<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997
REGISTRATION NO. 333-37661
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
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. [_]
---------------
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.
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<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 NOVEMBER 17, 1997
3,400,000 SHARES
LOGO
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 $9.00 and $11.00 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.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO COMMISSIONS TO SHAREHOLDERS
PUBLIC (1) COMPANY (2) (2)
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<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
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Total (3)................... $ $ $ $
</TABLE>
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(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 the Tier Migration solution methodology,
indicating each of its four phases, Business Assessment and Scoping,
Application Effectiveness Scoring, IT Strategy, Architecture and Prototyping
and Information Technology Implementation.]
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."
The Company has applied for the registered servicemark "Tier Technologies."
All trademarks and trade names referred to in this Prospectus are the property
of their respective owners.
<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 ten 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. The Company believes
these acquisitions have enabled it 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 1,639,762 shares of Class A Common
the offering(1)....................... Stock
7,156,191 shares of Class B Common
Stock
Use of proceeds........................ To retire indebtedness and for working
capital and general corporate
purposes.
Proposed Nasdaq National Market TIER
symbol................................
</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)
<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
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)............... 12,297 13,227 12,359 7,285 7,517 6,895
======= ======= ======== ======== ======== ========
</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.................................... $ 106 $ 204 $ 21,777
Working capital......................... 2,234 2,332 25,126
Total assets............................ 10,823 10,921 32,483
Total long-term debt, less current
portion................................ 1,608 1,608 82
Total shareholders' equity.............. 4,163 4,261 28,582
</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 $10.00 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."
Concentration of Revenues; Dependence on Large Projects; Risk of
Termination. 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 59.3% and 68.1% of the Company's
revenues in 1996 and 1995, respectively, while Unisys accounted for 14.6% 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 these industries could lead to a reduction in capital
spending on IT
6
<PAGE>
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."
Control by Principal Shareholders; 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 45.4% 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, as authorized by the
California Corporations Code and 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 any action which may be taken at
any meeting of shareholders, subject to certain exceptions related to the
election of
7
<PAGE>
directors, by written consent without formally convening a meeting of
shareholders. In addition, the Articles and Bylaws currently permit
shareholders to require cumulative voting in connection with the election of
directors, subject to certain requirements; however, the Articles and Bylaws
also provide that cumulative voting will be eliminated effective as of the
first record date for an annual meeting that the Company has equity securities
listed on Nasdaq and has 800 or more holders of its equity securities. See
"Description of Capital Stock."
Benefits of this Offering to Existing Shareholders. The existing
shareholders of the Company will benefit from the creation of a public market
for the shares of Class B Common Stock held by them after the closing of this
offering. 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. The Selling Shareholders will receive gross proceeds of approximately
$6.8 million from the sale of 675,000 shares of Class B Common Stock offered
by them hereby at an assumed initial public offering price of $10.00 per
share, which will result in an aggregate gain of approximately $6.6 million
over the acquisition price of such shares. Following the closing of this
offering, the existing shareholders of the Company will hold a total of
5,395,953 shares of Class A and Class B Common Stock having an estimated
aggregate value equal to approximately $54.0 million at the closing of this
offering, assuming a public offering price of $10.00 per share, which will
result in an estimated aggregate unrealized gain at that time of approximately
$49.4 million over the acquisition price of such shares. See "-- No Prior
Public Market; Potential Volatility of Stock Price" and "Dilution."
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
8
<PAGE>
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."
Risks Associated with Partnerships; Risk of Termination or
Nonperformance. 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 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; Liability to Clients; Client Dissatisfaction. 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."
9
<PAGE>
Reliance on Government Contracts; Risk of Termination. 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; Budget Overruns. 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."
Substantial 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. See "Business --
Competition."
Intellectual Property Rights; Limited Protection; Inability to Resell or
Reuse 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
10
<PAGE>
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."
Risks of Conducting 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 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 owned beneficially by them 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
11
<PAGE>
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.
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; Potential Adverse Effects to Holders of Common
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."
Immediate and Substantial Dilution. Based on an assumed initial public
offering price of $10.00 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 $6.95 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.
Acquisition prices were determined based on arm's length negotiations with
unaffiliated third parties. Factors considered by the Company in making such
determinations included geographic opportunities, consulting resources and
strategic client relationships offered through the acquisition.
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 following the acquisition 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 $10.00 per share, after deducting the estimated
underwriting discounts and estimated offering expenses payable by the Company,
are estimated to be approximately $24.2 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 a portion of the net proceeds from this offering
to repay all borrowings under its credit facility, which totaled $3.5 million
at November 10, 1997 (borrowings totaled $2.8 million at September 30, 1997).
The revolving and term components of the current credit facility bear interest
at the bank's prime rate plus 1.50% and 1.75% per annum, respectively, and
mature in December 1998. Following such repayment, the Company will maintain
the credit facility through its term to fund future financing requirements.
The Company has used the proceeds from borrowings to fund working capital
requirements, the growth of the business and selective acquisitions. 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 from
this offering for working capital and other general corporate purposes, which
may include the acquisition of capital equipment and leasehold improvements
totaling approximately $800,000. 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)...................... $1,316 $1,316 $ 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 27,501
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 28,582
------ ------ -------
Total capitalization.............. $5,771 $5,869 $28,664
====== ====== =======
</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; (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; and (iii) the
approval by the Company's Board of Directors and shareholders of an
increase in the authorized number of shares of Class B Common Stock to
42,600,000.
(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 $10.00 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 offered hereby 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 $26.8 million or $3.05 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.64 per share to existing shareholders and an immediate dilution in
pro forma net tangible book value of $6.95 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............ $10.00
Pro forma net tangible book value per share as of
September 30, 1997...................................... $0.41
Increase per share attributable to new shareholders...... 2.64
-----
Pro forma net tangible book value per share as of September
30, 1997 after the offering............................... 3.05
------
Dilution per share to new shareholders..................... $ 6.95
======
</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 14.6% $ 0.76
New shareholders.............. 2,725,000 31.0 27,250,000 85.4 10.00
--------- ----- ----------- -----
Total....................... 8,795,953 100.0% $31,891,370 100.0%
========= ===== =========== =====
</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)............... 12,297 13,227 12,359 7,285 7,517 6,895
====== ====== ======= ======= ======= =======
</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 $ 106
Working capital.................... 297 236 920 1,191 2,234
Total assets....................... 647 907 2,316 4,133 10,823
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 ten 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. The composition of its
workforce provides the Company with staffing flexibility. Revenues 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. 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.
