you have any questions about your Plan, you should contact the Plan
Administrator. If you have any questions about your rights under ERISA,
you should contact the nearest Area Office of the U.S. Labor Management
Services Administration, Department of Labor.
Putnam Mutual Funds Corp.
Putnam Defined Contribution Plans
859 Willard Street
Quincy, Massachusetts 02169
Call toll free 1-800-752-5766
15
<PAGE>
Exhibit 10.26
ASSET PURCHASE AND ASSIGNMENT AGREEMENT
BY AND AMONG
TIER CORPORATION, A CALIFORNIA CORPORATION,
ENCORE CONSULTING, INC., A MISSOURI CORPORATION
THOMAS E. McLEOD,
DAVID M. BEMAN AND
ROBERT MYERS
DATED AS OF DECEMBER 31, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Recitals.....................................................................1
1. PURCHASE AND SALE OF CERTAIN ASSETS...................................1
1.1 Acquired Assets.................................................1
1.2 All Other Assets Excluded.......................................2
2. ASSUMPTION OF OBLIGATIONS AND LIABILITIES.............................2
2.1 Liabilities To Be Assumed.......................................2
2.2 Liabilities Not Assumed.........................................3
3. PURCHASE PRICE........................................................3
3.1 Payment.........................................................4
3.2 Additional Contingent Payments..................................4
3.3 Reimbursement of Certain Amounts to Seller......................4
4. SATISFACTORY DUE DILIGENCE; CLOSING...................................4
5. EXECUTION AND DELIVERY OF CLOSING DOCUMENTS...........................5
5.2 Delivery by Buyer at Closing....................................6
6. REPRESENTATIONS AND WARRANTIES OF SELLER AND OWNERS...................6
6.1 Organization; Ownership.........................................6
6.2 Authority.......................................................6
6.3 Consents........................................................7
6.4 Subject Contracts...............................................7
6.5 Compliance with Other Instruments; Title........................7
6.6 Tax Liabilities.................................................7
6.7 Litigation; Compliance with Laws................................7
6.8 Labor Relations; Employees and Independent Contractors..........8
6.9 Accounts Receivable.............................................8
6.10 Billing of Work Performed Under Acquired Contracts..............8
6.11 Intellectual Property...........................................8
6.12 Financial Statements............................................8
6.13 Actions and Proceedings.........................................8
6.14 No Misrepresentation............................................9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
7. REPRESENTATIONS AND WARRANTIES OF BUYER...............................9
7.1 Organization....................................................9
7.2 Authority.......................................................9
8. COVENANTS OF SELLER AND OWNERS........................................9
8.1 Operation of the Business.......................................9
8.2 Consents; Performed............................................10
8.3 Performance Bonds..............................................10
8.4 Continuation of Business of Seller.............................10
8.5 Owner Acknowledgment...........................................10
8.6 Independent Contractors........................................10
8.7 Employees......................................................10
8.8 Overdue Closing Period Accounts Receivable.....................11
8.9 Removal of UMB Lien............................................11
9. COVENANTS OF BUYER...................................................11
9.1 Satisfaction of Conditions.....................................11
10. CONDITIONS TO OBLIGATIONS OF SELLER..................................11
10.1 Representations and Warranties True............................11
10.2 Employment Agreements..........................................11
10.3 Assignment of Acquired Assets..................................11
11. CONDITIONS TO OBLIGATIONS OF BUYER...................................11
11.1 Representations and Warranties True............................11
11.2 Satisfactory Due Diligence.....................................12
11.3 Employment Agreements..........................................12
11.4 Payment of Compensation........................................12
11.5 Tax Clearance Certificate......................................12
11.6 [Intentionally left blank].....................................12
11.7 Opinion of Counsel.............................................12
11.8 Assignment of Acquired Assets..................................12
11.9 Release of UMB Lien............................................12
11.10 Delivery of Payroll Registers..................................12
11.11 Financial Statements...........................................13
12. INDEMNIFICATION......................................................13
12.1 Survival of Representations....................................13
12.2 Indemnification by Seller and Owners...........................13
12.3 Indemnification by Buyer.......................................14
12.4 Insurance......................................................14
13. NOTICE TO CUSTOMERS..................................................14
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
14. MISCELLANEOUS........................................................14
14.1 Counterparts...................................................14
14.2 Successors and Assigns.........................................14
14.3 Third-Party Beneficiaries......................................14
14.4 Entire Agreement...............................................15
14.5 Amendment; Waiver..............................................15
14.6 Notice.........................................................15
14.7 Governing Law..................................................16
14.8 Attorneys' Fees................................................16
14.9 Severability...................................................16
14.10 Publicity......................................................16
14.11 Expenses.......................................................16
14.12 Consent to Jurisdiction........................................16
</TABLE>
Schedules
- ---------
Schedule A - Acquired Contracts
Schedule B - Employees of Seller
Exhibits
- --------
Exhibit A - Form of Employment Agreement with Thomas McLeod
Exhibit B - Form of Employment Agreement with David Beman
Exhibit C - Form of Employment Agreement with Robert Myers
Exhibit D - Form of Opinion of Seller's Counsel
iii
<PAGE>
ASSET PURCHASE AND ASSIGNMENT AGREEMENT
---------------------------------------
This Asset Purchase and Assignment Agreement is made this 31st day of
December, 1996, by and among TIER Corporation, a California corporation
("Buyer"), Encore Consulting, Inc., a Missouri corporation ("Seller"), and
Thomas E. McLeod, David M. Beman and Robert Myers, (collectively, the "Owners").
Recitals
--------
A. Seller is engaged in the State of Missouri in the custom design of
software and computer systems for special business applications, the provision
of software consulting services and training, and the marketing, demonstration,
distribution and resale of software developed by others.
B. Seller desires to sell and transfer and Buyer desires to purchase and
receive selected assets and liabilities of Seller.
Accordingly, in consideration of the mutual agreements set forth below, and
based on the premises set forth above, Buyer and Seller agree as follows:
1. PURCHASE AND SALE OF CERTAIN ASSETS.
-----------------------------------
1.1 Acquired Assets. Subject to the terms and conditions hereof, on
---------------
the Closing Date (as defined below), Seller shall sell, transfer and assign to
Buyer, and Buyer shall purchase and acquire from Seller, all of Seller's right,
title and interest in and to the assets listed below (the "Acquired Assets" or
the "Acquired Business"), free and clear of any and all liens, claims,
liabilities, encumbrances or obligations:
(a) those uncompleted contracts, subcontracting arrangements,
and purchase orders listed on Schedule A hereto for the design of software and
computer systems, the provision of consulting services and training, and the
marketing, demonstration, distribution and resale of software, except for any
such contracts, arrangements or purchase orders that Buyer designates (prior to
or at Closing) as not accepted (the "Acquired Contracts");
(b) all deposits or fees paid by Seller pursuant to the Acquired
Contracts;
(c) all intellectual property and technology rights used or held
for use and necessary in the conduct of Seller's business, including without
limitation: all software licenses, product licenses, software development
rights, developed applications, computer programs, computer systems, source
codes, data systems, development methodologies and practices, trade secrets,
know-how, technical information, research records, test information, market
surveys, marketing information, trademarks, tradenames, and copyrights, the name
"Encore Consulting," "Encore," or any variation thereof, and all applications or
licenses for the foregoing (collectively, the "Intellectual Property");
1
<PAGE>
(d) accounts receivable relating to services performed under the
Acquired Contracts on or after December 2, 1996, plus unbilled amounts due to
Seller for services performed under the Acquired Contracts on or after December
2, 1996;
(e) all permits, licenses, approvals and authorizations by
governmental or regulatory authorities relating to the Acquired Contracts and
Seller's business ("Permits"), to the extent transferable;
(f) all client and customer account information, customer lists,
contact lists, subcontractor lists, and independent contractor lists relating to
or utilized in the current or past conduct of Seller's business;
(g) all contracts with employees (other than with the Owners)
and all contracts with independent contractors, including without limitation the
rights of Seller thereunder with respect to confidentiality and non-compete
covenants by such employees and independent contractors;
(h) all claims and rights against third parties relating to the
Acquired Assets, including without limitation, insurance claims, vendors'
warranties, rights of recovery, set-offs and credits;
(i) all computer equipment, including, but not limited to the
following hardware: laptop computers, desktop computers and printers, and
software, business plans, models, forecasts, training agreements, practices and
techniques;
(j) all books, records, information and documentation regarding
the foregoing;
(k) all furniture, office equipment, phone systems, fax
machines; and
(l) all goodwill associated with the Acquired Business.
1.2 All Other Assets Excluded. The assets to be sold and acquired
-------------------------
under this Agreement shall include only those assets listed in Section 1.1 and
the Schedules thereto, and shall not include any other assets.
2. ASSUMPTION OF OBLIGATIONS AND LIABILITIES.
-----------------------------------------
2.1 Liabilities To Be Assumed. Buyer shall assume as of the Closing
-------------------------
and perform when due:
(a) the obligations of Seller pursuant to the express terms of
the Acquired Contracts;
(b) payroll expenses associated with the accounts receivable
for services performed under the Acquired Contracts for the period from December
2, 1996 up to and including the Closing Date (including, without limitation, the
salaries of David Beman and
2
<PAGE>
Robert Myer); provided, however, that the payroll expenses shall not exceed an
amount equal to eighty percent (80%) of the accounts receivable associated with
such payroll expenses.
(c) payroll expenses associated with unbilled amounts due to
Seller from customers for services performed under the Acquired Contracts for
the period from December 2, 1996 up to and including December 31, 1996
(including, without limitation, the salaries of David Beman and Robert Myer);
provided, however, that the payroll expenses shall not exceed an amount equal to
eighty percent (80%) of the unbilled amounts associated with such payroll
expenses.
(d) selling, general and administrative expenses actually paid
or incurred for the period from December 2, 1996 until and including December
31, 1996 (specifically including the salary of Thomas McLeod), in an amount not
to exceed twenty-three thousand, three hundred and sixty five dollars ($23,365).
2.2 Liabilities Not Assumed. It is understood and agreed that Buyer
-----------------------
shall not assume or be bound by any duties, responsibilities, obligations or
liabilities of Owners, Seller or Seller's business of any kind or nature, known,
unknown, contingent or otherwise, arising at any time, other than those
obligations and liabilities expressly assumed by Buyer under Section 2.1 above.
Without limiting the foregoing in any way, it is understood that Buyer does not
assume, undertake or accept any duties, responsibilities, obligations or
liabilities of Seller or Owners:
(a) to employees or former employees of Seller, including
liability for termination of employment, wages, salary, benefits, payroll
withholdings and taxes, workers' compensation, liabilities from any source
whatsoever that may arise with respect to the categorization of members of the
Seller's workforce as independent contractors or employees, commissions, accrued
vacation, bonuses, deferred compensation, earnouts, incentives, employment
agreements, pensions, non-compete agreements, collective bargaining agreements,
or the like;
(b) with respect to (i) any income, sales, use, franchise or
other tax or (ii) any claims for personal injuries, property damages or
consequential damages relating to defective products or condition of premises or
otherwise;
(c) under any statute, rule or regulation, including but not
limited to health, safety, labor, discrimination, civil rights, and
environmental laws, rules and regulations;
(d) with respect to any accounts payable or indebtedness of
Seller; or
(e) with respect to any debt, liability or obligation of Seller,
or claims against Seller, whether known or unknown to Buyer, and whether
disclosed or undisclosed pursuant to this Agreement, and whether or not
contingent.
3. PURCHASE PRICE.
--------------
3
<PAGE>
3.1 Payment. The purchase price ("Purchase Price") for the Acquired
-------
Assets shall be a maximum of six hundred thousand dollars ($600,000), including:
(i) three hundred thousand dollars ($300,000) in cash,
payable as described in Section 5.2 hereto;
(ii) if the Buyer receives notification from the State of
Missouri that the Seller's contract with the State of Missouri, as described in
Exhibit A hereto and as delivered to Buyer (the "Missouri Contract"), has been
renewed for a term of no less than one (1) year, each of the Owners shall
receive fifty thousand dollars ($50,000), such payments to be made by October 1,
1997, or within thirty days (30) of receipt by the Buyer of such notice,
whichever is later; and
(iii) if the Buyer receives notification from the State of
Missouri that the Missouri Contract has been renewed for a second term of no
less than one (1) additional year, each of the Owners shall be paid fifty
thousand dollars ($50,000), such payments to be made on October 1, 1998, or
within thirty (30) days of receipt by the Buyer of such notice, whichever is
later.
Provided; however, that in order to receive the payments described in items
(ii) and (iii) above, an Owner must be employed by the Buyer on the date such
payments are due to be paid, unless such Owner has been terminated without Cause
pursuant to Section 4(b) of the Employment Agreement (as defined herein), in
which case such Owner shall continue to be eligible to receive his portion of
such payments.
3.2 Additional Contingent Payments. If the Closing shall occur, each
------------------------------
of the Owners shall be entitled to further payments from Buyer as described in
the Employment Agreements (forms of which are attached hereto as Exhibits A, B
and C).
3.3 Reimbursement of Certain Amounts to Seller. In addition to the
------------------------------------------
Purchase Price, Seller shall receive reimbursement with respect to those
liabilities to be assumed by Buyer pursuant to Sections 2.1(b), (c) and (d)
hereto, subject to the limitations provided in Sections 2.1(b), (c) and (d)
hereto (the "Closing Payroll and Closing Expenses), as evidenced by the Payroll
Registers (as described in Section 11.10 hereto).
4. SATISFACTORY DUE DILIGENCE; CLOSING. The closing (the "Closing") of
-----------------------------------
the transactions contemplated by this Agreement shall be subject to Buyer's due
diligence review of the business and operations of Seller, and to Buyer's
determination (in its sole discretion) that the results of such review are
satisfactory and do not reveal adverse information regarding the Acquired Assets
("Satisfactory Due Diligence"). Promptly upon notification by Buyer to Seller
that Satisfactory Due Diligence has been completed, and upon satisfaction or
waiver of all of the conditions required to be satisfied or waived pursuant to
Sections 10 and 11, the Closing of the transactions contemplated by this
Agreement shall take place. The Closing may be at such place as the parties may
mutually agree, or may be accomplished by facsimile transmission of documents
and signatures (with original signatures to be delivered as soon as practicable
thereafter). The parties intend, and shall use their reasonable
4
<PAGE>
best efforts, to cause the Closing to occur on or before January 30, 1997. The
date on which the Closing shall occur shall be referred to as the Closing Date.
5. EXECUTION AND DELIVERY OF CLOSING DOCUMENTS.
-------------------------------------------
5.1 At or prior to the Closing, Seller shall deliver to Buyer:
(a) originals of all of the Acquired Contracts, and all forms of
assignment of contract, consents and approvals required to assign to Buyer the
Acquired Contracts, as well as forms of all documentation necessary to remove
the UMB Lien (as defined herein) and to transfer title to the Acquired Assets to
Buyer free and clear of any liens or encumbrances.
(b) all Permits, together with all required assignments thereof
and consents thereto to the extent such Permits are assignable;
(c) unless the execution of this Agreement and the Closing occur
simultaneously, a certificate executed by the Owners and the chief financial
officer of Seller, in a form reasonably acceptable to Buyer, certifying that:
(i) all of the representations and warranties of Seller are true and correct,
and all Schedules to the Agreement are complete and accurate, as of the Closing
Date; (ii) Seller has performed all of the obligations and conditions required
by the Agreement to be performed at or prior to the Closing Date; and has not
performed any of the activities prohibited by the Agreement; (iii) all of the
Acquired Contracts are valid, binding and enforceable, and except as disclosed
to Buyer in writing, there is no dispute among the parties to such contracts or
breach of any of the terms of such contracts by any party thereto; (iv) during
the period from the date of this Agreement until the Closing Date, there has
been no material adverse change in the business of Seller; and (v) during the
period from the date of this Agreement until the Closing Date, Seller has
conducted its business in the normal course.
(d) a certificate executed by the Secretary of Seller, in a form
reasonably acceptable to Buyer, certifying copies of the resolutions duly
adopted by the Board of Directors and the Shareholders of Seller authorizing
this Agreement and the transactions contemplated herein;
(e) a bill of sale or other transfer document executed by the
President of Seller, in form reasonably acceptable to Buyer, relating to the
Acquired Assets;
(f) copies of all performance bonds relating to the performance
of the Acquired Contracts;
(g) an accounts receivable aging report, including a list of
accounts receivable that have or have not been billed, up to, and including, the
Closing Date;
(h) any other documents necessary to assign to Buyer the
Acquired Contracts and to transfer to Buyer good and marketable title to the
Acquired Assets and to transfer to Buyer all rights and benefits under this
Agreement, all in form and substance
5
<PAGE>
reasonably satisfactory to Buyer, including a letter from UMB (as described
herein) as described in Section 11.9 hereto.
(i) a tax clearance certificate, as described in Section 11.5
hereto.
(j) an opinion of counsel of Seller, a form of which is attached
hereto as Exhibit D.
(k) the Payroll Registers, as described in Section 11.10 hereto.
(l) an officer's certificate, as described in Section 11.4
hereto.
(m) financial statements, as described in Section 6.12 hereto.
5.2 Delivery by Buyer at Closing. At the Closing, Buyer shall
----------------------------
deliver to:
(a) UMB, by wire transfer or certified check, the balance of the
UMB Loan (as defined herein) as of the Closing Date.
(b) Seller, by wire transfer or company check, an amount equal
to
the difference between (A) the sum of (i) three hundred thousand dollars
($300,000), as described in Section 3.1(i) hereto, and (ii) the balance of the
Closing Payroll and Closing Expenses, subject to the limitations described in
Section 2.1(b), (c) and (d) hereto, and (B) the balance of the UMB Loan.
6. REPRESENTATIONS AND WARRANTIES OF SELLER AND OWNERS. Seller and each
---------------------------------------------------
of the Owners hereby represent and warrant, jointly and severally, for a period
of three (3) years (except with respect to subparagraphs 6.1, 6.5, 6.6, 6.7,
6.8, 6.11, and 6.13, in which case Seller and each of the Owners, jointly and
severally, represent and warrant indefinitely) to Buyer that:
6.1 Organization; Ownership. Seller is a corporation duly
-----------------------
organized, validly existing and in good standing under the laws of the State of
Missouri. Seller is duly qualified and in good standing to do business as a
foreign corporation in those jurisdictions where qualification is required in
connection with the conduct of its business. Owners are the lawful owners of
all of the securities of Seller, free and clear of all security interests,
liens, encumbrances or adverse claims. There are no existing warrants, options,
subscription rights, commitments, understandings, purchase agreements, or other
rights to acquire interests in Seller or that call for the disposition of
interests in Seller.
6.2 Authority. Seller has the corporate power and authority, and all
---------
licenses, authorizations and permits required by governmental or other
authorities, to own, lease and operate its assets and property and to carry on
its business as now being conducted, and to execute, deliver and perform this
Agreement, and the transactions contemplated herein. This Agreement has been
duly authorized, executed and delivered by Seller and no other corporate
proceedings are necessary to authorize this Agreement. This Agreement is the
legal, valid and
6
<PAGE>
binding obligation of Seller, enforceable in accordance with its terms. The
Owners have the full right, capacity, power and authority to execute, deliver
and perform this Agreement and the transactions contemplated herein. This
Agreement has been duly executed and delivered by the Owners and is the legal,
valid and binding obligation of the Owners, enforceable in accordance with its
terms.
6.3 Consents. Except as set forth on Schedule A hereto, no consent
--------
of any party is required for the execution, delivery and performance by Seller
of this Agreement or the transactions contemplated herein.
6.4 Subject Contracts. Schedule A contains a true and complete list
-----------------
of all Acquired Contracts and Seller has furnished to Buyer true and accurate
copies of each such contracts. All of such contracts were entered into in the
normal course, and each of such contracts is valid and binding upon each party
thereto and is in full force and effect. To the best of Seller's and Owners'
knowledge (and except as set forth on Schedule A), (i) there is no material
default or claim of default or breach under any provision of any of such
contracts, or any impediment to the due and proper performance of any of such
contracts in the normal course, and (ii) there are no facts or circumstances
that would prevent the assignment of any of such contracts to Buyer or
reasonably suggest that any customer that is a party thereto will not or cannot
pay for the work remaining to be performed by Buyer thereunder.
6.5 Compliance with Other Instruments; Title.
----------------------------------------
(a) Seller is not in violation of or in default under nor, to
the knowledge of Seller or Owners, has any event occurred that, with the lapse
of time or the giving of notice or both, would constitute a violation of or
default under, or permit the termination or the acceleration of maturity of, or
result in the imposition of a lien, claim or encumbrance upon any property or
assets of Seller pursuant to the Articles of Incorporation or Bylaws of Seller
or any note, bond, indenture, mortgage, deed of trust, evidence of indebtedness,
loan or lease agreement, other agreement or instrument, judgment, order,
injunction, or decree to which Seller is a party, by which it is bound, or to
which any of the Acquired Assets are subject.
(b) Seller has good and marketable title to the Acquired Assets,
and owns the Acquired Assets free and clear of any lien, claim or encumbrance,
with full right and authority to transfer the Acquired Assets to Buyer, with the
exception of the lien (the "UMB Lien") on Seller's assets relating to the loan
(the "UMB Loan") from UMB Bank, N.A. ("UMB"), and those restrictions on the
assignability of contracts described on Schedule A.
6.6 Tax Liabilities. Seller has duly and timely filed all federal,
---------------
state and local tax returns of every kind, as required by law, which tax returns
are complete and accurate, and has duly and timely paid all taxes, governmental
fees and assessments. Neither Seller nor Owners have any knowledge of any
claim, lien or dispute concerning any tax obligation of Seller.
6.7 Litigation; Compliance with Laws. Seller is in compliance with
--------------------------------
all laws, ordinances, regulations and orders applicable to its business or
operations and has not
7
<PAGE>
received any notification of any asserted past or present failure to comply with
any law, ordinance, regulation or order.
6.8 Labor Relations; Employees and Independent Contractors. Seller
------------------------------------------------------
has paid or made provision for the payment of all salaries and wages accrued
through the Closing Date to or for the benefit of current or former employees
and independent contractors of the business and has complied in all material
respects with all applicable laws, rules and regulations relating to the
employment of labor, including those relating to wages, hours, collective
bargaining, the payment of accrued vacation through the Closing Date, and the
payment and withholding of taxes, consistent with Seller's classification, as
either an independent contractor or employee. Any exceptions to this Section
6.8 are listed in Schedule B hereto.
6.9 Accounts Receivable. Seller has delivered to Buyer a true and
-------------------
accurate accounts receivable aging report. All accounts receivable relating to
services provided by Seller from December 2, 1996 until and including the
Closing Date (the "Closing Period Accounts Receivable") are valid, genuine and
subsisting and represent sales actually made and invoiced in the ordinary course
of business. The Closing Period Accounts Receivable are enforceable and
collectible claims, at least seventy-five percent (75%) of which can be
collected in full by Buyer within one hundred and twenty (120) days of the date
of this Agreement, and are not subject to any valid defense, offset or credit.
6.10 Billing of Work Performed Under Acquired Contracts. Seller has
--------------------------------------------------
not billed any of the Acquired Contracts to a percentage of completion amount
which is greater than the percentage of work actually performed by Seller for
any such Acquired Contracts.
6.11 Intellectual Property. Seller owns or has valid, binding and
---------------------
enforceable rights to use all of the Intellectual Property. Neither Seller nor
Owners have received notice from any person challenging the right of Seller to
use any of the Intellectual Property owned, used by or licensed to Seller, and
neither Seller nor Owners have made any claim (or believe there is a basis for a
claim) that others are infringing the rights of Seller with respect to the
Intellectual Property.
6.12 Financial Statements. At Closing, Seller shall deliver to Buyer
--------------------
copies of the following information: balance sheet of Seller prepared by its
independent accountants for the three-month period ended November 30, 1996 and
related statements of income, changes in shareholders' equity and cash flows.
Such financial statements shall be derived from the books and records of Seller,
which books and records have been kept in accordance with all applicable legal
and accounting requirements and good business practices, and accurately reflect
in all material respects the basis for the financial position and results of
operations of Seller set forth in such financial statements. Such financial
statements shall fairly represent the financial condition of Seller and the
results of operations of Seller as of the dates and for the periods indicated.
6.13 Actions and Proceedings. Seller is not a party to any
-----------------------
litigation or material governmental or administrative proceeding or, to the
knowledge of Seller or Owners, the subject of any administrative investigation,
and to the knowledge of Seller or Owners, none is pending or threatened against
Seller or its assets.
8
<PAGE>
6.14 No Misrepresentation. No representation or warranty by Seller
--------------------
or any Owner in this Agreement, nor any information contained in any Schedule or
Exhibit conveyed to Buyer pursuant hereto, contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not false or misleading. Seller and Owners have disclosed to Buyer
in this Agreement and the Schedules hereto all facts and information material to
the Acquired Assets.
7. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
---------------------------------------
warrants to Seller and Owners for a period of three (3) years that:
7.1 Organization. Buyer is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of California.
7.2 Authority. Buyer has the corporate power and authority to own,
---------
lease and operate its assets and property and to carry on its business as it is
now being conducted, and to execute, deliver and perform this Agreement and the
transactions contemplated herein. This Agreement has been duly authorized,
executed and delivered by Buyer and no other corporate proceedings are necessary
to authorize this Agreement. This Agreement is a legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms.
8. COVENANTS OF SELLER AND OWNERS. Seller and each of the Owners, jointly
------------------------------
and severally, covenant and agree with Buyer as follows:
8.1 Operation of the Business. From the date hereof until the
-------------------------
Closing Date, Seller will conduct its business diligently, only in the ordinary
course, and substantially in the same manner as heretofore conducted, and,
without limiting the foregoing, Seller:
(a) will not make any capital expenditure, or enter into any
agreement requiring an expenditure, in excess of one thousand dollars ($1,000)
without the prior written approval of Buyer;
(b) will not amend, alter or modify any material provision of
any of the Acquired Contracts without the consent of Buyer;
(c) will use its best efforts to preserve intact the existing
relationships with its suppliers, resale partners, customers, independent
contractors and employees, and will not pay or agree to pay any employee
compensation outside the normal course of Seller's business;
(d) will give prompt written notice to Buyer of any breach or
default (or notice thereof) under any of the Acquired Contracts, or any other
event that may have a material adverse effect on the Acquired Business; and
(e) will maintain insurance as required to protect fully its
business and assets.
9
<PAGE>
8.2 Consents; Performed. Seller will obtain prior to Closing all
-------------------
consents and approvals required to assign to Buyer the Acquired Contracts, and
any other consents and approvals required for the consummation of the
transactions contemplated hereunder. Seller shall use its best efforts to
ensure that the conditions described in Section 11 are satisfied, insofar as
such matters are within its control.
8.3 Performance Bonds. Seller will maintain in place all performance
-----------------
bonds relating to the Acquired Contracts.
8.4 Continuation of Business of Seller. After the Closing Date,
----------------------------------
Seller will continue in business solely for purposes of collection of any
accounts receivable not acquired by Buyer, liquidation of assets, payment of
creditors, and orderly winding down, which it shall perform at its sole cost,
and shall not solicit, conduct or accept any business.
8.5 Owner Acknowledgment. Each Owner acknowledges that he is
--------------------
primarily responsible on a joint and several basis with each other Owner and the
Seller for: (i) the due and punctual performance by Seller of each and every
covenant, agreement or other undertaking by Seller contained herein; and (ii)
the completeness and accuracy of each and every representation and warranty set
forth herein and in any officer's certificate related hereto. Each Owner
acknowledges and agrees that in the event of a material misrepresentation or
inaccuracy in any representation or warranty of Seller or Owners contained in
this Agreement or any officer's certificate related hereto (which
misrepresentation or inaccuracy has not been disclosed to Buyer prior to Closing
in writing), or a material breach of or failure by Seller or any Owner to
perform any of their respective covenants or agreements contained in or made
pursuant to this Agreement, in addition to any other rights or remedies of Buyer
under this Agreement or as provided by law or in equity, Buyer shall also have
the right to (i) terminate the Employment Agreements; and (ii) repurchase any
stock or terminate vesting of any stock options received or receivable pursuant
to the Employment Agreements. Seller and Owners further acknowledge and agree
that Buyer shall have the right to offset any amounts due to any Owner against
any Claims (as defined in Section 12.2) of Buyer under this Agreement or any
other amounts due to Buyer under this Agreement or the Employment Agreements,
including without limitation, the contingent payments described in Exhibit B
thereto.
8.6 Independent Contractors. Each Owner and Seller shall use his or
-----------------------
its best efforts, subject to the approval of Buyer, to ensure that each of the
independent contractors listed on Schedule B hereto has signed and delivered to
Seller a form of release and is engaged by Buyer as an employee on terms
acceptable to Buyer, prior to, or as soon as possible after, the Closing.
8.7 Employees. Each Owner and the Seller shall use his or its best
---------
efforts, subject to the approval of Buyer, to ensure that each of the Employees
listed on Schedule B hereto has signed and delivered to Seller a form of
resignation and release and entered into employment arrangements with Buyer that
are on terms acceptable to Buyer, prior to, or as soon as possible after the
Closing.
10
<PAGE>
8.8 Overdue Closing Period Accounts Receivable. Each Owner and the
------------------------------------------
Seller agree, jointly and severally, to pay Buyer in cash, within three (3) days
of receipt of written notice from Buyer thereof, any amount of Closing Period
Accounts Receivable not received by Buyer within 120 days of the date of this
Agreement. Any subsequent collection by Buyer of any amount of Closing Accounts
Receivable for which Buyer has received payment pursuant to this Section 8.8
shall be remitted to Seller as soon as possible after receipt thereof.
8.9 Removal of UMB Lien. Each Owner and Seller shall use their best
-------------------
efforts to ensure that the UMB Lien is removed from the Acquired Assets as soon
as possible after the Closing and to ensure that Buyer holds title to the
Acquired Assets free and clear of any liens or encumberences.
9. COVENANTS OF BUYER.
------------------
9.1 Satisfaction of Conditions. Buyer will use its best efforts to
--------------------------
ensure that the conditions set forth in Section 10 hereof are satisfied, insofar
as such matters are within its control.
10. CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of Seller to
-----------------------------------
consummate the transactions contemplated herein shall be subject to the
satisfaction, at or before the Closing, of each of the following conditions,
unless waived in writing by Seller:
10.1 Representations and Warranties True. The representations and
-----------------------------------
warranties made by Buyer herein shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if such
representations and warranties had been made on and as of the Closing Date, and
(ii) Buyer shall have performed and complied in all material respects with all
agreements, covenants and conditions on its part required to be performed or
complied with on or prior to the Closing Date.
10.2 Employment Agreements. Employment agreements between Buyer and
---------------------
each of the Owners, in substantially the forms set attached hereto as Exhibits
A, B and C, respectively, shall have been executed by all parties thereto.
10.3 Assignment of Acquired Assets. After having used its best
-----------------------------
efforts, Seller shall have acquired all necessary consents to assign the
Acquired Assets to Buyer.
11. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to
----------------------------------
consummate the transactions contemplated herein shall be subject to the
satisfaction, at or before the Closing, of each of the following conditions,
unless waived in writing by Buyer:
11.1 Representations and Warranties True. (i) The representations
-----------------------------------
and warranties made by Seller and/or Owners herein shall be true and correct in
all material respects on and as of the Closing Date with the same effect as if
such warranties and representations had been made on and as of the Closing Date,
(ii) Seller and Owners shall have performed and complied in all material
respects with all agreements, covenants and conditions on their part required to
be performed or complied with on or prior to the Closing Date, and (iii) Seller
and
11
<PAGE>
Owners shall have delivered to Buyer the items required to be delivered by each
of them pursuant to Section 5.1 hereof.
11.2 Satisfactory Due Diligence. Buyer shall have completed
--------------------------
Satisfactory Due Diligence.
11.3 Employment Agreements. The Employment Agreements shall have
---------------------
been executed by all parties thereto, in substantially the form set forth as
Exhibits A , B and C.
11.4 Payment of Compensation. Seller shall deliver an officer's
-----------------------
certificate certifying that all compensation due to Seller's present or former
employees and independent contractors for the period prior to the Closing Date
was paid to such employees or independent contractors prior to the Closing Date,
consistent with Seller's classification of such individuals as either
independent contractors or employees, and that no further payments are due to
any of the entities that supply independent contractors or subcontractors to the
Seller. Such officer's certificate shall also state that the Payroll Registers
(as described in Section 11.10 hereto) accurately reflect payments made to such
employees or independent contractors for the period from December 2, 1996 up to
and including the Closing Date.
11.5 Tax Clearance Certificate. Buyer shall have received a Tax
-------------------------
Clearance Certificate from Seller, issued by the State of Missouri, certifying
that Seller is in good standing with the State of Missouri, and that no taxes,
fines, penalties, fees or assessments are owing to such state by Seller.
11.6 [Intentionally left blank].
11.7 Opinion of Counsel. Buyer shall have received an opinion of
------------------
Seller's counsel, in substantially the form attached hereto as Exhibit D.
11.8 Assignment of Acquired Assets. Seller shall have acquired all
-----------------------------
necessary consents, and shall have performed all of the necessary prerequisites,
to assign the Acquired Assets to Buyer, and shall have delivered satisfactory
proof thereof to Buyer.
11.9 Release of UMB Lien. Seller shall have delivered forms of any
-------------------
and all documentation necessary to remove the UMB lien and to transfer title to
the Acquired Assets to Buyer free and clear of any liens or encumbrances.
Seller shall have delivered a letter from UMB to Buyer certifying that upon
delivery to UMB of a check or wire transfer representing the balance of the UMB
Loan, UMB will immediately file or deliver any and all documentation necessary
to release the UMB Lien.
11.10 Delivery of Payroll Registers. Seller shall have delivered all
-----------------------------
payroll registers (including those from Automatic Data Processing) (the "Payroll
Registers") relating to Seller's payroll for the period from December 2, 1996
until Closing, along with proof of payment of payroll for the period from
December 2, 1996 until Closing, in a form acceptable to Buyer.
12
<PAGE>
11.11 Financial Statements. Seller shall have delivered the
--------------------
financial statements described in Section 6.12 hereto.
12. INDEMNIFICATION.
---------------
12.1 Survival of Representations. The respective representations and
---------------------------
warranties of Buyer, Seller and Owners contained herein or in any certificates
or other documents delivered prior to or on the date of this Agreement shall not
be deemed waived or otherwise affected by any investigation made by any party
hereto. Each and every such representation and warranty shall survive the date
of this Agreement indefinitely except as provided in Sections 6 and 7 hereto.
12.2 Indemnification by Seller and Owners.
------------------------------------
(a) Seller and each Owner jointly and severally agree to
indemnify, reimburse, defend and hold harmless Buyer and its affiliates, and
their officers and directors ("Indemnified Parties"), for, from, and against all
demands, claims, actions, assessments, losses, damages, liabilities, costs, and
expenses (collectively, "Claims"), including, without limitation, attorneys'
fees, asserted against, imposed on or incurred by the Indemnified Parties in
connection with or attributable to any of the following:
(1) any misrepresentation or inaccuracy in any
representation or warranty of Seller or Owners contained in this Agreement;
(2) Seller's or any Owner's breach of or failure to
perform any of its covenants or agreements contained in or made pursuant to this
Agreement; or
(3) liabilities and obligations of Seller not expressly
assumed by Buyer pursuant to this Agreement including without limitation:
(i) income, franchise, sales, use, and other taxes,
including penalties and interest with respect thereto, of or relating to the
operations of Seller through the Closing Date (including any resulting from the
sale of the Acquired Assets);
(ii) obligations and liabilities of any kind
relating to the employment (or termination) of Seller's employees or independent
contractors, including, without limitation, severance claims, unfair labor
practice claims, discrimination claims, workers' compensation claims,
grievances, the withholding of taxes related to salaries and wages, demands for
arbitration, or claims of successor (or similar) liability against Buyer based
on such arguments;
(iii) obligations and liabilities of any kind
relating to employee benefit plans of Seller; or
(iv) obligations or liabilities of any kind arising
out of future operations of Seller.
13
<PAGE>
(b) Buyer shall have the right to off-set any amounts due to
Seller or any Owner under this Agreement or the Employment Agreements against
any amounts due to Buyer under this Agreement (including, without limitation,
any amount due to Buyer under this Section) or the Employment Agreements.
12.3 Indemnification by Buyer. Buyer agrees to indemnify, reimburse,
------------------------
defend and hold harmless Seller and Owners for, from, and against all demands,
claims, actions, assessments, losses, damages, liabilities, costs, and expenses,
including, without limitation, attorneys' fees, asserted against, imposed on or
incurred by Seller or Owners in connection with or attributable to any of the
following:
(a) any misrepresentation or inaccuracy in any representation or
warranty of Buyer contained in this Agreement;
(b) Buyer's breach of or failure to perform any of its covenants
or agreements contained in or made pursuant to this Agreement; or
(c) any liabilities and obligations of Seller expressly assumed
by Buyer pursuant to this Agreement.
12.4 Insurance. Payments for indemnification under this Section 13
---------
shall be net of any actual insurance reimbursement associated with the specific
claim actually received by the party seeking indemnification under this Section
13; provided, however, that no party shall be obligated to seek such insurance
reimbursements in connection with any claim.
13. NOTICE TO CUSTOMERS. Buyer and Seller shall cooperate to send a
-------------------
notice to Seller's customers in a mutually acceptable form providing notice of
assignment of the Acquired Contracts.
14. MISCELLANEOUS.
-------------
14.1 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
14.2 Successors and Assigns. This Agreement and the rights,
----------------------
interests, and obligations hereunder shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be assigned by Seller without the prior written
consent of Buyer, but Buyer may at its sole discretion assign its rights and
obligations hereunder to any affiliate or any subsidiary.
14.3 Third-Party Beneficiaries. Nothing in this Agreement is
-------------------------
intended to confer upon any person other than the parties hereto and their
successors and permitted assigns any rights or remedies under or by reason of
this Agreement.
14
<PAGE>
14.4 Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding of the parties concerning the subject matter of this
Agreement, and this Agreement supersedes all previous negotiations and
agreements of the parties. There are no representations, assurances,
agreements, or understandings between the parties that are not set forth
specifically in this Agreement.