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 attributable
to providing service to a client, 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. The Company believes that
general and administrative expenses will continue to increase as the Company
grows
19
<PAGE>
but that such expenses will decrease as a percentage of revenues as the
Company realizes economies of scale from its administrative infrastructure.
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 associated with 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 a net expense of $99,000 for the nine-month
fiscal year ended September 30, 1997 from a net expense of $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 a net expense of $74,000 for fiscal 1996 from
a net expense of $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
working capital requirements. In November 1997, the Company entered into a
$5.0 million credit facility (the "New Credit Facility") that matures in
December 1998. The revolving portion of this facility allows the Company to
borrow the lesser of the sum of 80% of eligible accounts receivable or $4.5
million. The New Credit Facility also allows for up to $500,000 of borrowings
for equipment through a term facility. The New 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 and the incurrence of additional debt. Certain executive
officers have personally guarantied the New Credit Facility. The guarantees
terminate upon completion of this offering if the Company obtains certain debt
to tangible net worth ratios, which it expects to do. The New Credit Facility
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.
As of November 10, 1997, the principal amount outstanding under the New
Credit Facility, excluding outstanding checks and deposits that have been
included in the New Credit Facility balance in the Company's Consolidated
Financial Statements, was approximately $3.5 million and approximately
$600,000 remained available for borrowing. The revolving and term components
of the New Credit Facility bear interest at the bank's prime rate plus 1.50%
and 1.75% per annum, respectively. The Company intends to repay all of the
borrowings under the New Credit Facility with a portion of the proceeds from
this offering. Following such repayment, the Company will maintain the New
Credit Facility through its maturity in December 1998 to fund future financing
requirements.
22
<PAGE>
As of September 30, 1997, prior to obtaining the New Credit Facility, the
Company had a $4.3 million credit facility (the "Old Credit Facility"). The
revolving portion of this facility allowed 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 allowed for the financing
of acquisitions up to $1.5 million. The Old Credit Facility also allowed for
up to $500,000 of borrowings for equipment and software. The Old Credit
Facility was secured by all of the Company's assets and contained 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 had personally guarantied the Old Credit Facility. The
agreement required 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 the covenant limiting annual capital expenditures and had
received a letter from the bank waiving such noncompliance.
As of September 30, 1997, the principal amount outstanding under the Old
Credit Facility was $2.8 million, and approximately $900,000 remained
available for borrowing. The revolving and acquisition line components of the
Old Credit Facility, bore interest at the bank's prime rate plus 1.50% and
1.75%, per annum respectively. All borrowings under the Old Credit Facility
were repaid in November 1997 through borrowings under the New Credit Facility
and the Old Credit Facility is no longer in effect.
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, which the Company intends to fund through working
capital, borrowings under its New Credit Facility or proceeds from this
offering.
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
$4.4 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 $2.1 million under its Old 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 ten 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
worldwide 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 believes it 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 in order to add three domestic and
two international locations, broaden the Company's technical expertise in
areas such as Java and 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
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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. By expanding its
geographic presence, the Company has increased its access to international
labor markets and is able to compete more 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 the Tier migration solution methodology,
indicating each of its four phases, Business Assessment and Scoping,
Application Effectiveness Scoping, IT Strategy, Architecture and
Prototyping and Information Technology Implementation.]
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.
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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.
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 an 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 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.
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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, specifications 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 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 its clients, the Company has organized its 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.
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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, 88% (15 of 17) 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 59.3% and 68.1% of the Company's revenues
in 1996 and 1995, respectively, while Unisys accounted for 14.6% 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*
McKesson Corp. (multiple 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
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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.
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 significant 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 plan to achieve those goals. 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 practice
manager and senior technology expert 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.
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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.
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; Boston, Massachusetts;
Chicago, Illinois; Jacksonville, Florida; Jefferson City, Missouri; Phoenix,
Arizona; Birmingham, England; Canberra, Australia; and Sydney, 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
Vice President and Chief Information/Technology
Bryan D. McCaul.................... 39 Officer
Vice President, Government Services SBU and
Bradley H. Nickels................. 36 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 1978. 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, which bears interest at 5.75% per annum and is
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."
35
<PAGE>
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, which bears interest at 5.75% per annum and is 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. In the event of a sale of substantially all
of the assets of the Company, a change in control of the Company or upon the
termination of James L. Bildner as Chief Executive Officer of the Company, the
option fully vests immediately. 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 $ 2,928,000 $ 4,857,000
300,000 Class B(4) 10.8 1.65 12/30/06 4,392,000 7,286,000
120,000 Class A(5) 4.3 3.58 2/27/02 1,102,000 1,503,000
100,000 Class B(6) 3.6 5.77 7/30/02 699,000 1,034,000
William G. Barton.. 120,000 Class A(5) 4.3 1.82 12/30/01 1,313,000 1,714,000
180,000 Class B(5) 6.5 1.82 12/30/01 1,970,000 2,571,000
120,000 Class A(5) 4.3 3.58 2/27/02 1,102,000 1,503,000
100,000 Class B(6) 3.6 5.77 7/30/02 699,000 1,034,000
Bradley H. Nick-
els............... 100,000 Class B(7) 3.6 3.25 2/27/07 1,304,000 2,269,000
10,000 Class B(8) 0.4 5.25 7/31/07 110,000 207,000
Bryan D. McCaul.... 100,000 Class B(7) 3.6 3.25 2/27/07 1,304,000 2,269,000
10,000 Class B(8) 0.4 5.25 7/31/07 110,000 207,000
F. Thomas Latham... 67,500 Class B(7) 2.4 3.25 2/27/07 880,000 1,531,000
10,000 Class B(8) 0.4 5.25 7/31/07 110,000 207,000
</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 after
consideration of a number of factors, including, but not limited to, the
Company's financial performance, the price of shares of equity securities
sold to or purchased by outside investors and third-party appraisals.