14.5 Amendment; Waiver. This Agreement may be amended or modified
-----------------
only by a writing signed by both parties. No forbearance or delay in the
enforcement of any right or remedy permitted under this Agreement or applicable
law shall be deemed to constitute a waiver or estoppel of the right to enforce
such right or remedy or a modification of this Agreement.
14.6 Notice. Any notice permitted or required pursuant to this
------
Agreement shall be in writing and shall be delivered either by personal delivery
to the recipient, by U.S. Mail (postage pre-paid, certified, return receipt
requested), by overnight courier or by facsimile transmission (confirmed in
writing), to the address set forth below.
If to Buyer:
TIER Corporation
1350 Treat Blvd., Suite. 250
Walnut Creek, California 94596
Attn: James L. Bildner
Fax No.: (510) 937-3752
with a copy to:
Farella Braun & Martel LLP
235 Montgomery Street, 30th Floor
San Francisco, California 94104
Attn: Morgan P. Guenther
Fax No.: (415) 954-4480
If to Seller:
Encore Consulting, Inc.
464 Fox Trail Drive
Lake St. Louis, Missouri 63367
with a copy to:
Donald Hackmann, Esq.
1155 Francis Place
Richmond Heights, Missouri 63117
Fax No.:
15
<PAGE>
14.7 Governing Law. This Agreement shall be construed and enforced
-------------
in accordance with the laws of the State of California without giving effect to
principles of conflicts of laws.
14.8 Attorneys' Fees. In the event of any litigation or arbitration
----------------
between the parties arising out of or concerning this Agreement the prevailing
party shall be entitled to recover its attorneys' fees and costs in addition to
any other relief awarded, including attorneys fees and costs incurred in the
enforcement of judgment.
14.9 Severability. If any provision of this Agreement is held to be
------------
illegal, invalid, or unenforceable, the remaining provisions of this Agreement
shall remain in full force and effect and shall not be affected thereby (except
to the extent such remaining provisions constitute obligations of another party
to this Agreement corresponding to the unenforceable provision); and in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid and enforceable.
14.10 Publicity. Seller shall not make or issue, or cause to be made
---------
or issued, any public announcement or written statement concerning this
Agreement or the transactions contemplated hereby without the prior written
consent of Buyer.
14.11 Expenses. Each party to this Agreement shall bear its own
--------
expenses in connection with the negotiation, execution, delivery and performance
of this Agreement and of the transactions contemplated herein.
14.12 Consent to Jurisdiction. Seller and Owners, without regard to
-----------------------
domicile, citizenship or residence, hereby expressly and irrevocably consent to
and subject themselves to the jurisdiction of the courts of the State of
California and/or the United States District Court for the Northern District of
California, in respect of any matter arising under or in connection with this
Agreement and/or the Employment Agreements; waive any right to avail themselves
of any defense based on forum non conveniens or inappropriate venue; and agree
----- --- ----------
that service of process, notices and demands of such courts may be made upon any
of them by personal service at any place where they may be found or by mailing
copies of such process, notices and demands by certified or registered mail,
postage prepaid and return receipt requested, to the respective addresses
provided in Section 14.6 of this Agreement.
The parties have executed this Agreement as of the day and year written
above.
TIER Corporation, a California corporation
By: /s/ James Bildner
------------------------------
Title: Chairman & CEO
---------------------------
16
<PAGE>
Encore Consulting, Inc., a Missouri corporation
By: /s/ Thomas E. McLeod
-------------------------------
Its: President
------------------------------
/s/ Thomas E. McLeod
----------------------------------
Thomas E. McLeod
/s/ David M. Beman
----------------------------------
David M. Beman
/s/ Robert Myers
----------------------------------
Robert Myers
17
<PAGE>
SCHEDULE A
ACQUIRED CONTRACT
1. Consulting Services. IEF Case Tool Contract by and between the State
-------------------
of Missouri and Encore Consulting, Inc., dated as of August 28, 1996, as
amended. The consent of the State of Missouri is required in order to transfer
this Agreement.
<PAGE>
SCHEDULE B
EMPLOYEES AND INDEPENDENT CONTRACTORS OF SELLER
1. Employees
Tom McLeod
Dave Beman
Bob Myers
Mike Johnson
Alisha Weaver
2. Independent Contractors
Carol Boyd
Vic McLendon
Dennis Freiheit
Mike Philips
Lucy Searles
Jeremy May
Ed Reynolds
George Simpson
Sara Krull
John Stanley
Charles Coldwell
Paul Collins
Terry Cooley
Tony Ciko
Steve Richie
Stacy Pickett
Mark Schmidt
Wade Warner
Marty Katz
Judy Katz
Ken Mattews
Charles Manry
Jim Evans
Partha Adhikary
Sankha Raychaudhuri
Steve Vance
Sandy Evans
Ken Evans
<PAGE>
3. Exceptions
a. Seller did not have workers' compensation coverage prior to December
23, 1996.
b. Seller may incur liablity associated with its categorization of the
majority of its workforce as independent contractors.
<PAGE>
Exhibit 10.27
ASSET PURCHASE AGREEMENT
BY AND AMONG
TIER TECHNOLOGIES (UNITED KINGDOM), INC., A DELAWARE CORPORATION
TIER TECHNOLOGIES INC., A CALIFORNIA CORPORATION
ALBANYCREST LIMITED, A LIMITED LIABILITY COMPANY
INCORPORATED IN ENGLAND
AND
ANDREW DAVID ARMSTRONG
AND
THOMAS THOMSON
AND
HOWARD MOORE
DATED 11 JULY 1997
<PAGE>
CONTENTS
--------
1. DEFINITIONS 2
2. PURCHASE AND SALE OF CERTAIN ASSETS 2
3. ASSUMPTION OF OBLIGATIONS AND LIABILITIES 3
4. PURCHASE PRICE 4
5. EXECUTION AND DELIVERY OF CLOSING DOCUMENTS 5
6. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE OWNERS
AND LIMITATIONS ON LIABILITY 6
7. COVENANTS OF THE SELLER AND THE OWNERS 9
8. COVENANTS OF BUYER AND GUARANTEE 12
9. VALUE ADDED TAX 14
10. MISCELLANEOUS 15
i
<PAGE>
THIS ASSET PURCHASE AGREEMENT is made this 11 of July 1997, by and among:
-----------------------------
(1) TIER TECHNOLOGIES (UNITED ) KINGDOM, INC. a corporation registered in
----------------------------------------
Delaware whose registered office is 1013 Centre Road, Wilmington, New
Castle County, Delaware, USA (the "Buyer"), and
(2) TIER TECHNOLOGIES, INC. a corporation registered in California whose
-----------------------
registered office-is 1350 Treat Boulevard, Walnut Creek, California 94056
USA (the "Guarantor"), and
(3) ALBANYCREST LIMITED a company registered in England under number 3277691
-------------------
and whose registered office is 6th Floor, Waterlinks House, Richard Street,
Birmingham, West Midlands B7 4AA (the "Seller"), and
(4) ANDREW DAVID ARMSTRONG, THOMAS THOMSON and HOWARD MOORE in their capacity
---------------------- -------------- -------------
as the ultimate shareholders of the Seller and individually (the "Owners").
RECITALS
--------
(A) The Seller is engaged in the United Kingdom in the provision of information
and management of consulting services, including but not limited to, the
design of software and computer systems for business applications,
including but not limited to, the development of business and computer
processes and programs and the provision of software consulting services
and training.
(B) The Seller has agreed to procure the cancellation of its existing contracts
with Equifax (UK) Limited and the Consultants (as defined below) working on
Equifax matters and to procure the granting of replacement contracts in
favor of the Buyer and the Buyer desires to enter into such contracts with
Equifax and the Consultants.
(C) The Seller desires to sell and transfer and the Buyer desires to purchase
and receive selected assets and liabilities of the Seller.
(D) The Buyer is a wholly owned subsidiary of the Guarantor and is not itself a
subsidiary of any other corporation and as consideration for the Sellers
and the Owners agreeing to enter into this Agreement, the Guarantor has
agreed to guarantee the obligations of the Buyer hereunder.
(E) The Buyer will operate in the United Kingdom as a branch and will be
applying to be registered for United Kingdom Value Added Tax ("VAT")
Accordingly, in consideration of the mutual agreements set forth below the
Buyer, the Seller and the Owners agree as follows:
1
<PAGE>
1. DEFINITIONS
-----------
"agreed form" in relation to any document means the form which has been
-----------
agreed by the parties hereto and signed either by the relevant parties or
by their solicitors for the purposes of identification;
"Associated Company" means a company which is a subsidiary company of the
------------------
Guarantor, "subsidiary" having the meaning given in Section 736 of the
Companies Act 1985;
"Consultants" means Nuggets Limited, Planet Clanger Limited, Brooks Talent
-----------
Limited, City Nomad Limited, Portisland Limited, Roger C. Millichamp
Limited and Unerring Computing Limited and Technology Two Thousand Ltd;
"Consultants' Contracts" means the contracts between the Seller and the
----------------------
Consultants which have been disclosed to the Buyer;
"Closing" means closing in accordance with section 5;
-------
"Equifax" means Equifax (UK) Limited, a company registered in England whose
-------
registered office is Capital House, 25 Chapel Street, London NW1; and
"Equifax Contract" means the contract dated 26 November 1996 between
----------------
Equifax and the Seller relating to the provision by the Seller of
consultancy services to Equifax.
2. PURCHASE AND SALE OF CERTAIN ASSETS
-----------------------------------
Subject to the terms and conditions hereof, the Seller shall sell, transfer
and assign to the Buyer, and the Buyer shall purchase and acquire from the
Seller, all of the Seller's right, title and interest in and to the assets
listed below together with the benefit of the Seller's business as a going
concern (the "Transferred Assets" or the "Transferred Business"), free and
clear of any and all liens, claims, liabilities, encumbrances or
obligations:
(a) all cash or cash equivalents or accounts receivable (in each case
exclusive of VAT) associated with the Seller's billings relating to
work done on or after 1 June 1997;
(b) the benefit of all work-in-progress associated with works done or
services provided by the Seller on or after 1 June 1997;
(c) all intellectual property and technology rights used or held for use
in the conduct of the Seller's business, including without limitation:
all software licenses, product licenses, software development rights,
developed applications, computer programs, computer systems, source
codes, data systems, development methodologies and practices, trade
secrets, know-how, technical information, research records, test
information, market surveys, marketing information, trademarks,
tradenames, and copyrights, and all applications or licenses for the
2
<PAGE>
foregoing (but excluding for the avoidance of doubt any such rights
belonging to Equifax or associated companies of Equifax)
(collectively, the "Intellectual Property");
(d) any permits, licenses, approvals and authorisations by governmental or
regulatory authorities relating to the Seller's business to the extent
transferable;
(e) any client and customer account information, customer lists, contact
lists, subcontractor lists and independent contractor lists relating
to or utilised in the current or past conduct of the Seller's
business;
(f) all claims and rights against third parties relating to the
Transferred Assets, including without limitation, insurance claims,
vendors' warranties, rights of recovery, set-offs and credits;
(g) all books, records, information and documentation regarding the
foregoing; and
(h) all goodwill associated with the Transferred Business.
3. ASSUMPTION OF OBLIGATIONS AND LIABILITIES
-----------------------------------------
3.1 Liabilities to be assumed
-------------------------
The Buyer shall assume as of the Closing and perform when due the
obligations of the Seller (exclusive of VAT) insofar as they accrued due
after 1 June 1997 and were disclosed to the Buyer prior to Closing
provided, however, that in no event will the Buyer be liable for any
accounts payable in an amount exceeding eighty percent (80%) of the
accounts receivable acquired by the Buyer under Section 2 and Provided
Further that the Seller shall remain liable for any and all fees payable by
the Seller to A Peachy World Limited, Oakenwood Limited and Rainbowtop
Limited.
3.2 Liabilities not assumed
-----------------------
It is understood and agreed that the Buyer shall not assume or be bound by
any duties, responsibilities, obligations or liabilities of the Owners,
the Seller or the Seller's business of any kind or nature, known, unknown,
contingent or otherwise, arising at any time, other than those obligations
and liabilities expressly assumed by the Buyer under Section 3.1 above.
Without limiting the foregoing in any way, it is understood that the Buyer
does not assume, undertake or accept any duties, responsibilities,
obligations or liabilities of the Seller or the Owners:
(a) to employees or consultants or former employees or consultants of
the Seller, including any liability for termination of employment or
contract, wages, salary, fees, benefits, payroll withholdings and
taxes, workers' compensation, commissions, accrued vacation, bonuses,
deferred compensation, earnouts, incentives, employment agreements,
pensions, non-compete agreements, collective bargaining agreements, or
the like;
3
<PAGE>
(b) in respect of any income, franchise or other tax or VAT;
(c) in respect of any claims for personal injuries, property damages or
consequential damages relating to defective products or condition of
premises or otherwise;
(d) under any statute, rule or regulation, including but not limited to
health, safety, labour, discrimination, civil rights, and environmental
laws, rules and regulations;
(e) in respect of any accounts payable, except for those specifically
identified in Section 3.1, or any indebtedness of the Seller; or
(f) in respect of any debt, liability or obligation of the Seller, or
claims against the Seller, whether known or unknown to the Buyer, and
whether disclosed or undisclosed pursuant to this Agreement and whether
or not contingent, except as otherwise assumed under this Agreement.
3.3 Indemnity
---------
The Seller and each of the owners shall jointly and severally indemnify the
Buyer on demand against all liabilities, losses, claims and expenses of the
Buyer arising from or in connection with any of the matters referred to in
Section 3.2.
4. PURCHASE PRICE
--------------
4.1 Purchase Price Paid at Closing
------------------------------
The purchase price payable to the Seller for the Transferred Assets and
Transferred Business and for the cancellation of the Equifax Contract and
the Consultants' Contracts and their replacement with new contracts with
the Buyer shall be (Pounds)126,000 (which shall be paid to the Seller at
Closing) by way of bankers' draft drawn on a London clearing bank or by
CHAPS transfer to the Sellers's solicitors, plus the assumption of the
liabilities described in Section 3.1.
The purchase price shall be apportioned between the assets and liabilities
as follows:
(a) receivables and payables shall be valued at par and work in progress
at the amount recoverable; and
(b) other assets shall be valued at the values shown in the Seller's
books, goodwill shall be valued at (Pounds)l and the balance of the
price shall attributed [sic] to the cancellation of the Equifax
Contract and its replacement with a new contract with the Buyer.
4
<PAGE>
4.2 Stock Option
------------
On Closing, the Guarantor shall grant each of the owners options to
purchase fifty thousand (50,000) shares of its Class B common stock on the
terms set out in the agreed form.
5. EXECUTION AND DELIVERY OF CLOSING DOCUMENTS
-------------------------------------------
Closing shall occur immediately following exchange of this Agreement
whereupon the following provisions of this Section 5 shall apply.
5.1 Deliveries by Seller at Closing.
-------------------------------
At or prior to the Closing, the Seller shall deliver to the Buyer:
(a) an original contract between Equifax and the Buyer in the agreed form
duly signed by Equifax;
(b) original contracts between each of the Consultants and the Buyer in
the agreed form duly signed by the Consultants;
(c) original contracts as required by the new Equifax contract at (a)
above between Equifax and the relevant Consultants and individuals in
the agreed form agreed duly signed by the relevant Consultants and
individuals and Equifax;
(d) Employment contracts in the agreed form duly executed by each of the
Owners;
(e) all of its VAT records;
(f) a certificate executed by the secretary of the Seller, in a form
reasonably acceptable to the Buyer, certifying copies of the
resolutions duly adopted by the board of directors of the Seller
authorizing this Agreement and the transactions contemplated herein.
5.2 Deliveries by Buyer at Closing
------------------------------
At the Closing, the Buyer shall deliver to the Seller and the Owners;
(a) any payments then due as provided for in Section 4.1;
(b) certified copies of each of the contracts referred to in Section
5.1(a) and (b) duly executed by the Buyer;
(c) an opinion letter in the agreed form from Farella, Braun & Martel LLP
addressed to the Seller and the Owners;
(d) option grants duly executed by the Guarantor in respect of the stock
options referred to in Section 4.2; and
5
<PAGE>
(e) counterparts of the Employment contracts in the agreed form duly
executed by the Buyer and the Guarantor.
6. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE OWNERS AND LIMITATIONS
---------------------------------------------------------------------------
ON LIABILITY
------------
The Seller and the Owners hereby jointly and severally represent and
warrant to the Buyer that:
6.1 Organisation; Ownership
-----------------------
The Seller is a limited liability company duly organized, validly existing
and in good standing under the laws of England and Wales. There are no
existing warrants, options, subscription rights, commitments,
understandings, purchase agreements, or other rights to acquire interests
in, or that call for the disposition of, the assets or stock in the Seller.
6.2 Authority
---------
The Seller has the legal power and authority and so far as each of the
Owners is aware, having made all reasonable inquiries, all licenses,
authorizations and permits required by governmental or other authorities to
own, lease and operate its assets and property and to carry on its business
as now being conducted, and to execute, deliver and perform this Agreement,
and the transactions contemplated herein. This Agreement has been duly
authorised, executed and delivered by the Seller and no other consents are
necessary to authorise this Agreement. This Agreement is the legal, valid
and binding obligation of the Seller enforceable in accordance with its
terms. Each of the Owners has the full right, capacity, power and
authority to execute, deliver and perform this Agreement and the
transactions contemplated herein. This Agreement has been duly executed
and delivered by each of the Owners and is the legal, valid and binding
obligation of each of the Owners, enforceable in accordance with its terms.
The performance by the Owners of the Employment contracts in the agreed
form will not involve any breach of any restrictive covenant to which any
of the Owners is subject.
6.3 Compliance With Other Instruments, Title
----------------------------------------
(a) The Seller is not in violation of or in default under, nor, to the
knowledge of the Seller or the Owners, has any event occurred that,
with the lapse of time or the giving of notice or both, would
constitute a violation of or default under, or permit the termination
or the acceleration of maturity of, any note, bond, indenture
mortgage, deed of trust, evidence of indebtedness, loan or lease
agreement, other agreement or instrument, judgment, order, injunction,
or decree to which the Seller is a party, by which it is bound, or to
which any of the Transferred Assets are subject or result in the
imposition of a lien, claim or encumbrance upon any property or assets
of the Seller.
6
<PAGE>
(b) The Seller has good and marketable title to the Transferred Assets,
and owns them free and clear of any lien, claim or encumbrance, with
full right and authority to transfer the Transferred Assets to Buyer.
6.4 Litigation; Compliance with Laws
--------------------------------
So far as each of the Owners is aware, having made all reasonable esquires,
the Seller is in compliance with all laws, ordinances, regulations and
orders applicable to its business or operations and has not received any
notification of any asserted past or present failure to comply with any
law, ordinance, regulation or order.
6.5 Employees and Consultants
-------------------------
The Seller has no employees and has paid or made provision for the payment
of all fees accrued through to today's date to or for the benefit of all
consultants of the business and has complied in all material respects with
all applicable laws, rules and regulations relating to the employment of
labor, including those relating to wages, hours, collective bargaining, the
payment of accrued vacation (if any) through today's date, and the payment
and withholding of taxes.
6.6 Accounts Receivable
-------------------
All accounts receivable of the Seller relating to work done on or after
last June 1997 are valid, genuine and subsisting and represent sales
actually made and invoiced in the ordinary course of business and will be
paid in the ordinary course of business. The accounts receivable of the
Seller relating to work done on or after 1 June 1997 and its rights
relating to work done on or after that date which have not yet been billed
are enforceable and collectible claims which will be collected in full by
the Buyer within ninety (90) days of billing, and are not subject to any
valid defence, offset or credit.
6.7 Billing of Work Performed Under Acquired Contracts
--------------------------------------------------
The Seller has not billed Equifax under the Equifax Contract to an extent
greater than that permitted under the Equifax Contract.
6.8 Intellectual Property
---------------------
The Seller owns or has valid, binding and enforceable rights to use all of
the Intellectual Property and all of its rights in Intellectual Property
are freely assignable to the Buyer without the need for any consents.
Neither Seller nor any of the owners have received notice from any person
challenging the right of the Seller to use any of the Intellectual Property
owned, used by or licensed to the Seller, and neither the Seller nor any of
the Owners have made any claim (or believe there is a basis for a claim)
that others are infringing the rights of the Seller with respect to the
Intellectual Property.
7
<PAGE>
6.9 Financial Statements
--------------------
The Seller has delivered to the Buyer copies of the following information:
balance sheet of the Seller prepared by its independent accountants for the
period ended 30th April 1997 and related statements of income, changes in
shareholders equity and cash flows. Such financial statements are derived
from the books and records of the Seller, which have been kept in
accordance with all applicable legal and accounting requirements and good
business practices, and accurately reflect in all material respects the
basis for the financial position and results of operations of the Seller
set forth in such financial statements. Such financial statements fairly
represent the financial condition of the Seller and the results of
operations of the Seller as of the date and for the period indicated in
conformity, to the extent practicable, with generally accepted accounting
principles of the United Kingdom.
6.10 Actions and Proceedings
-----------------------
The Seller is not a party to any litigation or material governmental or
administrative proceeding or, to the knowledge of the Seller or the
Owners, the subject of any administrative investigation, and to the
knowledge of the Seller or the owners, none is pending or threatened
against Seller or its assets.
6.11 No Misrepresentation
--------------------
None of the written information given to the Buyer in the course of the
negotiations leading to this Agreement, (copies of which are attached)
contains any untrue statement of a material fact or omits to state any
material fact necessary for such information not to be false or
misleading. The Seller and the Owners have disclosed to the Buyer in this
Agreement and the Schedules hereto all facts and information material to
the Seller's business or the Acquired Assets.
6.12 Limitations
-----------
(a) Neither the Seller nor the Owners shall have any liability in respect
of any claim made by the Buyer under the warranties and
representations in this Agreement (the "Warranties") unless notice in
writing containing full particulars of the subject matter of such
claim shall have been given to each of the owners on or before the
third anniversary of today's date and proceedings in respect thereof
shall have been commenced (by being both issued and served on the
Owners) within forty-two months of today's date.
(b) The maximum aggregate liability of the Seller and each of the Owners
under the Warranties shall not exceed the sums of (Pounds)126,000 and
(Pounds)127,547 respectively.
(c) The Buyer may deduct any amount from the consideration payable under
clause 5.1 on account of damages for any alleged breach of the
Warranties which shall not have been agreed or determined as aforesaid
as being payable so long as it forthwith pays a sum equal to the
amount so deducted to the Buyer's Solicitors
8
<PAGE>
and instructs them irrevocably to hold such sum on an interest bearing
deposit account until the relevant claim(s) under the Warranties shall
have been agreed or determined whereupon a sum equal to the damages
agreed or determined as being payable to the Buyer shall be paid to
the Buyer together with the interest earned on such sum and the
balance on such account (the "Balance") shall be paid to the Owners
and the Seller in the respective proportions due to them.
(d) The liability of each of the Seller and/or the Owners to any permitted
assignee(s) shall not exceed the amount for which each of them would
have been liable to the Buyer if the relevant assignment had not
occurred.
7. COVENANTS OF THE SELLER AND THE OWNERS
--------------------------------------
The Seller and each of the Owners covenant and agree with the Buyer as
follows:
7.1 Protection of the interests of the Buyer
----------------------------------------
(a) The Seller and each of the Owners covenant that for a period ending on
30th April 1999 in respect of Section (a)(i) below (or, if applicable,
any shorter period applying under Section 7.1(k)) and 30th April 2002
in respect of Sections (a)(ii) and (a)(iii) below it or he (as
appropriate) will not, without the prior written consent of the Buyer,
(which may be withheld only so far as may be reasonably necessary to
protect the legitimate interests of the Buyer), whether alone or
jointly with any person or as principal, partner, agent, employee,
director, shareholder or consultant or in any other capacity of any
kind and whether directly or indirectly:
(i) be engaged, interested or concerned in any business or concern
which shall be in competition with the Buyer or any Associated
Company in the United Kingdom in relation to the provision of
products or services of a kind and nature supplied by the Seller
as at Closing;
(ii) hire, solicit, employ or engage the services of any person in
relation to the provision of services of a kind and nature
supplied by the Seller as at Closing, who is or was at any time
during the twelve months before the date of this Agreement an
employee or an executive officer employed in the Transferred
Business or any person providing consultancy services to the
Seller in connection with the Transferred Business (whether or
not that person would thereby commit a breach of his contract of
employment or consultancy);
(iii) canvass, solicit, approach or cause to be canvassed, solicited
or approached any person who was at any time during the twelve
months before the date of this Agreement a contractor, supplier
or customer of the Transferred Business (or who was not then a
contractor, supplier or customer, but who was named as a
potential contractor, supplier or customer in relation to the
Transferred Business in the information
9
<PAGE>
provided to the Buyer prior to the signature of this Agreement)
so as adversely to affect the business as carried on by the Buyer
or any Associated Company in relation to provision of products or
services of a kind and nature supplied by the Seller as at
Closing.
The holding by the Seller or any of the Owners of shares listed on a
stock exchange shall not be prohibited by this section if those shares
(when aggregated with those held by each person connected with the
Seller) do not exceed 3% in nominal value of all issued shares in that
company.
(b) Having regard to all the circumstances, and in particular the fact
that the Seller and the Owners have detailed confidential information
relating to the Transferred Business, the parties acknowledge that the
Covenants are reasonable as to subject matter, area and duration.
(c) Each of the Covenants set out in Section 7.1 ("the Covenants") shall
be severable from and construed independently of the others, and the
enforceability of any Covenant shall not be affected by the
unenforceability for any reason of any of the others.
(d) If any Covenant would be held unenforceable but for the deletion of
some part of it, then there shall be deemed deleted from that Covenant
any words or phrases which are necessary to make that Covenant
enforceable.
(e) If any Covenant would be held unenforceable because it restricts the
activities of the Seller for too long a period of time, the phrase
"30th April 1999" or "30th April 2002" (as appropriate) in Section 7.1
shall be deemed to be deleted and replaced with the phrase "30th April
1998" or "30th April 2000".
(f) Section 7.1 is without prejudice to any other obligations of the
Seller implied at law or in equity.
(g) Neither the Owners nor the Seller shall at any time after Closing use
or cause to be used or (so far as is within their power) allow to be
used any trade or business name or logo incorporating the word
"Albanycrest" or any other name used by the Seller for the purposes of
the Transferred Business at the date of this Agreement or any other
name or logo that is similar to or likely to be confused with it or
any name or logo so used whether or not in combination with any other
name, word or logo.
(h) The Seller and the Owners shall each forward to the Buyer as soon as
reasonably practicable any enquiries relating to the Transferred
Business received by or on behalf of it or him after Closing and shall
provide all reasonable assistance to the Buyer (at the Buyer's
expense) after Closing to assist the Buyer to resolve amicably any
disputes arising with any of the customers of the Business in respect
of acts or omissions on or before Closing.
10
<PAGE>
(i) The Seller and the Owners shall not (and shall ensure that none of the
Seller's officers or employees, and none of the officers or employees
of any person connected with it shall), disclose or use any
confidential information relating to the Transferred Business, save
pursuant to a legal obligation involuntarily incurred, or as required
by any regulation or rule of a governmental or other regulatory
authority, or in the conduct of the Owners' employment with the Buyer.
If the Seller or any of the Owners becomes aware of any breach of this
section, it or he shall immediately notify the Buyer of the
information concerned and each person to whom it has been disclosed or
(as the case may be) the use to which it has been put.
(j) If this Agreement (together with any arrangement of which it forms
part) is or by virtue of any variation becomes subject to registration
under the Restrictive Trade Practices Act 1976, each restriction or
information provision (within the meaning of that Act) accepted or
made under this Agreement (and under any such arrangement) as varied
from time to time shall take effect only on the day after particulars
are duly furnished to the Director General of Fair Trading under s.24
of that Act.
(k) If the Buyer shall require any of the Owners to work outside the
European Union for periods which are longer than the periods allowed
under that Owner's employment contract with the Buyer, and if the
relevant Owner has given written notice to the Buyer at least 7 days'
prior to the expiry of the period which is allowed, the restriction
applying under Section 7.1(a) shall only apply to the relevant Owner
for the period ending on 30th April 1998.
7.2 Continuation of Business of the Seller
--------------------------------------
After today's date, the Owners shall procure that the Seller will continue
in business solely for purposes of collection of any accounts receivable
not acquired by Buyer, liquidation of assets, payment of creditors, and
orderly winding down, which it shall perform at its sole cost. After the
Closing, the owners shall procure that the Seller will remain in business
only in accordance with the terms outlined in this Section 7.2 and shall
not solicit, conduct or accept any business other than as described herein.
7.3 Owners' Acknowledgement
-----------------------
Each of the Owners acknowledges and agrees that in the event of a material
misrepresentation or inaccuracy in any representation or warranty of the
Seller or the Owners contained in this Agreement, or a material breach of
or failure by the Seller or by him to perform any of its or his respective
covenants or agreements contained in or made pursuant to this Agreement,
then, in addition to any other rights or remedies of the Buyer under this
Agreement or as provided by law or in equity, the Buyer shall also have the
right to offset any amounts due to him under this Agreement against any
claims of the Buyer under this Agreement Provided that in such event the
provisions of Section 6.12(c) shall apply mutatis mutandis in relation to
any amounts so offset.
11
<PAGE>
8. COVENANTS OF BUYER AND GUARANTEE
--------------------------------
8.1 Guarantor to Support Transferred Business
-----------------------------------------
During the two year period following the Closing, the Guarantor will
support the operations of the Transferred Business consistently with its
normal business practices in order to build up an infrastructure in
conjunction with the Guarantor's national support function.
8.2 The Buyer undertakes that during the period ending on 28th February 1998,
it will not seek to assign, novate or otherwise dispose of the new Equifax
contract referred to in Section 5. 1 (a) .
8.3 Guarantee
---------
(a) The Guarantor unconditionally guarantees to the Seller and separately
to each of the Owners as principal obligor full and prompt and
complete performance by the Buyer of all its obligations and covenants
under this Agreement (as varied, extended or renewed from time to
time), and the due and punctual payment of all sums payable now or in
the future to each of the Seller and the Owners by the Buyer and the
performance of all covenants under this Agreement when and as the same
shall become due for payment or performance (as the case may be) and
undertakes with each of the Seller and the Owners that if and each
time that the Buyer shall be in default in the payment of any sum
whatsoever or the performance of any obligations under this Agreement
the Guarantor will on demand make good the default and pay all sums
which may be payable and do all things required as if the Guarantor
instead of the Buyer were expressed to be the primary obligor or
covenanter Provided Always that the Guarantor's obligations under this
clause shall be subject to any rights of set off which the Buyer might
have and that the Guarantor shall itself be entitled to such rights
Provided that in such event the provisions of Section 6.12(c) shall
apply mutatis mutandis in relation to any amounts due under this
Agreement which are so offset.
(b) The guarantee is a continuing guarantee and shall remain in force
until all obligations and covenants of the Buyer under this Agreement
have been discharged and performed in full.
(c) The obligations of the Guarantor hereunder shall not be affected by
any act, omission matter or thing which but for this clause 10.3,
might operate to release or otherwise exonerate the Guarantor from its
obligations' or covenants hereunder or affect such obligations or
covenants including but not limited to:
(i) any time or indulgence granted to or composition with the Buyer;
(ii) the taking, variation, compromise, renewal or release of or
refusal or neglect to perfect or enforce any right or remedies
against the Buyer;
12
<PAGE>
(iii) any legal limitation, disability, incapacity or other
circumstances relating to the Buyer or any other person or any
amendment to or variation of the terms of this Agreement or any
other document or security; or
(iv) any irregularity, unenforceability or invalidity of any
obligations of the Buyer under this Agreement with the intent
that the Guarantor's obligations under this guarantee shall
remain in full force and this guarantee shall be construed
accordingly as if there were no such irregularity, enforceability
or invalidity.
(d) The Guarantor waives any right it may have of first requiring the
Seller or the Owners to proceed against or enforce any guarantee or
security of or claim payment from the Buyer.
9. VALUE ADDED TAX
---------------
9.1 The purchase price payable under Section 4 is expressed exclusive of value
added tax ("VAT") which, if chargeable, shall be paid in addition to such
amount subject to the prior delivery of a valid VAT invoice.
9.2 The Seller is registered for VAT and as a result of the Closing the Buyer
will become a taxable person and will apply to be registered for VAT. The
Seller and the Buyer acknowledge and agree that they consider that article
5 of the Value Added Tax (Special Provisions) Order 1995 ("Article 5")
applies to this Agreement so that the purchase of the Transferred Assets
and the Transferred Business is treated as the transfer of a business (or
part of a business) as a going concern and is treated neither as a supply
of goods nor a supply of services. Accordingly:
(a) the parties shall use all reasonable endeavors to procure that Article
5 applies to the sale and purchase hereunder and the Seller may (in
its discretion) apply to HM Customs & Excise for a ruling that the
sale and purchase falls within the said Article 5, provided that a
copy of such application and any response received shall be provided
to the Buyer; and
(b) the Seller shall deliver to the Buyer all the records of the
Transferred Business for VAT purposes which are required to be
preserved by the Buyer by section 49(l)(b) Value Added Tax Act 1994
and the Buyer hereby undertakes:
(i) to preserve the records so delivered for such periods as may be
required by law; and
(ii) to permit the Seller and/or its agents, accountants or other
professional advisers at all reasonable times and with prior
notice to inspect such records and (at the Seller's expense) to
take copies of such records.
10. MISCELLANEOUS
-------------
13
<PAGE>
10.1 Survival of Representations
---------------------------
The respective representations and warranties of the Seller and each of
the Owners contained herein or in any other documents delivered prior to
or on the date of this Agreement shall not be deemed waived or otherwise
affected by any investigation made by any party hereto.
10.2 Action if Claim made under Indemnity
------------------------------------
If the Buyer becomes aware of any claim which is likely to give rise to a
liability of any of the other parties (the "Indemnitor") under any
indemnity in this Agreement the Buyer shall as soon as reasonably
practicable give notice thereof to the Indemnitor and, subject to the
Buyer being indemnified and secured to its reasonable satisfaction against
all losses, costs, damages, and expenses, thereby incurred or likely to be
incurred, the Buyer shall take such action as the Indemnitor may
reasonably request to avoid, dispute, resist, appeal, compromise or defend
such claim provided always that:
(a) the Buyer shall not be under any obligation to take any action which
it considers (in its sole discretion) to be detrimental to its
business; and
(b) the Buyer's failure (if any) to comply with this Section 10.2 shall
be without prejudice to its rights under the relevant indemnity.
10.3 Counterparts
------------
This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, and such
counterparts together shall constitute only one original.
10.4 Successors and Assigns
----------------------
This Agreement and the rights, interests, and obligations hereunder shall
be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests, or obligations hereunder shall
be assigned by any party without the prior written consent of the other
parties, except that the Buyer may at its sole discretion assign its
rights and obligations hereunder to any Associated Company Provided that
if any such company shall cease to be an Associated Company it shall no
longer be entitled to enforce such rights and obligations which shall
revert to the Buyer. If the Guarantor disposes of its interest in the
Buyer to another entity and such entity offers a replacement guarantee to
the Owners in the same form as the Guarantee contained herein, the Seller
and the Owners shall not unreasonably refuse their consent to any request
from the Guarantor for its obligations under this Agreement to be released
and the Guarantor shall in any event be released from such obligations, if
the net asset value of such entity as shown by its most recent annual
accounts is not less than the net asset value of the Guarantor as shown by
its most recent annual accounts.
14
<PAGE>
10.5 Third-Party Beneficiaries
-------------------------
Nothing in this Agreement is intended to confer upon any person other than
the parties hereto and their successors and permitted assigns any rights
or remedies under or by reason of this Agreement.
10.6 Entire Agreement
----------------
This Agreement constitutes the entire agreement and understanding of the
parties concerning the subject matter of this Agreement, and this
Agreement supersedes all previous negotiations and agreements of the
parties. There are no representations, assurances, agreements, or
understandings between the parties that are not set forth specifically in
this Agreement Provided that nothing contained in this Section shall limit
the liability of the Seller or any of the Owners for any fraud or
dishonesty of the Seller or any such Owner.
10.7 Amendment; Waiver
-----------------
This Agreement may be amended or modified only in writing signed by all
parties. No forbearance or delay in the enforcement or any right or remedy
permitted under this Agreement or applicable law shall be deemed to
constitute a waiver or estoppel of the right to enforce such right or
remedy or a modification of this Agreement.
10.8 Notice
------
Any notice permitted or required pursuant to this Agreement shall be in
writing and shall be delivered either by personal delivery to the
recipient, by mail (postage pre-paid, certified, return receipt
requested), by overnight courier or by facsimile transmission (confirmed
in writing), to the address set forth below.
If to Buyer or the Guarantor:
Tier Technologies Inc.
1350 Treat Blvd., Suite. 250
Walnut Creek, California 94596
Attn: James L. Bildner
Fax No.: (510) 937-3752
with a copy to:
Farella Braun & Martel LLP
235 Montgomery Streets 30th Floor
San Francisco, California 94596
Attn: Morgan P. Guenther
Fax No.: (415) 954-4480
If to Seller:
15
<PAGE>
Albanycrest Limited
6th Floor
Waterlinks House
Richard Street
Birmingham
B7 4AA
Attn.: Andy Armstrong
Fax No.: 0121 687 6869
with a copy to:
Wragge & Co
55 Colmore Row
Birmingham B3 2AS
Attn.: David Vaughan
Fax No.: 0121 214 1099
If to any Owner:
Andrew Armstrong
2 Winton Grove,
Walmley,
Sutton Coldfield,
West Midlands B76 1XE
Thomas Thomson
25 Forest Road,
Crowthorne,
Berkshire RG45 7EH
Howard Moore
4 Victoria Court,
Connaught Park,
Bagshot,
Surrey GU19 5QH
with a copy to:
Wragge & Co
55 Colmore Row
Birmingham B3 2AS
Attn.: David Vaughan
Fax No.: 0121 214 1099
10.9 Governing Law
-------------
16
<PAGE>
This Agreement shall be construed and enforced in accordance with the
laws of England and subject to the non-exclusive jurisdiction of the High
Court of England.