(3) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Class B Common Stock based on an assumed
initial public offering price of $10.00 per share, 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 $64,000 $423,000
William G. Barton....... 410,000 429,000 10,000 100,000 64,000 423,000
Bradley H. Nickels...... - - - 110,000 - 723,000
Bryan D. McCaul......... - - - 110,000 - 723,000
F. Thomas Latham........ - - - 77,500 - 503,000
</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
assumed initial public offering price of $10.00 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 optionee who
owns 10% or more of the Company's outstanding capital stock, the exercise
price of any incentive stock option granted to such optionee 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 year shall not exceed
$100,000. No more than 100,000
39
<PAGE>
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 options granted to
any optionee who owns 10% or more of the Company's outstanding capital stock)
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 shall alter or impair 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 Class B Common Stock available for
issuance, alter the purchase price formula so as to reduce the purchase price
payable for shares of Class B 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. The loans have ten-year
terms, 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 Mr. Bildner, Mr.
Barton, its President and Chief Operating Officer, and Mr. Ross, its Senior
Vice President and Chief Financial Officer. See "Management -- Employment
Agreements."
In July 1997, certain officers, directors and more than 5% shareholders
participated in the private placement of shares of the Company's Series A
Preferred Stock (the "Private Placement"). Messrs. Barton, Cabot, Ross and
Rossetti purchased 9,524, 3,810, 4,762 and 9,524 shares of Series A Preferred
Stock, respectively, at a price of $5.25 per share, which price was determined
based on arm's length negotiations with unaffiliated third parties. The
Private Placement was made pursuant to Rule 506 of Regulation D under the Act.
Upon the closing of this offering, these shares will automatically convert
into an equal number of shares of Class B Common Stock. These shareholders
have identical registration rights to those of other purchasers in the Private
Placement. See "Description of Capital Stock -- Registration Rights."
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. The purchase price was
determined based on arm's length negotiations with unaffiliated third parties.
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, which price was determined based on book value per share in
accordance with the terms of his stock purchase agreement. This amount is
42
<PAGE>
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 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.
43
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of November 17, 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 NUMBER OF SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES OF AFTER THE OFFERING(1)
---------------------------------- CLASS B ----------------------------------
EXECUTIVE OFFICERS, NUMBER NUMBER PERCENT OF COMMON NUMBER NUMBER PERCENT OF
DIRECTORS OF CLASS A OF CLASS B TOTAL VOTING STOCK OF CLASS A OF CLASS B TOTAL VOTING
AND 5% STOCKHOLDERS(2) SHARES SHARES(3) POWER(4) OFFERED(5) SHARES SHARES(3) POWER(4)
- ---------------------- ---------- ---------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Bildner(6)(7).. 2,304,762 499,048 88.2% - 1,659,762 499,048 72.3%
William G. Barton(7).... 2,304,762 489,524 88.1 - 1,659,762 489,524 72.2
George K. Ross.......... - 4,762 * - - 4,762 *
F. Thomas Latham........ - - * - - - *
Bryan McCaul............ 200,000 300,000 8.6 84,930 115,070 300,000 6.2
Bradley H. Nickels...... 200,000 300,000 8.6 84,930 115,070 300,000 6.2
Samuel Cabot III........ - 8,810 * - - 8,810 *
Ronald L. Rossetti...... - 14,524 * - - 14,524 *
All officers and
directors as a group
(11 persons)........... 2,304,762 1,616,668 92.0 169,860 1,659,762 1,616,668 76.6
OTHER SELLING
SHAREHOLDERS(2)(8)
- ------------------------
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 November 17, 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 November 17, 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 - 5,000 shares of Class
B Common Stock; Mr. Rossetti - 5,000 shares of Class B Common Stock (which
options were issued to Riverside Capital Partners, Inc., an entity
controlled by Mr. Rossetti, and are therefore deemed to be beneficially
owned by Mr. Rossetti); 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 10,000 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 all outstanding shares of Series A Preferred
Stock into an equal number of shares of Class B Common Stock 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 an
equal number of 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) Includes all shares of Class A Common Stock held in the Voting Trust as to
which Messrs. Bildner and Barton exercise voting control as trustees.
Messrs. Bildner and Barton disclaim beneficial ownership of 1,864,762
shares of Class A Common Stock prior to this offering and 1,219,762 shares
of Class A Common Stock after this offering. See "Description of Capital
Stock --Voting Trust."
(8) 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 3,786,191 shares of Class B
Common Stock outstanding held by 43 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 45.4% 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 shall be made in accordance with 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. Shares held in the Voting Trust
are evidenced by a voting trust certificate. 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 original or an
extended 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, will result in the conversion of such shares into an equal number of
shares of Class B Common Stock.
Buy-Sell Agreement. Messrs. Bildner and Barton have entered into a buy-sell
agreement ("Buy-Sell Agreement") respecting their ownership of shares of Class
A Common Stock. Under the terms of the Buy-Sell Agreement, they each agree,
(i) that for five years from the date of the Buy-Sell Agreement they will not
voluntarily transfer their shares of Class A Common Stock, or their voting
trust certificates, if the transfer would result in a conversion of Class A
Common Stock to Class B Common Stock, and that after five years from the date
of the Buy-Sell Agreement, they grant each other a right of first refusal on
such shares on any such transfer;
45
<PAGE>
(ii) that on the death of one of them, the other has an obligation to purchase
the shares of Class A Common Stock (or the voting trust certificate for such
shares) of the deceased party; (iii) that they will maintain life insurance
policies at their own expense on each others' lives to fund in part the
obligation to purchase the shares at the death of the other; (iv) that the
Buy-Sell Agreement terminates on the termination of the Voting Trust or if
earlier, on the death of both parties; (v) that the price for the shares of
Class A Common Stock (or the voting trust certificates) is the market price of
the shares of Class B Common Stock on the date that the right or obligation to
purchase arises; and (vi) that there is no restriction on the parties' ability
to amend the Buy-Sell Agreement without the consent of any other person.
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. No dividend may be declared
or paid in shares of Class A 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
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.
46
<PAGE>
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 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 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 ("Registration Rights Holders") of 420,953 shares of Class B
Common Stock (upon the conversion of all outstanding shares of Series A
Preferred Stock into an equal number of shares of Class B Common Stock upon
completion of this offering) 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, whereby on two occasions during the period beginning on
July 28, 1997 and ending on July 27, 2002, they may include shares in any
Company registration of shares of Common Stock under the Securities Act, other
than a registration relating solely to employee benefit plans or a
registration on a form which does not permit the registration of shares by
selling shareholders, and subject to the ability of the Underwriters to limit
the participation of the Registration Rights Holders due to marketing
concerns. 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 235 Montgomery Street, 23rd
Floor, San Francisco, California 94104, and its telephone number is (415) 743-
1444.