10.10 Severability
------------
If any provision of this Agreement is held to be illegal, invalid, or
unenforceable, the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected thereby (except to the
extent such remaining provisions constitute obligations of another party
to this Agreement corresponding to the unenforceable provision): and in
lieu of such illegal, invalid, or unenforceable provision, there shall be
added automatically as part of this Agreement, a provision as similar in
its terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid and enforceable.
10.11 Publicity
---------
No party shall make or issue, or cause to be made or issued, any public
announcement or written statement concerning the contents of this
Agreement or the transactions contemplated hereby without the prior
written consent of the others.
10.12 Expenses
--------
Each party to this Agreement shall bear its own expenses in connection
with the negotiation execution, delivery and performance of this
Agreement and of the transactions contemplated herein.
10.13 Further Assurance
-----------------
(a) The Seller shall after Closing at the Buyer's request and free of
charge make available, execute and do or cause to be made available
or done all such other documents, information, acts and things as
the Buyer shall reasonably require in order to vest in the Buyer or
its nominees legal title to and beneficial ownership of each of the
Transferred Assets and otherwise to give effect or further effect to
this Agreement. Before that vesting, the Seller shall hold on trust
for the Buyer those Transferred Assets in respect of which legal
title and beneficial ownership do not vest in the Buyer on Closing,
and shall exercise its rights in respect of those Transferred Assets
only as the Buyer may from time to time require.
(b) If the Seller or any person connected with the Seller receives any
payment or other benefit in respect of any work done by the Seller
on or after 1 June 1997 or any notice, letter or inquiry relating to
the Transferred Business, the Seller shall hold the VAT exclusive
payment or benefit in question on trust for the Buyer, and shall
ensure that it is immediately paid or delivered to the Buyer (after
deduction of any amounts paid by the Seller for which the Buyer is
responsible hereunder) and that details of the notice, letter or
inquiry are immediately given to the Buyer.
The parties have executed this Agreement as of the day and year written above.
17
<PAGE>
Executed As a Deed On Behalf of TIER TECHNOLOGIES
(UNITED KINGDOM), INC. a Delaware corporation
By: /s/ James L. Bildner
------------------------------------------
Title: Chairman & CEO
--------------------------------------
Executed As a Deed On Behalf of TIER TECHNOLOGIES
INC. a California corporation
By: /s/ James L. Bildner
------------------------------------------
Title: Chairman & CEO
--------------------------------------
Executed On Behalf of ALBANYCREST LIMITED
By: /s/ A.D. Armstrong
------------------------------------------
Title: Director
--------------------------------------
Executed As a Deed by ANDREW DAVID
ARMSTRONG . . . . . . . . . . . . . . . . . .
/s/ A. D. Armstrong
-----------------------
Executed As a Deed by THOMAS THOMSON
. . . . . . . . . . . . . . . . . . . . . . .
/s/ Thomas Thomson
-----------------------
Executed As a Deed By HOWARD MOORE
. . . . . . . . . . . . . . . . . . . . . . .
/s/ Howard Moore
-----------------------
18
<PAGE>
Exhibit 10.28
MASTER AGREEMENT
KAISER FOUNDATION HEALTH PLAN, INC.
THIS MASTER AGREEMENT is made this 30th day of July, 1997, by and between Kaiser
----- ----------
Foundation Health Plan, Inc. ("Kaiser"), and Tier Technologies, Inc. ("Contract
----------------------
Vendor").
RECITALS
--------
A. Kaiser operates information technology systems as part of its general
business operations.
B. Contract Vendor is in the business of providing computer programming,
consulting, technical documentation, and/or telecommunications services using
highly skilled information technology professionals.
C. Kaiser and Contract Vendor anticipate entering into contracts whereby
Contract Vendor employee(s) would perform computer programming, consulting
and technical documentation services for Kaiser. Each such contract would be
made an Addendum A or B (Contractor Assignment Form, as defined below)
subject to and incorporating by reference all of the terms and conditions of
this Master Agreement.
KAISER AND CONTRACT VENDOR AGREE AS FOLLOWS:
TERMS AND CONDITIONS
--------------------
1 . Nature of Service. Contract Vendor agrees to provide consulting services
-----------------
and computer programming services involving analysis, development, design,
testing and modification of information systems and computer application
programs for Kaiser. Such services shall be provided pursuant to the
Contractor Assignment Form attached as Addendum A hereto (or Addendum B for
long-term assignments). Each such Contractor Assignment Form is subject to
and subordinate to each and every term and condition of this Master
Agreement and shall set forth the project in connection with which the
services are to be performed, the tasks or services to be performed by
Contractor, the employee(s) assigned by the Contract Vendor to perform such
tasks or services, a schedule for completion of specified increments of such
tasks or services and for progress reports, and the terms of payment for
such tasks or services. Each such Contractor Assignment Form shall only be
valid if signed by one officer of each of the parties hereto or by a person
designated in writing by such an officer as authorized to execute Contractor
Assignment under this Master Agreement on behalf of the party.
<PAGE>
MASTER AGREEMENT - KAISER FOUNDATION HEALTH PLAN, INC. Page 2
2. Compensation. Kaiser shall pay Contract Vendor for actual services rendered
------------
at the rate specified in the Contract Assignment. Kaiser shall reimburse
Contract Vendor for out-of-pocket expenses only if such reimbursement is
provided for in the specific Contract Assignment in connection with which
such expenses were incurred and only on the basis specifically provided
therein.
Contract Vendor shall invoice Kaiser not more than twice per month and not
less than once every month for services performed and authorized expenses
incurred, if any, during that time period. Contract Vendor expressly waives
any and all claim for compensation for any services or expenses which are
not invoiced within one hundred twenty (120) days of rendering such services
or incurring such expenses. Kaiser shall pay Contract Vendor within thirty
(30) days of receipt of invoices in form acceptable to Kaiser. If the rate
shown on the contract Assignment is based on a per hour charge, then such
invoice shall include the identity of the employee who rendered the
services, the dates on which such employee performed such services and the
number of hours worked in connection with that specific Contract Assignment.
Services rendered by a single employee of Contract Vendor on different
Contract Assignments shall be segregated.
Weekly time sheets covering all hours spent by employees of Contract Vendor
performing services on an hourly basis and receipts for all reimbursable
expenses shall be kept by Contract Vendor for not less than twelve (12)
months from the date such services or expenses are invoiced or until one
hundred twenty (120) days after completion or termination of the relevant
Contract Assignment, whichever is later, unless Kaiser requests in writing
that such documentation be preserved for a longer period of time. Such
supporting documentation for any invoice shall be provided to Kaiser or its
representative at any time upon request. In the event that any audit of
Contract Vendor's invoices reveals any variance in excess of five percent
(5%) of the amount shown on the invoice, Contract Vendor shall reimburse
Kaiser for any amounts overcharged and for all costs and expenses incurred
in conducting such audit. The obligation to preserve and provide time
sheets, receipts and invoice documentation shall survive the termination of
the Master Agreement or any Contract Assignment, notwithstanding any
provision to the contrary contained herein.
All terms of this Master Agreement shall apply regardless of the identity of
the payor of the monies referred to herein (e.g., Kaiser Foundation Health
Plan, Inc., KFHP, The Permanente Medical Group, TPMG, Kaiser Foundation
Hospitals, KFH, or Kaiser Foundation Research Institute, KFRI).
3. Term. This Master Agreement shall commence upon the date first written
----
above. Each Contractor Assignment shall commence upon its execution or such
other date as may be stated therein.
If in Kaiser's sole opinion the services provided under any Contract
Assignment are unsatisfactory, Kaiser may terminate that Contract Assignment
at any time
<PAGE>
MASTER AGREEMENT - KAISER FOUNDATION HEALTH PLAN, INC. Page 3
with seven (7) days notice. Either party hereto may terminate any Contract
Assignment or all of them and this Master Agreement with or without cause
upon thirty (30) days prior written notice. If not sooner terminated
pursuant to the provisions hereof, each Contract Assignment shall terminate
upon completion of the project, tasks or services described in the Contract
Assignment, the expiration of the term stated in the Contract Assignment, or
in the case of an hourly basis Contract Assignment stating a maximum number
of hours to be expended thereunder, upon completion of that number of hours
of service, whichever occurs earliest. Upon termination of any Contract
Assignment Kaiser's sole obligation shall be to pay such progress payments
for completed incremental stages of progress on the project as may be called
for by the Contract Assignment, or, in the case of an hourly basis Contract
Assignment, to pay for such hours as have been completed prior to
termination of the Contract Assignment. Contract Vendor's obligations
regarding preservation of billing records, confidentiality and
indemnification to Kaiser shall survive the expiration or termination of any
Contract Assignment or this Master Agreement.
4. Personnel. All candidates and workers represented to Kaiser, shall be W-2
---------
employees of Contract Vendor and assigned by Contract Vendor to perform the
tasks or services to be rendered under any specific Contract Assignment and
shall be identified by name in such Contract Assignment. Contract Vendor
shall provide to Kaiser a copy of the W-2 Wage and Tax Statement for each
contract employee performing services for Kaiser, no later than February 7
of the calendar year following any year in which employee performed such
services.
Kaiser may reject or demand the removal/termination of assignment of any
employee assigned by Contract Vendor at any time for any reason at Kaiser's
sole discretion. In the event of any such rejection, Contract Vendor shall
provide suitable skilled replacement personnel within five (5) business days
of such rejection. Should Contract Vendor be unable to provide suitably
skilled replacement personnel within such period, Contract Vendor will
permit Kaiser to obtain such replacement personnel from other business
enterprises (including those in competition with Contract Vendor) deducting
the cost of such replacement personnel from the compensation or total
contract price stated in such Contract Assignment.
5. Long-Term Assignment Option. Kaiser and Contract Vendor may agree to a
---------------------------
long-term assignment, subject to the following provisions, by executing
Addendum B, Long-Term Contractor Assignment Form.
Expected length of assignment is 2,080 hours (roughly one year). Kaiser will
pay Contract Vendor, billable bi-weekly or monthly, an amount equal to 2,080
hours for 2,000 hours of work provided by contract employee. In addition,
contract employee will be given credit for working eight (8) hours each on
Christmas Day, New Year's Day, Washington's Birthday, Memorial Day,
Independence Day, Labor Day, and Thanksgiving Day, but will not be expected
to work.
<PAGE>
MASTER AGREEMENT - KAISER FOUNDATION HEALTH PLAN, INC. Page 4
The hourly rate billed to Kaiser is reduced by 25% of the regular rate for a
similar assignment. Kaiser will allow contract employee to take personal
leave given reasonable notice and within project schedules. If at any point
cumulative hours worked by contract employee are less than an amount equal
to 38.5 hours per week since the beginning of long-term assignment, Kaiser
will deduct a comparable amount from that owed to vendor for that billing
period.
If contract employee elects to leave Kaiser prior to the end of the
assignment, Contract Vendor will credit Kaiser an amount equal to 80
billable hours to assist in the training and orientation costs of a
replacement contractor. After one year, Kaiser may offer employment to and
hire contract employee at no charge by Contract Vendor.
All other terms of this Master Agreement shall apply to the long-term
option.
6. Confidentiality/Solicitation. Contract Vendor and its employees shall not
----------------------------
disclose or make use of any financial, marketing, personnel or other
confidential or proprietary information or knowledge including without
limitation trade secrets and software programs and systems which may be
disclosed to any of them, directly or indirectly, in the course of any
performance hereunder. All programs, processes and systems developed
hereunder shall become the sole and exclusive property of Kaiser and all
written and recorded documentation and all copies of such programs,
processes and systems (both visually readable and machine readable) shall be
delivered to and retained solely by Kaiser. Contract Vendor shall be
responsible for and shall assume liability for any improper disclosure,
dissemination or use by any of its employees of any of the information,
programs, processes or systems listed in this Section 6. Contract Vendor
shall obtain written agreement from each of its employees performing
services under any Contract Assignment, in form acceptable to Kaiser, that
each such employee will comply with and be obligated as provided in this
Section 6. There shall be no solicitation by Contract Vendor or its
employees or agents of Kaiser employees. This Section 6 will survive
termination of the Master Agreement or any Contract Assignment,
notwithstanding any provision to the contrary contained herein. A breach of
this Section 6 may, at Kaiser's option, result in immediate termination of
this agreement.
7. Independent Contractor. Contract Vendor agrees that all of its services
----------------------
rendered pursuant hereto are those of an independent contractor, and neither
it nor any of its employees are employees or agents of Kaiser nor joint
ventures with Kaiser. Contract Vendor expressly disclaims and waives, for
itself and its employees any right or claim to workers' compensation,
welfare, pension or retirement benefits arising out of the services
performed hereunder. Contract Vendor agrees to be fully responsible for and
to pay when due all federal, state and local taxes or contributions required
under Unemployment Insurance, Social Security, income tax and other laws by
virtue of the performance of services hereunder, and further
<PAGE>
MASTER AGREEMENT - KAISER FOUNDATION HEALTH PLAN, INC. Page 5
agrees to fully comply with all applicable statutes, rules, regulations, and
orders of any competent governmental authority, including without limitation
workers compensation laws and occupational safety and health laws,
immigration laws, and anti-discrimination laws. Contract Vendor agrees to
indemnify, assume legal responsibility for, hold harmless and, at Kaiser's
option, defend Kaiser (and its agents, servants, employees, officers, and
directors) against any and all losses, damages, fines, penalties, costs
incurred by Kaiser, due to any demand, claim allegation or assertion of
liability alleged to arise from a failure to fulfill any of the statutory
responsibilities set forth in this Section 7, or any charges or suits filed
by or on behalf of any Employees or Contract Vendor against Kaiser which
relate to any alleged wrong by Kaiser against the Employee, or the Exercise
by Kaiser of the rights in Section 4. This Section 7 will survive
termination of the Master Agreement or any Contract Assignment,
notwithstanding any provision to the contrary contained herein.
8. Indemnification. Kaiser shall not, under any circumstances, be liable or
---------------
otherwise accountable to Contract Vendor for any damage or injury to
Contract Vendor or to any employee of Contact Vendor or to any property of
Contact Vendor, or employees however caused. Contract Vendor shall assume
legal responsibility for, indemnify, hold harmless, and, at Kaiser's option,
defend Kaiser (and its agents, servant, employees and directors and any
third party to whom Kaiser may owe a similar obligation by contract or
operation of law) against each and every demand, claim, assertion of
liability or action arising or alleged to arise, directly or indirectly, out
of (i) Contract Vendors use of Kaiser premises, (ii) the conduct and
operation of Contract Vendor's business, (iii) the performance of the
services hereunder by Contract Vendor, or (iv) any passive or active act,
omission or failure to perform the obligations or requirements of Contract
Vendor hereunder or imposed by law, made or instituted by any person, group
or organization including employees of Contract Vendor or Kaiser. Contract
Vendor shall assume liability for any dishonest acts committed or alleged to
have been committed against Kaiser by Contract Vendor's past or present
agents, servants, employees, officers and directors. Kaiser agrees to
notify Contract Vendor promptly in writing in the event of any such claim,
demand, assertion of liability or action which is brought to Kaiser's
attention. This Section 8 will survive termination of the Master Agreement
or any Contract Assignment, notwithstanding any provision to the contrary
contained herein.
9. Insurance. Contract Vendor shall maintain, at its sole cost and expense,
---------
all workers' compensation insurance required under any applicable workers'
compensation insurance act. Contract Vendor or employees of Contract Vendor
shall maintain, at its sole cost and expense, a policy or policies of
comprehensive automobile liability insurance on any and all vehicles which
may be operated in connection with any services to be performed hereunder.
Contract Vendor shall maintain, at its sole cost and expense, a policy or
policies of general public liability insurance covering Contract Vendor's
operations and any contingent exposure Kaiser may deem appropriate or
necessary to insure with policy limits of not less
<PAGE>
MASTER AGREEMENT - KAISER FOUNDATION HEALTH PLAN, INC. Page 6
than $1,000,000.00 Combined Single Limits for injury to or death of any
number of persons or for damage to property of others arising out of any one
occurrence. Said policy or policies shall provide among other things,
Contractual Liability Insurance recognizing and insuring the assumption of
liability undertaken by Contract Vendor under the provision of Sections 7
and 8 above. Contract Vendor shall maintain, at its sole cost and expense,
a policy or policies of Fidelity Insurance, but Contract Vendor's
obligations under Section 7 above will not be limited to the coverage
afforded by any policy or policies of insurance.
The insurance required hereunder shall be issued by one or more responsible
insurance carriers acceptable to Kaiser and licensed to do business in the
state where the services under the Contract Assignment are to be performed.
Within thirty (30) days after the execution of each Contract Assignment,
Contract Vendor shall cause to be delivered to Kaiser one or more duly
executed certificates of insurance, in form and content satisfactory to
Kaiser, evidencing all insurance coverage required hereunder and providing
that the policy or policies which they evidence shall be neither canceled
nor materially changed until ten (10) days after receipt by Kaiser of
written notice of such cancellation or material changes. In the event
Contract Vendor fails to provide and maintain any insurance required under
this Section 9, or to provide evidence of such insurance as required under
this Section 9, Kaiser may, at its sole option, obtain such insurance up to
the limits provided herein and may deduct the premiums for such insurance
from any amounts which are or become payable to Contract Vendor hereunder.
Contract Vendor shall reimburse Kaiser for such premiums within ten (10)
days of written demand therefor.
10. Notices. Any notice required or permitted hereunder shall be effective upon
-------
receipt in writing either by personal service upon a representative of
Kaiser Foundation Health Plan, Inc., or upon an officer of Contract Vendor,
respectively, or by mailing the notice by United States mail, registered or
certified, return receipt requested, postage prepaid addressed to Kaiser at:
-------------------------
-------------------------
-------------------------
and to Contract Vendor at:
Debbie Rogers
Tier Technologies, Inc.
1350 Treat Blvd., Suite 250
Walnut Creek, CA 94596
or to such other address as the respective parties may from time to time
designate by notice given in the manner herein provided.
<PAGE>
MASTER AGREEMENT - KAISER FOUNDATION HEALTH PLAN, INC. Page 7
11. Attorneys Fees. In the event of judicial action or arbitration to enforce
--------------
any of the terms and conditions hereof, the prevailing party shall receive
----------
reasonable attorneys' fees, courts costs and reasonable discovery and
investigative costs and expenses and as determined by the court or
arbitrator.
12. Modification And Assignment. This Master Agreement supersedes all prior
---------------------------
written or oral communications, representations and understandings and may
be modified or supplemented only be a written amendment or contract
Assignment executed by duly authorized representatives of both Kaiser and
Contract Vendor. Due to the special character of the services to be
provided hereunder, neither party may assign this Master Agreement or any
Contractor Assignment or rights thereunder, except that Kaiser may assign
this Master Agreement and/or Contract Assignment to be issued hereunder to
any of Kaiser's subsidiaries.
13. General Conditions. No waiver of any breach of any term or condition of
------------------
this Master Agreement or any Contract Assignment by Kaiser or Contract
Vendor shall be construed as a waiver of any subsequent breach of the same
or any other term or condition thereof. This Master Agreement shall be
governed by and construed in accordance with the laws of the State of
California. The titles and subtitles used herein are not part of this
Agreement and are included solely for convenient reference to the paragraphs
hereof. Such titles shall have no bearing upon the various terms and
conditions hereof.
14. Equal Employment Opportunity. Contract Vendor recognizes that as a
----------------------------
Government contractor or subcontractor, Kaiser Permanente is obligated to
comply with certain laws and regulations of the Federal Government regarding
Equal Employment
Opportunity and Affirmative Action. Contract Vendor, as a Government
subcontractor, agrees that when applicable, the following are incorporated
by reference into this agreement:
A. The nondiscrimination and affirmation action clauses contained in Executive
Order 11246, as amended by Executive Order 11375, relative to equal
employment for all persons without regard to race, color, religion, sex, or
national origin, and the implementing rules and regulations contained in
Title 41, Part 60 of the Code of Federal Regulations, as amended; the
nondiscrimination and affirmative action clauses contained in the
Rehabilitation Act of 1973, as amended, relative to the employment of
qualified disabled individuals without discrimination, and the implementing
rules and regulations in Title 41, Part 60-741.4 of native action and
nondiscrimination provisions of the Vietnam Era Veterans Readjustment
Assistance Act of 1974 and the provisions, rules and regulations of the
Title 42, Part 60-250.4 of the Code of Federal Regulations; the utilization
of small business concerns including Small Disadvantaged Business Concerns,
provisions of Title 48 of the code of Federal Regulations, Chapter 1, Parts
19-708, 52-219.8 and 52-219.9, and the requirements of Title 42, Part 60-1.8
of the Code of Federal
<PAGE>
MASTER AGREEMENT - KAISER FOUNDATION HEALTH PLAN, INC. Page 8
Regulations that provide the certification of non-segregated facilities
required by Title 41, Part 60-1.8 of the Code of Federal Regulations.
B. Omnibus Reconciliation Act - Section 952 of the Omnibus Reconciliation Act
of 1980 (PL96-499) providing for access by the Secretary of Health and Human
Services (HHS) and the Comptroller General to the books and records of
Contract Vendor to the extent it provides services are incorporated in the
Agreement.
<PAGE>
MASTER AGREEMENT - KAISER FOUNDATION HEALTH PLAN, INC. Page 9
IN WITNESS WHEREOF, upon the day and year first herein above written, the
respective parties hereto have executed this Master Agreement personally or by
duly authorized officers thereof.
KAISER FOUNDATION HEALTH PLAN, INC.
Signature: /s/ Suzanne McFadden
-----------------------------
Title: Manager, National IT Staffing
-----------------------------
Date: 9/2/97
-----------------------------
Contract Vendor: Tier Technologies Inc.
-----------------------------
Signature: /s/ George K. Ross
-----------------------------
Title: Sr VP & CFO
-----------------------------
Date: Aug 26, 1997
-----------------------------
<PAGE>
MASTER AGREEMENT - KAISER FOUNDATION HEALTH PLAN, INC.
Tier Technologies
1350 Treat Blvd., Suite 250
Walnut Creek, CA 94596
Attn.: Debbie Rogers
re: Letter of Agreement
Dear Debbie:
Pursuant to Section 5 of the Independent Contractor Services Agreement
dated March 25, 1995, between Tier Technologies ("Contractor") and Kaiser
Foundation Health Plan, Inc. ("Health Plan"), this letter serves to outline the
compensation arrangements between the parties.
Contractor shall provide Rick Moody to provide contract programming,
design, support and implementation services to Health Plan at the rate of Ninety
Three Dollars and fifty cents per hour ($93.50). Rick Moody's services shall
commence on January 13, 1997 and terminate on December 31, 1997 or as Health
Plan business matters dictate.
Please secure the signature of an authorized officer on behalf of
Contractor at the end of this letter to signify the formal agreement between the
parties to these terms. All other terms and conditions of the Independent
Contractor Services Agreement remain in full force and effect. I have enclosed
a self-addressed envelope for your use in returning the executed letter to me.
If you have any additional questions or comments, please do not hesitate to
telephone Ron Keely at (626) 564-3892.
Sincerely,
/s/ C. Ron Keely
- --------------------
C. Ron Keely
Group Lead, NCSD
THE ABOVE TERMS ARE HEREBY
AGREED AND UNDERSTOOD
(This section is filled out by Vendor)
By /s/ George K. Ross
--------------------
Name George K. Ross
------------------
Title CFO and SVP
-----------------
Date 8-25-97
------------------
<PAGE>
------------------------------------------------
CONTRACT: C600907002-004 PAGE 2
-------------
- -------------------------------------------------------------------------------
AMENDMENT #004 TO CONTRACT C600907002
TITLE: CONSULTING SERVICES - IEF CASE TOOL
CONTRACT PERIOD: SEPTEMBER 1, 1997 THROUGH AUGUST 31, 1998
THE STATE OF MISSOURI HEREBY EXERCISES ITS OPTION TO RENEW THE ABOVE-
REFERENCED CONTRACT.
THE CONTRACTOR SHALL INDICATE ON THE ATTACHED PRICING PAGE(S) THE FIRM
FIXED PRICES FOR THE ABOVE CONTRACT PERIOD. ANY PRICES QUOTED MUST NOT
EXCEED THE PERCENTAGE OF DECREASE STATED IN THE CONTRACT (-2%).
ALL OTHER TERMS, CONDITIONS AND PROVISIONS OF THE PREVIOUS CONTRACT PERIOD
SHALL REMAIN THE SAME AND APPLY HERETO. THE CONTRACTOR SHALL SIGN AND
RETURN THIS DOCUMENT, ALONG WITH COMPLETED PRICING, ON OR BEFORE THE DATE
INDICATED.
NOTE: THE CONTRACTOR'S FAILURE TO COMPLETE AND RETURN THIS DOCUMENT SHALL
NOT STOP THE ACTION SPECIFIED HEREIN. IF THE CONTRACTOR FAILS TO
COMPLETE AND RETURN THIS DOCUMENT PRIOR TO THE RETURN DATE SPECIFIED
OR THE EFFECTIVE DATE OF THE CONTRACT PERIOD STATED ABOVE, WHICHEVER
IS LATER, THE STATE MAY RENEW THE CONTRACT AT THE SAME PRICE(S) AS
THE PREVIOUS CONTRACT PERIOD OR AT THE PRICE(S) ALLOWED BY THE
CONTRACT, WHICHEVER IS LOWER.
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<PAGE>
------------------------------------
CONTRACT: C600907002-004 PAGE 3
--------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LINE RENEWAL
ITEM C/S DESCRIPTION U/M UNIT PRICE
<S> <C> <C> <C>
00001 C/S CODE: 708919010030 DAY $768.32
DATA PROCESSING SERVICES: IEF CASE TOOL CONSULTING
SERVICES, PER CONSULTANT/DAY CATEGORY ONE SERVICES
00002 C/S CODE: 708919010041 HR $ 96.04
DATA PROCESSING SERVICES: IEF CASE TOOL CONSULTING
SERVICES, PER HOUR
CATEGORY ONE SERVICES
00003 C/S CODE: 708919010030 DAY $768.32
DATA PROCESSING SERVICES: IEF CASE TOOL CONSULTING
SERVICES, PER CONSULTANT/DAY CATEGORY TWO SERVICES
00004 C/S CODE: 708919010041 HR $ 96.04
DATA PROCESSING SERVICES: IEF CASE TOOL CONSULTING
SERVICES, PER HOUR
CATEGORY TWO SERVICES
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.29
BID RESPONSE FOR
STATE OF MISSOURI
----------------------------------------------------------------------
Consulting Services - IEF CASE Tool
----------------------------------------------------------------------
June 21, 1996
[Encore Consulting, Inc. logo]
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
EXECUTIVE SUMMARY............................................ 3
RESPONSE TO IFB GENERAL REQUIREMENTS......................... 5
1. SUBMISSION OF BIDS..................................... 5
2. BID EVALUATION/CONTRACT AWARD.......................... 5
COST......................................................... 7
EXPERIENCE AND RELIABILITY................................... 9
MISSION STATEMENT.......................................... 9
PHILOSOPHY................................................. 9
BACKGROUND................................................. 13
BENEFITS................................................... 15
CATEGORY 1 EXPERIENCE...................................... 16
Environmental Assessments................................ 16
Roadmap.................................................. 16
Development Coordination................................. 17
Information Strategy Planning............................ 17
Performance/Check Point Reviews.......................... 17
CATEGORY 2 EXPERIENCE...................................... 17
Missouri State Highway Patro............................. 18
Missouri Highway and Transportation Department........... 18
Missouri Department of Labor............................. 18
Missouri Department of Mental Health..................... 19
Missouri Department of Natural Resources................. 19
Missouri Office of State Courts Administrator............ 19
Missouri Department of Social Services................... 19
Alaska Department of Labor............................... 19
Kansas State Rehabilitative Services..................... 19
Kentucky Department of Social Services................... 19
Nebraska Department of Social Services................... 20
New Mexico Human Services Department..................... 20
Texas Department of Transportation....................... 20
Department of Agriculture (Federal)...................... 20
Department of Education (Federal)........................ 20
Federal Reserve Bank of St. Louis, Missouri.............. 20
U.S. Army - Department of Defense........................ 20
SUBCONTRACTING RELATIONSHIPS................................. 21
Eduteach, Inc. (State of Missouri MBE vendor #6667457)... 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Fitech, Inc.............................................. 21
Johnston McLamb CASE Solutions........................... 22
Skyler-Marks, Inc........................................ 23
MINORITY PARTICIPATION..................................... 24
Eduteach, Inc. (State of Missouri MBE vendor #6667457)... 24
REFERENCES................................................. 24
EXPERTISE OF CONSULTANTS..................................... 25
CONSULTING APPROACH........................................ 25
CATEGORY 1 PROJECTS........................................ 28
Environmental Assessments................................ 28
Roadmap.................................................. 28
Development Coordination................................. 29
Implementation Strategy Planning......................... 29
Performance/Check Point Reviews.......................... 34
CATEGORY 2 PROJECTS........................................ 35
Missouri State Highway Patrol............................ 35
Missouri Highway and Transportation Department........... 38
Missouri Department of Labor............................. 42
Missouri Department of Mental Health..................... 43
Missouri Department of Natural Resources................. 46
Missouri Office of State Courts Administrator............ 47
Missouri Department of Social Services................... 47
Alaska Department of labor............................... 50
Kansas State Rehabilitative Services (SRS)............... 51
Kentucky Department of Social Services................... 52
State of Nebraska Department of Social Services.......... 53
State of New Mexico Human Services Department............ 54
Texas Department of Transportation....................... 54
Department of Agriculture (Federal)...................... 55
Department of Education (Federal)........................ 55
Federal Reserve Bank of St. Louis, Missouri.............. 56
U.S. Army - Department of Defense........................ 57
Other Projects by Category............................... 58
RESUMES - PERSONNEL CURRENTLY ON-SITE........................ 61
RESUMES - AVAILABLE PERSONNEL................................ 161
EXHIBIT A - BIDDER'S REFERENCES.............................. 291
EXHIBIT B - DOCUMENTATION OF MINORITY PARTICIPATION.......... 295
</TABLE>
2
<PAGE>
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Executive Summary
2
<PAGE>
EXECUTIVE SUMMARY
Encore Consulting, Incorporated is pleased to have the opportunity to respond to
the Invitation For Bid for the "Consulting Services - IEF Case Tool" contract
for the State of Missouri. Members of the Encore Team have provided IEF
consulting services to the State of Missouri for several years. In fact, one or
more members of the Encore Team have consulted on the majority of the IEF
projects initiated by the State of Missouri since the first pathfinder projects
began four years ago.
We are proud of our long term partnership with the State of Missouri and look
forward to our continued relationship. Encore is committed to helping the State
of Missouri achieve success in utilizing the Composer/IEF product and our
consultants have worked hard to demonstrate that commitment by "going the extra
mile" on their consulting engagements. We have striven to demonstrate integrity
and a strong work ethic throughout our business relationships with individuals
at the State.
Encore is committed to providing senior level Composer/IEF consultants who
possess both the interpersonal relationship skills and the technical skills
necessary for successful team building and project implementation. In addition
to excellent consulting skills, the Encore Team has significant state government
domain expertise developed on engagements in Missouri, Alaska, Florida, Kansas,
Kentucky, Nebraska, New Mexico and Texas. Our consultants also have extensive
application development backgrounds in a number of industries. This depth of
experience enables them to provide effective consulting solutions on a wide
range of applications.
As the Encore Team has consulted in the various State of Missouri departments,
we have been able to facilitate the sharing of information on development
coordination and action diagramming standards, PrAD specifications, GUI design
techniques and modeling approaches across the different State agencies. We
believe that helping the agencies to develop this kind of synergy is an
important contribution to the State of Missouri's success.
3
<PAGE>
As mentors to their project teams, Encore consultants have a genuine interest in
helping our customers become more effective in their understanding of the
Information Engineering Methodology and in their use of the Composer/IEF
toolset. Our consultants continue to receive additional training in order to
remain current in both the toolset and in the alternate project life cycle
approaches utilized in the Composer/IEF development process.
With an ever increasing network of contacts in the Composer/IEF consulting
services industry, Encore is in an excellent position to continue to supply
consulting resources of the same high caliber as those presently working on
projects at the State of Missouri.
4
<PAGE>
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RESPONSE TO IFB GENERAL REQUIREMENTS
5
<PAGE>
RESPONSE TO IFB GENERAL REQUIREMENTS
Encore acknowledges the "Contractual Requirements" and "Performance
Requirements" as specified in Part II and Part III of the IFB and will comply
with these requirements.
1. SUBMISSION OF BIDS
Encore acknowledges and will comply with the submission of bids requirements
outlined in the Submission of Bids section of the IFB.
2. BID EVALUATION/CONTRACT AWARD
We understand the bid evaluation criteria and will comply with the bid
evaluation/contract award requirements outlined in the Bid Evaluation/Contract
Award section of the IFB.
6
<PAGE>
- --------------------------------------------------------------------------------
COST
7
<PAGE>
- --------------------------------------------------------------------------------
COST
REVISED
-------
Pricing Pages
-------------
The bidder must indicate below a firm, fixed per day price for Category One
consulting services and/or Category Two consulting services. In addition, the
bidder should provide a firm, fixed per hour price for Category One and/or
Category Two consulting services to accommodate the provision of services from
one (1) consultant (i.e., the same consultant) to more than one (1) state agency
on the same day. The bidder's per hour price when multiplied by six (6) hours
should not be greater than the bidder's stated per day price, as applicable, for
Category One and/or Category Two consulting services. In the event that the per
hour price is left blank, the bidder's per hour price shall be the per day price
divided by eight (8) for the applicable Category of consulting services.
CATEGORY ONE
------------
Technology Implementation Planning
----------------------------------
Firm, fixed per day price for Category One consulting services: $784. per day
-----
Firm, fixed per hour price for Category One consulting services: $98. per hour
-----
The bidder should provide the applicable per day price(s) for Block of Days of
continuous Category One services:
<TABLE>
<CAPTION>
Per Consultant, Block of Extended
Per Day Price x Days x = Price
- --------------- --------- --------
<S> <C> <C> <C> <C>
$784 x 1 day x = $ 784.
---- -------
$784 x 30 days x = $23520.
---- -------
$784 x 60 days x = $47040.
---- -------
$784 x 90 days x = $70560.
---- -------
$784 x (greater 90 days x = $94080.
---- than) -------
</TABLE>
CATEGORY TWO
------------
APPLICATION DEVELOPMENT
Firm, fixed per day price for Category Two consulting services: $784. per day
-----
8
<PAGE>
Firm, fixed per hour price for Category Two consulting services: $98. per hour
-----
The bidder should provide the applicable per day price(s) for Block of Days of
continuous Category Two services:
<TABLE>
<CAPTION>
Per Consultant, Block of Extended
Per Day Price x Days x Price
- --------------- --------- --------
<S> <C> <C> <C>
$784 x 1 day x $ 784.
---- -------
$784 x 30 days x $23520.
---- -------
$784 x 60 days x $47040.
---- -------
$784 x 90 days x $70560.
---- -------
$784 x (greater 90 days x $94080.
---- than) -------
</TABLE>
9
<PAGE>
PRICING PAGES
RENEWAL OPTION
FOR
ALL PRICES
The Division of Purchasing and Materials Management shall have the sole option
to renew the contract in one (1) year increments, or a portion thereof, for a
maximum total of two (2) additional years.
The bidder must indicate below the maximum allowable percentage of price
increase or guaranteed minimum percentage of price decrease applicable to the
----------
renewal option periods. If a percentage is not quoted (i.e., left blank), the
state shall have the right to execute the option at the same price(s) quoted for
the original contract period. Statements such as "a percentage of the then-
current price" or "consumer price index" are NOT ACCEPTABLE.
All increases or decreases shall be calculated against the ORIGINAL contract
--------
price, NOT against the previous year's price. A CUMULATIVE CALCULATION SHALL
-------------------------------------
NOT BE UTILIZED.
The percentages indicated below will be used in the cost evaluation to determine
the potential maximum financial liability to the State of Missouri.
NOTICE: DO NOT COMPLETE BOTH A MAXIMUM INCREASE AND A MINIMUM DECREASE FOR THE
------
SAME RENEWAL PERIOD.
1. Hourly Prices:
-------------
<TABLE>
<CAPTION>
Maximum Increase OR Minimum Decrease
-------------------------------
<S> <C> <C>
1st Renewal Period: original price + __________% OR original price - 2%
2nd Renewal Period original price + __________% OR original price - 4%
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
Experience and Reliability
11
<PAGE>
EXPERIENCE AND RELIABILITY
The following sections of the bid response address the requirements of sections
4.1, 4.2 and 4.3 of the Experience and Reliability portion of the bidder's
response.
MISSION STATEMENT
Encore Consulting is dedicated to providing quality consulting services at
competitive rates. We believe that success is best achieved when a partnership
exists between Encore and the customer. The Encore Team is determined to
demonstrate integrity in our business relationships and a firm commitment to our
customer's success.
PHILOSOPHY
Encore Consulting's philosophy is reflected by the values of the individuals on
the Encore Team. A successful business relationship hinges on developing a
partnership with the customer. This partnership approach entails a commitment
to our customer's success which extends beyond what many firms might consider a
job well done. Besides demonstrating a genuine interest in helping the State of
Missouri to succeed, our team has put in many late night hours on such tasks as
creating a set of Graphical User Interface (GUI) templates for the State's use,
extra project work, reviewing models and developing creative project management
approaches.
We understand that the State desires to utilize the Information Engineering
Methodology and the various associated project development life cycles as they
are presented in the Texas Instruments (TI) literature and courseware. Encore
is committed to staying "in synch" with the "TI flavor" of methodology, while
remaining flexible in responding to specific State of Missouri requirements.
We have been consistent participants at the monthly Missouri CASE Management
meeting. The group was formed to provide a forum for State agencies using the
Information Engineering Methodology (IEM) and the Composer/IEF toolset to share
progress and knowledge gained with other agencies. The sharing of knowledge
across
12
<PAGE>
State agencies has helped to create positive momentum in the rollout of the
Composer/IEF tool and has enabled a spirit of cooperation to develop among the
agencies. This, in turn, has helped foster a successful working partnership
involving the State of Missouri, Encore and TI.