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 177,498 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 approximately $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
approximately $100,000 (approximately $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 approximately $500,000. 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, 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-20
Balance Sheet............................................................ F-21
Statement of Income...................................................... F-22
Statement of Shareholders' Equity........................................ F-23
Statement of Cash Flows.................................................. F-24
Notes to Financial Statements............................................ F-25
ALBANYCREST LIMITED
Report of Independent Auditors........................................... F-27
Balance Sheet............................................................ F-28
Statement of Income...................................................... F-29
Statement of Shareholders' Equity........................................ F-30
Statement of Cash Flows.................................................. F-31
Notes to Financial Statements............................................ F-32
SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
Introduction............................................................. F-34
Selected Unaudited Pro Forma Condensed Consolidated Statement of Income
for the Nine Months Ended September 30, 1997............................ F-35
Notes to the Selected Unaudited Pro Forma Consolidated Financial
Statements.............................................................. F-36
</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, except for Note 14,
as to which the date is November 14, 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 $ 106,435
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 6,991,258
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 $10,822,810
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under bank lines of
credit............................. $ 223,116 $ 1,232,111
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 4,756,866
Borrowings under bank lines of credit,
less current portion................. 432,916 1,526,441
Accrued royalties..................... - 59,385
Notes payable to current and former
shareholders, less current portion... 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 - 14,904,762)
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 $10,822,810
========== ===========
</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............. 12,358,784 7,285,085 7,516,921 6,894,942
=========== =========== =========== ===========
</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 (72,218) (100,771) (213,861)
Other assets................ (9,405) (31,234) 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 10,356,122
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 - - -
Net proceeds from sale of
preferred stock.............. - - - 1,892,223
Repayment by shareholder on
note receivable.............. - - - 37,440
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) 4,393,346
Effect of exchange rate
changes on cash.............. - - - (40,198)
----------- --------- --------- -----------
Net (decrease) increase in
cash......................... (22,317) 305,546 - (199,111)
Cash at beginning of year..... 22,317 - - 305,546
----------- --------- --------- -----------
Cash at end of year........... $ - $ 305,546 $ - $ 106,435
=========== ========= ========= ===========
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 $ 31,610 $ -
=========== ========= ========= ===========
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 of the partnership to the Company and simultaneously dissolved the
partnership. In conjunction with this dissolution, certain partners assumed
the outstanding liabilities of Tier Group and other partners contributed
additional capital in the form of notes payable to the Company. As a result of
the transaction, the shares owned by Tier Group were retired and 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.
Losses on contracts are recognized when they become known. 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 client 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 Clients
The Company extends credit based on an evaluation of its client's 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 clients
totaled $5,019,140, $4,734,373 and $4,436,656, which represented 22%, 21% and
20% of total revenues, respectively. Accounts receivable balances at September
30, 1997 relating to these three clients amounted to $1,610,627. During 1996,
sales to two clients totaled $9,471,534 and $2,338,730, which represented 59%
and 15% of total revenues, respectively. Accounts receivable balances at
December 31, 1996 relating to these two clients amounted to $1,727,702. During
1995, sales to one client totaled $8,423,946, which represented 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, which range from three to five
years.
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:
Acquired client contracts and client lists,
less accumulated amortization of $200 in 1996
and $131,638 in 1997......................... $ 43,176 $1,537,294
Acquired workforce, less accumulated
amortization of $820 in 1996 and $17,951 in
1997......................................... 304,657 217,285
Other.......................................... 29,535 105,736
Deposits....................................... 34,680 31,548
-------- ----------
$412,048 $1,891,863
======== ==========
</TABLE>
The costs of intangible assets acquired through acquisitions have been
recorded at the estimated fair value based on the allocation of purchase
price.
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 $2,417,813, 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
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)
outstanding borrowings of $100,500 and $252,440, respectively, of this amount.
Interest payments are due monthly and, at six-month intervals, all outstanding
principal and interest converts into term loans to be repaid over three years.
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.
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........................................................ $1,232,111
1999........................................................ 448,043
2000........................................................ 496,186
2001........................................................ 469,468
2002 and thereafter......................................... 112,744
----------
$2,758,552
==========
</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>
F-11
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
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 $31,198
1999................................................. 304,442 21,606
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.
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 2,304,762 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.
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)
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. 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 $0.12 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. These outstanding
options will expire in 2002. 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.
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.
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)
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 207,498 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
September 30, 1997 was $0.85 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.
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 .......................... 524,710 436,902
Net income per share, as reported............... 0.07 0.08
Net income per share, pro forma................. 0.07 0.06
</TABLE>
F-14
<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)
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..................... 1-4 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.
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.
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)
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.
Pro Forma Disclosure of Significant Subsidiaries (Unaudited)
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 0.09
</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, which total $942,426, 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.
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.
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 - (CONTINUED)
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 $ 8,145,337
Australia.......................... - - 1,257,348
United Kingdom..................... - - 1,420,125
----------- ----------- -----------
Total................................ $ 2,315,833 $ 4,132,665 $10,822,810
=========== =========== ===========
</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>
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>
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)
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>
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.
F-18
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
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.
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.
14. LINE OF CREDIT
In November 1997, the Company entered into a credit agreement which provides
for a revolving line of credit of up to $4,500,000 for general corporate
purposes and an equipment line of up to $500,000 which will periodically
convert to term loans, and simultaneously paid off all outstanding borrowings
under the bank line of credit discussed in Note 4. The new credit agreement
matures in December 1998. Borrowings under the revolving line are limited to
the lesser of $4,500,000 or 80% of eligible accounts receivable and are
secured by the Company's assets. Borrowings under the equipment line are
limited to the lesser of $500,000 or 80% of the cost of the equipment
purchased. The revolving line and equipment line bear interest at the bank's
prime rate plus 1.50% and 1.75% per annum, respectively. Certain executive
officers have personally guaranteed these lines of credit. The guarantees
terminate upon the completion of this offering if the Company achieves certain
debt to tangible net worth ratios. The lines of credit require the Company to
maintain certain minimum financial ratios.
F-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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 subsequent to the acquisition date are included in
the Tier Technologies, Inc. consolidated financial statements as of September
30, 1997. Therefore, the results of operations of Albanycrest for the six
months ended June 30, 1997 are 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 months 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-34
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE
NINE MONTHS 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)............... $ 0.09
===========
Shares used in computing
net income per
share(3)............... 6,894,942
===========
</TABLE>
See accompanying notes.