It is our intent to be involved in the Jefferson City community. We are
presently members of the Jefferson City Area Chamber of Commerce.
[Photo of Jefferson City Chamber of Commerce]
[Photo caption: "Encore celebrates joining the Jefferson City Chamber of
Commerce with a ribbon cutting ceremony by the capitol."]
A member of the Encore Team is presently acting as a technical advisor to the
Chamber to assist in the development of an Internet home page. The Chamber's
home page will be used to promote tourism, electronic commerce, community
calendaring and government information access. Encore is also working with the
Convention and Visitor's Bureau on special events and is participating in the
Chamber's effort to work with Lincoln University to improve the business
"currency" of their educational curriculum.
Recently, Encore Consulting agreed to become the exclusive sponsor of the
Capitol City Cycling Club for a period of two years. The club, located in
Jefferson City, has 200 members who participate in numerous events in Missouri
and surrounding states.
[Photo of Capitol City Cycle Club]
[Photo Caption: "Encore is proud to be the exclusive sponsor of the Capitol City
Cycle Club of Jefferson City"]
Encore is also sponsoring a men's softball team in the Jefferson City Park
league. The team represents the Missouri Highway and Transportation
Department's Bridge Division. The team is made up exclusively of state
employees and plays every Thursday evening at Binder Park in Jefferson City.
[Photo of softball team]
13
<PAGE>
[Photo caption: "Encore is proud to sponsor a Jefferson City Park League
softball team for the MHTD Bridge Division."]
Encore feels that being involved with the Jefferson City Chamber of Commerce and
sponsoring activities such as the softball team and the cycle club are
opportunities to give something back to the state agencies and the Jefferson
City community. We are committed to increasing our involvement in the future.
BACKGROUND
The three principals of Encore Consulting, Inc. have played significant roles in
the use of Composer/IEF at the State of Missouri. We believe that our
experience with the Composer/IEF product, our participation in the majority of
the Composer/IEF projects undertaken at the State of Missouri, and our
professional relationship with the State of Missouri data processing community
demonstrates the experience, reliability and integrity of our organization.
From March 1992 to June 1994, Dave Beman (as a Texas Instruments Consulting
Manager) had account responsibility for the State government of Missouri, as
well as for TI's Composer/IEF consulting accounts in Minnesota and Iowa. Dave's
responsibilities at the State of Missouri included helping the State roll out
Composer/IEF in various departments, as well as selling consulting and training
engagements. He consulted on the initial `proof of concept" Composer/IEF
projects at the State and taught numerous Composer/IEF classes to State of
Missouri personnel. In June 1994, Dave joined Power Computing. Since joining
Power (which was later acquired by BSG Consulting), Dave has provided consulting
services to the Missouri State Highway Patrol, the Department of Mental Health,
the Department of Social Services and the Department of Natural Resources.
Tom McLeod joined Power Computing in October of 1993 as Power's IEF Consulting
Business Development Manager for the State of Missouri account. His
responsibilities include client relationship management, selling consulting
services, invoicing, recruiting new consultants and the general management tasks
associated with running this
14
<PAGE>
segment of the consulting business. Over the last two and a half years, Tom has
developed solid partnership relationships with a number of individuals in the
various departments at the State of Missouri. Power Computing was sold to BSG
Consulting in October of 1994 and Tom continued in his account management role
for BSG.
In addition to his involvement with the State of Missouri account, Tom has
served as the president of the Gateway Connection local Composer/IEF user group
for the past year. Prior to serving as president, Tom served in variety of
capacities over the last four years. In his roles in the user group, Tom has
worked hard to foster cooperation between St. Louis area Composer clients and
Texas Instruments. As a result of his involvement, Tom has developed numerous
relationships with key individuals at Texas Instruments.
In February 1994, Bob Myers was hired by Power Computing to provide consulting
support to the Highway and Transportation Department. In addition to a strong
Composer/IEF project management background, Bob brought a wealth of technical
expertise and Composer/IEF development experience to the Highway Department
projects. Bob has also provided consulting expertise to the Department of
Social Services and the Department of Natural Resources. He is the author of
the GUI development templates currently in use at the Highway and Transportation
Department and the Department of Social Services.
The Encore consulting team has extensive experience with State of Missouri
application systems, as well as systems developed for other state and federal
government agencies. Please refer to the expertise section of our bid response
for details on the experience of the Encore Team with government applications at
Missouri and other states.
In summary, the Encore Team has been involved with the introduction and use of
Composer/IEF at the State of Missouri since its initial purchase. Our expertise
with the Composer/IEF product, our demonstrated commitment to the State's
success, and our
15
<PAGE>
existing relationships in the State data processing community place us in a
position to continue to partner with the State in the successful delivery of
Composer/IEF projects.
BENEFITS
The primary benefits to the State of Missouri in utilizing Encore Consulting
are:
. We have extensive experience in all phases of the Composer/IEF development
process. This includes expertise in both the Information Engineering (IE)
Methodology and the Composer/IEF toolset, as well as more specialized areas
of IEF consulting.
. The Encore Team possesses significant State of Missouri government
application domain expertise which can be leveraged to deliver systems more
quickly. In addition to our experience with numerous systems at the State of
Missouri, the Encore Team has experience with systems developed by other
state and federal government agencies.
. One approach does not fit all application development situations. Encore
consultants have the experience to deliver customized solutions which are
responsive to the customer's needs.
. We are genuinely interested in our customer's success and are committed to
being "partners for success". During consulting engagements, we will work
closely with the State to ensure the quality of the work being performed.
. Encore has developed a set of GUI Client/Server templates and implementation
techniques which can accelerate the systems development process.
16
<PAGE>
Category 1 Experience
The Encore Team has provided Category 1 consulting support to the State of
Missouri and to other State and Federal government agencies. The agencies and,
where applicable, projects are listed below.
ENVIRONMENTAL ASSESSMENTS
. Missouri Highway and Transportation Department
. Missouri Department of Labor
. Missouri Department of Mental Health
. Missouri Department of Natural Resources
. Alaska Department of Labor
. Florida Department of Transportation
. Nebraska Department of Social Services
. New Mexico Human Services Department
. Texas Department of Transportation
. U.S. Military Entrance Processing Command
ROADMAP
. Missouri State Highway Patrol
. Missouri Highway and Transportation Department
. Missouri Department of Labor
. Missouri Department of Mental Health
17
<PAGE>
. Missouri Department of Natural Resources
. Alaska Department of Labor
. Florida Department of Transportation
. U.S. Military Entrance Processing Command
DEVELOPMENT COORDINATION
. Missouri State Highway Patrol
. Missouri Highway and Transportation Department
. Missouri Department of Labor
. Nebraska Department of Social Services
INFORMATION STRATEGY PLANNING
. Missouri Department of Corrections
. Missouri State Highway Patrol
. Missouri Supreme Court
. Missouri Department of Social Services
. Missouri State Treasurer's Office
. Florida Department of Transportation
. U.S. Military Entrance Processing Command
PERFORMANCE/CHECK POINT REVIEWS
. Missouri State Highway Patrol
18
<PAGE>
. Missouri Highway and Transportation Department
. Missouri Department of Labor
. Missouri Department of Mental Health
. Missouri Office of Administration
. Missouri Department of Social Services
. Alaska Department of Labor
. Florida Department of Transportation
. U.S. Military Entrance Processing Command
CATEGORY 2 EXPERIENCE
The Encore Team has significant expertise in each of the Category 2 functional
areas. We provide Planning, Analysis, Design, Construction, Testing,
Implementation, Documentation, Standards Development and Quality Assurance
consulting services. Most of our engagements span virtually all of the
functional areas.
Rather than repeat the list of organizations and associated projects redundantly
under each Category 2 functional area, we have chosen to provide a list of the
government related projects on which we have provided Category 2 consulting
- ------------------
support. More detail on the government related projects can be found in the
Expertise of Consultants section of the bid response, as well as information on
non-government projects in which the members of the Encore Team have played a
role.
MISSOURI STATE HIGHWAY PATROL
. Criminal History
. MULES
19
<PAGE>
Property Control
. Driver Exam
. Application Catalog
. Participant Identification
. Incident
. Contact Accounting
MISSOURI HIGHWAY AND TRANSPORTATION DEPARTMENT
. Transportation Management Systems
. Fleet Management
. Time and Crew Reports
. Maintenance Material Inventory
. Work ID
. Vertical Clearance
MISSOURI DEPARTMENT OF LABOR
. Planning - ISP review prior to project initiation
. Appeals Tracking
. Comments System
MISSOURI DEPARTMENT OF MENTAL HEALTH
. Accounting, Information and Management Systems (AIMS)
20
<PAGE>
. Client Tracking (CTRAC)
. Services and Funding (SAF)
. Target Cities Information System (TC-IS)
. IEF/ORACLE C/S encyclopedia consulting
MISSOURI DEPARTMENT OF NATURAL RESOURCES
. Planning - ISP review prior to project initiation
. Pathfinder scoping and project selection
MISSOURI OFFICE OF STATE COURTS ADMINISTRATOR
. Time Tracking
MISSOURI DEPARTMENT OF SOCIAL SERVICES
. Missouri Automated Child Support System (MACSS)
. Family Assistance Management Information System (FAMIS)
. Executive Intensive Planning Workshop (4 day facilitated session)
. Child Welfare - Provider
. Prince Hall
ALASKA DEPARTMENT OF LABOR
. Employment Services
. Unemployment Insurance
. Workers Compensation
21
<PAGE>
. Common Data/Activity
KANSAS STATE REHABILITATIVE SERVICES
. Kansas Social Services Information System (KSSIS)
KENTUCKY DEPARTMENT OF SOCIAL SERVICES
. Kentucky Automated Management and Eligibility System
. (KAMES)
NEBRASKA DEPARTMENT OF SOCIAL SERVICES
. Nebraska Family Online Customer and User System (N-FOCUS)
NEW MEXICO HUMAN SERVICES DEPARTMENT
. Child Support Enhancement and Enforcement System (CHEERS)
TEXAS DEPARTMENT OF TRANSPORTATION
. Right of Way
DEPARTMENT OF AGRICULTURE (FEDERAL)
. Guaranteed Loan System
DEPARTMENT OF EDUCATION (FEDERAL)
. National Student Loan System
FEDERAL RESERVE BANK OF ST LOUIS, MISSOURI
. Cash Track System
U.S. ARMY - DEPARTMENT OF DEFENSE
. Ammunition Management Systems
22
<PAGE>
SUBCONTRACTING RELATIONSHIPS
While a large portion of the Encore Team will consist of W2 hourly employees,
Encore does plan to use several subcontractors. Each of the four subcontractors
Encore plans to use is described in the following paragraphs.
EDUTEACH, INC. (STATE OF MISSOURI MBE VENDOR #6667457)
Eduteach provides full project life cycle Composer/IEF consulting services and
offers a number of data processing education classes. The company specializes
in the Information Engineering Methodology and its consultants have a minimum of
ten years of data processing experience. Eduteach is a Minority Business
Enterprise (MBE) and Encore's goal is to place more than 5% of the consulting
business resulting from the State of Missouri IEF consulting contract with
Eduteach.
Dushun Mosley, founder and CEO of Eduteach, has 27 years of data processing
experience. He is a graduate of Texas Instruments' (TI) FasTrack program and
has provided consulting services on a number of consulting engagements. As a
Texas Instruments Senior IEF Consultant, Mr. Mosley consulted with the Missouri
Department of Mental Health, as well as teaching a number of the core TI IEF
educational classes to State of Missouri data processing personnel.
FITECH, INC.
Fitech was incorporated in 1984 and specializes in the support of Information
Engineering tools. Over the past five years, the company has specialized in
consulting on projects involving the Composer/IEF CASE product. Fitech is a
Texas Instruments Consultancy Support Program member, a Tandem Alliance partner
and is included in the Sequent Solutions Directory.
The company is based in Plano, Texas and has a Sales and Administrative staff of
three. The average number of billable personnel is eighteen. Fitech is a
privately owned Texas corporation and is CERTIFIED as a Historically
---------------------------
Underutilized Business
- -----------------------
23
<PAGE>
(HUB) and as a Woman Owned Business Enterprise (WBE) by the State of Texas and
- ------------------------------------------------------------------------------
the North Central Texas Regional Certification Agency. Seventy five percent
- ------------------------------------------------------
ownership of the company is represented by minority partnership. Thirteen
members of the staff provide Composer/IEF consulting support.
JOHNSTON MCLAMB CASE SOLUTIONS
Johnston McLamb CASE Solutions, Inc. (JMCS) is a highly specialized professional
services firm which focuses on providing Information Technology (IT) support to
commercial and government clients utilizing leading-edge software products and
services. JMCS places particular emphasis on using Computer-Aided Software
Engineering (CASE) technology along with traditional software programming to
produce practical, implementable information systems solutions. Their focus is
in the areas of Information Engineering, Client/Server Design, and emerging
Object-Oriented tools and techniques. JMCS has an impressive track record of
managing and supporting Composer/IEF projects of all sizes from analysis through
production.
Their success stories include Windows NT, Windows 95, Windows 3.1, OS/2, or Unix
Motif GUI client designs interfacing with LAN, Unix, or Mainframe transaction
servers accessing Oracle, Sybase, or DB2 remote data bases. JMCS has developed
meaningful business applications employing the latest technologies in the areas
of Office Automation product integration, dynamic data exchange (DDE),
distributed computing environment (DCE), remote SQL, distributed GUI
presentation, cooperative processing, peer-to-peer communications, TCP/IP, and
object linking and embedding (OLE).
SKYLER-MARKS, INC.
SKYLER-MARKS CORPORATION was formed in 1994 by the partners of Coldwell &
Associates to provide Information Technology Consulting services in Dallas,
Texas and Washington, DC. The firm provides a range of consulting services in
several areas including Information Engineering, Project Management,
Geographical Information
24
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Systems (GIS), and Internet/Intranet technologies. Coldwell and Associates have
been providing services in Dallas, Texas since 1989.
SKYLER-MARKS CORPORATION began providing consulting expertise to the
Transportation Management System (TMS) project for the Missouri Highway and
Transportation Department (MHTD) in June of 1994. In November of 1995 TMS was
approved and funded to begin design and implementation of the six Management
Systems defined from the BAA. Skyler-Marks Corporation has provided additional
consultants to the TMS project to provide expertise in software development,
implementation and technical support.
MINORITY PARTICIPATION
In an effort to be responsive to the Minority Participation portion of the IFB,
Encore searched the Minority Vendor Directory maintained on the Internet by the
State of Missouri Division of Purchasing and Materials Management. We contacted
Eduteach, a provider of Composer/IEF consulting services, and have established a
business relationship.
EDUTEACH, INC. (STATE OF MISSOURI MBE VENDOR # 6667457)
Eduteach is designated as a State of Missouri MBE vendor. Encore Consulting
plans to utilize the services of Eduteach in providing Composer/IEF consulting
support to the State of Missouri. It is Encore's goal to place more than 5% of
the consulting business resulting from the State of Missouri IEF consulting
contract with Eduteach.
REFERENCES
See Exhibit A for Encore's list of references.
25
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- --------------------------------------------------------------------------------
EXPERTISE OF CONSULTANTS
26
<PAGE>
EXPERTISE OF CONSULTANTS
CONSULTING APPROACH
Encore's consulting approach focuses on the customer and Encore being "partners
for success". The partnering begins long before a consultant is placed at the
customer site. We make every effort to clearly understand our customer's needs
before presenting consultants to fill roles on projects. After an initial
screening interview with Encore technical and sales personnel, the prospective
consultant proceeds through several technical interviews with members of the
Encore Team. When possible, we prefer to have our clients participate in the
interview process. We believe this serves to ensure that the customer is going
to be working with a consultant who not only possess the necessary technical
skills, but will also fit smoothly into the customer's working environment.
Encore consultants are senior level individuals with significant experience in
the use of the Composer/IEF product. They are skilled in alternate IE
methodology life cycle approaches and are seasoned enough to understand that
project development is not a "one size fits all" situation. Our consultants
assess each situation individually and then work with the client to develop the
appropriate project approach. They have strong project scoping, project
management, facilitation, leadership and team building skills, which serves to
maximize the effectiveness of the project teams they assist. A continuous
emphasis is placed on quality assurance, with the Encore consultant periodically
reviewing project deliverables at various checkpoints throughout the project.
We understand that our customers are wanting to develop their own "in house"
Composer expertise and Encore consultants work hard to be mentors to the project
teams they support. Experience and a genuine willingness to share knowledge
with the members of the project teams enables Encore consultants to successfully
transfer Composer expertise to customer personnel. The importance of the
mentoring role is the reason we strive to provide consultants with the ability
to work productively with
27
<PAGE>
others in a team environment. We feel that these people skills are every bit as
important as the technical expertise that the consultant brings to the
engagement.
In addition to day to day project support, the Encore management team will
periodically review each project in which the Encore Team is participating. We
will solicit customer feedback on the effectiveness of the Encore consultants
and will make every effort to ensure the customer is satisfied with the value
provided by the Encore Team members. If for any reason a consultant must be
replaced, an Encore manager will consult with a representative of the client to
assess the situation and to make sure that the replacement is handled as
smoothly as possible.
Encore has developed a set of GUI templates which can significantly shorten the
project development cycle. These templates are especially useful in projects
which emphasize a prototyping approach. The templates are currently in use in
multiple departments at the State of Missouri. Besides assisting in individual
development efforts, these templates will help to standardize the look and feel
of GUI applications throughout the various departments using the Composer
product.
Encore is committed to providing consultants who are current in the latest
technology and methodological approaches. Encore owns courses such as the self-
paced Windows 95 and Windows NT Resource Kit training courses from Microsoft
Press. As the need arises, we plan to purchase additional training materials
for our consultants' use. We have also developed short courses on such topics
as GUI design and the use of the Encore developed GUI templates which are being
utilized at the Highway and Transportation Department and the Department of
Social Services.
For each new release of the Composer software, we plan to offer classes to our
consultants to be sure that each consultant has the opportunity to receive
training. Encore will send one or more senior level consultants to training
classes on new releases that involve significant changes in the functionality of
the Composer toolset. These consultants will then conduct training on the new
release.
28
<PAGE>
As the Certified Composer Professional Program being developed by Texas
Instruments is completed, we will offer training to our consultants to assist
them in becoming Certified Composer Professionals. We will comply with the
certification requirement as stated in the IFB.
29
<PAGE>
CATEGORY 1 PROJECTS
Encore has provided Category 1 consulting services to a number of State
agencies. Some of the Category 1 areas such as Environmental Assessments,
Roadmap, Development Coordination and Performance/Check Point Reviews are more
global in nature or tend to be done as a part of a Category 2 project. For
these skill areas, we have chosen to identify the agencies to which Encore has
provided the particular type of consulting service rather than relate the
service to specific projects. For the ISP area, however, we have identified
specific Information Strategy Planning projects in which the Encore Team has
played a significant role.
ENVIRONMENTAL ASSESSMENTS
. Missouri Highway and Transportation Department
. Missouri Department of Labor
. Missouri Department of Mental Health
. Missouri Department of Natural Resources
. Alaska Department of Labor
. Florida Department of Transportation
. Nebraska Department of Social Services
. New Mexico Human Services Department
. Texas Department of Transportation
. Military Entrance Processing Command
ROADMAP
. Missouri State Highway Patrol
30
<PAGE>
. Missouri Highway and Transportation Department
. Missouri Department of Labor
. Missouri Department of Mental Health
. Missouri Department of Natural Resources
. Alaska Department of Labor
. Florida Department of Transportation
. U.S. Military Entrance Processing Command
DEVELOPMENT COORDINATION
. Missouri State Highway Patrol
. Missouri Highway and Transportation Department
. Missouri Department of Labor
. Nebraska Department of Social Services
IMPLEMENTATION STRATEGY PLANNING
MISSOURI DEPARTMENT OF CORRECTIONS
Two members of the Encore Team began an Information Strategy Planning effort
during the week of May 28, 1996. The two person team is responsible for
planning and managing the project. They will also be mentoring Department of
Corrections personnel in ISP techniques.
MISSOURI STATE HIGHWAY PATROL
A member of the Encore Team provided support on the HIGHWAY PATROL ISP PROJECT
undertaken at the Patrol. This particular project was innovative in its
approach and
31
<PAGE>
produced excellent results. Due to time and budgetary constraints, a full ISP
could not be completed within the time frame required. The primary focus of the
effort was to develop an Information Architecture and Business System
Architecture which the Patrol could use as blueprints for managing its Criminal
Justice system development efforts over the coming five to seven years. While
the Technical Architecture was not addressed to the same level of detail as the
Information and Business System Architectures, it is documented in the ISP
write-up being produced as a result of the project.
A series of facilitated JAD sessions were held with representatives of the
functional areas of the Patrol. These sessions produced an Information
Architecture which was utilized to define Business Systems and Business Areas.
Once the Business Areas were identified, organizational priorities relating to
the replacement of existing systems were used to develop a build sequence of
development projects which allow the existing systems to be replaced in the
context of the overall ISP architectures.
MISSOURI SUPREME COURT
Encore created the initial Information Strategy Plan (ISP) document for EC/2004.
This document provides the overall critical success factors, functional
requirements, activities and data that must be supported by any off-the-shelf or
custom solutions. Numerous JAD sessions were conducted to obtain requirements
for business areas such as Case Management, Criminal, Juvenile, Probate, Civil,
Family, Jury Management and OSCA services.
MISSOURI DEPARTMENT OF SOCIAL SERVICES
Members of the Encore Team have provided support on two ISP projects at the
Department of Social Services, the Missouri Automated Child Support System
(MACSS) and the Child Welfare system.
The MACSS ISP PROJECT involved developing an Information Architecture which
could be utilized to manage the development effort of the project. The
consultant and the
32
<PAGE>
state team produced a Data Model and an Activity model which were used initially
to carve up a very large system into more manageable pieces. The initial
architecture was handed off to the ISSC contractors when they began their
efforts on the MACSS project. The scope of the MACSS project involves the
recording and maintenance of child support case information for the state of
Missouri.
The CHILD WELFARE ISP PROJECT included the following major functional areas:
Referrals, Investigations, Case Management, Provider Evaluation, Courts,
Resource Management, Staff Management and Financial Services. An ISP plan was
produced for use in the development of the application systems to support each
of the functional areas addressed in the ISP effort.
MISSOURI STATE TREASURERS OFFICE
The STATE TREASURER'S OFFICE ISP PROJECT included the determination of the
analysis methods to be used during the project, as well as directing the ISP for
the State Treasurer's Office. Published the enterprise model used for the
development and acquisition of information systems for Banking Services,
Investments, Unclaimed Property, Administrative Services and Legal Services.
FLORIDA DEPARTMENT OF TRANSPORTATION
The BUSINESS INFORMATION STRATEGY PLAN (BISP) PROJECT - A member of the Encore
Team provided hands on leadership and mentoring for the Florida Department of
Transportation's Business Information Systems Plan (BISP) project. The BISP
mission was to produce and maintain a plan to apply information technology to
the department's business needs. The following business areas were identified:
Financial Management, Production Management, Planning and Operations, Resource
Management, Human Resources Management, and Administrative Support. The
department utilized the Information Engineering methodology and the IEF CASE
tool.
Working with the Geographic Information Systems GIS steering committee, the
Electronic Document Management Systems (EDMS) steering committee, and using
33
<PAGE>
subject area expert input, a proof of concept plan was created. The premise of
the proof of concept was to incorporate Rapid Application Development techniques
to create a client server environment that would integrate production
scheduling, performance tracking, EDMS, GIS, CAD and Personal Productivity
Software PPD into a seamless package based on documented workflow requirements.
Two GIS viewing capabilities would be included in the proof of concept. The
choices included lntergrapgh (MGE) and ESRI (ARC/INFO). GIS would provide a
"drill down" capability to central office management for observing project
statuses and to identify "management by exception" problem areas. The following
papers were referenced when performing data base design for GIS. The first of
these was NCHRP 20-27, a project of the National Cooperative Highway Research
Program. (Vonderohe 1991, 1993) The second was the GIS-T/ISTEA Pooled-fund Study
(Fletcher 1994) being conducted by a consortium centered in New Mexico, which
was prompted by the requirements of the 1991 federal lntermodal Surface
Transportation Efficiency Act (ISTEA). The third paper was the federal Spatial
Data Transfer Standard (SDTS).
U.S. MILITARY ENTRANCE PROCESSING COMMAND
The MEPCOM INFORMATION RESOURCE SYSTEM (MIRS) PROJECT was designed and
implemented in support of the Military Entrance Processing Command's desire to
improve and automate activities required to more efficiently process individuals
into military service in peace time and time of war. The client was provided
leadership and mentoring in the use of Case tools and the James Martin's
Information Engineering development methodology. Process reengineering was
performed to document the optimum integration of processes and technology
required to ensure the supply and availability of quality personnel.
The Encore Team member leading the project was required to obtain Top Secret
security clearance in order to lead a high level staff of 30 military officers
and civilians in the creation of an Information Strategic Plan (ISP) for the
command. This ISP was transformed into an enterprise model facilitating the
reengineering of the business
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processes and the identification of manual and automated information required to
process individuals into the military. An information architecture was created
identifying the optimum combination of data, processes and technology in support
of the Command Headquarters and 80 processing stations across the nation.
Client server technology was employed allowing for the collection of "Point of
Sale" data into Oracle databases on Novel LAN based midsize computers at each of
the 80 processing stations. Nightly extracts of transaction level data was
collected at the central mainframe server for data warehousing activities. The
FileNet optical storage Juke Box was identified as a solution to reduce the
massive physical file storage requirements of the processing stations.
PERFORMANCE/CHECK POINT REVIEWS
The Encore Team has provided performance/check point review support for numerous
projects in the following state and federal agencies. While some
performance/check point reviews are more formal in nature, we believe that the
principles of a consistent emphasis on quality and the use of model validation
techniques throughout the project help to ensure that a quality product is
produced which will perform to customer specifications.
. Missouri State Highway Patrol
. Missouri Highway and Transportation Department
. Missouri Department of Labor
. Missouri Department of Mental Health
. Missouri Office of Administration
. Missouri Department of Social Services
. Alaska Department of Labor
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. Florida Department of Transportation
. Military Entrance Processing Command
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CATEGORY 2 PROJECTS
MISSOURI STATE HIGHWAY PATROL
CRIMINAL HISTORY - The Missouri State Highway Patrol has been designated as the
statewide repository for Criminal Records information. The Criminal History
system contains arrest, prosecutor, court and corrections information about
individuals involved in criminal activity. The accuracy of the data is
critical, since it is disseminated to patrol officers making traffic stops, as
well as to organizations requesting background checks on individuals seeking
employment. Given the sensitive nature of the data, security is also of primary
concern. The Criminal History system is a statewide system which is accessed
not only by the Patrol, but by law enforcement agencies throughout the state.
Information is also provided at a national level.
The project is currently in BSI in the development life cycle. A member of the
Encore Team provided planning, project scoping, project management, facilitation
and BAA support in the early stages of the project and is now supporting the
team through the BSI, Construction and Testing phases of development.
Documentation, standards and quality assurance support is also being provided.
MULES - The Missouri Uniform Law Enforcement System (MULES) provides and
receives information both state and nationwide. It interfaces with a number of
other nationwide law enforcement systems such as NCIC and NLETS. MULES is a
series of business systems which deal with incidents such as stolen vehicles,
stolen parts, stolen plates, wanted persons and missing persons. Response time
and data accuracy are critical factors of the system. The current MULES II
system is being rewritten in Composer by IEF.
A member of the Encore Team provided project scoping, project management,
facilitation and BAA support for the portions of the project involving stolen
vehicles, parts, plates, missing persons and wanted persons and is now
supporting the team through the BSI, Construction and Testing phases of
development.
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PARTICIPANT IDENTIFICATION - One of the most important data resources of the
Patrol is the information it stores about individuals and organizations. The
Missouri State Highway Patrol is the statewide repository for individual
Criminal Records. The Patrol also stores statewide information on wanted and
missing persons. The Participant Identification system provides the capability
to enter and maintain an extensive amount of information about individuals and
organizations. A number of inquiries have also been developed which allow
searches of the database by different selection criteria.
Members of the Encore Team provided project scoping, BAA, BSI, Construction,
Testing, Implementation, Documentation, Standards and Quality Assurance support
on the project.
PROPERTY CONTROL - The Property Control system is a statewide troop evidence
system. Property which has been seized for evidence or safekeeping must be
properly accounted for while in the custody of the Patrol. For property seized
as evidence, a proper chain of custody must be maintained which provides a
chronological sequence of each individual who had responsibility for the
particular item.
A member of the Encore Team provided project scoping, standards, quality
assurance, BAA and BSI support on the project.
DRIVER EXAM - This statewide system provides for the entry, maintenance and
reporting of Commercial and Non-Commercial Driver's License examination
information. Both written and skill examination information is recorded in the
system.
A member of the Encore Team provided project scoping, BAA and BSI support on the
project.
CONTACT ACCOUNTING - The Contact Accounting system automates the process of
recording contacts for the Missouri State Highway Patrol. It is a statewide
system which provides for the initial recording and ongoing maintenance of
contact information for the Patrol. In addition, the system maintains a check
out log of off duty officers which indicates where they can be reached in case
of a Patrol emergency.
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Members of the Encore Team provided project scoping, BAA, BSI, Construction,
Testing, Implementation, Documentation, Standards and Quality Assurance support
on the project.
INCIDENT - The General Incident system is utilized to enter and maintain basic
information on Incidents which involve a response by the Patrol. The system is
the first in a series of systems which are being implemented to address national
CALEA standards for law enforcement agencies. CALEA standards require that a
law enforcement agency be able to identify and track Incidents from their
inception to their final resolution. In addition, each Incident must be
classified by type so that CALEA reporting standards can be met.
Members of the Encore Team provided project scoping, BAA, BSI, Construction,
Testing, Implementation, Documentation, Standards and Quality Assurance support
on the project.
APPLICATION CATALOG - The system serves as the master inventory of all acquired
and developed software that is operational at the Patrol's data processing
center. All software purchased, leased or developed is assigned a system number
and is cataloged in the system. The system identifies installation dates,
retirement dates, ISD staff responsible for each system, users of each system
and planning for future development and acquisitions.
A member of the Encore Team provided project scoping, BAA and BSI support on the
project.
MISSOURI HIGHWAY AND TRANSPORTATION DEPARTMENT
TRANSPORTATION MANAGEMENT SYSTEMS (TMS) - TMS is the largest MHTD project using
Information Engineering and Composer. Encore has been involved with MHTD on
this system since it's inception. Encore has performed scoping sessions,
developed and presented training to MHTD personnel, provided quality assurance
reviews, assisted in developing standards, developed project plans, facilitated
JAD sessions for BAA,
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mentored MHTD personnel and developed documentation and presentations throughout
the projects development.
During the final months of TMS's BAA, Encore personnel worked with Texas
Instruments and ESRI to develop a prototype of MHTD data, manipulated by
Composer generated software and interfacing with a graphical information system
(GIS) system from ESRI. The successful prototype demonstrated the capabilities
of ISD and Encore personnel to develop the system and helped gain the approval
and funding to continue.
TMS is now in BSI and Encore is providing personnel to assist with the
management of development and support. Encore is also providing a number of
professional developers to staff the project and to provide Quality Assurance
reviews.
FLEET MANAGEMENT SYSTEM - Encore is currently working with the Missouri Highway
and Transportation Department (MHTD) to develop a Fleet Management System. This
system will be implemented statewide to provide MHTD with much needed equipment
information and tracking ability.
The fleet system provides both logistic and operational functions. Logistic
functions include: equipment planning, bid specifications, assignment, tracking,
analysis, etc. Operational functions includes service orders for servicing and
equipment maintenance, interfaces to the preventive maintenance policies,
warranty administration, a reservation system, equipment usage tracking, etc.
Encore consultants have participated in all phases of this project which
include: initial scoping sessions, establishing a project plan, facilitating the
BAA JAD sessions, developing standards and documentation, assisting the cost
justification process to gain approval for developing the BSI phase, leading the
current BSI phase and performing quality assurance reviews throughout the
development life cycle.
The Fleet Management System is planned for implementation state wide during the
fourth quarter of 1996. It contains approximately 90 entity types
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TIME AND CREW REPORTS - Encore is currently working with the Missouri Highway
and Transportation Department (MHTD) to develop a Composer generated system to
provide automated entry and tracking of employee time and maintenance
organization crew reports. This system was to be a reengineering effort
focusing on replacing the current paper intensive systems. With a change in
MHTD's overtime policy, it has become a very necessary facility to allow MHTD to
meet it's changing business requirements.
Encore personnel provided the initial scoping sessions for the project and then
developed a prototype to demonstrate the capabilities of an Information
Engineering approach using Composer. The prototype demonstrated ISD's
capabilities to develop the system and helped gain the funding for the project
to be completed. Encore's involvement throughout the project has been to
provide leadership and mentoring to MHTD personnel. Encore is playing an active
role in the development, testing, implementation, documentation, standards
development and quality assurance reviews for the project.
Although this system is a reengineering effort it has been integrated with the
business model that originated from MHTD's ISP. The result is a system that is
integrated with other systems in development at MHTD: Fleet Management,
Transportation Planning, Maintenance Material Inventory, and any other future
systems.
MAINTENANCE MATERIAL INVENTORY - Encore is currently working with MHTD to
develop a Maintenance Material Inventory system. This is a reengineering
project that focuses on implementing a mechanized version of the current paper
intensive system.
There are approximately 350 maintenance organizations that will have PC's
installed for data entry. Composer developed client procedures provide the user
interface and pass the data to and from the appropriate district server where it
is stored in an ORACLE DBMS on an RS/6000 AIX server. District data is
replicated to a central MHTD server where periodic queries are run to produce
files that feed the legacy systems.
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Encore personnel developed a prototype project to demonstrate the capabilities
of an Information Engineering approach using Composer. The prototype was
presented on many occasions to gain acceptance and demonstrate ISD's
capabilities to develop the system. Encore's involvement throughout the project
has been to provide leadership and mentoring to MHTD personnel in the full life
of the project. Encore is playing the leading role in the development, testing
implementation, documentation, standards development and quality assurance
reviews for the project.
WORK ID - The Work ID project was one of the initial pathfinder projects at MHTD
and is now a production system used daily by many MHTD employees. MHTD's
accounting system requires employee time, material expense, and any other costs
of doing business be charged to a function and Work ID combination code.
The function codes are standardized and change infrequently. However, the Work
ID can change on a daily basis. This pathfinder developed a standard approach
to develop the Work IDs and allows employees to query the Work IDs as needed to
find the appropriate code to charge against.
A member of the Encore Team provided project scoping, facilitation, BAA and BSI
support.
VERTICAL CLEARANCE - The Vertical Clearance project was developed as one of the
initial IEF pathfinder projects at the Highway and Transportation Department.
The system allows clearance information regarding bridge structures in the State
of Missouri to be entered and maintained. An example of a vertical clearance is
the distance from the surface of a roadway to the bottom of a bridge structure
which spans the roadway. This data is utilized to assist in vehicle routing
throughout the state.
A member of the Encore Team assisted in project scoping, facilitation, BAA and
BSI portions of the project.
MISSOURI DEPARTMENT OF LABOR
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APPEALS TRACKING -The Appeals Tracking System was developed as one of the
initial pathfinders at the Department of Labor. The system tracks Unemployment
Insurance appeals from their initiation to their final disposition. An appeal
can be started by either an unemployed person who has been refused unemployment
benefits or by a company who feels its unemployment insurance costs are too
high.
A member of the Encore Team assisted in finalizing the functionality of the
system and lead the project team through the effort to implement the system in a
client/server environment.
COMMENTS SYSTEM - The Comments System was developed as one of the initial
pathfinders at the Department of Labor. The system allows up to 4,000
characters of free text comments to be entered about business objects such as
unemployment insurance appeals.
A member of the Encore Team assisted in finalizing the functionality of the
system and lead the project team through the effort to implement the system in a
client/server environment.
MISSOURI DEPARTMENT OF MENTAL HEALTH
A member of the Encore Team worked on the ACCOUNTING INFORMATION AND MANAGEMENT
SYSTEM (AIMS). The goal of the AIMS system was to replace the legacy financial
systems which consisted of Fund Encumbrance, Cost Accumulation, Workload
Allocation, Labor Distribution, Non Appropriated Funds and Budget Management.
Scoping of the BAA portion of the project began in October of 1994 and ended in
August of 1995. One part-time consultant was enlisted at the beginning of the
scoping phase which lasted approximately one month. As a result of that
scoping, it was determined that a full time consultant would be needed for the
BAA portion of the project.
In July of 1995, the Office of Administration announced their intention to
purchase a personnel and financial turn key system that, in theory, would
incorporate all of the
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financial needs of the DMH and other state agencies who are currently feeding
the existing State Accounting System (SAM). The DMH management team, therefore,
decided it would not be prudent to continue the development of AIMS so it was
discontinued at the completion of the BAA portion of project. At that time, 156
entities had been identified.
THE CLIENT TRACKING, REGISTRATION, ADMISSION AND COMMITMENT SYSTEM (CTRAC) is
the base line system for all Department of Mental Health (DMH) automated client
data. CTRAC supports both On-line and batch input and was developed in the IEF.
There are approximately 700 on-line and 32 batch CTRAC users in a network of
approximately 200 service provider locations (DMH facilities and contract
provider locations). As the acronym implies CTRAC provides a unique Client
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identifier that allows Tracking of client service episodes at any provider
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within the DMH service delivery network. It is not unusual for DMH clients to
be receiving services simultaneously from multiple DMH service providers.
Without CTRAC this simultaneous care could not be tracked between providers.
There are situations where clients are placed on a waiting list or are evaluated
for services before actually receiving services or agreeing to be a DMH client,
the term used for this is Registration. A client I.D. is assigned at this time
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but minimal data is collected, and the data is later bypassed in the system if
the client refuses DMH service. CTRAC collects all necessary demographic and
Admission data for clients and populates admission screens with previous data
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when clients are readmitted. CTRAC also collects specialized data for
involuntary forensic Commitments to the DMH.
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CTRAC has been a very successful project for DMH. It continues to be used for
tracking, demographics and admissions data. It also feeds client data to other
DMH legacy systems. The system is made up of 19 Business Systems, 112 entity
types, 278 on-line procedures and 29 batch procedures.
A member of the Encore Team provided project scoping, facilitation, standards,
quality assurance, BAA and BSI support throughout the project.
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SERVICES AND FUNDING (SAF) - The mission of the SAF project is to integrate
multiple client service and funding systems into one comprehensive information
system which is flexible and user driven. Project objectives met were
streamline of billing processes, enhancement of reimbursements, increased data
accessibility, standard screen format, streamlined data input, statewide client
services, on-line contract data and funding utilization.
Encore consultants assisted in the defining of requirements, project planning,
facilitating JAD sessions, development of data and activity models, mentoring
and in quality assurance reviews.
The TARGET CITY INFORMATION SYSTEM (TC-IS) was a federally funded pilot project
to centralize intake and evaluation of Alcohol and Drug Abuse (ADA) clients in
the St. Louis area. The essence of the system is that all ADA admissions in the
St. Louis area would be directed to two Central Intake Units (CIU), one in the
city and one in the county. TC-IS provides screens to input profiles on
approximately 15 Service Delivery Units (SDU) in the St. Louis area (DMH
contract service providers). These screens indicate the kinds of programs and
services each provider can provide, number and types of staff, hours of
operation and number of slots (beds if inpatient services are provided). The
provider profile information and the client assessment information are batched
to the central DMH mainframe when the assessment is completed to match the
problems of the client with the an available SDU. TC-IS also provides an
appointment segment that allows each SDU (approximately 20 in the St. Louis
area) to report to the system on a real-time basis how many "slots" (units of
available services) are available at any point in time. When this Central
Intake system is proved to be effective, it will be implemented in other major
cities of the state (K.C., Springfield, St. Joe).
An Encore consultant was the primary facilitator and analyst for the BAA portion
of this system from July 1994 to January 1995. DMH had two other staff from the
central OIS group working with The Encore consultant. For the design and
development phase of the system two full time consultants were used. Two
additional consultants were used part-time on the system between January 1995
and April 1995. The system contained
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44 entity types, 43 PrADs and 88 PADS. The project was successfully implemented
in May 1995 and is still running with minimal maintenance by one part-time DMH
employee.
MISSOURI DEPARTMENT OF NATURAL RESOURCES
ISP REVIEW - Reviewed the ISP results in order to determine which projects
should be rolled out first in the department. Some inconsistencies were
discovered that will need to be addressed. The review results are being used to
help the department allocate resources and select an appropriate pathfinder. An
Encore consultant performed the review and is working with DNR management to
prioritize projects.
PATHFINDER SCOPING - A member of the Encore Team has conducted a number of
project scoping meetings in order to assist DNR in selecting appropriate
pathfinder projects. These sessions involve facilitation, data modeling,
activity modeling and project planning.
MISSOURI OFFICE OF STATE COURTS ADMINISTRATOR
TIME TRACKING - This pathfinder project will allow OSCA to credit employee's
time worked to various charge back accounts. Certain project activities may be
funded by several different funding source on a percentage basis. This path
finder project will allow OSCA to correctly perform charge back activities.
A member of the Encore Team assisted in project scoping and planning.
MISSOURI DEPARTMENT OF SOCIAL SERVICES
FAMILY ASSISTANCE MANAGEMENT INFORMATION SYSTEM (FAMIS) - The FAMIS project
involves the development and implementation of a very large family assistance
system. The system will handle the processing of family assistance cases and
will interface with the Missouri Automated Child Support System (MACSS).
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A member of the Encore Team was brought in as a part of a three person swat team
to assist in getting the project back on track when the effort got into some
difficulty. A customized methodological approach was developed that would fit
the specific requirements of the project. The Encore consultant initially lead
the Coordination team and, later in the project, also lead the Application Entry
team. The analysis phase was completed and a 3500+ page Requirements
Specifications Document (RSD) was produced which documented the Data Model,
Activity Model and Prototyped Screens. The assignment involved planning,
project management, data modeling, activity modeling, and technical support.
PRINCE HALL - The Encore Consulting team is currently working with the Missouri
Department of Social Services to develop a Composer generated system that will
allow individual citizens that enter the Prince Hall facility located in St.
Louis to be pre-screened as to the services that they may be interested in
obtaining. This project encompasses both the State, Local and Federal
Government agencies. The effort has produced a prototype that has received a
very favorable review from it's future users, the Prince Hall management team
and the Department of Social Services Information Systems division.
A member of the Encore Team provided project scoping, project management,
facilitation, BAA and GUI prototyping support on the project. The Encore GUI
templates were used to shorten the development life cycle and implement GUI
design standards.
CHILD WELFARE PROVIDER PROJECT - The Child Welfare Provider project will allow
Department of Social Services workers to maintain information about Child
Welfare provider personnel, as well as storing information about prospective
providers. In addition to maintaining provider personnel information, the
system will allow workers to enter a schedule of training classes and enroll
individuals in specific class offerings. A record of the training received by
each individual will be maintained for use in certifying
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that individuals are receiving the proper levels of initial and continuing
education. The system will be implemented as a GUI Client/Server application.
A member of the Encore Team has provided project scoping, project management,
quality assurance, BAA and BSI support on the project.
MISSOURI AUTOMATED CHILD SUPPORT SYSTEM (MACSS) PROJECT - The MACSS system
automates the recording and maintenance of child support case information for
the State of Missouri. A member of the Encore Team has provided Data and
Activity Modeling expertise and is developing a detailed Conversion Plan for the
project.
EXECUTIVE INTENSIVE PLANNING SESSION - The EIP session was conducted for Joyce
Backes, the Director of Data Processing for the Department of Social Services,
and her direct reports. The goals and objectives of the organization were
documented, and a series of projects which could be completed in support of the
organizational goals was developed. A member of the Encore Team facilitated the
4 day session.
ALASKA DEPARTMENT OF LABOR
A member of the Encore Consulting team was heavily involved in developing four
systems for the Alaska Department of Labor. These systems were developed over a
two year period and spanned the development life-cycle from BAA to
Implementation. The four systems are listed below:
UNEMPLOYMENT INSURANCE (BSI, TD, Implementation)
EMPLOYMENT SERVICES (BAA, BSI, TD, Implementation)
WORKERS COMPENSATION (BAA, BSI, TD)
COMMON DATA/ACTIVITY (BAA)
In addition to the involvement specified for each individual project, support
was provided in the areas of facilitation, quality assurance, project management
and project scoping.
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The combined systems contained 217 entity types and all were designed and
implemented as block mode CICS/MVS batch and online transactions. All four
systems target a DB2 database. All transactions were designed in a way that
would allow easy transition to GUI/Client Server. At the time of
implementation, Alaska did not want to invest in the additional hardware to
implement GUI/Client Server, but wanted the system to be developed in a manner
that could be easily converted in the future.
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KANSAS STATE REHABILITATIVE SERVICES (SRS)
KANSAS SOCIAL SERVICES INFORMATION SYSTEM (KSSIS) - A member of the Encore Team
worked with the Kansas State Rehabilitative Services department to create a
working prototype of a Social Worker support and management reporting system.
This system development utilized Composer client-server development on the IEF
CASE tool as well as the Information Engineering development methodology. The
systems objective was to integrate several stand alone, non integrated systems
and to increase Social Workers productivity and their ability to protect and
ensure the safety and well being of children in Kansas.
Provided project leadership and mentoring and JAD facilitation for the SRS KSSIS
project. Worked with a user group consisting of eight Social Worker Supervisors
selected state-wide. Requirements were documented in support of the creation of
designs to build an integrated solution to improve field workers productivity.
An additional goal was to improve the quality and availability of data to the
central office.
Coordinated the design of a Distributed Process, client server proof of concept.
This proof of concept demonstrated both GUI and block mode presentations of
client assessment activities performed by Social Workers in the field. The
server environment consisted of an IBM mainframe running MVS, CICS and DB2. The
mainframe server was to be connected using direct connect pipes to client
Windows 3.1 work stations running the Composer Client Manager and GRAF Client
Manager. Clients could also connect using TCP/IP to an NT server running the
Oracle data base. The Composer IEF tool set was utilized to document all
requirements.
KENTUCKY DEPARTMENT OF SOCIAL SERVICES
KENTUCKY AUTOMATED MANAGEMENT AND ELIGIBILITY SYSTEM (KAMES) - The Kentucky
Automated Management and Eligibility System (KAMES) was developed to combine and
reengineer old and outdated food stamps and AFDC benefit delivery systems.
Working with management of the Kentucky Department of Social Insurance, manual
paper intensive activities were automated and inefficient nonintegrated programs
were
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redeveloped using the full life cycle deployment of CASE tools and the
Information Engineering Methodology approach.
A member of the Encore Team provided hands on leadership and mentoring from
analysis through implementation phases of the project. Assistance was also
provided in establishing project development standards, project estimates, work
schedules, plans, and contingency plans. Using JAD techniques, the consultant
performed Business Area Analysis, integrated data and process modeling, work
flow analysis, business processing reengineering, created and presented project
schedules and technology plans to management.
Extensive analysis resulted in an expert system which would automatically
determine food stamp and AFDC eligibility based on the answers to dynamically
determined, client profile based questions. Extensive system cross-matching was
employed to verify client eligibility information. Thorough unit, string and
system stress testing was performed to ensure the accuracy of eligibility
determinations.
Assisted in the planning for and obtaining of Federal certification allowing for
State receipt of matching funds. The resulting KAMES system combined automated
and manual legacy systems into an integrated solution.
STATE OF NEBRASKA DEPARTMENT OF SOCIAL SERVICES
A member of the Encore Team worked on the NEBRASKA FAMILY ONLINE CUSTOMER AND
USER SYSTEM (N-FOCUS) PROJECT and was exclusively responsible for all IEF Model
Management and Encyclopedia functions encompassing a full IE project life cycle.
The project started with a single model in Business Area Analysis (BAA) and
evolved into five Design models, one Template model and one Shared Objects model
for Business System Design and Construction (BSI). Also, consolidated the above
models into one Integrated model for System Testing. This included all model
and object migrations, adoptions, consistency checks, cross-copies, model and
object compares, reporting
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and analysis of duplicate objects, impact analysis reports and all other model
management functions.
In addition to this primary responsibility, the consultant was also responsible
for the creation and modification of all subsets for the IEF developers, as well
as providing training and support in the areas of model management and
subsetting for all phases of the IE life cycle. Since the beginning of the
design phase, the consultant have been responsible for making all data model
changes, running full transformation and re-transformation of the analysis model
and resolving any related problems.
STATE OF NEW MEXICO HUMAN SERVICES DEPARTMENT
A member of the Encore Team worked on the CHILD SUPPORT ENHANCEMENT AND
ENFORCEMENT SYSTEM (CHEERS) PROJECT , they were a member of the technical
support team, responsible for approximately 40 workstations on a Novell Ethernet
network. The workstations were configured to run in both a DOS/Windows
environment and an OS/2 environment. The consultant was responsible for testing
and installing LAN/Workstation software, some of which included OS/2 (versions
1.3 and 2.1), Netware Requester for OS/2, Rumba for OS/2, Attachmate EXTRA! for
Windows, Visual Basic, Attachmate Tools for Visual Basic along with many other
packages. The member of the Encore Team also participated in the IEF model
management, subsetting and data model activities for the project.
Responsibilities also included creating and maintaining all user LAN accounts,
as well as LAN security and access procedures.
TEXAS DEPARTMENT OF TRANSPORTATION
A member of the Encore Team worked on the Right of Way project. Work was done
in C++ 7, Composer 3, Sybase 10 and Windows NT. The consultant created the
workstation setup program that made the desktop icon (DDE) point to a districts
server and the startup program by universal name. Coded the system's startup
program which overrode conflicting registry entries (NT security), set the
user's database access, started the SQL client pointing at the correct Sybase
server and detached the main
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menu written in Composer. Wrote the user and system setup PrADs. Enhanced the
procedures for approving and encumbering parcels. Created a support window to
select an executable server, SQL client server and Sybase server (25 each),
verify their accessibility (functional and security) and start the system using
the selected combination.
DEPARTMENT OF AGRICULTURE (FEDERAL)
GUARANTEED LOAN SYSTEM - The Farmers Home Administration (FmHA), an agency under
the direction of the Department of Agriculture, initiated an IEF development
effort for creating an improved Guaranteed Loan Accounting System. The existing
application tracked information pertaining to thousands of applicants and had a
63 billion dollar portfolio. This BAA project resulted in a data model of 63
entity types and a process model of 280 elementary processes. A mini
Information Strategy Plan (ISP) was done to validate the scope of the Business
Area. Joint Application Design (JAD) sessions with business area experts were
used very successfully.
A member of the Encore Team conducted the mini-ISP and a number of facilitated
JAD sessions. Support was also provided from the BAA through BSI phases of the
project.
DEPARTMENT OF EDUCATION (FEDERAL)
The NATIONAL STUDENT LOAN SYSTEM (NSLDS), for the Department of Education in
Washington, DC., project had a budgeted cost of over $50 Million. Some of the
objectives of NSLDS were to provide centralized verification of Title IV Aid
Eligibility (Student Loans), improve quality and accessibility of Student Loan
data, and reduce the burden on organizations administering Title IV Aid. The
system is the largest IEF batch system in production today and processes
millions of Student Loans in support of Title IV Aid Eligibility. The
prescreening process of NSLDS was designed to screen out loan requests which did
not meet eligibility requirements. The NSLDS system paid for itself the first
month in production.
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A member of the Encore Team assisted the Development Manager with project
management and task scheduling of development personnel, development of project
standards, managing development project schedule, quality assurance walk-
throughs on IEF PrADs, and compliance with development standards. Performed
testing of IEF procedures, and served as an internal consultant to the
developers. IEF 5.2 DB2 was the Mainframe Target Platform.
FEDERAL RESERVE BANK OF ST. LOUIS, MISSOURI
A member of the Encore Team performed QA and mentoring for a component project
of the Cash Track System, a major project that was in BSI. Recommended changes
to the data model and activity hierarchy were made. Conducted reviews of
existing code and training sessions on techniques for development of procedures.
Developed BSI procedure templates to assist in the development and instructed
the staff in their use. The system component was successfully developed and
deployed at the Federal Reserve Bank.
U.S. ARMY - DEPARTMENT OF DEFENSE
A member of the Encore Team served as a Technical and Planning Manager on a team
responsible for the re-engineering of three ARMY AMMUNITION MANAGEMENT SYSTEMS,
into a single on-line system using Texas Instruments Information Engineering
Facility (IEF) toolset. The developed system is a mission critical C2
classified battlefield system for the worldwide integration of munitions
distribution and control for all major Theaters of U.S. presence.
The consultant provided technical guidance to the team for the validation and
modification of the existing Business Area Analysis (BAA), Business Systems
Design (BSD), Technical Design (TD), Construction and Testing phases. The team
also provided recommendations concerning the target platform for the re-
engineered system, convert the system and current data bases to the target
platform as well as collect and report software metrics data for the project. A
technical architecture was created for the client server environment for the
development and target customer sites.
54
<PAGE>
Designed and developed Logical/Physical Oracle databases for development teams
and target environment. Established referential integrity check procedures
using DDL and SQL procedures.
Environment includes UNIX, Oracle, and Windows NT hardware and software
platforms. BAA environment used Joint Requirement/Joint Application Design
setting (JRP/JAD), and active GUI prototype development. Established
development coordination and mainframe encyclopedia operations, version control
and configuration management environments. Conducted relational database, sub-
setting, and IEF training for government and other contractors. Project teams
consisted of 70-80 government, military, and civilians personnel. Insured
knowledge transfer occurred on the project as well.
OTHER PROJECTS BY CATEGORY
The members of the Encore Team have worked on a large number of Composer/IEF
projects for various customers. A partial list of projects is included below.
AGRICULTURE
. Plot Tracking
AIRLINE
. ARMIS
. CONFIRM
. Time and Attendance Labor Collection
FINANCIAL
. Maximis Investment Management System
. Profit Sharing Loan
55
<PAGE>
. Lease Accounting
. Actuarial Reporting
HUMAN RESOURCES
. Employee Assistance Program
. Health Benefits System
INSURANCE
. Collateral Protection
. Travelers Pension Funds
. 1099-MISC Reporting
MANUFACTURING
. Distribution Resource Planning
. Advanced Inventory Distribution
MEDICAL
. Patient Registration
. Medical Orders
. Joint Registry
. Cancer Registry
. Publications
RAILROAD
56
<PAGE>
. Personal Injury/Liability
. Customer Master
. Train Scheduling System
RETAIL
. Merchandise Presentation
. Micro Marketing Calendar
. Sales Tax
. Item Master
. Marketing
. Membership Distribution
. Inventory Tracking
TELECOMMUNICATIONS
. National Consolidated Billing
. Error management
. Contract Administration
. Customer Billing Information
. Standard BSD Template
. National Decision Support Data Warehouse
. Yellow Page Publishing
57
<PAGE>
UTILITIES
. Billing Transaction Processing
. Customer Information System
. Enhanced Time Entry
58
<PAGE>
[RESUMES AT PP.61-161 OMITTED]
59
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT A
60
<PAGE>
EXHIBIT A - BIDDER'S REFERENCES
Company Name: State of Missouri - Office of Information Technology
----------------------------------------------------
Contact Name: Mike Benzen
-----------
Contact's Title: Chief Information Officer
-------------------------
City: Jefferson City State: Missouri
-------------- --------
Telephone Number & Area Code: (573) 526-7741
--------------
Availability status if contact is requested by the evaluation team: Available
---------
- -------------------------------------------------------------------------------
Company Name: State of Missouri - Highway and Transportation Dept
---------------------------------------------------
Contact Name: Lew Davison
-----------
Contact's Title: Director of Information Systems
-------------------------------
City: Jefferson City State: Missouri
-------------- --------
Telephone Number & Area Code : (573) 751-2551
--------------
Availability status if contact is requested by the evaluation team: Available
---------
- -------------------------------------------------------------------------------
61
<PAGE>
Company Name: State of Missouri - Department of Social Services
-------------------------------------------------
Contact Name: Betty Rottmann
--------------
Contact's Title: Deputy Director of Information Systems
--------------------------------------
City: Jefferson City State: Missouri
-------------- --------
Telephone Number & Area Code : (573) 751-0744
--------------
Availability status if contact is requested by the evaluation team: Available
---------
- -------------------------------------------------------------------------------
Company Name: State of Missouri - Office of Information Technology
----------------------------------------------------
Contact Name: Cindi Rutherford
----------------
Contact's Title: Assistant to the Chief Information Officer
------------------------------------------
City: Jefferson City State: Missouri
-------------- --------
Telephone Number & Area Code : (573) 526-7744
--------------
Availability status if contact is requested by the evaluation team: Available
---------
- -------------------------------------------------------------------------------
62
<PAGE>
Company Name: State of Missouri - State Highway Patrol
----------------------------------------
Contact Name: Gerry Wethington
----------------
Contact's Title: Director of Information Systems
-------------------------------
City: Jefferson City State: Missouri
-------------- --------
Telephone Number & Area Code : (573) 526-6200
--------------
Availability status if contact is requested by the evaluation team: Available
---------
- -------------------------------------------------------------------------------
63
<PAGE>
- -------------------------------------------------------------------------------
EXHIBIT B
64
<PAGE>
EXHIBIT B - DOCUMENTATION OF MINORITY PARTICIPATION
Name of MBE firm: Eduteach, Incorporated
----------------------
Address: 2815 Woodworth Place Hazel Crest, Illinois 60429
-------------------------------------------------
Telephone number: (312) 726-0680 FAX number: (312) 726-0690
-------------- -------------
Type of Business: Provider of Composer/IEF consulting services and
------------------------------------------------
educational classes
-------------------
Officer: Dushun Mosley Title: CEO
------------- ---
Signature of MBE: Date:
--------- -----------------
Describe the subcontract work to be performed : Eduteach will be supplying
--------------------------
consulting resources experienced in the Information Engineering Methodology
---------------------------------------------------------------------------
and in the use of the Composer/IEF toolset. The consultants will provide
-------------------------------------------------------------------------
support on projects at various State of Missouri agencies.
----------------------------------------------------------
Indicate the portion of the contract in terms of total dollars and
percentage to be subcontracted to the MBE:
$ to be determined = (greater than) 5% (of total contract value)
---------------- -----------------
Is the proposed subcontractor certified as a MBE firm by any federal
government agencies, state agencies, State of Missouri city or county
government agencies, minority supplier councils or other certifying
entities?
Yes X No If yes, provide evidence of current certification.
--- ---
Eduteach is listed on Office of Administration file as an MBE for the State
of Missouri.
-----------------------------------------------------------------------------
65
<PAGE>
Name of MBE firm: Eduteach, Incorporated
----------------------
Address: 2815 Woodworth Place Hazel Crest, Illinois 60429
-------------------------------------------------
Telephone Number: (312) 728-0880 FAX number: (312) 726-0890
-------------- --------------
Type of Business: Provider of Composer/IEF consulting service
-------------------------------------------
and educational classes
-----------------------
Officer: Dushun Mosley Title: CEO
------------- ---
Signature of MBE:: /s/ Dushin Mosley Date: 6/18/96
------------------- -------
Describe the subcontract wok to be performed: Eduteach will be supplying
--------------------------
consulting resources experienced in the Information Engineering Methodology
- ---------------------------------------------------------------------------
and in the use of the Composer/IEF toolset. The consultants will provide
- -------------------------------------------------------------------------
support on projects at various State of Missouri agencies.
- ----------------------------------------------------------
Indicate the portion of the contract in terms of total dollars and
percentage to be subcontracted to the MBE:
$ to be determined = (greater than) 5% (of total contract value)
---------------- -----------------
Is the proposed subcontractor certified as a MBE firm by any federal
government agencies, state agencies, State of Missouri city or county
government agencies, minority supplier councils or other certifying
entities?
Yes X No If yes, provide evidence of current certification.
- --- --- -- ---
Eduteach is listed on Office of Administration file as an MBE for the State
of Missouri.
66
<PAGE>
------------------------------------------------
[Missouri seal] IFB NO : B600907
DATE : 06/17/96
STATE OF MISSOURI REQ NO : 999817190
OFFICE OF ADMINISTRATION BUYER : AL COLLIER
DIV OF PUR & MAT MGMT PHONE : 573-751-1686
INVITATION FOR BID
- -------------------------------------------------------------------------------
RETURN BID NO LATER THAN: RETURN AMENDMENT TO:
DATE: 06/21/96 DIVISION OF PURCHASING
TIME: 02:00 PM 301 W. HIGH ST., RM 580
P.O. BOX 809
JEFFERSON CITY, MO 65102-0809
- ---------------------------------------
6969534
ENCORE CONSULTING
ATTN: TOM MCLEOD
464 FOX TRAIL DRIVE
LAKE ST LOUIS MO 63367
- -------------------------------------------------------------------------------
AMENDMENT #004 TO IFB B600907
TITLE: CONSULTING SERVICES - IEF CASE TOOL
VARIOUS AGENCY LOCATIONS
THROUGHOUT THE STATE
- -------------------------------------------------------------------------------
MUST BE SIGNED TO BE VALID
- -------------------------------------------------------------------------------
THE BIDDER HEREBY DECLARES UNDERSTANDING, AGREEMENT AND CERTIFICATION OF
COMPLIANCE TO PROVIDE THE ITEMS AND/OR SERVICES, AT THE PRICES QUOTED, IN
ACCORDANCE WITH ALL TERMS AND CONDITIONS, REQUIREMENTS AND SPECIFICATIONS
CONTAINED HEREIN AND FURTHER AGREES THAT THE LANGUAGE OF THIS DOCUMENT
SHALL GOVERN IN THE EVENT OF A CONFLICT WITH HIS/HER BID. THE BIDDER
FURTHER AGREES THAT UPON RECEIPT OF AN AUTHORIZED PURCHASE ORDER FROM THE
DIVISION OF PURCHASING OR WHEN THIS DOCUMENT IS COUNTERSIGNED BY AN
AUTHORIZED OFFICIAL OF THE STATE OF MISSOURI, A BINDING CONTRACT SHALL
EXIST BETWEEN THE BIDDER AND THE STATE OF MISSOURI.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
AUTHORIZED SIGNATURE PRINTED NAME TITLE
/s/ Thomas E. McLeod Thomas E. McLeod President
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMPANY DATE
ENCORE CONSULTING, INC. 6/21/96
- -------------------------------------------------------------------
MAILING ADDRESS PHONE
464 FOX TRAIL DR. 314/ 561-1733
- -------------------------------------------------------------------
CITY STATE ZIP
LAKE ST. LOUIS MO 63367
- ---------------------------------------------------------------------------------------------------------------------
STATE VENDOR NO. (IF KNOWN) FEDERAL TAX NO. FAX NO.
6969534 43-1748216 314/ 561-4043
- ---------------------------------------------------------------------------------------------------------------------
NOTICE OF AWARD: (STATE USE ONLY) CONTRACT NO: C600907002
- ---------------------------------------------------------------------------------------------------------------------
ACCEPTED BY STATE OF MISSOURI AS FOLLOWS:
In its entirety. Primary contract award for Category Two consulting services; secondary contract award for Category
One consulting services.
Contract Period: 09/01/96 though 08/31/97
- ---------------------------------------------------------------------------------------------------------------------
BUYER DATE DIRECTOR
Al Collier /s/ Al Collier 8-28-96 /s/ Joyce Murphy
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AGREEMENT AND CONSENT
---------------------
TO ASSIGNMENT OF CONTRACT
-------------------------
Mr. Tom McLeod Mr. James Bildner, CEO
- --------------------------- -------------------------------
Encore Consulting TIER Corporation
- --------------------------- -------------------------------
464 Fox Tail Drive 711 Old Ballas Road: Ste 110
- --------------------------- -------------------------------
Lake St. Louis, MO 63367 St. Louis, MO 63141
- --------------------------- -------------------------------
(the Assignee) (the Assignor)
RE: Contract Number C600907002 (hereinafter "Contract") between the State of
Missouri and Encore Consulting
In accordance with paragraph 5.1 (Part II) in the Terms and Conditions of
Contract C600907002, the State of Missouri hereby consents to the assignment of
the contract in its entirety (by the Assignor to the Assignee) due to transfer
of assets from Encore Consulting to TIER Corporation. This consent does not
entitle Assignee to receive payment in any amount above that which Assignor
would otherwise receive.
It is agreed that Assignee shall honor and comply with all terms and
conditions, requirements and specifications of the Contract and that the State
of Missouri is entitled to performance by Assignee of all of the obligations
under the Contract and/or any assignments thereof. In addition, the Assignee
releases the State of Missouri from all responsibilities for payment made
previously to the Assignor pursuant to the contract.
Assignee agrees that any payments made by the State of Missouri pursuant to
the Contract, including all of those payments assigned to Assignee, shall be
contingent upon the performance of Assignee in accordance with all terms and
conditions, requirements and specifications of the contract, and the approval
and acceptance of such performance by the State of Missouri.
IN WITNESS THEREOF, the parties hereto have executed this Agreement and Consent
the day and year stated below.
- ---------------------------------- --------------------------------
Encore Consulting TIER Corporation
- ---------------------------------- --------------------------------
BY: /s/ Tom Mcleod BY: /s/ James Bildner, its CEO
------------------------------- -----------------------------
NAME: Mr. Tom McLeod NAME: Mr. James Bildner
----------------------------- ---------------------------
TITLE: President TITLE: Chief Executive Officer
---------------------------- --------------------------
DATE: 1/21/96 DATE: 1/21/96
----------------------------- ---------------------------
APPROVED BY THE STATE OF MISSOURI
BY: /s/ James Miluski
-------------------------------
NAME: James Miluski
-----------------------------
TITLE: Assistant Director
----------------------------
DATE: 1/21/97
-----------------------------
67
<PAGE>
---------------------------------------
[Missouri seal] NO. : C600907002-004
DATE : 06/17/97
STATE OF MISSOURI REQ NO : 999818139
OFFICE OF ADMINISTRATION BUYER : AL COLLIER
DIV OF PUR & MAT MGMT PHONE : 573-751-1686 BUYER NO. 066
- -------------------------------------------------------------------------------
RETURN AMENDMENT NO LATER THAN: RETURN AMENDMENT TO:
DATE : 07/01/97 DIVISION OF PURCHASING
TIME : 05:00 PM 301 W. HIGH ST., ROOM 580
HARRY S TRUMAN BUILDING
JEFFERSON CITY, MO 65101
- ---------------------------------------
TO: 6971725
TIER TECHNOLOGIES, INC.
ATTN: JAMES BILDNER
1350 TREAT BLVD. SUITE 250
WALNUT CREEK CA 94596
- -------------------------------------------------------------------------------
NOTIFICATION OF RENEWAL FOR CONTRACT C600907002
VARIOUS AGENCY LOCATIONS
THROUGHOUT THE STATE
- -------------------------------------------------------------------------------
MUST BE SIGNED TO BE VALID
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED SIGNATURE PRINTED NAME TITLE
/s/ G. K. Ross George K. Ross CFO & S VP
- -------------------------------------------------------------------------------
<S> <C> <C>
COMPANY DATE
Tier Technologies 7-23-97
- --------------------------------------------------------------
MAILING ADDRESS PHONE
1350 Treat Blvd., Suite 250 510-937-3950 x 167
- --------------------------------------------------------------
CITY STATE ZIP
Walnut Creek CA 94596
- -------------------------------------------------------------------------------
STATE VENDOR NO. (IF KNOWN) FEDERAL TAX NO. FAX NO.
94-3145844 510-937-3752
- -------------------------------------------------------------------------------
NOTICE OF AWARD: (STATE USE ONLY) CONTRACT NO: C600907002-004
- -------------------------------------------------------------------------------
ACCEPTED BY STATE OF MISSOURI AS FOLLOWS:
ACCEPTED IN ITS ENTIRETY.
- -------------------------------------------------------------------------------
BUYER DATE DIRECTOR
AL COLLIER /s/ Al Collier 7-25-97 /s/ Joyce Murphy
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.30a
TECHNICAL SERVICES AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE NO.
- ------- ----- --------
<S> <C> <C>
I TERM OF AGREEMENT................................................ 1
II STATEMENT OF WORK................................................ 1
III PERFORMANCE OF WORK/RISK OF LOSS................................. 1
IV COMPENSATION/PAYMENT/TAXES....................................... 2
V RELATIONSHIP OF PARTIES.......................................... 4
VI INTELLECTUAL PROPERTY RIGHTS..................................... 5
VII PROPRIETARY INFORMATION.......................................... 7
VIII EXPORT CONTROL OF INFORMATION.................................... 9
IX PROPRIETARY RIGHT/TRADE SECRET INDEMNIFICATION................... 9
X NOTICE OF INFRINGEMENT........................................... 10
XI CONTRACTOR'S WARRANTIES AND REPRESENTATIONS...................... 10
XII SERVICES FOR OTHERS.............................................. 12
XIII INSURANCE........................................................ 12
XIV HOLD HARMLESS.................................................... 14
XV ADMINISTRATION................................................... 14
XVI NOTICES.......................................................... 15
XVII ASSIGNMENT....................................................... 15
XVIII TERMINATION/CANCELLATION......................................... 16
XIX LIMITATION OF LIABILITY.......................................... 17
XX ARBITRATION...................................................... 18
XXI PUBLICITY........................................................ 19
XXII WAIVERS.......................................................... 19
XXIII SEVERABILITY..................................................... 19
XXIV HEADINGS......................................................... 19
XXV GOVERNING LAW.................................................... 19
XXVI SURVIVAL OF PROVISIONS........................................... 20
XXVII ENTIRE AGREEMENT................................................. 20
XXVIII COMPLIANCE WITH LAW.............................................. 20
XXIX BUSINESS PRACTICE GUIDELINES..................................... 20
</TABLE>
i
<PAGE>
TECHNICAL SERVICES AGREEMENT
ADDENDA
-------
A STATEMENT OF WORK
B CONTRACTOR'S PERSONNEL AND HOURLY RATES
C TRAVEL POLICY
D UNISYS CODE OF ETHICAL CONDUCT
ii
<PAGE>
TECHNICAL SERVICES AGREEMENT
4OR81224
This Agreement, including all addenda referred to herein, is made and
entered into as of 30 October, 1995 (the "Effective Date") by and between Unisys
Corporation (hereinafter "Unisys"), which has a place of business at Township
Line and Union Meeting Roads, Blue Bell, Pennsylvania 19424, and Tier
Corporation (hereinafter "Contractor") which has a place of business at 1350
Treat Blvd., Suite 250, Walnut Creek, California 94596. The parties, intending
to be legally bound, hereby agree as follows:
ARTICLE I TERM OF AGREEMENT
The term of this Agreement shall begin on 30 October, 1995 (the Effective
Date) and end on 30 April, 1996, unless earlier terminated or canceled as
provided in Article XVIII.
ARTICLE II STATEMENT OF WORK
During the term of this Agreement Contractor shall perform the work
described in Addendum A (Statement of Work, hereinafter "Work"), of this
Agreement.
ARTICLE III PERFORMANCE OF WORK/RISK OF LOSS
A. PERFORMANCE OF WORK
1. The Work shall be performed by the key personnel listed on Addendum B
(Contractor's Personnel and Hourly Rates) at the hourly rates specified
therein. Personnel shall not be added to or removed from the Work by
Contractor without the prior written consent of Unisys. Unisys shall have
the right at any time to require that Contractor remove personnel which
Unisys no longer wants performing the Work.
1
<PAGE>
2. Contractor shall report to Frank Bradick of Unisys (hereinafter "Unisys
-------------
Technical Administrator") on technical matters regarding the Work.
Progress meetings shall be conducted at times and places as requested by
Unisys to discuss the progress of the Work and other related matters.
Contractor shall provide a written report of such progress and other
matters at least forty-eight hours prior to the date of each meeting.
B. RISK OF LOSS
Contractor shall have the risk of loss, damage and destruction of all
Deliverables until received by Unisys.
ARTICLE IV COMPENSATION/PAYMENT/TAXES
A. COMPENSATION
1. The total compensation to Contractor for Work performed hereunder shall
not exceed Five Hundred Seventy Nine Thousand Six Hundred dollars
($579,600.00), plus any applicable sales and/or use tax as specified in
paragraph IV C below. Unisys shall have no obligation under any
circumstances to pay Contractor any money in excess of such amount unless
agreed to in writing by the Unisys Contract Administrator identified in
Article XV.
2. Unisys shall reimburse Contractor for reasonable travel and living
expenses consistent with the policies set forth in Addendum C (Travel
Policy), provided that Contractor has obtained advance written approval for
such travel from Unisys.
B. PAYMENT
1. Contractor shall promptly submit invoices in triplicate at the end of
each month for services rendered on an hourly basis during the month.
Contractor shall also submit
2
<PAGE>
invoices at the end of each month for authorized travel and living expenses
incurred during the month. Each invoice shall include the following
information:
(a) Unisys purchase order number related to this Agreement.
(b) Contractor's invoice number and date.
(c) Time period covered by the invoice.
(d) Amount billed for the services indicating, when applicable,
computation at the hourly rate for hours worked per day by
Contractor's Personnel.
(e) Travel and living expenses, if any, supported by receipts.
2. Unisys shall pay all invoiced amounts to Contractor within thirty (30)
days after receipt of invoice.
C. TAXES
1. In performing the Work as an independent contractor, Contractor shall
be responsible for the payment of all taxes based on Contractor's gross
income and/or net income. Such taxes may include, but are not limited to,
Federal, state and local income taxes, U.S. Social Security tax, Federal
and state unemployment taxes or any other similar taxes.
2. Contractor shall separately state and describe in reasonable detail on
Contractor's invoices any state and local sales tax or similar tax ("Sales
Tax") to which the amounts payable by Unisys for Contractor's performance
of the Work are subject. In the event that Contractor subsequently
determines that any invoiced Sales Tax was or is not actually required to
be paid by Unisys, Contractor shall promptly notify Unisys of such
3
<PAGE>
determination and shall promptly refund such Sales Tax payment to Unisys if
such payment has already been made by Unisys to Contractor.
3. If Contractor is a self-employed individual or a sole proprietor:
(a) Contractor shall complete and sign Form W-9 (Request for Taxpayer
Identification Number and Certification) and shall deliver such Form
W-9 to Unisys at the time this Agreement is executed.
(b) Unisys shall be required to furnish Form 1099-MISC (Statement for
Recipients of Miscellaneous Income) to Contractor and the Internal
Revenue Service in the event that the compensation (excluding any
authorized travel and living expense reimbursements) paid to such
Contractor for Work performed under this Agreement is $600.00 or more
during any calendar year.
ARTICLE V RELATIONSHIP OF PARTIES
In performing the Work, Contractor is acting as an independent contractor
and not as an employee, agent, or representative of Unisys. Contractor has no
authority to transact any business in the name of or on account of Unisys or
otherwise obligate Unisys in any manner. Contractor hereby acknowledges that
he/she is not entitled to any of the benefits provided by Unisys to its active
employees, including, but not limited to medical benefits, pension benefits and
group life insurance benefits.
ARTICLE VI INTELLECTUAL PROPERTY RIGHTS
A. Contractor agrees to and does hereby assign and grant to Unisys the entire
right, title and interest of Contractor in and to the Deliverables and any
other work product Contractor produces pursuant to this Agreement,
including, but not limited to, programs,
4
<PAGE>
documentation and reports produced in the course of or pursuant to
performance of the work done under this Agreement. Contractor agrees and
does hereby assign to Unisys the entire right, title and interest of
Contractor in and to all inventions, improvements and discoveries (whether
or not patentable) conceived or first actually reduced to practice in the
course of or pursuant to the performance of work done under this Agreement
and to all United States and Foreign Letters Patent granted thereon.
Contractor agrees to and does hereby grant to Unisys an unlimited, paid-up,
royalty-free, nonexclusive, irrevocable license with the right to
sublicense others directly or indirectly under all of Contractor's
inventions, improvements and discoveries incorporated by Contractor in the
Work or Deliverables, or necessary to utilize the Work or Deliverables
covered by this Agreement, regardless of when conceived or first reduced to
practice. Contractor represents to Unisys that it has no prior obligations
to grant rights to others (such as arising by contract or employment) which
may detract from or affect the grant to Unisys provided herein, except as
such are reduced to writing and attached to this Agreement as part hereof.