F-35
<PAGE>
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
Pro forma and offering adjustments for statement of operations for the nine
months 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-36
<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
LOGO
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 1996, 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 2,442,675
shares of Class B Common Stock at exercise prices ranging from $0.12 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; 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, Inc.; 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. Merchants' Fund,
Inc. is a corporation beneficially owned by Mary W. Garrison, Mary W. Garrison
as trustee for James Fleming Newbold, Mary W. Garrison as trustee for Thomas
Day Newbold, Ann Rublee Harrington, Mariamne Meade Harrington, James Fleming
Newbold, Jennifer H. Newbold, John L. Newbold, Judith B. Newbold, Michael F.
Newbold, Thomas Day Newbold, Timothy B. Newbold, Crosby Alexander Rublee,
Dylan Winston Rublee, George G.M. Rublee, John Francis Rublee, Mariamne M.
Rublee, Megan Rublee, Molly Rublee, Peter Rublee, William Alvah Rublee and
Stamp & Co. Nucon Capital Corporation is a corporation beneficially owned by
David H. Weener. Richard N. Goldman & Co. is a corporation beneficially owned
by Richard N. Goldman. Tucks Point LP is a limited partnership formed for
estate planning purposes for the benefit of John G.L. Cabot and his direct
descendants. 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.
II-3
<PAGE>
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-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation
3.2 Form of 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
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
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S> <C>
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 Form of Employee Stock Purchase Plan
10.33 Line of Credit by and between the Registrant and Wells Fargo
Bank
10.34 Voting Trust Agreement
10.35 Form of Buy-Sell Agreement between James L. Bildner and William
G. Barton
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>
- --------
*Previously filed
**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-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WALNUT
CREEK, STATE OF CALIFORNIA, ON NOVEMBER 17, 1997.
Tier Technologies, Inc.
/s/ James L. Bildner
By: _________________________________
JAMES L. BILDNER CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN DULY SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON NOVEMBER 17, 1997.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ James L. Bildner Chairman of the
- ------------------------------------- Board and Chief November 17, 1997
JAMES L. BILDNER Executive Officer
(Principal
Executive Officer)
President, Chief
* Operating Officer
- ------------------------------------- and Director
WILLIAM G. BARTON
Senior Vice
* President, Chief
- ------------------------------------- Financial Officer
GEORGE K. ROSS and Director
(Principal
Financial and
Accounting Officer)
Director
*
- -------------------------------------
RONALD L. ROSSETTI
Director
*
- -------------------------------------
SAMUEL CABOT III
* By: /s/ James L. Bildner
---------------------------------
JAMES L. BILDNER
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement...................................
3.1 Form of Amended and Restated Articles of Incorporation...........
3.2 Form of 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...........................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S> <C>
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 Form of Employee Stock Purchase Plan......................................
10.33 Line of Credit by and between the Registrant and Wells Fargo Bank.........
10.34 Voting Trust Agreement....................................................
10.35 Form of Buy-Sell Agreement between James L. Bildner and William G.
Barton....................................................................
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>
- --------
*Previously filed
**To be filed by amendment
<PAGE>
EXHIBIT 1.1
TIER TECHNOLOGIES, INC.
3,910,000 SHARES/1/
CLASS B COMMON STOCK
(NO PAR VALUE PER SHARE)
______________
UNDERWRITING AGREEMENT
__________________, 1997
Adams, Harkness & Hill, Inc.
NationsBanc Montgomery Securities, Inc.
As representatives of the several
Underwriters named in Schedule I hereto,
c/o Adams, Harkness & Hill, Inc.
60 State Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
Tier Technologies, Inc., a California corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to you and the several Underwriters named in Schedule I hereto (collectively,
the "Underwriters"), for whom you are acting as representatives (the
"Representatives") an aggregate of 2,725,000 shares (the "Company Firm Shares")
and, at the election of the Underwriters, up to 510,000 additional shares (the
"Optional Shares") of Class B Common Stock of the Company, no par value per
share ("Common Stock"), and the shareholders listed on Schedule II hereto (the
"Selling Shareholders"), propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 675,000 shares of Class B
Common Stock in the amounts set forth opposite each Selling Shareholder's name
on Schedule II (the "Selling Shareholders' Firm Shares," and together with the
Company Firm Shares, the "Firm Shares") of Class B Common Stock. The Firm
Shares and any Optional Shares that the Underwriters elect to purchase pursuant
to Section 3 hereof are herein collectively called the "Shares."
________________________
/1/ Includes 510,000 shares subject to an option to purchase additional shares
to cover over-allotments.
1.
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to, and agrees with, each of the Underwriters that:
(A) A registration statement on Form S-1 (File No. 333-37661) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement including any pre-effective amendments thereto and any
post-effective amendment thereto, each in the form heretofore delivered to you,
and, excluding exhibits thereto, to you for each of the other Underwriters, have
been declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a "Rule
462(b) Registration Statement"), filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), which became effective upon
filing, no other document with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or any Rule 462(b) Registration Statement has been issued and
no proceeding for that purpose has been initiated or, to the Company's
knowledge, threatened by the Commission (any preliminary prospectus included in
the Initial Registration Statement and incorporated by reference in any Rule
462(b) Registration Statement or filed with the Commission pursuant to Rule
424(a) of the rules and regulations of the Commission under the Act is
hereinafter called a "Preliminary Prospectus"; the various parts of the Initial
Registration Statement and any Rule 462(b) Registration Statement, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 6(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective or any Rule 462(b) Registration Statement at the time it became
effective, each as amended at the time such part of such registration statement
became effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant to Rule
424(b) under the Act, is hereinafter called the "Prospectus");
(B) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through you expressly for use therein. The Company acknowledges that
the statements set forth under the heading "Underwriting" in the Prospectus
constitute the only information relating to
2.
<PAGE>
any Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement;
(C) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and, as of each Time of Delivery (as
hereinafter defined), neither the Registration Statement nor the Prospectus nor
any further amendment or supplement thereto made by the Company prior to such
Time of Delivery contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that these representations and warranties shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through you expressly for use therein;
(D) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the rules and regulations of the Commission
thereunder which have not been described or filed as required; the contracts so
described in the Prospectus to which the Company or any of its subsidiaries is a
party have been duly authorized, executed and delivered by the Company or its
subsidiaries, constitute valid and binding agreements of the Company or its
subsidiaries and are enforceable against and by the Company or its subsidiaries
in accordance with their respective terms, and are in full force and effect on
the date hereof; and neither the Company nor any of its subsidiaries, nor, to
the best of the Company's knowledge, any other party is in breach of or default
under any of such contracts except to the extent that such breach or default
would not have a material adverse effect on the business, management, financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole;
(E) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock (excluding the grant of
3.