B. Contractor agrees to deliver to Unisys such duly executed instruments of
assignment, application papers, and rightful oaths as are necessary to vest
in Unisys or its designee, the sole and exclusive ownership of, and the
right to apply for and prosecute patent applications covering each such
invention, improvement or discovery. Contractor further agrees that it
will at all times at Unisys expense, aid Unisys or its designee in
preparing for and in giving information or testimony, or in doing any other
reasonable acts deemed necessary by Unisys in any and all proceedings
involved in the securing of any patent or
5
<PAGE>
patents for any such invention, improvement or discovery, or in enforcing
and defending any rights thereunder.
C. Contractor agrees to promptly make or have made a written disclosure to
Unisys of each invention, improvement or discovery covered by the
aforementioned assignment which reasonably appears to be patentable.
Contractor agrees that before final payment it will submit a final report
stating whether any such inventions, improvements or discoveries have been
made and providing the foregoing information with respect to those that
have not yet been reported.
D. Contractor agrees to and does hereby assign and grant to and vest in Unisys
the entire right, title and interest of Contractor to all copyrightable
material first produced or composed in the course of or pursuant to the
performance of work under this Agreement.
E. Contractor agrees to and does hereby grant to Unisys an unlimited, paid-up,
royalty-free, nonexclusive, irrevocable license with the right to
sublicense others directly or indirectly to reproduce, translate, publish,
use and dispose of, and to authorize others so to do, any and all of
Contractor's copyrighted or copyrightable material furnished as a result of
work performed under this Agreement but not first produced or composed by
Contractor in the performance of such work.
F. Contractor agrees that Contractor Personnel and all other parties engaged
in the performance of this Agreement shall be under obligation to assign
and grant to Unisys: (1) the entire right, title and interest in any
invention, improvement or discovery conceived or first actually reduced to
practice in the course of or pursuant to the performance of work done under
this Agreement, and (2) the entire right, title and interest
6
<PAGE>
in all copyrightable material first produced or composed in the course of
or pursuant to the performance of work under this Agreement.
ARTICLE VII PROPRIETARY INFORMATION
A. Proprietary Information shall include all business and technical
information relating to the Work which is furnished to Contractor by Unisys
and all other information which is either furnished by one party to the
other in tangible form marked as "restricted", "confidential",
"proprietary", or other appropriate legend, or disclosed by one party to
the other in non-tangible form with notice of its proprietary nature and
subsequently described in writing delivered to the receiving party within
fifteen (15) days after disclosure by the furnishing party.
B. The Work and Deliverables are deemed to be Proprietary Information of
Unisys as though it was Proprietary Information furnished by Unisys to
Contractor, and shall be so treated by Contractor.
C. Title, or the right to possess Proprietary Information, as between the
parties shall, except as otherwise provided herein, remain in the party
which furnishes it to the other party. No rights are granted by either
party to the other with respect to Proprietary Information except as
expressly stated herein. Neither party shall use or copy any Proprietary
Information of the other party except for the purposes of and to the extent
necessary for this Agreement. Each party shall exercise reasonable care
with respect to Proprietary Information of the other party to preclude
disclosure thereof to any third party and permit disclosure only to its
personnel who are involved in the Work and have agreed in writing to be
bound consistent with the provisions of this Agreement. Each party shall
have the
7
<PAGE>
obligations stated in this Article VII regarding Proprietary Information
both during and after the expiration, termination or cancellation of this
Agreement and shall be released from such obligations only as to
Proprietary Information:
(1) which is at any time in the public domain other than by a breach of
this Agreement on the part of the receiving party; or
(2) which is at any time rightfully received from a third party which has
the right and transmits it to the receiving party without any obligation of
confidentiality; or
(3) which is independently developed by personnel of the receiving party
who have not had access to Proprietary Information of the other party; or
(4) which is rightfully known to the receiving party without any limitation
on use or disclosure prior to receipt thereof from the furnishing party, as
substantiated by tangible evidence antedating disclosure by the furnishing
party to the receiving party.
D. Neither party is restricted from disclosing Proprietary Information of the
other party pursuant to a judicial or governmental order, but any such
disclosure shall be made only to the extent so ordered and provided only
that the party receiving an order: (a) timely notifies the other party so
that it may intervene in response to such order, or (b) if timely notice
cannot be given then seeks to obtain a protective order from the court or
government for such information.
E. Each party shall promptly cease using and shall return or destroy (and
certify destruction of) all Proprietary Information furnished by the other party
along with all copies thereof in its possession including copies stored in any
computer memory or storage medium upon the expiration, termination, or
cancellation of this Agreement, whichever first occurs; provided,
8
<PAGE>
however, that Unisys may retain copies of Contractor's materials for the purpose
of the license rights as set forth in Article VI hereof.
ARTICLE VIII EXPORT CONTROL OF INFORMATION
Contractor shall comply with applicable United States laws and regulations
which prohibit the export of technical data that originates in the United States
or any product directly based on such data without prior written authorization
as may be required from appropriate agencies of the United States. Such
compliance obligates Contractor not to export Unisys Proprietary Information or
make it available in the United States to aliens.
ARTICLE IX PROPRIETARY RIGHT/TRADE SECRET INDEMNIFICATION
Contractor agrees to indemnify and hold harmless Unisys, its licensees and
transferees against any claim based on infringement of a patent, copyright or
other proprietary right or improper use or misappropriation of a trade secret of
a third party occasioned by any use, sale, license, or reproduction of the work
product delivered by Contractor. Upon prompt notice to Contractor of such
claim; Contractor at its own expense, shall answer, defend or settle such claim
and pay any and all judgments, including an award of attorney fees, costs,
damages and expenses relating to such claim. It is agreed that Unisys may be
represented by counsel of its own choice at its own expense in any proceeding.
In the event Unisys or any of its licensees or transferees is enjoined from
using the Contractor work product, Contractor agrees to obtain for them the
right and license to use the Contractor work product or to modify the Contractor
work product to eliminate the grounds for such injunction.
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ARTICLE X NOTICE OF INFRINGEMENT
Contractor shall give Unisys prompt written notice of any claim by a third
party that work performed by Contractor under this Agreement infringes or
misappropriates intellectual property rights of the third party. In the event
of any such claim by a third party against Unisys alleging infringement or
misappropriation of intellectual property rights, Contractor shall cooperate
with Unisys in connection with Unisys defense thereof. Unisys shall have the
right at its expense to participate in the defense of any suit brought against
Contractor claiming infringement or misappropriation of intellectual property
rights based on or relating to the Work.
ARTICLE XI CONTRACTOR'S WARRANTIES AND REPRESENTATIONS
Contractor makes the following warranties to Unisys:
(1) Contractor has expertise in the field covered by this Agreement and
shall commit time and resources to attain the stated goal and complete the
Work.
(2) In performing the work Contractor shall not infringe any trade secret,
copyright or patent of a third party.
(3) Contractor shall not divulge or furnish to Unisys any trade secret or
other proprietary information of any third party which Contractor does not
have the right to divulge or furnish.
(4) Contractor has the power and right to grant Unisys the title and
license rights set forth in Article VI hereof.
(5) This Agreement is not in conflict with any other agreement or
obligation which Contractor has with any third party.
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B. Contractor represents that he or she has not been a full time or part time
employee of Unisys or any of its subsidiaries or affiliates at any time
within the twenty-four (24) months prior to the Effective Date. For
purposes of this paragraph B, "Contractor" includes an individual who is a
party to this Agreement, the proprietor of any sole proprietorship which is
a party to this Agreement, each of the partners of a partnership which is a
party to this Agreement, or any shareholder or officer of a closely held
corporation which is a party to this Agreement. Unisys may terminate this
Agreement immediately if the representation made in this paragraph is
untrue. Termination shall become effective immediately upon the date
notice is given by Unisys. Following such termination, Unisys shall have
no liability to contractor other than to compensate Contractor on the
agreed upon terms, prorated as may be necessary, through the date of
termination.
ARTICLE XII SERVICES FOR OTHERS
Contractor and its personnel assigned to perform Work shall not engage
directly or indirectly in any undertaking which creates any legal impediment to
or conflicts with rights granted to Unisys by Contractor under this Agreement.
Contractor shall not undertake, during the term of this Agreement, to perform
similar services for any third party which would compromise the value of the
Work or Deliverables to Unisys.
Contractor shall not perform services either directly or indirectly for any
customer or at any computer site if, with respect to the same customer or
computer site:
(1) it has made a proposal or quoted a price to Unisys to perform the same
work as a Unisys subcontractor, or
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(2) it is then performing services as a Unisys vendor or has performed
services as a Unisys vendor within the previous six (6) months.
While Contractor is engaged in the performance of any work for a Unisys
customer hereunder, Contractor shall not propose or negotiate terms to perform
any services directly for such customer without the prior written consent of the
Unisys Contract Administrator.
ARTICLE XIII INSURANCE
Contractor shall maintain worker's compensation and employer's liability
insurance upon its employees as required by law. Contractor further agree(s) to
maintain comprehensive liability insurance for all operations necessary and
incidental to the conduct of this Agreement and any purchase orders issued
pursuant to this Agreement including coverage of all automobile exposure, all
property liability exposure and contractual liability exposure to at least the
following minimum amounts.
A. Employers Liability Insurance with limit of $100,000;
B. Comprehensive Automobile Liability Insurance, with a combined single
limit of $1 million for bodily injury, death or property damage
arising from any one occurrence;
C. Comprehensive General Liability including Broad Form Contractual and
Completed Operations, with a combined single limit of $1 million for
bodily injury, death or property damage arising from any one
occurrence.
Such policies shall name Unisys as an additional insured and provide that
coverage may not be canceled without ten (10) days prior written notice to
Unisys. Such insurance shall not be
12
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deemed a limitation of any liability of the Contractor, but Contractor shall
furnish Unisys with certificates of insurance in form acceptable to Unisys.
Such insurance shall be primary, not contributing with, and not in excess
of, coverage which Unisys may carry. The insurance afforded by these policies
applies separately to each insured against whom claim is made or suit is
brought, in the same manner as such insured would be covered if the policy
insured only such party. The inclusion of such additional insured shall not
increase the policy limits.
Contractor shall furnish to Unisys Corporation certificates of insurance in
full prior to the furnishing of services under this Agreement.
ARTICLE XIV HOLD HARMLESS
Notwithstanding any of the insurance requirements hereinafter set forth or
limits of liability set forth therein, the Contractor shall indemnify and hold
harmless Unisys, any third party and their agents, servants, employees from and
against, all claims, damages, losses and expenses with respect to the death,
injury or disability of any persons and damage to or destruction of any property
(including loss of use), arising out of, resulting from or connected in any way
with the performance of this Agreement or the performance of purchase orders
issued pursuant to this Agreement by the Contractor or Contractor's employees or
his subcontractors, or their agents, servants and employees. At his expense,
the Contractor shall defend all suits or claims (whether or not false,
fraudulent or groundless) alleging such injury or damage and shall pay all
charges of attorneys, court costs, awards and all other costs and expenses in
connection therewith. This provision shall survive after the expiration or
termination of this Agreement and completion of any purchase orders released
against this agreement.
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ARTICLE XV ADMINISTRATION
A. Unisys Technical Administrator shall be the principal interface with
Contractor on technical matters and shall have authority to clarify,
explain and provide further details regarding Unisys expectations
concerning the Work, but shall have no authority to modify any provisions
of this Agreement including, without limitation, the compensation, scope of
work or any schedule therefor.
B. Unisys Contract Administrator ( D.G. Busza ) is Unisys authorized
representative for all other matters related to this Agreement including
modifications thereof.
ARTICLE XVI NOTICES
A. All notices and requests given by either party to the other shall be in
writing and sent by facsimile, telex or first class mail.
B. Notices and requests sent by Unisys shall be addressed to Contractor as
follows:
Tier Corporation
1350 Treat Blvd., Suite 250
Walnut Creek, CA 94596
C. Notices and requests sent by Contractor regarding technical aspects of the
Work shall be addressed to Unisys Technical Administrator as follows:
Unisys Corporation
Santa Ana, CA
Attn: Frank Bradick
D. Notices and requests sent by Contractor regarding matters other than
technical aspects of the Work including, without limitation, compensation,
insurance, and Contractor's personnel shall be addressed to Unisys Contract
Administrator as follows:
Unisys Corporation
Union Meeting and Jolly Roads
Blue Bell, PA 19424
14
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E. Contractor and Unisys shall each have the right to change at any time the
respective individuals to whom notices and requests shall be sent by giving
written notice of such change to the other party.
ARTICLE XVII ASSIGNMENT
Contractor shall not assign this Agreement or any rights hereunder or
delegate the Work or any of Contractor's other obligations hereunder to any
third party without prior written consent of Unisys and any assignment without
such consent shall be void. Any legal representative or successor in interest
of Contractor shall be bound by the provisions of Article VII of this Agreement
regarding Proprietary Information. Unisys shall have the right to assign this
Agreement and its rights and duties hereunder to any successor in interest by
acquisition, merger, operation of law or otherwise.
ARTICLE XVIII TERMINATION/CANCELLATION
A. TERMINATION FOR CONVENIENCE
Unisys shall have the right to terminate this Agreement or the Work to be
performed hereunder in whole or in part for its convenience at any time. Any
notice of termination given by Unisys shall be effective seven days after
transmittal by Unisys, and Contractor shall terminate the Work as quickly as
possible upon receiving notice. Unisys shall have no liability to Contractor
based on any such termination except to pay all amounts due Contractor up to the
date of termination in accordance with the compensation provisions of Articles
III and IV. Contractor shall promptly deliver to Unisys all Work Product,
whether or not completed, which is in Contractor's possession on the termination
date containing information related to the Work,
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including a final report to be prepared by Contractor describing results of the
Work up to the date of termination.
B. CANCELLATION FOR NON-PERFORMANCE
1. Unisys shall have the right to cancel this Agreement in the event of
any material breach by Contractor which Contractor fails to cure within
thirty days after written notice of breach from Unisys. Any such notice of
cancellation shall become effective, if Contractor fails to cure the
breach, on the thirtieth day after transmittal of the notice as provided in
Article XVI. Notice of cancellation rightfully given by Unisys for
material breach by Contractor which is not timely cured shall excuse Unisys
from paying for any Work performed by Contractor after the date of notice
of material breach given by Unisys. Unisys shall have the option upon
cancellation either to obtain delivery and retain title and license rights,
as provided herein, in and to all Work Product completed or in preparation
on the date of cancellation in exchange for payments made and owed as of
such date or to relinquish all such title and license rights and obtain a
refund of all amounts paid to Contractor under this Agreement.
2. Contractor shall have the right to cancel this Agreement and the rights
and licenses granted to Unisys in Article VI only if Unisys fails to cure
any deficiency in making any payment due Contractor, which is not in good
faith dispute between the parties, within thirty days after receiving
written notice of such deficiency.
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C. ADDITIONAL RIGHTS AND REMEDIES
Unisys and Contractor shall retain all rights and remedies available at law
or equity, to the extent they are not inconsistent with this Agreement, in
the event of any termination or cancellation of this Agreement.
ARTICLE XIX LIMITATION OF LIABILITY
In no event shall either Unisys or Contractor be liable for any incidental,
indirect, special or consequential damages, including but not limited to loss of
use, revenues, profits or savings, even if the claimant party knew or should
have known of the possibility of such damages.
ARTICLE XX ARBITRATION
1. Any controversy or claim related to or arising from this Agreement
and/or the contracted services to be provided by Contractor and its
employees shall be settled by arbitration conducted on a confidential basis
under the U.S. Arbitration Act and the then current Commercial Arbitration
Rules of the American Arbitration Association, strictly in accordance with
the terms of this Agreement AND THE SUBSTANTIVE LAW OF THE COMMONWEALTH OF
PENNSYLVANIA.
2. Neither party shall institute an arbitration proceeding unless, at
least sixty (60) days prior thereto, such party shall have furnished to the
other written notice by registered mail of its intent to do so. Notice to
Unisys shall be addressed to its General Counsel, Unisys Corporation,
Township Line and Union Meeting Roads, Blue Bell, Pennsylvania 19424-0001.
3. Arbitration shall be conducted by three arbitrators, at least one of
whom shall be knowledgeable in data processing and business information
systems and one of whom
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shall be an attorney. The arbitrators shall have no authority to award
punitive damages or any other form of noncompensatory damages. Judgment
upon the arbitrators' award may be entered and enforced in any court of
competent jurisdiction.
4. Neither party shall be precluded from seeking provisional remedies in
the court of any jurisdiction to protect its rights and interests, but such
shall not be sought as a means to avoid or stay arbitration.
ARTICLE XXI PUBLICITY
Contractor shall not disclose the terms and conditions of or publish any
information concerning this Agreement without prior written consent of Unisys.
ARTICLE XXII WAIVERS
The failure of either party to assert any claim or right against the other
party regarding its obligations hereunder, in any one or more instances, shall
not constitute a waiver of such claim or right with respect to future
performance of such obligations and other obligations under the Agreement.
ARTICLE XXIII SEVERABILITY
The invalidity or unenforceability of any particular provision of this
Agreement shall not affect other provisions and the Agreement shall be construed
in all respects as if such invalid or unenforceable provisions were omitted.
ARTICLE XXIV HEADINGS
All Article and paragraph headings are for reference only and shall not be
used in construing this Agreement.
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ARTICLE XXV GOVERNING LAW
THE FORMATION, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE
------------------------------------------------------------------------
GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
- ---------------------------------------------------------
ARTICLE XXVI SURVIVAL OF PROVISIONS
The rights and duties of the parties as set forth in Articles VI, VII,
VIII, XII, and XVII, shall survive the expiration, termination or cancellation
of this Agreement and shall inure to the benefit of and be binding on their
authorized assigns, successors and legal representatives.
ARTICLE XXVII ENTIRE AGREEMENT
This Agreement sets forth the entire agreement between the parties and
supersedes all prior oral and written agreements and understandings between the
parties with respect to the subject matter hereof. This Agreement may not be
modified or the parties released from their obligations hereunder except by an
instrument in writing signed by an authorized representative of the parties.
ARTICLE XXVIII COMPLIANCE WITH LAW
Contractor shall comply with all federal, state and local laws and
regulations pertaining to the performance of this Agreement and shall indemnify
Unisys for any liability and related costs, expenses and fees incurred by Unisys
as a result of Contractor's breach of such obligation.
ARTICLE XXIX BUSINESS PRACTICE GUIDELINES
Contractor acknowledges that it has received a copy of the Unisys Code of
Ethical Conduct (Addendum D) and has read and will act in accordance with them.
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TIER CORPORATION UNISYS CORPORATION
By: /s/ James L. Bildner By: /s/ T. Jaskelewicz
-------------------------- ---------------------------
Tony Jaskelewicz
Title: Chairman & CEO Title: Procurement Specialist
-------------------------- ---------------------------
Date: Date: 11-13-95
-------------------------- ---------------------------
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ADDENDUM A
STATEMENT OF WORK
-----------------
PROVIDE SYSTEMS ENGINEER APPLICATION SFW INTEGRATION (600.04) INTERNALIST
APPLICATION SFW INTEGRATION (600.04) SUPPORT FOR ARIZONA CHILD WELFARE.
SPECIFIC WORK DIRECTION TO BE PROVIDED BY UNISYS FRANK BRADICK.
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ADDENDUM B
CONTRACTOR'S PERSONNEL AND HOURLY RATES
---------------------------------------
Name Hourly Rate
---- -----------
Gram Pettiser $21000/month
Ralph Bustamante $16800/month
Diane Sutton $16800/month
Brad Nichols $21000/month
Dennis Ward $21000/month
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ADDENDUM C
TRAVEL POLICY
-------------
LODGING: $75/day for metropolitan areas
$50/day for other domestic areas
Metropolitan areas are defined as Boston, Chicago, Dallas,
Honolulu, Houston, Los Angeles, New Orleans, New York,
Philadelphia, San Francisco, and Washington D.C.
MEALS: Meals including tips, are limited to $25 per day.
When possible, receipts are to be submitted.
CAR RENTAL: The rental of an automobile at a rate in excess of major rental
agency rates for standard automobiles is prohibited. The
itemized car rental agreement form must be submitted as a
receipt.
TRAVEL: All personnel must travel by coach or economy class for air and
rail travel. Unisys authorized travel of Contractor's personnel
by private auto will be compensated at the rate of twenty one
($.21) cents per mile plus tolls and parking fees.
The above information is provided as a guideline and shall be adhered to
whenever possible. However, all reasonable, actual expenses incurred which are
submitted and supported by appropriate receipts will be reimbursed.
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ADDENDUM "D"
UNISYS CODE OF ETHICAL CONDUCT
------------------------------
INTRODUCTION
Every UNISYS CONSULTANT is required to understand and comply fully with both the
rules and approval procedures established by this Code of Ethical Conduct.
COMPLY WITH ALL LAWS
As a UNISYS CONSULTANT you must scrupulously comply with all laws.
DEAL HONESTLY WITH CUSTOMERS AND SUPPLIERS
In dealing with UNISYS customers and suppliers, be accurate and complete in all
representations. The submission to a customer of a proposal, quotation or other
document or statement that is false, incomplete or misleading can result in
civil and/or criminal liability for UNISYS and the CONSULTANT.
UNISYS is committed to developing, manufacturing and delivering quality products
which meet all contractual obligations and UNISYS quality standards. UNISYS
expects your full support in meeting this objective.
In conducting market analysis, do not accept, use or provide UNISYS with
information proprietary to our competitors.
REPORTING COSTS
The CONSULTANT'S submission of an invoice is a representation that the invoice
accurately reflects the Agreement and the work to be provided thereunder.
CONSULTANTS must be particularly careful in identifying and reporting to UNISYS
any costs which they incur which are considered unallowable by special
legislation that applies to the work such as the US Federal Acquisition
Regulations.
MAKING POLITICAL CONTRIBUTIONS
It is contrary to the UNISYS Code of Ethical Conduct to contribute funds to any
political party or candidate. Therefore, you, as a CONSULTANT to UNISYS, cannot
contribute or donate on behalf of UNISYS, either directly or indirectly, funds,
products, services or other resources for any political cause, party or
candidate. (You may make voluntary personal contributions to any lawful
political causes, parties or candidates so long as you do not represent that
such contributions come from UNISYS.)
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CONFLICT OF INTEREST
You may not have any employment, consulting, or other business relationship
with a competitor, customer or supplier of UNISYS, or invest in any
competitor, customer or supplier of UNISYS (except for moderate holdings of
publicly-traded securities) unless you have notified UNISYS in writing and
received written authorization from UNISYS.
INSIDER TRADING
Do not trade in the securities of UNISYS or any other company, or buy or
sell any property or assets, on the basis of non-public information you
have acquired through your Agreement with UNISYS, whether such information
comes from UNISYS or from another company with which UNISYS has a
confidential relationship.
ACCEPTANCE OF BUSINESS COURTESIES
Never accept anything from someone doing business with UNISYS where the
gratuity is offered or appears to be offered in exchange for any type of
favorable treatment or advantage. To avoid even the appearance of
impropriety, do not accept any gifts or promotional items of more than
nominal value. You may accept meals, drinks, or entertainment, only if
such courtesies are unsolicited, infrequently provided and reasonable in
amount. Such courtesies must also be directly connected with business
discussions. Do not accept reimbursement for lodging or travel expense, or
free lodging or travel without the express written approval of UNISYS.
RESTRICTED INFORMATION
Do not disclose to any outside party, except as specifically authorized by
UNISYS, any non-public business, financial, personnel or technological
information, plans, or data that you have acquired during the period you
were a CONSULTANT for UNISYS. Upon termination of the Agreement, you may
not copy, take or retain any documents containing UNISYS restricted
information. The prohibition against disclosing UNISYS restricted
information extends indefinitely beyond the period of the Agreement. Your
agreement to protect the confidentiality of such information and fully
comply with the non-disclosure requirements is considered an important
condition of your Agreement with UNISYS.
GOVERNMENTAL CLASSIFIED AND PROPRIETARY INFORMATION
Government contractors have special obligations to comply with laws and
regulations that protect classified information. CONSULTANTS with valid
security clearance who have access to classified information must ensure
that such information is handled in accordance with pertinent government
procedures. These restrictions apply to any form of information, including
whether in written or electronic form.
UNISYS does not solicit nor should any CONSULTANT receive any sensitive
proprietary internal government information including budgetary or program
information before it is available through normal processes.
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REPORTING VIOLATIONS AND DISCIPLINE
Strict adherence to this Code of Ethical Conduct is vital. CONSULTANTS are also
responsible for ensuring that their employees or subcontractors adhere to the
provisions of the Code.
CONSULTANTS are expected to report any suspected violations of the Code or other
irregularities to the UNISYS Ombudsman who can be reached at 800-732-3247.
Violations of the Code may result in termination of your Agreement with UNISYS
or even the filing of a civil or criminal complaint.
INTERNATIONAL TRANSACTIONS
In the event you become involved with an international transaction please note
that the following additional restrictions may apply:
EXPORT CONTROLS
Export regulations issued by the United States government apply to all
UNISYS products and technical data which are sent overseas from the United
States. The controls also extend to products manufactured or developed
abroad using United States technology and to exports of UNISYS products
from one country to another.
The law requires the use of various export licenses as a means to authorize
international shipments and control exports.
Non-compliance with United States export regulations can result in both
criminal and civil penalties for UNISYS.
BOYCOTTS
The United States government has enacted laws which oppose restrictive
trade practices or boycotts imposed by foreign countries against other
countries friendly to the United States or against any United States
person. While the only present beneficiary of these laws is Israel in
relation to boycotts enacted by the Arab League countries, the law is
general in nature and would apply to the boycott of any other nation with
whom the United States has diplomatic or trading relations and which is not
itself the object of a boycott pursuant to United States law.
The boycott laws apply to United States companies and their subsidiaries.
There are specific export and tax laws and regulations that set forth
prohibited activities, which include (a) active compliance by which
companies form business relationships and make businesses decisions in
conformance with a boycott, and (b) passive compliance by which companies
furnish information in accordance with boycott requests. The most frequent
requests for prohibited statements appear in transaction documents such as
invoices, letters of credit, requests for proposals and involve the origin
of the goods or the carrier transporting them. UNISYS must not comply with
any such requests and must report all
3
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requests received to the United States government even though we do not
comply with them. If you believe you have identified a boycott request,
contact the Unisys Legal Department immediately for advice.
FOREIGN CORRUPT PRACTICES ACT
In 1977 the United States enacted the Foreign Corrupt Practices Act which
makes it a crime for United States corporations to bribe foreign officials
to retain business. The act contains two parts: (a) accounting and
record-keeping controls to detect foreign bribes and (b) provisions which
make foreign bribes a crime.
The Act requires any company which has stock registered with the US
Securities and Exchange Commission to:
(1) make and keep books, records and accounts which accurately and fairly
reflect the transactions and dispositions of assets of the company;
and
(2) implement and maintain internal accounting controls sufficient to
provide reasonable assurance that:
(a) transactions are handled in accordance with management's
authorization,
(b) transactions are recorded as necessary to permit preparation of
financial statements in compliance with generally accepted
accounting principles and to maintain accountability for assets,
(c) access to assets is permitted in accordance with management
authorization, and
(d) recorded accountability for assets is compared with the existing
assets at reasonable intervals, and appropriate action is taken
with respect to any differences.
Further, the statue specifically makes illegal any payment aimed at
inducing a foreign official to misuse his official position, or paying any
money to a foreign agent where we have "reason to know" the money may be
used for illegal payment.
4
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-----------------------------------------
UNISYS CORPORATION CHG DATE PURCH ORD NO RELEASE #
BLUE BELL, PENNSYLVANIA 19424-0009 09/04/1997 40R81224 11174
-----------------------------------------
CHG ORDER# PAGE
10 1 OF 1
---------- ----------
CHANGE ORDER
TIER CORPORATION
1350 TREAT BLVD
SUITE 250
WALNUT CREEK CA 94596 [ ] MATERIAL AND/OR SERVICES
800-789-8437 1390 HAVE BEEN RECEIVED. DO NOT
ATTN: MICHELE LEWANDOWSKI DUPLICATE
------------------------------------------------------
REASON FOR INCREASE DOLLAR VALUE AND CHANGE PERIOD OF PERFORMANCE
CHANGE ------------------------------------------------------
*********************C H A N G E R E Q U I S I T I O N **********************
- --------------------------------------------------------------------------------
DESCRIPTION
- --------------------------------------------------------------------------------
- -- TIME PERIOD: 10/23/1995 - 12/15/1997
** PLEASE SEE ATTACHED SHEET(S) FOR WORK DESCRIPTIONS & ANY OTHER
CONDITIONS **
- -- TERMS AND CONDITIONS PER ATTACHED AGREEMENT ARE APPLICABLE TO THIS ORDER.
CASUAL OVERTIME WILL NOT BE COMPENSATED.
- -- BACKUP DETAIL IS MAINTAINED BY RESOURCE MGMT SVC GRP IN EAGAN, MN.
- -- CHANGE ORDER # 10 PREVIOUS VALUE: $4,331,904
CHANGE AMOUNT: $ 152,832
- --------------------------------------------------------------------------------
TAXABLE EXEMPTION # : 07-335080-N CONFIRMATION NOT TO EXCEED
NO YES YES NO $4,484,736
X /s/ T. Jaskelewicz X
- --------------------------------------------------------------------------------
BUYER'S SIGNATURE TOTAL
TONY JASKELEWICZ
TOWNSHIP LINE & MEETING RD, BLUE BELL, PA 9424-0001
ADDRESS ALL COMMUNICATIONS TO THE ABOVE
- --------------------------------------------------------------------------------
THE ABOVE PURCHASE ORDER NO., RELEASE NO. AND ITEM NOS. MUST BE SHOWN ON
ALL PACKING LISTS, INVOICES, CORRESPONDENCE, ETC.
- --------------------------------------------------------------------------------
- -- SUBMIT INVOICES (ALONG WITH TRAVEL EXPENSE RECEIPTS IF APPLICABLE) TO:
UNISYS CORPORATION ATTN: RESOURCE MGMT SVC GRP, MS F1K03 INVOICE DEPT. (TEL.
612-687-2916) 3199 PILOT KNOB RD, EAGAN, MN 55121
SUPPLIER'S COPY CTS-FS-0018147628
<PAGE>
EXHIBIT 10.30b
TECHNICAL SERVICES AGREEMENT
40R81998
This Agreement, including all Schedules referred to herein, is made and
entered into by and between Unisys Corporation, USCD (hereinafter "Unisys")
which has a place of business at Township Line and Union Meeting Roads, Blue
Bell, Pennsylvania 19424, and Contractor identified on the cover page of this
Agreement. The parties, intending to be legally bound, hereby agree as follows:
1. TERM OF AGREEMENT
The term of this Agreement and the Effective Date on which it commences are
identified on the cover page. (THE COVER PAGE WILL LIST THE TERM AS MARCH
17, 1997 THROUGH MARCH 31, 1999.)
2. STATEMENT OF WORK
During the term of this Agreement Contractor shall perform the work
described in Schedule A (Statement of Work and Payment Schedule)
(hereinafter "Work"), in accordance with the time plan set forth in
Schedule A (Statement of Work and Payment Schedule).
Schedule A shall incorporate by reference all deliverables (including the
Synopsis) which were developed for and approved by the Australian Child
Support Agency (CSA) as the result of the Scoping Study, and which are
included in Attachment 1 of the Formation of a Contract and Official Order
under PE 68.
3. PERFORMANCE OF WORK/RISK OF LOSS
3.1 The Work shall be performed by Contractor's personnel, of which the
key members, if any, are listed on Schedule B (Contractor's Key Personnel).
Key personnel shall not be added to or removed from the Work by Contractor
without the prior written consent of Unisys, which consent shall not be
unreasonably withheld. Unisys shall have the right at any time to require
that Contractor remove personnel which Unisys no longer wants performing
the Work, if and only if Unisys and Contractor agree that the performance
of Contractor's work will not be adversely affected by such removal.
3.2 Contractor shall report to the UNISYS USCD DEPUTY PROJECT
DIRECTOR/CHILD SUPPORT SPECIALIST (Beth Burns) on matters regarding the
Work, but shall participate in all steering, planning, and risk management
committees covering the scope of work for which Tier has involvement.
Progress meetings shall be conducted at times and places as reasonably
requested by Unisys to discuss the progress of the Work and other related
matters. Contractor shall
1
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provide a written report of such progress and other matters at least forty-
eight hours prior to the date of each meeting.
3.3 Contractor shall furnish the Deliverables listed in Schedule A no
later than the date(s) specified therein.
3.4 Contractor shall bear the risk of loss, damage and destruction of all
Deliverables until received by Unisys.
4. COMPENSATION/PAYMENT/TAXES
4.1 The total compensation to Contractor for Work performed hereunder is
listed on Schedule A. Unisys shall have no obligation under any
circumstances to pay Contractor any money in excess of such amount unless
agreed to in writing by the Unisys Contract Administrator identified on the
cover page.
4.2 Tier Technologies, Inc. will deliver a system in accordance with the
Project Definition (Scoping) Study Document, "Synopsis", for the price
specified in Schedule A of this contract. Following the joint application
development (JAD) sessions described in the Project Management Plan, Tier
may revise the actual effort required to deliver the functionality and
submit a request for a change to the scope of the Project to Unisys to be
submitted to the Customer in accordance with Clause C66 of the CSA
Contract. Unisys shall be bound to negotiate subsequent pricing
adjustments accordingly and, upon agreement by the parties, to submit any
and all such change requests to CSA, with a supporting statement from the
Chief Executive Officer of TIER Technologies, Inc. Any such request for
change may be accepted by the Customer upon the First Assistant
Commissioner Child Support Agency being satisfied that the change is
reasonably required to meet the aims of the Project.
4.3 Contractor shall promptly submit invoices to the Unisys Contract
Administrator named on the cover page for each payment listed on Schedule A
as it becomes due. Each invoice shall include the Unisys purchase order
number related to this Agreement; Contractor's invoice number and date; the
deliverable covered by the invoice; and the amount billed for the
deliverables.
4.4 Unisys shall pay all invoiced amounts to Contractor within thirty (30)
days after receipt of invoice.
4.5 Amounts payable by Unisys for Contractor's performance of the Work do
not include related state and local taxes or travel and living expenses,
since these are already included in Contractor's price listed on Schedule
A.
4.6 Unisys shall pay to Contractor a `mobilization fee, the amount and
timing of such payment being set forth in Schedule A.
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5. RELATIONSHIP OF PARTIES
In performing the Work, Contractor is acting as an independent contractor
and not as an employee, agent, or representative of Unisys. Contractor has
no authority to transact any business in the name of or on account of
Unisys or otherwise obligate Unisys in any manner.
6. RIGHTS TO WORK
6.1 Contractor hereby sells and conveys to Unisys a joint right, title and
interest in and to all Work produced by Contractor, its employees, and its
authorized subcontractors in performance of the Work for conveyance to the
client; including, but not limited to, all copyrights, patents, trade
secrets and all other proprietary rights.
6.2 Contractor hereby grants Unisys a non-exclusive, royalty-free, fully
paid-up, and irrevocable right and license to use, reproduce, modify,
adapt, translate, convey and license pre-existing Contractor work product
(including, but not limited to, Contractor copyrights, patents and trade
secrets) solely to the extent necessary for Unisys to exercise its right,
title and interest in and to the work product produced by Contractor as
part of the Work to be conveyed to Client.
6.3 Contractor hereby grants to Unisys an unlimited, unrestricted,
royalty-free, fully paid-up, and irrevocable right and license, under all
of Contractor's inventions, discoveries, patents, copyrights, trade secrets
and other proprietary rights not included in the conveyance of Section 6.1
or the license grant of Section 6.2 but incorporated or required or
necessary to use the work product produced by Contractor as part of the
Work to be conveyed to client, regardless of when such proprietary rights
were first conceived, reduced to practice or created.
6.4 Contractor agrees to deliver to Unisys all information and duly signed
documents as may be necessary or useful by Unisys to vest in Unisys, or any
designee of Unisys, the foregoing rights and/or to enforce or defend such
rights.
6.5 Marketing Rights. It is the intent of both parties to enter into a
-----------------
marketing agreement (hereinafter "Marketing Agreement") governing the
future sale or transfer of the work product developed for the Client to
child support agencies in other jurisdictions, including states in the
United States and other foreign countries. Marketing rights for the Work
shall be governed by the Marketing Agreement. The foregoing rights shall
include the full, irrevocable and exclusive right to use, reproduce,
translate, publish, sell, convey, license and otherwise dispose of
Contractor work product and all portions thereof and to authorize others to
do so, subject to the conditions specified below. If Unisys desires to use
all or any portion of Contractor's work product for any potential future
sale or transfer to any other party not covered by this contract during the
term of Marketing Agreement, Contractor shall be given the first right of
refusal to
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provide application development services on the potential engagement.
Nothing herein shall prevent Contractor from using its work product for any
further sale or transfer to any other party not covered by this agreement.
The nature and content of the work product produced by Contractor hereunder
shall not be disclosed to others nor used by Contractor without the prior
written consent of Unisys, so long as Unisys continues in performance under
the Marketing Agreement.
7. PROPRIETARY INFORMATION
7.1 Proprietary Information shall include all business and technical
information relating to the Work which is furnished to Contractor by Unisys
and all other information furnished or disclosed by one party to the other
which is marked "proprietary," "confidential" or "restricted". When
concurrent identification as "proprietary" "confidential" or "restricted"
is not feasible at the time of disclosure, the disclosing party must
provide such identification within fifteen (15) days of disclosure. Each
party shall exercise the same degree of care to avoid disclosure of
"proprietary" "confidential" and "restricted" information of the other as
it affords its own similar information, but in no event less than
reasonable care.
7.2 The Work and all deliverables are deemed Proprietary Information of
Unisys as though it were Proprietary Information furnished by Unisys to
contractor, and shall be treated as such by Contractor.
7.3 Proprietary Information shall be used by the receiving party only as
necessary for the purposes of this Agreement and shall be maintained in
confidence unless the receiving party can legally prove that such
information: (i) is publicly available other than through breach of this
Agreement, (ii) has been rightfully obtained from a third party with no
obligation of confidentiality, (iii) is known or developed independently of
the disclosure by the disclosing party, (iv) was already known prior to
disclosure by the disclosing party or (v) was disclosed to a third party by
the disclosing party without imposing an obligation of confidentiality.
8. EXPORT CONTROL OF INFORMATION
Contractor shall comply with applicable United States laws and regulations
which prohibit the export of technical data that originates in the United
States or any product directly based on such data without prior written
authorization as may be required from appropriate agencies of the United
States. Such compliance obligates Contractor not to export Unisys
Proprietary Information or make it available in the United States to
aliens.
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9. INDEMNIFICATION
9.1 Contractor agrees to indemnify and hold harmless Unisys, its licensees
and transferees against any claim based on infringement of a patent,
copyright or other proprietary right or improper use or misappropriation of
a trade secret of a third party occasioned by any use, sale, license, or
reproduction of the Work product delivered by Contractor. Upon prompt
notice to Contractor of such claim, Contractor at its own expense shall
answer, defend or settle such claim and pay any and all judgments,
including an award of attorney fees, costs, damages and expenses relating
to such claim. It is agreed that Unisys may be represented by counsel of
its own choice at its own expense in any proceeding. In the event Unisys
or any of its licensees or transferees is enjoined from using the
Contractor Work product, Contractor agrees to obtain for them the right and
license to use the Contractor Work product or to modify the Contractor Work
product to eliminate the grounds for such injunction.
9.2 Unisys agrees to indemnify and hold harmless Contractor, its licensees
and transferees against any claim based on infringement of a patent,
copyright or other proprietary right or improper use or misappropriation of
a trade secret of a third party occasioned by any use, sale, license, or
reproduction of the Work product delivered by Unisys. Upon prompt notice
to Unisys of such claim, Unisys at its own expense shall answer, defend or
settle such claim and pay any and all judgments, including an award of
attorney fees, costs, damages and expenses relating to such claim. It is
agreed that Contractor may be represented by counsel of its own choice at
its own expense in any proceeding. In the event Contractor or any of its
licensees or transferees is enjoined from using the Unisys Work product,
Unisys agrees to obtain for them the right and license to use the Unisys
Work product or to modify the Unisys Work product to eliminate the grounds
for such injunction.
10. CONTRACTOR'S WARRANTIES
Contractor makes the following warranties to Unisys:
(a) Contractor has expertise in the field covered by this Agreement and
shall commit time and resources to attain the stated goal and complete the
Work.
(b) Contractor agrees to use its best efforts to correct any errors or
defects which arise from its services performed hereunder and which are
brought to Contractor's attention within ninety (90) days of receipt of the
Work product by the Unisys UCSD Deputy Project Director/Child Support
Specialist (Beth Burns).
(c) In performing the Work Contractor shall not infringe any trade secret,
copyright or patent of a third party.
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(d) Contractor shall not divulge or furnish to Unisys any trade secret or
other proprietary information of any third party which Contractor does not
have the right to divulge or furnish.
(e) Contractor has the power and right to grant Unisys the title and
license rights set forth in Section 6 hereof.
(f) This Agreement is not in conflict with any other agreement or
obligation which Contractor has with any third party.
(g) All associates, employees, subcontractors and subcontractor associates
and employees who have written or created pre-existing Contractor work
product and/or who will write or create Contractor work product produced as
part of the Work were and shall be under obligation to convey to Contractor
the rights described in Sections 6.1, 6.2 and 6.3.
11. SERVICES FOR OTHERS
Contractor and its personnel assigned to perform the Work shall not engage
directly or indirectly in any undertaking which creates any legal
impediment to or conflicts with rights granted to Unisys by Contractor
under this Agreement. Contractor shall not undertake, during the term of
this Agreement, to perform similar services for any third party which would
compromise the value of the Work or Deliverables to Unisys.
12. NOTICE OF INFRINGEMENT
12.1 Contractor shall give Unisys prompt written notice of any claim by a
third party that work performed by Contractor under this Agreement
infringes or misappropriates intellectual property rights of the third
party. In the event of any such claim by a third party against Unisys
alleging infringement or misappropriation of intellectual property rights,
Contractor shall cooperate with Unisys in connection with Unisys defense
thereof. Unisys shall have the right at its expense to participate in the
defense of any suit brought against Contractor claiming infringement or
misappropriation of intellectual property rights based on or relating to
the Work.
12.2 Unisys shall give Contractor prompt written notice of any claim by a
third party that work performed by Unisys under this Agreement infringes or
misappropriates intellectual property rights of the third party. In the
event of any such claim by a third party against Contractor alleging
infringement or misappropriation of intellectual property rights, Unisys
shall cooperate with Contractor in connection with Contractor defense
thereof. Contractor shall have the right at its expense to participate in
the defense of any suit brought against Unisys claiming infringement or
misappropriation of intellectual property rights based on or relating to
the Work.
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13. ADMINISTRATION
13.1 The Unisys USCD Deputy Project Director/Child Support Specialist
(Beth Burns) shall be the principal interface with Contractor on Work
matters and shall have authority to clarify, explain and provide further
details regarding Unisys expectations concerning the Work, but shall have
no authority to modify any provisions of this Agreement including, without
limitation, the compensation, scope of work or any schedule therefor,
without agreement by Unisys Contract Administrator.
13.2 Unisys Contract Administrator is Unisys authorized representative for
all other matters related to this Agreement, including modifications
thereof.
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14. NOTICES
14.1 All notices and requests given by either party to the other shall be
in writing and sent by facsimile, e-mail, telex or first class mail.
14.2 Notices and requests sent by Unisys shall be addressed to the
Contractor's Project Administrator at the address listed on the cover page
of this Agreement.
14.3 Notices and requests sent by Contractor regarding aspects of the Work
shall be addressed to the Unisys USCD Deputy Project Director/Child Support
Specialist (Beth Burns) at the project work site.
14.4 Notices and requests sent by Contractor regarding matters other than
aspects of the Work including, without limitation, compensation and
Contractor's personnel shall be addressed to Unisys Contract Administrator
at the address listed on the cover page of this Agreement. However, the
Unisys USCD Deputy Project Director / Child Support Specialist (Beth Burns)
shall be informed both verbally and in writing of any and all intended
substantive communications with Unisys Contract Administrator prior to the
occurrence of the communication.
14.5 Contractor and Unisys shall each have the right to change at any time
the respective individuals to whom notices and requests shall be sent by
giving written notice of such change to the other party.
15. ASSIGNMENT
Contractor shall not assign this Agreement or any rights hereunder or
delegate the Work or any of Contractor's other obligations hereunder to any
third party without prior written consent of Unisys, and any assignment
without such consent shall be void. Not withstanding anything to the
contrary, Contractor shall have the right to assign this Agreement and its
rights and duties hereunder to any successor in interest by acquisition,
merger, operation of law or otherwise. Any legal representative or
successor in interest of Contractor shall be bound by the provisions of
Section 7 of this Agreement regarding Proprietary Information. Unisys
shall have the right to assign this Agreement and its rights and duties
hereunder to any successor in interest by acquisition, merger, operation of
law or otherwise.
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16. TERMINATION/CANCELLATION
16.1 TERMINATION FOR CONVENIENCE
Unisys shall have the right to terminate this Agreement or the Work to be
performed hereunder in whole or in part for its convenience only in the
event that Unisys is terminated for convenience. Unisys shall endeavor to
give notice of termination to Contractor no more than seven days after
receipt by Unisys from Client that Unisys' prime contract has been
terminated pursuant to clause c.71, and Contractor shall terminate the Work
as quickly as possible upon receiving notice. Unisys shall have no
liability to Contractor based on any such termination except to pay all
amounts due Contractor up to the date of termination in accordance with the
compensation provisions of Section 4. Contractor shall promptly deliver to
Unisys all Work product, whether or not completed, which is in Contractor's
possession on the termination date containing information related to the
Work, including a final report to be prepared by Contractor describing
results of the Work up to the date of termination.
16.2 CANCELLATION FOR NON-PERFORMANCE
(a) Unisys shall have the right to cancel this Agreement in the event of
any material breach by Contractor which is not in good faith dispute
between the two parties and which Contractor fails to cure within thirty
days or to produce a plan within 30 days which demonstrates capability to
correct within 60 days after written notice of breach from Unisys. Any
such notice of cancellation shall become effective, if Contractor fails to
cure the breach or to produce a corrective plan showing cure within 60
days, on the thirtieth day after transmittal of the notice as provided in
Section 13. Notice of cancellation rightfully given by Unisys for material
breach by Contractor which is not timely cured shall excuse Unisys from
paying for any Work performed by Contractor after the date of notice of
material breach given to contractor by Unisys. However, payment shall be
made for all deliverables satisfactorily completed under the terms of this
Agreement prior to any notification of cancellation for material breach.
Unisys shall have the option upon cancellation to obtain delivery and
retain title and license rights, as provided herein, in and to all Work
product completed or in preparation on the date of cancellation in exchange
for payments made and owed as of such date.
(b) Contractor shall have the right to cancel this Agreement and the rights
and licenses granted to Unisys in Section 6 only if Unisys fails to cure
any deficiency in making any payment due Contractor, which is not in good
faith dispute between the parties, within thirty days after receiving
written notice of such deficiency.
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16.3 ADDITIONAL RIGHTS AND REMEDIES
Unisys and Contractor shall retain all rights and remedies available at law
or equity, to the extent they are not inconsistent with this Agreement, in
the event of any termination or cancellation of this Agreement.
17. PUBLICITY
Contractor shall not disclose the terms and conditions of or publish any
information concerning this Agreement without prior written consent of
Unisys.
18. WAIVERS
The failure of either party to assert any claim or right against the other
party regarding its obligations hereunder, in any one or more instances,
shall not constitute a waiver of such claim or right with respect to future
performance of such obligations and other obligations under the Agreement.
19. SEVERABILITY
The invalidity or unenforceability of any particular provision of this
Agreement shall not affect other provisions, and the Agreement shall be
construed in all respects as if such invalid or unenforceable provisions
were omitted.
20. HEADINGS
All section and paragraph headings are for reference only and shall not be
used in construing this Agreement.
21. GOVERNING LAW
This Agreement will be governed by the local laws of the Commonwealth of
Pennsylvania.
22. SURVIVAL OF PROVISIONS
The rights and duties of the parties as set forth in Sections 6, 7, 8, 12
and 17 shall survive the expiration, termination or cancellation of this
Agreement and shall inure to the benefit of and be binding and their
authorized assigns, successors and legal representatives.
23. ENTIRE AGREEMENT
This Agreement sets forth the entire agreement between the parties and
supersedes all prior oral and written agreements and understandings between
the parties with respect to the subject matter hereof. This Agreement may
not be modified or the parties released from their obligations hereunder
except by an instrument in writing signed by an authorized representative
of the parties.
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24. COMPLIANCE WITH LAW
Contractor shall comply with all federal, state and local laws and
regulations pertaining to the performance of this Agreement and shall
indemnify Unisys for any liability and related costs, expenses and fees
incurred by Unisys as a result of Contractor's breach of such obligation.
25. BUSINESS PRACTICE GUIDELINES
Contractor acknowledges that it has received a copy of Unisys Business
Practice Guidelines and Code of Ethical Conduct (Schedule C) and has read
and will act in accordance with them.
TIER TECHNOLOGIES, Inc. UNISYS CORPORATION
BY: /s/ James L. Bildner BY: /s/ T. Jaskelewicz
TITLE: its Chair & CEO TITLE: ISG Procurement
DATE: 7/27/97 DATE: 7-24-97
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SCHEDULE A
STATEMENT OF WORK AND PAYMENT SCHEDULE
TIER Technologies, Inc. is expected to conduct a Scoping Study prior to the
actual build of the Australian Child Support Enforcement system for the Child
Support Agency (CSA). The specific goals of the study are to:
. examine the scope of the Project against the RFT (in particular Sections 1, 4
and 5, appendices D to G of the RFT) and the Contractor's response and the data
models referred to in those Sections in order to settle a firm functional
specification for the project as the Customer's Statement of Requirements to be
inserted in Section 1 of the Annex to the Official Order for the Project.
. identify a list of tasks for the Project Plan for inclusion in Section 1 of
the Annex to the Official Order for the Project.
. create a skills transfer strategy to be inserted in Section 1 of the Annex to
the Official Order for the Project.
. reconfirm the statement of the Contractor's resources required for inclusion
in Section 2 of the Annex to the Official Order for the Project.
. settle details of any software requested for the Project for inclusion in
Sections 3 and 4 of the Annex to the Official Order for the Project.
. finalize details of the cost of the Project and method of payment for
inclusion in Section 4 of the Annex to the Official Order for the Project;
. assist with project initiation activities.
Both parties hereby acknowledge as of June 26, 1997, that the scoping study as
described herein has been duly completed and accepted according to the contract.
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WORK TO BE PERFORMED DURING THE SCOPING STUDY
As part of the Scoping Study, Tier Technologies, Inc. agrees to perform the
following tasks:
1. Confirmation of Level 0 and Level 1 Processes (Matrix 1.1)
Level 0 and level 1 processes will be confirmed and modeled.
A business context model will also be developed to describe the high level
business architecture and key future directions.
Deliverable: Document or documents identifying the Business Context Model, the
- -----------
Level 0 Process Model and the Level 1 Process Model.
Due 4/11/97.
2. Identification of Strategic Data Requirements for MIS and DSS (Matrix 1.4)
Assist with identifying management information reporting and decision support
requirements, and on ensuring that processes and data are included which will
enable these requirements to be met. (The Unisys USCD Deputy Project
Director/Child Support Specialist (Beth Burns) will take the lead on this task,
with primary responsibility for producing the deliverable.)
Deliverable: A Strategic Data Requirements Document, containing:
- -----------
. data definitions (to be included in the data model)
. definition of processes required to collect the data (manual/automated).
Due 5/5/97.
3. Determine Development Approach for Part 1 (Matrix 1.5)
This task will determine the strategy for developing Part 1 in terms of the
major assumptions, priorities and dependencies for development, and the
resources required.
Deliverables: Written report identifying Approach to Part 1. Due
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4/21/97.
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4. Determine Development Approach for Part 2 (Matrix 1.6)
This task will determine the strategy for developing Part 2 in terms of the
major assumptions, priorities and dependencies for development, and the
resources required.
Deliverables: Written report identifying Approach to Part 2.
- ------------
Due 4/29/97.
5. Develop approach to alignment with ATO (Matrix 1.7)
This task addresses a requirement for the redeveloped system to align with the
ATO where practicable. A strategy will be developed which defines the level of
alignment to be achieved, and provides guidelines for achieving it.
Deliverables: Written ATO Alignment plan, containing:
- ------------
. approach
. procedures
. impact statement.
Due 4/8/97.
6. Preparation of Skills Transfer Strategy (Matrix5.1)
A skills transfer strategy will be developed for ensuring that the CSA will have
the in-house skills needed to maintain and enhance the redeveloped system. The
strategy will cover both the initial selection of CSA staff, and the on-going
selections and management of staff. This will involve the following sub-tasks:
. development of selection guidelines
. confirmation of number of positions for CSA staff
. definition of skill requirements for each position
. interviewing and selection of CSA staff
. preparation of plans to ensure transfer of necessary skills
. preparation of procedures for performance appraisal
. preparation of procedures to ensure integration and co-ordination with CSA HR
and the CPSU.
This task must be given priority to enable training to be carried out in time
for the start of the main project.
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Deliverable: Skills Transfer Strategy Document, containing:
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. selection guidelines
. position descriptions and skill requirements
. results of interview and selection process
. skills transfer plans for each individual
. on-going procedures for maintaining skill levels throughout the project
. CSA/CPSU HR integration procedures
Due 5/6/97.
7. Preparation of Data Model (Matrix 2.1)
An agreed data model will be developed, to the level of entity types and
relationships, for the purpose of scoping and defining the functionality of the
new application to be developed. Definition of properties and attributes will
occur during the main project. This task will include:
. examination of CSA logical model and confirmation of intention to use S.
Carolina
. importation of S. Carolina model into Composer
. comparison of S. Carolina model with CSA logical model (workshop)
. development of the new data model
. functional review of new data model
. sign-off of new model
The process models produced in Task 1 above (Matrix 1.1) will be cross-
referenced to the data model to produce a matrix showing which processes will
create, read, update or delete each data entity (known as a CRUD matrix).
Deliverables: Logical Data Model/Entity Relationship Diagram.
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Due 4/28/97.
CRUD Matrix
Due 5/5/97.
8. Assist in the Development of a Data Conversion Strategy (Matrix 2.3)
A strategy will be developed for converting the cleansed data from the current
database format to the new database format. The output from this task will
enable data conversion to be scheduled into the Project Management Plan. Tier
Technologies, Inc. will assist in this process. (The Conversion Manager for the
project will be expected to take the lead on this task and will be responsible
for production of the deliverable.)
Deliverable: Preparation of appropriate components of the Data Conversion
- -----------
Strategy Document, which will contain:
. approach
.
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. resources
. schedule
. contingency planning.
Due 4/15/97.
9. Assist in the Identification of Key Performance Indicators for the Project
(Matrix 4.3)
A set of key performance indicators (KPIs) for the Project will be defined.
Progress against the KPIs will be monitored on a regular basis to determine the
overall health of the Project. The project principal and the project manager
will take the lead on this task and have responsibility for creating the
deliverable.)
Deliverable: Attendance at meetings to determine key performance indicators.
- -----------
Due 4/3/97.
10. Develop Project Management Plan (Matrix 4.4)
A Project Management Plan (PMP) will be prepared.
The PMP will include the following:
. tasks, resources, schedules, deliverables
. issues management and escalation procedures
. change control mechanisms
. reporting procedures
. Quality Management Plan
. Configuration Management Plan
. Subcontractor Mgmt Plan
. Standards Document
. Testing Strategy
. Implementation Strategy
. Support Strategy
. Risk Management Plan
Key deliverables for this task are:
. Change Control Mechanisms
. Quality Management Plan (QMP)
. Implementation Strategy and Plan
. Risk Management Plan
Deliverable: Preparation of the following plan components:
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. tasks, resources, schedules and deliverables related to application
development
.
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. standards document
. assist in development of a testing strategy.
Due 5/14/97.
11. Prepare Statement of Price and Payment Schedules (Matrix 4.5)
A statement of the price and payment schedules will be prepared for inclusion in
Section 4 of the Annex to the Official Order for the Project.
Deliverable: Statement of price and payment schedules, in CSA approved
- -----------
formats, related to all components of the project to be performed by Tier
Technologies, Inc.
Due 5/14/97.
12. Define Operational Performance Indicators (Matrix 3.1)
CSA and Unisys must agree on operational performance indicators and targets for
phase deliverables. The indicators will be:
. availability of on-line applications
. host response time, for transactions against the application server
. completion of batch processes within the available window
. timely production, viewing, archiving, retrieval and printing of letters
. improved productivity in system enhancement and maintenance
. bulk annual processing completion time
. capacity (e.g. MIPS, disk).
Tier Technologies, Inc. will assist in this process. (The project principal
will be responsible for performance of this task and preparation of related
customer deliverables.)
Deliverable: Attendance at meetings during which indicators will be defined and
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review and revision of the written statement of operational performance targets
which will be submitted to CSA as a deliverable.
Due 4/4/97.
13. Identify Technical Architecture and Constraints (Matrix 3.2)
Unisys' proposal contains a recommendation on the preferred platform for
Composer development (p87 of the Response). The technical environment in which
development is to occur, and any resulting constraints, must be identified and
documented. by Tier Technologies, Inc.
The architecture will include requirements for management information reporting
and decision support.
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Deliverable: Written statement of Technical Architecture & Constraints to
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support the complete project development, execution and operating environment.
Due 4/25/97.
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WORK TO BE PERFORMED AFTER THE SCOPING STUDY
During Parts 1 and 2 of the project, which will commence after the Scoping Study
concludes, TIER Technologies, Inc. will be expected to design and develop a
Child Support Enforcement system which meets CSA's defined requirements, as set
forth in the Synopsis incorporated by references in the Formation of a Contract
and Official order Under PE 68. The tasks to be performed by TIER Technologies,
Inc. during Parts 1 and 2 of the project will be taken from the Project Plans
developed during the Scoping Study and will be included in a subsequent addendum
to this agreement.
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SUBSEQUENT ADDENDUM # 1: REVISED STATEMENT OF WORK FOR PARTS 1 AND 2 OF THE
PROJECT
Definition:
- -----------
The terms "Scoping Study" and "Project Definition Study" are used
interchangeably, without any difference in meaning.
GENERAL PROVISIONS:
1. THE YEAR 2000
Notwithstanding anything to the contrary contained herein or in the
output from the Project Definition Study or in Unisys' original tender, it
is understood and agreed by the Contractor and Unisys that, while any
software supplied by the Contractor will be Year 2000 Compliant (as defined
below), the Contractor will not be responsible for any third party software
that is not Year 2000 Compliant, or for any information received by or in
the Child Support system which is not Year 2000 Compliant. Without
limiting the foregoing, if any information received by or on the Child
Support System, by whatever means, is not year 2000 Compliant, Unisys
acknowledges that the Contractor shall not be responsible for such failure
is caused in any way by such non-compliant information. For the purposes
of this provision, 'Year 2000 Compliant' means hardware or software which:
(a) will handle date information before, during and after 1 January 2000
including but not limited to accepting date input, providing date
output and performing calculations on dates or portions of date;
(b) will function accurately and without interruption before, during and
after 1 January 2000 without any change in operations associated
with the event of the new century;
(c) will respond to two digit and cure date input in a way that resolves
the ambiguity as to the century in a disclosed, defined and
predetermined manner, and will store and provide output of date
information in ways that are unambiguous as to the century.
2. LOCATION OF THE SITE
The Child Support System will be developed at the ATO Offices in Canberra. The
System may be used from all offices of the CSA.
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3. DESIGNATED OPERATING ENVIRONMENT
The current system uses 100 MIPS of processing capacity and 80 gigabytes
of disc storage. The CSA is expecting a growth rate of 10-15% per year
over the next 5 to 6 years (see the detailed Specifications in the RFT).
It is essential that the final capacity required by the redeveloped Child
Support Computer System will not be greater than that of the current
system plus expected growth. The Contractor agrees it will make all
reasonable efforts to contain the systems to be developed within the
constraints stated. In the event that this proves impossible the
Contractor will discuss and agree with Unisys and CSA ways in which the
scope or system structure could be varied to enable the contract to be
met. Where the execution of such a variation which is agreed to by CSA
would lead to additional costs to Unisys and/or the Contractor then the
contract change control procedures will apply.
4. PREPARATION OF INVOICES BY CONTRACTOR
With the exception of the initial mobilization fee, an invoice may only
be presented after a part of the Project required to complete a
deliverable has been accepted by CSA or CSA is required to make some
payment that is not dependent upon acceptance.
5. DOCUMENTATION
(i) As part of the Child Support System the Contractor will develop:
. a set of technical Documentation to facilitate the future development
and maintenance of the Child Support System by a technically competent
third party
(ii) Documentation will be produced in a way that facilitates:
. it being made available electronically and in hard copy; and
. it being updated easily to take account of changes:
- in management and procedures within the Child Support Agency, and
- to the software.
(iii) Documentation will be accepted as part of each deliverable of the Project
where applicable.
6. TRAINING AND SKILLS TRANSFER
The Contractor will make every reasonable effort to ensure that at the
conclusion of the Project there will be an in house skills capacity,
within the CSA organization sufficient to maintain and enhance the system
as developed during
21
<PAGE>
the Project. This capacity will be developed in consultation between
Unisys and CSA based upon the principles set out in Deliverable 5.1 (Skills
Transfer Strategy).
Unisys may, at the request of the Contractor and following agreement by the
CSA, assign personnel to work with and for the Contractor. These personnel
will be sought and selected according to the processes described and
defined in Deliverable 5.1 of the Project Definition Study.
A strategy will be developed as part of the Project to train CSA staff so
that they may make best use of the System developed during the Project (See
Deliverable 5.3 Training Strategy).
7. WARRANTY PERIOD
The Contractor will provide warranty services for the Child Support System
for a period of 3 months from the acceptance of the last part of the
System.
8. SERVICE PERFORMANCE FACTORS
The following material will be used to measure performance during the
Warranty Period from the completion of Part 1.
(a) The system as a whole will be developed in components: the components
will collectively comprise the system. Components will be either:
(i) business critical: business critical components are those
components which prevent the Customer from carrying on their core
business; or
(ii) business non-critical: business non-critical components are
components which are not business critical.
(b) CSA will maintain their own help desk and will prioritise problems
prior to requesting service from the Contractor.
(c) Contractor problem-resolution staff will be dedicated to CSA.
(d) Problems with components will be classified as follows:
22
<PAGE>
<TABLE>
<S> <C>
Fatal Entire application component is inoperable by all users
meaning that the business processes supported by that
component cannot be carried out
- ------------------------------------------------------------------------------------------------
Severe The application component has limited operability and
there is negative impact on the business processes
supported by that component
- ------------------------------------------------------------------------------------------------
Minor The application component does not operate to agreed
specification although business processes supported by
the component are not significantly affected.
- ------------------------------------------------------------------------------------------------
</TABLE>
(e) The classification of a given problem will be agreed between Unisys
and the Contractor. The Contractor will have responsibility only for
those factors affecting the problem which the Contractor has
developed. Following agreement of the classification the following
process will be adopted for resolution:
(i) the problem will be fixed as soon as is practicable;
(ii) if the problem will not be fixed immediately then, wherever
possible, a work-around will be defined or developed as soon as
is practicable.
(f) In any event the Contractor will fix the problem in a resource
effective manner, where resources includes time, the use of CSA
computer time and the involvement of CSA staff and users.
9. REBATE AMOUNT
In the event that the Contractor does not during the warranty period
commence the rectification of a problem for which it is responsible within
a timely manner, then Unisys shall be entitled to engage a third party to
rectify the problem, and Unisys shall be given a rebate equal to the
reasonable costs incurred of having to engage a third party to rectify the
problem. The severity of the problem may also be taken into account in any
calculation involving warranty work, but no such amount will be payable
where the Contractor rectifies the problem in a timely manner.
10. PRIVACY
All staff of the Contractor required to perform duties on CSA's premises
are required to complete a Commonwealth Security declaration form and a
Privacy Deed.
23
<PAGE>
Access to the CSA's premises including the Site is controlled by the CSA
Security. Contractors passes will be issued for individual staff members
on completion of the CSA security checks.
11. SPECIAL LEGISLATION
The Contractor shall make their staff involved in the Project aware of the
terms of the secrecy provisions in Section 16 of the Child Support Act and
Income Tax Assessment Act; and obtain from them a secrecy declaration in
the appropriate format. The Contractor understands that other agencies
such as the Department of Social Security have similar secrecy
requirements. If the Contractor's staff are likely to have access to that
type of material the Contractor undertakes to inform persons of the
relevant requirements.
12. LIABILITY
The Contractor's Liability is limited to 2 times the Contractor's share of
the total CSA Contract value.
13. ACQUISITION OF HARDWARE AND SOFTWARE
The Contractor does not need to acquire any software or hardware for the
purposes of this Project.
Specific Provisions:
- --------------------
During the term of this Agreement Contractor shall build, test, warranty and
participate in the acceptance and piloting of a Child Support System in
accordance with CSA's requirements as set forth in the Synopsis included by
reference as part of Attachment 1 to the Official Order. At a minimum, the
Contractor will perform the development tasks identified in the project
management plan included by reference as Deliverable 4.4 in the Official Order,
in accordance with the associated timeframes.
Deliverables:
- -------------
As the result of the performance of the development tasks identified in the
project management plan included by reference as Deliverable 4.4 in the Official
Order, the Contractor will provide the deliverables identified in Schedule D,
which - after acceptance by CSA- will constitute the basis for monthly payment
in accordance with the payment schedule included herein.
DUE DATES FOR DELIVERABLES
All deliverables identified in this agreement will be due in accordance with the
CSA approved project plans related to various project phases (Scoping Study,
Part 1 and
24
<PAGE>
Part 2). All project plans will be jointly developed by TIER Technologies, Inc.
and Unisys and approved by CSA.
All deliverables will be submitted to Unisys USD prior to submittal to CSA.
PAYMENT TERMS
All work associated with the Scoping Study will be satisfactorily performed byt
TIER Technologies, Inc. for a firm fixed price of $90,000. All work performed
by TIER Technologies, Inc. subsequent to the Scoping Study will be
satisfactorily performed by TIER Technologies, Inc. for a firm and fixed price
of $5,259,020, based on the proposal submitted to CSA on 12/12/96 and the
Synopsis incorporated by reference in Attachment 1 of the Formation of a
Contract and Official Order Under PE 68. The entire firm fixed price of
$5,349,020. covers the Scoping Study, the redevelopment of the Registration and
Assessment modules (included in Part 1 of the project), the redevelopment of the
Accounting module (included in Part 1 of the project), and redevelopment of
other additional features (Part 2 of the project).
Following the joint application development (JAD) sessions described in the
Project Management Plan, Tier may revise the actual effort required to deliver
the functionality and submit a request for a change to the scope of the Project
to Unisys to be submitted to the Customer in accordance with Clause C66 of the
CSA Contract. Unisys shall be bound to negotiate subsequent pricing adjustments
accordingly and, upon agreement by the parties, submit any and all such change
requests to CSA, with a supporting statement from the Chief Executive Officer of
TIER Technologies, Inc. Any such request for change may be accepted by the
Customer upon the First Assistant Commissioner Child Support Agency being
satisfied that the change is reasonably required to meet the aims of the
Project.
If the scope of work changes and TIER Technologies, Inc. services - in addition
to or less than those originally proposed to CSA - are required, TIER
Technologies, Inc. agrees to provide those service at a firm fixed price to be
negotiated with Unisys USD and included as a subsequent addendum to this
agreement.
All travel expenses to and from the primary project location (Canberra, ACT)
incurred by any and all TIER Technologies, Inc. employees in conjunction with
this project are included in the firm fixed prices identified above. Any
project related travel from Canberra to any other location within or outside of
Australia, for key personnel identified in Schedule B, shall be reimbursed by
CSA at the rate applicable to non SES officers in the Australian Public Service,
in accordance with the Official Order. In the event that non-key Tier personnel
are requested to perform project related travel from Canberra to any other
location within or outside of Australia, Tier shall not be obligated to comply
with such request unless directly reimbursed by CSA at the rate applicable to
non SES officers in the Australian Public Service.
25
<PAGE>
Payments will be made to TIER Technologies, Inc. as provided in the payment
schedule set forth directly below, contingent upon project deliverables being
accepted by CSA in accordance with Section 4 of this addendum. TIER
Technologies, Inc. will submit all invoices to Unisys USD, through the USCD
Deputy Project Director/Child Support Specialist (Beth Burns), for payment.
TOTAL CONTRACT PRICE $5,349,020.00
Scoping Study $ 90,000.00
Payment Schedule $5,259,020.00
Mobilization upon signing $262,951.00
June 30, 1997 $262,951.00
July 31, 1997 $262,951.00
August 31, 1997 $262,951.00
September 30, 1997 $262,951.00
October 31, 1997 $262,951.00
November 30, 1997 $262,951.00
December 31, 1997 $262,951.00
January 31, 1998 $262,951.00
February 28, 1998 $262,951.00
March 31, 1998 $262,951.00
April 30, 1998 $262,951.00
May 31, 1998 $262,951.00
June 30, 1998 $262,951.00
July 31, 1998 $262,951.00
August 31, 1998 $262,951.00
September 30, 1998 $262,951.00
October 31, 1998 $262,951.00
November 30, 1998 $262,951.00
Final Payment upon $262,951.00
Conclusion of Warranty Period
FLOW DOWN OF TERMS AND CONDITIONS
TIER Technologies, Inc. agrees to be subject to all terms and conditions
contained in the prime contracts with CSA (PE 68 and subsequent Official Order
for the Project) for this project, so long as Tier Technologies has had an
opportunity to participate in, negotiate, and affirmatively assent with Unisys
to all material issues expressly including but not limited to the question of
limiting liability under PE68 and the subsequent Official order for the project.
SCHEDULE B
CONTRACTOR'S KEY PERSONNEL
26
<PAGE>
TIER Technologies, Inc. agrees to make the individuals listed below available to
the project, for the duration of the project, at the specified utilization
rates. Personnel and personnel percentage of time allocations to the project
may be modified as the result of mutual agreement between TIER Technologies,
Inc. and Unisys USD and with the approval of CSA.
Name Project Phase
---- -------------
Brad Nickels (60%) Scoping Study
Tom Funk (60%) Scoping Study
Tom Funk (100%) Parts 1 and 2(1)
Parts 1 and 2
- -----------------
(1) Parts 1 and 2 refer to the full project that will be implemented in
accordance with the CSA approved project management plans developed during the
Scoping Study.
27
<PAGE>
SCHEDULE C
BUSINESS PRACTICE GUIDELINES AND CODE OF ETHICAL CONDUCT
A. BUSINESS ETHICS
Contractor shall perform the Work under this Agreement in accordance with
applicable law and high ethical standards. Contractor, in performing the
Work, shall not attempt to influence present or prospective customers of
Unisys in the public or private sector through bribes, payoffs or kickbacks
and shall not maintain slush funds or make political contributions in any
manner which would imply that such illegal payments are made by or on
behalf of Unisys, including its subsidiaries, affiliates, officers,
directors and employees, or in relation to the Work. In the event
Contractor breaches any of these provisions, Unisys shall have the right to
cancel this Agreement and obtain a full refund of all payments made to
Contractor hereunder.
B. POLITICAL CONTRIBUTIONS
No contribution in cash, services, or otherwise shall be made directly or
indirectly by Contractor or any individual or organization related to
Contractor on behalf of Unisys, its subsidiaries, affiliates, officers,
directors or employees, to any political campaign or candidate, whether or
not the contribution could otherwise be lawfully made in the country
concerned. Neither Contractor nor any individual or organization related
thereto shall be reimbursed, directly or indirectly, by Unisys, its
subsidiaries, affiliates, officers, directors or employees for any such
contribution to a political campaign or candidate.
Neither Contractor nor any individual or organization related thereto shall
solicit on behalf of Unisys, its subsidiaries, affiliates, officers,
directors or employees from any one or more other such directors, officers
or employees any contribution to any political campaign or candidate with a
view toward transmission of the amounts collected to a candidate or
campaign fund as contributions on behalf of Contractor or Unisys, its
subsidiaries, affiliates, officers, directors or employees.
Nothing in this statement of Unisys Business Practice Guidelines is
intended in any way to restrict personal contributions by Contractor or any
individual or organization related thereto. The only intent of this policy
is to prevent the inference that the contribution is being made by or on
behalf of Unisys, or any subsidiary, affiliate, officer, director or
employee of Unisys, singly or as a group.
28
<PAGE>
SCHEDULE D: TIER PROJECT DELIVERABLES
29
<PAGE>
1
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
JUNE 1997 DELIVERABLES:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Added) JAD Session Structure & Description of JAD Business Capture Form and associated
Deliverables deliverables. Description of session process.
- ----------------------------------------------------------------------------------------------------------------------------------
JAD Schedule of Activities Input to the Project Master Plan. Describes week-by-week JAD
topics and dates for lLevel 1 JAD.
- ----------------------------------------------------------------------------------------------------------------------------------
Architectural Standards Guidelines and Standards Outline Detailed document will be developed after a general outline
of suggested standards has been reviewed. This deliverable
is that outline consisting of recommended project standards or
guidelines for component development and management, GUI
presentation, use of messaging subsystem, use of security
subsystem, use of permitted values subsystem, use of composer
naming conventions, use and development of developer
templates, model management and encyclopedia management in
a component/CSE environment, data model change management, data
naming conventions, migration across test/production regions,
data base support during development.
JULY 1997 DELIVERABLES:
- ----------------------------------------------------------------------------------------------------------------------------------
Architectural Standards Recommended Project This is the more formal follow-on document to the Guidelines
Architectural Standards and Standards Outline from June. This document will define
the standards and guidelines in sufficient detail to be
useable by systems developers for CSA Redevelopment. Since
portions of this document will require approval from
different organisations (e.g. ATO standards, ATO Data
Administration, CSA Standards), the document will be
delivered as a set of recommendations. Acceptance will be
based on the recommendations, not on final approval of each
section.
June JAD Business Capture Accounting Enquiries Business JAD business Capture Details will vary week-to-week, but a
Capture Details completed Level 1 package will contain the Business Capture
Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Accounting
Enquiries.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- ----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- ----------------------------------------------------------------------------------------------------------------------------------
AUGUST 1997 DELIVERABLES:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
July JAD Business Capture Financial Management Reporting A completed Level 1 package containing the Business Capture
Form itself, Data Requirements Business Capture Details
(as a composer model), Flow Diagram, Preliminary Window
Designs. Specific to Financial Management reporting.
- ----------------------------------------------------------------------------------------------------------------------------------
Basic Payment Processing A completed Level 1 package containing the Business Capture
Business Capture Details Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Basic Payment
Processing.
- ----------------------------------------------------------------------------------------------------------------------------------
Complex Payment Processing A completed Level 1 package containing the Business Capture
Business Capture Details Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Complex
Payment Processing.
- ----------------------------------------------------------------------------------------------------------------------------------
Client Data (old Registration) A completed Level 1 package containing the Business Capture
Business Capture Details Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Client Data
including data about Payer, Payee, Child and Agent.
- ----------------------------------------------------------------------------------------------------------------------------------
Employer Structures Business A completed Level 1 package containing the Business Capture
Capture Details. Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Employer
Structures.
- ----------------------------------------------------------------------------------------------------------------------------------
Service Options/Eligibility A completed Level 1 package containing the Business Capture
Business Capture Details Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Service
Options/Eligibility.
- ----------------------------------------------------------------------------------------------------------------------------------
Enquiries Business Capture A completed Level 1 package containing the Business Capture
Details Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Enquiries.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- ----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reports Business Capture Details A completed Level 1 package containing the Business Capture
Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Generalised
CSA Reports not covered by any specific JAD.
SEPTEMBER 1997 DELIVERABLES:
- ----------------------------------------------------------------------------------------------------------------------------------
August JAD Business Capture Policy Considerations Business A completed Level 1 package containing the Business Capture
Capture Details Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Policy
Considerations.