<PAGE>
stock options under the Company's Amended and Restated 1996 Equity Incentive
Plan which in any event have not exceeded the unallocated reserve for such plan
as described in the Prospectus) or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the business, management,
financial position, shareholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(F) Except as disclosed in the Prospectus and the financial statements of
the Company, and the related notes thereto, included in the Prospectus, or such
as are not material to the business, prospects, financial condition or results
of operation of the Company and its subsidiaries, taken as a whole, the Company
and each of its subsidiaries has good and marketable title, free and clear of
all liens, claims, encumbrances and restrictions except liens for taxes not yet
due and payable, to all property and assets described in the Registration
Statement as being owned by it. Except as disclosed in the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, neither the Company nor any subsidiary of the Company owns any
real property; any real property and buildings held under lease by the Company
are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries; the Company owns or leases all such properties as are necessary to
its operations as now conducted, except where the failure to so own or lease
would not result in a material adverse change in or affecting the business,
management, financial position, shareholders' equity or results of operations of
the Company and its subsidiaries, taken as a whole;
(G) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of its
respective jurisdiction of incorporation, each with full power and authority
(corporate and otherwise) to own its properties and conduct its business as
described in the Prospectus, and each has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under the
laws of each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so qualified in
any such jurisdiction;
(H) The Company has an authorized capitalization as set forth in the
Prospectus, and all the issued shares of capital stock of the Company have been
duly and validly authorized and issued, are fully paid and non-assessable, were
not issued in violation of or subject to any preemptive rights, registration
rights, co-sale rights or other rights to subscribe for or purchase any
securities which have not been waived or satisfied and conform in all material
respects to the description of capital stock contained in the
4.
<PAGE>
Prospectus under the heading "Description of Capital Stock"; all of the issued
shares of capital stock of each subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances, equities or
claims; except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights, registration rights, co-sale
rights or other rights to subscribe for or to purchase any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible securities
or obligations; and the description of the Company's stock option and stock
purchase plans and the options or other rights granted and exercised thereunder
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, options and rights;
(I) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform in all
material respects to the description of the Class B Common Stock contained in
the Prospectus under the heading "Description of Capital Stock"; no preemptive
rights, registration rights, co-sale rights or other rights to subscribe for or
purchase exist with respect to the issuance and sale of the Shares by the
Company or, to the best of the Company's knowledge, the sale of the Selling
Shareholders Firm Shares by the Selling Shareholders pursuant to this Agreement
which have not been waived or satisfied; no shareholder of the Company has any
right which has not been waived to require the Company to register the sale of
any shares of capital stock owned by such shareholder under the Act in the
public offering contemplated by this Agreement; and no further approval or
authority of the shareholders or the Board of Directors of the Company will be
required for the issuance and sale of the Shares to be sold by the Company or
for the sale of the Shares to be sold by the Selling Shareholders as
contemplated herein;
(J) The Company has full corporate power and authority to enter into this
Agreement; this Agreement has been duly authorized, executed and delivered by
the Company, constitutes a valid and binding obligation of the Company and is
enforceable against the Company in accordance with its terms;
(K) The issuance and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is
5.
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bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the Articles of Incorporation or Bylaws of the Company or any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or any of
their properties; and no consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws or the by-laws and rules of the National Association of Securities
Dealers, Inc. (the "NASD") in connection with the purchase and distribution of
the Shares by the Underwriters;
(L) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company or any of its subsidiaries is or may be a party or of which property
owned or leased by the Company or any of its subsidiaries is or may be the
subject, or related to environmental or discrimination matters, which actions,
suits or proceedings, would, if determined adversely to the Company or its
subsidiaries individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement or result in a material adverse
change in the business, management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries, taken as a whole; no
labor disturbance by the employees of the Company or any of its subsidiaries
exists or, to the knowledge of the Company, is imminent which might be expected
to materially adversely affect such business, management, financial position,
shareholders' equity or results of operations; and neither the Company nor any
of its subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body;
(M) The Company and its subsidiaries possess all licenses, certificates,
authorizations or permits issued by the appropriate governmental or regulatory
agencies or authorities that are necessary to enable them to own, lease and
operate their respective properties and to carry on their respective businesses
as presently conducted and which are material to the Company and its
subsidiaries, and neither the Company nor any of its subsidiaries has received
any notice of proceedings relating to the revocation or modification of any such
license, certificate, authority or permit which, singly or in the aggregate if
the subject of an unfavorable decision, would be expected to materially and
adversely affect the business, management, financial position, shareholders'
equity or results of operations of the Company and its subsidiaries taken as a
whole;
6.
<PAGE>
(N) Ernst & Young LLP, who have certified certain financial statements of
the Company, are independent public accountants as required by the Act and the
rules and regulations of the Commission thereunder;
(O) The consolidated financial statements and schedules of the Company,
and the related notes thereto, included in the Registration Statement and the
Prospectus present fairly the financial position of the Company and its
subsidiaries as of the respective dates of such financial statements and
schedules, and the results of operations and cash flows of the Company and its
subsidiaries for the respective periods covered thereby; such statements,
schedules and related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis as certified by the
independent public accountants named in paragraph (n) above; no other financial
statements or schedules are required to be included in the Registration
Statement; and the selected financial data set forth in the Prospectus under the
captions "Capitalization" and "Selected Consolidated Financial Data" fairly
present the information set forth therein on the basis stated in the
Registration Statement;
(P) Except as disclosed in or specifically contemplated by the Prospectus,
the Company and its subsidiaries have sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals and governmental authorizations to
conduct their business as now conducted; the Company has no knowledge of any
material infringement by the Company of trademark, trade name rights, patent
rights, copyrights, licenses, trade secret or other similar rights of others;
and there is no claim being made against the Company regarding trademark, trade
name, patent, copyright, license, trade secret or other infringement which could
have a material adverse effect on the business, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole;
(Q) The Company and each of its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown as due thereon; and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the Company
or any of its subsidiaries which could materially and adversely affect the
business, management, financial position, shareholders' equity or results of
operation of the Company and its subsidiaries, taken as a whole;
(R) The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an investment company, as such
terms are defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(S) Each of the Company and its subsidiaries maintains insurance of the
types and in the amounts which it deems adequate for its business, including,
but not limited to,
7.