- ----------------------------------------------------------------------------------------------------------------------------------
Communications Business Capture A completed Level 1 package containing the Business Capture
Detail Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to outbound
Communications from CSA.
- ----------------------------------------------------------------------------------------------------------------------------------
Payment and Disbursement A completed Level 1 package containing the Business Capture
Options Business Capture Details Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Payment and
Disbursement Options.
- ----------------------------------------------------------------------------------------------------------------------------------
Complaints and Ministerials A completed Level 1 package containing the Business Capture
Business Capture Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to
Complaints/Ministerials.
- ----------------------------------------------------------------------------------------------------------------------------------
(added) Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Accounting Enquiries coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Financial Management Reporting coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Client Data coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Enquiries coding.
</TABLE>
<PAGE>
4
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- ----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- ----------------------------------------------------------------------------------------------------------------------------------
Level 2 JAD Deliverables Report layouts and data information sufficient to code the reports.
for Reports
- ----------------------------------------------------------------------------------------------------------------------------------
OCTOBER 1997 DELIVERABLES:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
September JAD Business Capture Workflow Management for Part 1 A completed Level 1 package containing the Business Capture
Business Capture Form itself, Data Requirements (as a composer model), Flow
Diagram, Preliminary Window Designs. Specific to Workflow
Management.
- ----------------------------------------------------------------------------------------------------------------------------------
(added) Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Basic Payment Processing coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Complex Payment Processing coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Policy Considerations coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Communications coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Payment and Disbursement Options coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Complaints and Ministerials coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Component Models Part 1 Component Models Composer ERD ready for Transformation; Windows.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
5
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- ----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- ----------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 1997 DELIVERABLES:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(added) Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications
Part 1 Work Flow Management ready for coding.
- ----------------------------------------------------------------------------------------------------------------------------------
Architectural Subsystems Development Templates Standard architectural activities, such as consistent
behaviour of common window types, will be enforced through
the use of pre-defined templates. Templates are not merely
visual enforcement, but contain code to assure that
consistent processing is enforced where defined by the
project architecture. All developers will be mandated to use
the templates.
- ----------------------------------------------------------------------------------------------------------------------------------
Correspondence Support Specifications to code the letter/form creation subsystem.
subsystem specifications Generation and storage (forms management) is considered
outside the scope of CSA Redevelopment and is handled by a
separate CSA initiative under a separate Tender.
- ----------------------------------------------------------------------------------------------------------------------------------
Business Code and Rules These are the underlying specifications for infrastructural
Transfer specifications tables to support Workflow Management.
- ----------------------------------------------------------------------------------------------------------------------------------
Common Subsystem Component Specifications for coding of the Security, Permitted Values,
Requirements Messaging subsystems.
- ----------------------------------------------------------------------------------------------------------------------------------
Physical Data Base Part 1 Physical Data Base Initial physical database.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- ----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DECEMBER 1997 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
Unit Tested Components Part 1 Unit Tested Components Unit tested components will be released in functional packages
(Specific Components to be as they are developed Generally, components will be
following construction. constructed and tested in the same sequence that they were
defined at start of coding in delivered from the JAD sessions. Dependencies on architectural
October) components or other functional components could vary this
sequence.
- -----------------------------------------------------------------------------------------------------------------------------------
JANUARY 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
Unit Tested Components Part 1 Unit Tested Components Unit tested components will be released in functional packages
(Specific Components to be as they are developed Generally, components will
following construction. be constructed and tested in the same sequence that
defined at start of coding in they were delivered from the JAD sessions. Dependencies on
October) architectural components or other functional components could
vary this sequence.
- -----------------------------------------------------------------------------------------------------------------------------------
FEBRUARY 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
Unit Tested Components Part 1 Unit Tested Components Unit tested components will be released in functional packages
(Specific Components to be as they are developed following construction. Generally,
defined at start of coding in components will be constructed and tested in the same
October) sequence that they were delivered from the JAD sessions.
Dependencies on architectural components or other functional
components could vary this sequence.
January JAD Business Capture Part 2 Business Capture of A completed Level 1 package containing the Business Capture
Subtrack Functions to be Form itself, Data Requirements (as a composer model),
defined in Flow Diagram, Preliminary Window Designs. Specific to
November/December Workflow Management.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF dELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MARCH 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
Unit Tested Components Part 1 Unit Tested Components Unit tested components will be released in functional packages
(Specific Components to be as they are developed following construction. Generally,
defined at start of coding in components will be constructed and tested in the same
October) sequence that they were delivered from the JAD sessions.
Dependencies on architectural components or other functional
components could vary this sequence.
- -----------------------------------------------------------------------------------------------------------------------------------
February JAD Business Capture Part 2 Business Capture of A completed level 1 package containing the Business Capture
Subtrack Functions to be Form itself, Data Requirements (as a composer model),
defined in November/December Flow Diagram, Preliminary Window Designs, Specific to Workflow
Management.
- -----------------------------------------------------------------------------------------------------------------------------------
APRIL 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
Unit Tested Components Part 1 Unit Tested Components Unit tested components will be released in functional packages
(Specific Components to be as they are developed following construction. Generally,
defined at start of coding in components will be constructed and tested in the same
October) sequence that they were delivered from the JAD sessions.
Dependencies on architectural components or other functional
components could vary this sequence.
- -----------------------------------------------------------------------------------------------------------------------------------
Part 1 Unit/Integration Part 1 Unit/Integration Testing This document certifies that all objects in the system for
Testing Report Report Part 1 have been tested both as individual units and as
integrated functional components. Allows the start of
System Test.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(added) System Test Scenarios Self defining.
implemented; System Testing
Begins for Part 1
- -----------------------------------------------------------------------------------------------------------------------------------
March JAD Business Capture Part 2 Business Capture of A completed Level 1 package containing the Business Capture
Subtrack Functions to be Form itself, Data Requirements (as a composer model),
defined in November/December Flow Diagram, Preliminary Window Designs. Specific to Workflow
Management.
- -----------------------------------------------------------------------------------------------------------------------------------
(added) Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Part 2 (to be defined in coding.
November/December)
- -----------------------------------------------------------------------------------------------------------------------------------
MAY 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
April JAD Business Capture Part 2 Business Capture of A completed Level 1 package containing the Business Capture
Subtrack Functions to be Form itself, Data Requirements (as a composer model), Flow
defined in November/December Diagram, Preliminary Window Designs. Specific to Workflow
Management.
- -----------------------------------------------------------------------------------------------------------------------------------
Unit Tested Components Part 2 Unit Tested Components Unit tested components will be released in functional packages
as they are developed following construction. Generally,
components will be constructed and tested in the same
sequence that they were delivered form the JAD sessions.
Dependencies on architectural components or other functional
components could vary this sequence.
- -----------------------------------------------------------------------------------------------------------------------------------
(added) Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications ready for
Part 2 (to be defined in coding.
November/December)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JUNE 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
(added) Part 1 System Test Finishes Selfdefining.
- -----------------------------------------------------------------------------------------------------------------------------------
(added) Level 2 JAD Deliverables for Detailed Client, Server, and Window specifications
Part 2 (to be defined in ready for coding.
November/December)
- -----------------------------------------------------------------------------------------------------------------------------------
Unit Tested Components Part 2 Unit Tested Components Unit tested components will be released in functional packages
as they are developed following construction. Generally,
components will be constructed and tested in the same
sequence that they were delivered from the JAD sessions.
Dependencies on architectural components or other functional
components could vary this sequence.
- -----------------------------------------------------------------------------------------------------------------------------------
Component Models Part 2 Component Models Composer ERD ready for Transformation; Windows. This ERD will
be an update/add-on to the ERD for Part 1.
- -----------------------------------------------------------------------------------------------------------------------------------
Updated Physical Data Base Updated Physical Data Base for The Part 1 data base will be enhanced to support Part 2 based
Part 2 on the ERD delivered above.
- -----------------------------------------------------------------------------------------------------------------------------------
Architectural Subsystems Part 2 Architectural Subsystems Completely new architectural subsystems, except to support
(as defined by December 1997) Risk Management, are unlikely for Part 2. Some modification/
addition to Part 1 subsystems may be needed. This will be
determined as part of detailed planning for Part 2 in December
1997.
- -----------------------------------------------------------------------------------------------------------------------------------
JULY 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
System Testing Completion Part 1 System Testing Defines the scenarios used, the test statistics (errors,
Report Completion Report fixes, changes), and certifies that all required test
conditions have been satisfied to start acceptance testing.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECHNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unit Tested Components Part 2 Unit Tested Components Unit tested components will be released in functional packages
as they are developed following construction. Generally,
components will be constructed and tested in the same
sequence that they were delivered from the JAD sessions.
Dependencies on architectural components or other functional
components could vary this sequence.
- -----------------------------------------------------------------------------------------------------------------------------------
AUGUST 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
Part 2 Unit/Integration Part 2 Unit/Integration Testing This document certifies that all objects in the system for
Testing Completion Report Completion Report Part 1 have been tested both as individual units
and as integrated functional components. Allows the start of
System Test.
- -----------------------------------------------------------------------------------------------------------------------------------
(added) System Test Scenarios Self defining.
implemented; System Testing
Begins for Part 2
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
System Testing Completion System Testing Completion The system testing completion report will describe (at a high
Report Report for Part 2 level) the tests that have been conducted, and will be signed
off by the testing coordinator to indicate completion of
the system testing. This will be the point at which the
complete system is ready for system testing.
- -----------------------------------------------------------------------------------------------------------------------------------
OCTOBER 1998 DELIVERABLES:
- -----------------------------------------------------------------------------------------------------------------------------------
Software Modifications N/A During acceptance testing the application software will be
(Acceptance Testing) satisfactorily modified to comply with documented fixes
required by CSA to make the system acceptable. Acceptance
by CSA will constitute acceptance of this deliverable.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
CHILD SUPPORT AGENCY SYSTEM REDEVELOPMENT PROJECT DEFINITION OF TIER TECNOLOGIES
DELIVERABLES SUPPLEMENT TO DELIVERABLE 4.5 PRICE AND PAYMENT SCHEDULE
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF DELIVERABLES FROM MAPPING TO PROJECT PLAN DEFINITION
PRICE AND PAYMENT SCHEDULE DELIVERABLES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOVEMBER 1998 DELIVERABLES:
- ------------------------------------------------------------------------------------------------------------------------------------
Software Modifications N/A The application software will be modified to comply with
documented fixes required by CSA to make the system
acceptable. Acceptance by CSA will constitute acceptance of
this deliverable.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
EXHIBIT 10.31
TIER TECHNOLOGIES, INC.
VOTING TRUST AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of _______________ ___,
1997, between James L. Bildner and William G. Barton, as trustees (with any
successors, the "Trustees" or individually, a "Trustee"), and the persons who
have executed this Agreement as Beneficiaries hereof or who become registered
owners of voting trust certificates pursuant to the terms of this Agreement
(individually, a "Beneficiary" and collectively, the "Beneficiaries") for the
purpose of ensuring that, during the term of this Agreement, the shares of Class
A Common Stock of Tier Technologies, Inc., a California corporation (the
"Company"), represented under this Agreement will be voted in a unified and
consistent manner. In the event, and whenever, there shall be only one Trustee
serving under this Agreement, the term "Trustees" shall refer to such Trustee or
to all Trustees together, as appropriate in the context.
In consideration of the mutual agreements below, the Beneficiaries hereby
create and the Trustee hereby accepts a trust on the terms stated below, and the
parties hereto agree as follows:
1. Exchange of Shares for Voting Trust Certificates
1.1. Simultaneously with the execution of this Agreement, the
Beneficiaries shall deliver to the Trustees duly endorsed for transfer, or
accompanied by duly executed instruments of transfer, all shares of the Class A
Common Stock of the Company which that Beneficiary now owns or becomes the owner
of in the future. Promptly upon receipt of such shares, the Trustees shall cause
such shares to be registered in the name of the Trustees, and shall file a
duplicate copy of this Agreement with the Secretary of the Company.
1.2. The Trustees shall hold the shares transferred to them in trust (the
"Trust"), subject to the terms of this Agreement.
1.3. The Trustees shall issue and deliver to each Beneficiary a voting
trust certificate, in the form of Exhibit A hereto ("Certificate"), in respect
of the shares deposited with and held by the Trustees for the benefit of each
Beneficiary under this Agreement.
1.4. Until such time as this Agreement shall terminate, all stock
certificates representing shares held by the Trustee pursuant to the Trust shall
bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF
A VOTING TRUST AGREEMENT. ANY TRANSFEREE OF THESE SECURITIES TAKES SUBJECT
TO THE TERMS OF SUCH AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
1.5. The Trustees shall keep at the principal office of the Company a book
(the "Certificate Book") containing the names of all persons who are
Beneficiaries and showing their places of residence, the number of shares
represented by the Certificates held by them, and the time when they became the
owners thereof. The Certificate Book shall be open for inspection by any
shareholder of the Company or any Beneficiary, or the agent of either, upon the
same terms as the record of shareholders of the Company is open to inspection by
such persons.
1
<PAGE>
1.6. The Certificate shall be transferable only as provided in the
Certificate and this Agreement, and upon payment of any transfer taxes and other
charges. The term "Transfer" shall include, without limitation, any transfer,
sale, assignment, or alienation, regardless of the manner, circumstances,
timing, or nature of such transfer, and whether intervivos or at death. All
Transfers shall be recorded in the Certificate Book and any proper transfer made
of any Certificate shall vest in the transferee all rights of the transferor and
shall subject the transferee to the same limitations as those imposed on the
transferor by the terms of the Certificate transferred and by this Agreement.
Upon Transfer of any Certificate, the Trustees shall deliver a Certificate or
Certificates to the transferee for the number of shares represented by the
Certificate transferred.
1.7. If a Certificate shall be lost, stolen, mutilated or destroyed, the
Trustees, in their discretion, may issue a duplicate of such Certificate upon
receipt of (i) evidence of such fact satisfactory to the Trustees, (ii) an
indemnity satisfactory to the Trustees (or the existing Certificate, if
mutilated), and (iii) payment by the holder of the Certificate of all fees and
expenses applicable thereto.
1.8. The Trustees shall not be required to recognize any Transfer of a
Certificate not made in accordance with the provisions of the Certificate and
this Agreement. A Certificate is transferable, subject to the provisions of the
Certificate and this Agreement.
1.8.1. In the event of any Transfer which, pursuant to the terms of
the Articles of Incorporation of the Company, does not cause a conversion of
Class A Common Stock to Class B Common Stock, the underlying shares of stock
shall remain a part of this Trust and shall continue to be Class A Common Stock
shares. The affected Certificate shall be amended to reflect the Transfer and,
in the event of a Transfer of less than all the shares of the transferor, a new
Certificate shall be issued and delivered to the transferee.
1.8.2. In the event of a Transfer which, pursuant to the terms of
the Articles of Incorporation of the Company, causes a conversion of Class A
Common Stock to Class B Common Stock, the Trust shall terminate as to the shares
transferred. Any underlying shares of Class A Common Stock (with 10 votes per
share) which are transferred pursuant to this Section 1.8.2 shall be converted
to an equal number of shares of Class B Common Stock (with 1 vote per share),
consistent with the Company's Articles of Incorporation. Immediately after a
Transfer within the description of this Section 1.8.2, the subject Certificate
shall be surrendered to the Trustees (who shall return an amended Certificate to
the transferor in the event of a Transfer of less than all of the transferor's
shares), the affected shares shall be released from the Trust, and, after the
records of the Company have been properly adjusted to reflect the conversion,
the Trustees shall arrange for the delivery of a Class B Common Stock share
certificate to the transferee.
1.9. The Trustees may treat the registered holder of each Certificate (or
when presented duly endorsed by the registered holder with the signature of the
registered holder guaranteed in blank or to a transferee for Transfer, the
bearer or transferee thereof) as the absolute owner and holder thereof and of
all the rights and interests represented thereby for all purposes whatsoever,
and the Trustees shall not be bound or affected by any notice to the contrary.
2
<PAGE>
2. Record Dates
2.1. The Trustees may fix, in advance, a record date for the determination
of the Beneficiaries entitled to notice of any meeting of Beneficiaries or to
vote or to receive payment of any dividend or other distribution, or any
allotment of rights, or to exercise rights in respect of any other lawful
action. The record date so fixed shall be not more than 60 nor less than 10 days
prior to the date of the meeting nor more than 60 days prior to any other
action. If the purpose of the record date is a distribution pursuant to Section
4 of this Agreement, the record date shall be fixed so that each Beneficiary
shall receive all amounts to which such Beneficiary is entitled under Section 4.
When a record date is so fixed, only Beneficiaries of record on that date are
entitled to notice of and to vote at the meeting or to receive the dividend,
distribution or allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of Certificates after the record date. A
determination of Beneficiaries of record entitled to notice of or to vote at a
meeting of Beneficiaries shall apply to any adjournment of the meeting unless
the Trustees fix a new record date for the adjourned meeting. The Trustees shall
fix a new record date if the meeting is adjourned for more than 45 days.
2.2. If no record date is fixed by the Trustees, the record date for
determining Beneficiaries entitled to notice of or to vote at a meeting of
Beneficiaries shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held. The record date for determining Beneficiaries for any purpose other than
set forth in this Section shall be at the close of business on the day on which
the Trustees adopt the resolution relating thereto, or the 60th day prior to the
date of such other action, whichever is later.
3. Trustee's Rights as Shareholder of Company
3.1. Voting of Shares. During the existence of this Trust, the Trustees
----------------
shall have the exclusive right to vote all shares transferred to them in person
or by proxy at all shareholder meetings and in all proceedings in which the vote
or consent of shareholders may be required or authorized, and shall have all the
rights, privileges, and powers of shareholders except as otherwise provided in
this Agreement.
3.1.1. The right of the Trustees to vote, assent or consent shall
include, without limitation, the right to vote at any election of directors and
in favor of or in opposition to any dissolution or proposed dissolution,
liquidation or reorganization of the Company, or a sale of all or substantially
all of its assets, or the issuance or creation of additional classes of its
securities, or any action of any character whatsoever which may be presented at
any meeting or require the consent of shareholders of the Company.
3.1.2. Whenever there shall be more than one person serving as
Trustee hereunder, the Trustees shall exercise any power or take any action
under this Agreement with the assent of a majority of the Trustees. That assent
may be expressed at a meeting of the Trustees or without a meeting by vote or
resolution or by an instrument or separate instruments in writing signed by a
majority of the Trustees. As to any particular matter, should the Trustees fail
to come to any agreement as to what position or action to take (a "Deadlock"),
all shares in the Trust shall nonetheless be voted uniformly and the provisions
of Section 5.9 of this Agreement shall apply.
3
<PAGE>
3.2. No Authority to Transfer Shares. The Trustees shall have no authority
-------------------------------
to sell, pledge, hypothecate or otherwise dispose of the shares deposited
pursuant to the terms of this Agreement, except as specifically provided in
Section 3.3 of this Agreement.
3.3. Consolidation or Transfer of Shares. In the event that the Company
-----------------------------------
shall merge into or consolidate with another corporation or entity, or in the
event that all or substantially all of the assets or shares of the Company are
transferred to another corporation or entity the shares or equity interests of
which are issued to shareholders of the Company in connection with that
transfer, then the term "Company" shall be construed to include the successor
corporation or entity and the Trustees shall receive and hold under this
Agreement any shares or other equity interests of the successor corporation or
entity received by the Trustees on account of their ownership, as trustee, of
shares held by him hereunder prior to the merger, consolidation or transfer.
Certificates issued and outstanding under this Agreement at the time of the
merger, consolidation or transfer may remain outstanding, but the Trustees may,
in their discretion, substitute therefor new Certificates in appropriate form.
4. Notices and Distributions
4.1. The Trustees shall promptly forward copies of all notices, reports,
statements, and other communications received from the Company to the
Beneficiaries.
4.2. The Trustees shall promptly distribute all dividends and other
distributions received from the Corporation to the Beneficiaries.
4.3. If any dividend or stock split consists of additional shares having
voting rights, the Trustees shall hold these shares in trust subject to the
terms of this Agreement, and shall issue new voting trust certificates,
representing the additional shares to the Beneficiaries.
4.4. The Trustees may, if they deem it desirable to do so, arrange with
the Company for the direct payment by the Company of dividends to the
Beneficiaries on the record date for any dividend or other distribution.
4.5. There shall be deducted and withheld from every distribution of every
kind under this Agreement any taxes, assessments and/or other amounts that may
be required by any present or future law or laws to be deducted or withheld, as
well as compensation of the Trustee as provided in Section 5.6 and expenses and
charges incurred pursuant to Section 5.5 to the extent that such compensation,
expenses and amounts remain unpaid or unreimbursed.
5. The Trustee
5.1. Each Trustee by executing this Agreement, and each successor Trustee
upon being appointed as such, accepts the Trust created hereby and agrees to
carry out the terms and provisions of this Agreement. Each Trustee, in the
absence of his resignation, death or incapacity to act, shall serve for the
entire term of this Trust.
5.2. In voting shares or in doing any act in respect of the control or
management of the Company or its affairs, as the holder of shares deposited
under this Agreement, the Trustees shall exercise their best judgment, but the
Trustees assume no responsibility in respect of any vote made or act taken by
them or taken by the Company in pursuance of his vote or action as such holder.
4
<PAGE>
5.3. Should any question arise upon which the Trustees shall desire the
opinion of the Beneficiaries, a meeting for that purpose may be called by the
Trustees. Written notice of each such meeting shall be given not less than 10
nor more than 60 days before the date of the meeting to each Beneficiary
entitled to vote at it. The notice shall state the place, date and hour of the
meeting and the general nature of the business to be transacted, and no other
business may be transacted. Notice of such meetings shall be given either
personally or by mail, or by other means of written communication, addressed to
each Beneficiary at such Beneficiary's address appearing on the Trustees'
records or given by the Beneficiary to the Trustees for the purpose of notice;
or, if no such address appears or is given, at the place where the principal
executive office of the Company is located or by publication at least once in a
newspaper of general circulation in the county in which the principal executive
office of the Company is located. The notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by such
other means of written communication. At any such meeting called by the
Trustees, the holders of a majority or more in interest of such Certificates may
determine the manner in which they desire the Trustees to act on the matter
submitted by the Trustees to the Beneficiaries for their determination (but
shall have no right to determine any matters not so submitted to them), and the
Trustees shall be bound to act in the manner so determined; provided, however,
that the Trustees shall not be required to take any action as a result of such a
meeting unless and until the Trustees have been fully and satisfactorily
indemnified against all loss, damage, claim or injury to which the Trustees
might be subjected, either by reason of their action or by reason of their
position as a trustee under this Agreement.
5.4. The transactions of any meeting of Beneficiaries, however called and
noticed by the Trustees, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice by the Trustees, if holders of
the requisite amount and interest of Certificates shall have determined the
manner in which they desire the Trustees to act, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. Any action of the Beneficiaries
with respect (but only with respect) to any matter submitted to them by the
Trustees for determination may be taken without a meeting and without prior
notice if a consent in writing, setting forth the actions so taken, shall be
signed by the holders of outstanding Certificates having not less than the
minimum number of votes that would be necessary to authorize or take that action
at a meeting at which all Beneficiaries entitled to vote thereon were present
and voted. In the event of action of Beneficiaries without a meeting, pursuant
to the preceding sentence, the Trustees shall notify in writing all
Beneficiaries who have not consented thereto in writing of the action of
Beneficiaries so taken.
5.5. The costs of establishing and maintaining the Trust contemplated
herein shall be borne by the original Trustees.
5.6. The Trustees shall not be compensated for their services as the
trustees hereunder.
5.7. The rights and duties of any Trustee shall terminate upon his death,
and no interest in any of the property owned or held by the Trust nor any of the
rights or duties of a Trustee may be transferred by will, devise, succession, or
in any other manner except as provided herein. The heirs, administrators and
executors of such Trustee shall, however, have the right and
5
<PAGE>
duty to convey any property held by the Trustee to the remaining or successor
Trustee(s), as the case may be.
5.8. Any Trustee may resign by giving notice of resignation to (i) the
remaining Trustee(s), if there is at the time of such resignation more than one
person serving as Trustee, or (ii) to the Beneficiaries. Upon the resignation of
any Trustee, the remaining or successor Trustee(s), as the case may be, may
settle any account or transaction with such resigning Trustee, and obtain or
deliver full release and discharge upon such resignation.
5.9. In the event of a Deadlock, the matter(s) responsible for the
Deadlock shall be referred to a person (a "Mediator") who shall be selected by
the Trustees and who shall resolve the Deadlock. In the event that the Trustees
are unable, within 10 days of the occurrence of a Deadlock, to agree upon the
selection of a Mediator, then each Trustee shall appoint a designee, and the two
designees shall together select a Mediator to resolve the Deadlock.
5.9.1. Any determination made by a Mediator shall be final.
5.9.2. The Trustees jointly and severally hereby agree to indemnify,
defend, and hold any selected Mediator harmless from and against any and all
claims, damages, actions, suits or other charges incurred by or assessed against
the Mediator in the performance of his duties hereunder, except to the extent
resulting from his own gross negligence, fraud, or willful misconduct.
5.10. In the event of the death, resignation or incapacity to act of the
Trustee or any successor Trustee, and provided that there remains one or more
incumbent Trustees, such incumbent Trustee(s) shall serve as the successor
Trustees.
5.11. In the event of the death, resignation or incapacity to act of a sole
Trustee, leaving no incumbent or identified successor Trustee, this Agreement
shall terminate.
5.12. Each successor Trustee shall enjoy all the rights, powers, interests
and immunities of the original Trustee. Notwithstanding any change in the
Trustee, the certificates for shares standing in the name of the Trustee may be
endorsed and transferred by any successor Trustee or Trustees for the time being
with the same effect as if endorsed and transferred by the Trustee who has
ceased to act. The successor Trustee is authorized and empowered to cause any
further transfer of such shares to be made which may be necessary through the
occurrence of any change of persons acting as Trustee hereunder.
5.13. Whenever there shall be more than one person serving as Trustee
hereunder, the title to any property held by the Trustees shall be held in the
nature of a joint tenancy and not a tenancy in common, and there shall be
survivorship rights among the Trustees upon the death of any of them, and the
title of any Trustee who may die, resign or become incapacitated to act shall,
upon such death, resignation or incapacity, similarly vest in the remaining
Trustee or Trustees.
5.14. The Trust created by this Agreement is not intended to be, and shall
not be deemed to be, and shall not be treated, as a general partnership, limited
partnership, joint venture, limited liability company, corporation or joint
stock company or association. The relationship of the Beneficiaries to the
Trustees shall be solely that of beneficiaries of the trust created by this
Agreement, and their rights shall be limited to those conferred upon them by
this Agreement.
6
<PAGE>
5.15. The Trustees from time to time may be parties to this Agreement as
Beneficiaries. The Trustees and any corporation, trust, firm, association or
other entity of which the Trustees may be trustees, shareholders, directors,
officers, members, agents or employees may contract with or be or become
pecuniarily interested, directly or indirectly, in any matter or transaction to
which the Company or any subsidiary or controlled or affiliated corporation may
be a party or in which he may be concerned, as fully and freely as though the
Trustees were not a Trustee under this Agreement. The Trustees may act as a
director and/or an officer of the Company or of any such subsidiary or
controlled or affiliated corporation and may vote the shares held hereunder in
favor thereof.
5.16. The Trustees are authorized and empowered to construe this Agreement,
and the Trustees' reasonable construction made in good faith shall be conclusive
and binding upon the Beneficiaries and upon all parties hereto.
5.17. The Trustees may consult with legal counsel, which may be counsel to
the Company, and any action under this Agreement taken or suffered in good faith
by the Trustees in accordance with the opinion of counsel shall be conclusive
upon the parties hereto, and the Trustees shall be fully protected and be
subject to no liability in respect thereof.
5.18. The Trustees shall not be liable for any error of judgment or for any
act done or omitted, or for any mistake of fact or law or for anything which the
Trustee may do or refrain from doing in good faith, nor shall the Trustee have
any accountability hereunder, except each Trustee shall be responsible for that
Trustee's own gross negligence, fraud, or willful misconduct.
5.19. No Trustee shall be liable in any event for acts or defaults of any
other Trustee or Trustees or for acts or defaults of any employee, agent, proxy
or attorney in fact of any other Trustee or Trustees. Each Trustee shall always
be protected and free from liability in acting upon any notice, request,
consent, certificate, declaration, fax, telegram, telex, guarantee, affidavit or
other paper or document or signature believed by the Trustee to be genuine and
to have been signed by the proper party or parties or by the party or parties
purporting to have signed the same.
6. Termination
6.1. This Agreement shall terminate ten (10) years after the date of this
Agreement or on any later date to which the term is extended, as provided below,
without notice by or to, or action on the part of, the Trustees or the
Beneficiaries; provided that this Agreement may be terminated on an earlier date
upon the agreement of the Trustees to terminate this Agreement or upon an event
described in this Agreement.
6.2. As soon as practicable after termination of this Agreement, the
Trustees (or their heirs, administrators, executors or other representatives)
shall redeliver share certificates representing the appropriate number of
shares, properly endorsed for transfer, to the Beneficiaries, and the
Beneficiaries will surrender to the Trustees their voting trust certificates
properly endorsed. If any such Beneficiary cannot be located or fails or refuses
to surrender Certificates in exchange for share certificates or other securities
as stated above, the Trustees may in their discretion deliver the share
certificates or other securities to the Company or to any bank or trust company
in California for the benefit of the person or persons entitled thereto.
7
<PAGE>
Upon any such delivery, the Trustees shall be fully acquitted and discharged
with respect to the shares or other securities.
6.3. The termination of this Agreement shall not affect the rights and
protections of the Trustee set forth in Section 5. Except as otherwise provided
in this Agreement, the trust created by this Agreement is hereby expressly
declared to be irrevocable.
7. Extension
7.1. The term of this Agreement, as prescribed in Section 6, may be
extended from the original termination date of this Agreement or from the
termination date as last extended in accordance with this Section 7, provided
that within two (2) years before the date as originally fixed or as last
extended, the Beneficiaries desiring such extensions, by written agreement, and
with the Trustees' written consent, extend the term of this Agreement for an
additional term not to exceed ten (10) years from the expiration date then in
effect.
7.2. In the event of extension, duplicate copies of this Agreement and of
the extension agreement shall be filed with the secretary of the Company and
shall be open for inspection on the same conditions as the Company's record of
shareholders.
7.3. No such extension agreement shall affect the rights or obligations of
persons not parties to the extension agreement.
8. Miscellaneous
8.1. The provisions of this Agreement are intended to satisfy the
requirements of Section 706 of the California Corporation Law with regard to
voting trusts and, unless specifically provided otherwise, the parties will have
all rights and obligations as provided in Section 706 of the California
Corporation Law with regard to voting trusts.
8.2. This Agreement shall be binding and inure to the benefit of the
Trustees and Beneficiaries hereunder and each and all of the heirs, executors,
administrators, successors and assigns thereof.
8.3. Any notice to be given to the holder of a Certificate shall be
sufficiently given if faxed or mailed, postage prepaid, to the registered holder
of the Certificate at the address of the registered holder appearing on the
Trustees' records. Every notice so given shall be effective whether or not
received, and the notice shall for all purposes be deemed to have been given on
the date of mailing thereof.
8.4. Any notice to be given to the Trustees hereunder shall be
sufficiently given if faxed or mailed to the Trustees at the address shown for
the Trustees below, or at any other address as the Trustees may from time to
time designate by written notice given to the holders of Certificates issued
hereunder:
8
<PAGE>
James L. Bildner William G. Barton
Chairman President & COO
TIER Technologies, Inc. TIER Technologies, Inc.
1350 Treat Blvd., Ste. 250 1350 Treat Blvd., Ste. 250
Walnut Creek, CA 94596 Walnut Creek, CA 94596
510-937-3902 (Fax) 510-937-3752 (Fax)
8.5. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original but all of which taken together shall
constitute one instrument.
8.6. This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts made and to be
performed in California.
8.7. If in any judicial proceedings a court shall refuse to enforce any of
the provisions of this Agreement, then the unenforceable provision shall be
deemed eliminated from this Agreement for the purpose of those proceedings to
the extent necessary to permit the remaining provisions to be enforced.
8.8. Each party who is married shall cause his spouse to execute a spousal
consent to the provisions of this Agreement in substantially the form of Exhibit
B hereto.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
<TABLE>
<CAPTION>
TRUSTEES:
<S> <C>
James L. Bildner William G. Barton
<CAPTION>
BENEFICIARIES:
<S> <C>
William G. Barton Bradley H. Nickels
Bryan McCaul Leon Normand
James L. Bildner Wilson Hichings
Robert Butorac Greg Bowen
Graham Pettifer James Hinson
</TABLE>
COMPANY:
By:
Name: James L. Bildner
Its: Chairman and Chief Executive Officer
10
<PAGE>
Exhibit A
---------
TIER TECHNOLOGIES, INC.
VOTING TRUST CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL SECURITIES ACT OF 1933 (THE "ACT") OR QUALIFIED UNDER ANY
APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE QUALIFICATION REQUIREMENTS OF
ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION AND QUALIFICATION REQUIREMENTS IS AVAILABLE WITH RESPECT
THERETO.
This certifies that ______________________________ has deposited or
has caused to be deposited ____________ shares of the Class A Common Stock of
Tier Technologies, Inc., a California corporation (the "Company"), with the
undersigned, as trustee (the "Trustee"), under a Voting Trust Agreement, dated
as of ____________ ___, 1997 (the "Voting Trust Agreement"), among the
undersigned as Trustee and those persons who have or shall become Beneficiaries
under the Voting Trust Agreement pursuant to its terms. The Trustee shall
possess and be entitled to the exclusive right to vote such shares upon the
terms and subject to the conditions stated in the Voting Trust Agreement.
This Voting Trust Certificate shall be transferable only on the
records of the Trustee upon surrender hereof by the registered holder in person
or by attorney duly authorized and, until so transferred, the Trustee may treat
the registered holder as the owner of this Voting Trust Certificate for all
purposes whatsoever, unaffected by any notice to the contrary. As a condition
precedent to the making of any transfer of this Voting Trust Certificate, the
Trustee may require the payment of a sum sufficient to cover the amount of any
taxes or other governmental charges incident thereto.
This Voting Trust Certificate is issued pursuant to, and the rights
of the holder hereof are subject to and limited by the terms and conditions of,
the Voting Trust Agreement. The holder of this Voting Trust Certificate, by the
acceptance hereof, assents to and agrees to be bound by all the terms and
conditions of the Voting Trust Agreement. Copies of the Voting Trust Agreement
are on file at the principal office of the Company and at the office of the
Trustee.
Dated:
-------------------
TRUSTEE:
------------------------------------------
Print Name:
------------------------------
Exhibit A, Page 1
<PAGE>
Exhibit B
---------
SPOUSAL CONSENT
I, _______________________________________, am the spouse of the person
identified as "Party" below, who signed the foregoing Voting Trust Agreement. I
have read and approve of the provisions of the Voting Trust Agreement. I agree
to be bound by and accept the provisions of the Voting Trust Agreement in lieu
of all other interests I may have in the Certificates subject thereto, whether
the interest may be community property or otherwise.
Executed on ______________________, 19__.
--------------------------------
[Signature]
Party:
----------------------------
Exhibit B, Page 1
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING THE COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------
1995 1996 1996 1997
------------ ---------------------- ----------
<S> <C> <C> <C> <C>
Net income..................... $ 443,511 $ 526,510 $ 398,346 $ 571,856
Computations of weighted
average common and common
equivalent shares outstanding:
Weighted average common shares
outstanding.................. 10,061,644 4,987,945 5,219,781 4,597,802
Common equivalent shares issued
during the twelve month period
prior to the initial public
offering in accordance with
Staff Accounting Bulletin No.
83 (using the treasury stock
method):
Preferred stock.............. 420,953 420,953 420,953 420,953
Common stock options......... 1,958,358 1,958,358 1,958,358 1,958,358
------------ ----------- ---------- ----------
Shares used in computing net
income per share.............. 12,440,955 7,367,256 7,599,092 6,977,113
============ =========== ========== ==========
Net income per share........... $ 0.04 $ 0.07 $ 0.05 $ 0.08
============ =========== ========== ==========
</TABLE>
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21.1
1. "Tier Technologies (Australia) PTY Limited" an Australian corporation.
2. "Tier Technologies (United Kingdom), Inc," a Delaware corporation.
3. "TSource, Inc." a Delaware Corporation.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
use of our report pertaining to Tier Technologies, Inc. dated October 6, 1997
and our report dated September 8, 1997 pertaining to Encore Consulting, Inc.
included in the Registration Statement (Form S-1) and related Prospectus of
Tier Technologies, Inc. for the registration of 3,400,000 shares of its Class
B common stock.
Ernst & Young LLP
Walnut Creek, California
October 10, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
use of our report pertaining to Albanycrest Limited dated September 30, 1997
included in the Registration Statement (Form S-1) and related Prospectus of
Tier Technologies, Inc. for the registration of 3,400,000 shares of its Class
B common stock.
Ernst & Young
Reading, England
October 10, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 SEP-30-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 305,546 284,175
<SECURITIES> 0 0
<RECEIVABLES> 2,978,119 5,955,809
<ALLOWANCES> 0 50,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,383,433 7,168,998
<PP&E> 500,130 1,053,996
<DEPRECIATION> 162,946 280,330
<TOTAL-ASSETS> 4,132,665 11,000,552
<CURRENT-LIABILITIES> 2,192,012 4,934,606
<BONDS> 0 0
0 0
0 1,892,223
<COMMON> 78,812 2,948,852
<OTHER-SE> (94,830) (2,293,628)
<TOTAL-LIABILITY-AND-EQUITY> 4,132,665 11,000,550
<SALES> 0 0
<TOTAL-REVENUES> 16,197,466 22,478,643
<CGS> 11,616,662 14,916,846
<TOTAL-COSTS> 3,629,528 6,507,073
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 73,759 98,870
<INCOME-PRETAX> 877,517 955,854
<INCOME-TAX> 351,007 383,998
<INCOME-CONTINUING> 526,510 571,856
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 526,510 571,856
<EPS-PRIMARY> 0.07 0.08
<EPS-DILUTED> 0.07 0.08
</TABLE>