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insurance covering real and personal property owned or leased by the Company and
its subsidiaries against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in full force
and effect;
(T) Neither the Company nor any of its subsidiaries has at any time during
the last five years (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any foreign, federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof;
(U) The Company has not taken and will not take, directly or indirectly
through any of its directors, officers or controlling persons, any action which
is designed to or which has constituted or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares;
(V) The Company has filed a registration statement pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
to register the Common Stock, has filed an application to list the Common Stock
on the Nasdaq National Market and has received notification that the listing has
been approved, subject to notice of issuance of the Shares;
(W) The Company does not know of any claims for services in the nature of
a finder's fee, brokerage fee or otherwise with respect to this offering for
which the Company or any of the Underwriters may be responsible.
2. REPRESENTATIONS OF THE SELLING SHAREHOLDERS. Each of the Selling
Shareholders, severally and not jointly, represents and warrants to, and agrees
with, each of the Underwriters that:
(A) All consents, approvals, authorizations and orders necessary for the
execution and delivery by such Selling Shareholder of this Agreement and the
Power-of-Attorney and Custody Agreement (collectively, the "Custody Agreement")
hereinafter referred to, and for the sale and delivery of the Shares to be sold
by such Selling Shareholder hereunder, have been obtained; and such Selling
Shareholder has full right, power and authority to enter into this Agreement and
the Custody Agreement and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder hereunder;
(B) This Agreement and the Custody Agreement have each been duly
authorized, executed and delivered by such Selling Shareholder and each such
document constitutes a valid and binding obligation of such Selling Shareholder,
enforceable in accordance with its terms;
8.
<PAGE>
(C) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the sale of the Shares by such Selling Shareholder or the
consummation by such Selling Shareholder of the transactions on its part
contemplated by this Agreement and the Custody Agreement, except such as have
been obtained under the Act or the rules and regulations thereunder and such as
may be required under state securities or Blue Sky laws or the by-laws and rules
of the NASD in connection with the purchase and distribution by the Underwriters
of the Shares;
(D) The sale of the Shares to be sold by such Selling Shareholder
hereunder and the performance by such Selling Shareholder of this Agreement and
the Custody Agreement and the consummation of the transactions contemplated
hereby and thereby will not result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under, any material indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument to which such
Selling Shareholder is a party or by which such Selling Shareholder or any of
its properties is bound or affected, or violate or conflict with any material
judgment, ruling, decree, order, statute, Rule or regulation of any court or
other governmental agency or body applicable to such Selling Shareholder;
(E) Such Selling Shareholder has, and at the First Time of Delivery (as
defined in Section 5 hereof) will have, good and valid title to the Shares to be
sold by such Selling Shareholder hereunder, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such Shares and payment
therefor pursuant hereto, good and valid title to such Shares, fee and clear of
all liens, encumbrances, equities or claims, will pass to each of the several
Underwriters who have purchased such Shares in good faith and without notice of
any such lien, encumbrance, equity or claim or any other adverse claim within
the meaning of Section 8-302 of the Massachusetts Uniform Commercial Code;
(F) Such Selling Shareholder has the authority to and has executed and
delivered a lock-up agreement in the form attached hereto as Annex II;
(G) Such Selling Shareholder has not taken and will not at any time take,
directly or indirectly, any action designed, or which might reasonably be
expected, to cause or result in, or which will constitute, stabilization of the
price of shares of Common Stock to facilitate the sale or resale of any of the
Shares;
(H) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity with
written information furnished to the Company by such Selling Shareholder
expressly for use therein, such Preliminary
9.
<PAGE>
Prospectus and the Registration Statement did, and the Prospectus and any
further amendments or supplements to the Registration Statement and the
Prospectus will, when they become effective or are filed with the Commission, as
the case may be, conform in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and
(I) Such Selling Shareholders has reviewed the Registration Statement and
Prospectus and, although such Selling Shareholder has not conducted any further
investigation or independently verified the accuracy or completeness of the
information contained therein, nothing has come to the attention of such Selling
Shareholder that would lead such Selling Shareholder to believe that on the
Effective Date, the Registration Statement contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading or
that, as of its date, the Prospectus contained and, at each Time of Delivery,
contains any untrue statement of a material fact or omitted or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982
with respect to the transactions herein contemplated, such Selling Shareholder
agrees to deliver to you prior to or at the Closing Date a properly completed
and executed United States Treasury Department Form W-9 (or other applicable
form or statement specified by Treasury Department regulations in lieu thereof).
Each Selling Shareholder represents and warrants that a certificate in
negotiable form representing all of the Shares to be sold by such Selling
Shareholder has been placed in custody under the Custody Agreement, in the form
heretofore furnished to you, duly executed and delivered by such Selling
Shareholder to the Custodian (as defined in the Custody Agreement), and that
such Selling Shareholder has duly executed and delivered a power-of-attorney, in
the form heretofore furnished to you and included in the Custody Agreement (the
"Power-of-Attorney"), appointing James L. Bildner and William B. Barton and each
of them, as such Selling Shareholder's attorney-in-fact (the "Attorneys-in-
Fact") with authority to execute and deliver this Agreement on behalf of such
Selling Shareholder, to determine (subject to the provisions of the Custody
Agreement) the purchase price to be paid by the Underwriters to such Selling
Shareholder as provided in Section 3 hereof, to authorize the delivery of the
Shares to be sold by such Selling Shareholder hereunder and otherwise to act on
behalf of such Selling Shareholder in
10.
<PAGE>
connection with the transactions contemplated by this Agreement and the Custody
Agreement.
Each Selling Shareholders specifically agrees that the Shares represented
by the certificates held in custody for such Selling Shareholder under the
Custody Agreement are subject to the interests of the Underwriters hereunder,
and that the arrangements made by such Selling Shareholder for such custody, and
the appointment by such Selling Shareholder of the Attorneys-in-Fact by the
Power-of-Attorney, are to that extent irrevocable. Each Selling Shareholders
specifically agrees that the obligations of such Selling Shareholder hereunder
shall not be terminated by operation of law, whether by the death or incapacity
of such Selling Shareholder or, in the case of an estate or trust, by the death
or incapacity of any executor or trustee or the termination of such estate or
trust, or by the occurrence of any other event. If such Selling Shareholder or
any such executor or trustee should die or become incapacitated, or if any such
estate or trust should be dissolved, or if any other such event should occur,
before the delivery of the Shares hereunder, certificates representing the
Shares to be sold by such Selling Shareholder shall be delivered by or on behalf
of such Selling Shareholder in accordance with the terms and conditions of this
Agreement and of the Custody Agreement, and actions taken by the Attorneys-in-
Fact pursuant to the Power-of-Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred, regardless
of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event.
3. SHARES SUBJECT TO SALE. (a) On the basis of the representations,
warranties and agreements of the Company and the Selling Shareholders contained
herein, and subject to the terms and conditions of this Agreement, (i) the
Company agrees to issue and sell the Company Firm Shares to the several
Underwriters, (ii) each of the Selling Shareholders agree, severally and not
jointly, to sell the Selling Shareholders Firm Shares to the several
Underwriters, and (iii) each of the Underwriters agrees, severally and not
jointly, to purchase from the Company and the Selling Shareholders, at a
purchase price per share of $ , the respective number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Firm Shares by a fraction, the numerator of which is the
aggregate number of Firm Shares to be purchased by such Underwriter as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the aggregate number of Firm Shares to be purchased by all the
Underwriters and (b) in the event and to the extent that the Underwriters shall
exercise the election to purchase Optional Shares as provided below, (i) the
Company agrees to issue and sell the Company Optional Shares to the several
Underwriters, and (ii) each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 3, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares)
11.
<PAGE>
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of the Optional Shares which all of the Underwriters are entitled to
purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 510,000 Optional Shares at the purchase price per share set
forth in the paragraph above, for the sole purpose of covering overallotments in
the sale of the Firm Shares. Any such election to purchase Optional Shares may
be exercised by written notice from you to the Company, given within a period of
30 calendar days after the date of this Agreement and setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery or, unless you, and the Company
otherwise agree in writing, earlier than two or later than three business days
after the date of such notice.
4. OFFERING. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
5. CLOSING. Certificates in definitive form for the Shares to be purchased by
each Underwriter hereunder, and in such denominations and registered in such
names as Adams, Harkness & Hill, Inc. may request upon at least forty-eight
hours' prior notice to the Company, shall be delivered by or on behalf of the
Company and the Selling Shareholders to you for the account of such Underwriter,
against payment by such Underwriter or on its behalf of the purchase price
therefor by certified or official bank check or checks, payable to the order of
the Company and the Custodian on behalf of the Selling Shareholders,
respectively, in New York Clearing House funds, all at the office of Adams,
Harkness & Hill, Inc., 60 State Street, Boston, Massachusetts 02109. The time
and date of such delivery and payment shall be, with respect to the Firm Shares,
9:30 a.m., Boston time, on __________, 1997 or such other time and date as you
and the Company may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., Boston time, on the date specified by you in the written
notice given by you of the Underwriters' election to purchase such Optional
Shares, or at such other time and date as you and the Company may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called
the "First Time of Delivery," such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery," and each such time and date for delivery is herein called a "Time of
Delivery." Such certificates will be made available for checking and packaging
at least twenty-four hours prior to each Time of Delivery at such location as
you may specify.
12.
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6. COVENANTS OF THE COMPANY. The Company agrees with each of the
Underwriters:
(A) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when the Registration
Statement, or any amendment thereto, has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you copies thereof; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or Prospectus, of
the suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, to use promptly its best efforts to obtain its withdrawal;
(B) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(C) To furnish the Underwriters with copies of the Prospectus in such
quantities as you may from time to time reasonably request, and, if the delivery
of a prospectus is required at any time prior to the expiration of nine months
after the time of issuance of the Prospectus in connection with the offering or
sale of the Shares and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or, if for any other reason it shall be necessary
during such same period to amend or supplement the Prospectus in order to comply
with the Act, to notify you and upon your request to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many copies as you
may from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which
13.
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will correct such statement or omission or effect such compliance, and in case
any Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to prepare
and deliver to such Underwriter as many copies as you may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(D) To make generally available to its securityholders as soon as
practicable, but in any event not later than fifteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earning statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including at the option of the Company Rule 158
under the Act);
(E) During the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of any securities of the Company
which are substantially similar to the Shares, without your prior written
consent other than (i) the sale of the Shares to be sold by the Company
hereunder; (ii) the Company's issuance of options under its option plans in
amounts not in excess of the amount shown as available for future grant in the
Prospectus and (iii) shares of capital stock issued in connection with the
acquisition by the Company of the assets or capital stock of another person or
entity, whether directly, through merger or consolidation or otherwise, if the
terms of such issuance provide that such shares of capital stock shall not be
resold for a period of 180 days following the date of the Prospectus; provided,
however, that the Company shall not release any party from such resale
restriction without your prior written consent;
(F) During a period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, not to grant (i)
incentive stock options to purchase shares of Common Stock at a price less than
the fair market value of the Common Stock at the time of grant or (ii)
nonstatutory stock options to purchase shares of Common Stock at a price less
than 85% the fair market value of the Common Stock at the time of grant ;
(G) To furnish to its shareholders as soon as practicable after the end of
each fiscal year ending after the date of this Agreement an annual report
(including a balance sheet and statements of income, shareholders' equity and
cash flow of the Company and its consolidated subsidiaries certified by
independent public accountants) and, as soon as practicable after the end of
each of the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
14.
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(H) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders generally, and
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission, the Nasdaq
National Market or any national securities exchange on which any class of
securities of the Company is listed; and (ii) such additional information
concerning the business and financial condition of the Company as you may from
time to time reasonably request (such financial statements to be on a combined
or consolidated basis to the extent the accounts of the Company and its
subsidiaries are combined or consolidated in reports furnished to its
shareholders generally or to the Commission);
(I) To use the net proceeds acquired by it from the sale of the Shares in
the manner specified in the Prospectus under the caption "Use of Proceeds" and
in a manner such that the Company will not become an "investment company" as
that term is defined in the Investment Company Act;
(J) To report the use of proceeds from the sale of the Shares in
accordance with Rule 463 of the Act;
(K) Not to accelerate the vesting of any option issued under any stock
option plan such that any such option may be exercised within 180 days from the
date of the Prospectus.
7. COVENANTS OF THE SELLING SHAREHOLDERS. Each of the Selling Shareholders
agree to pay or cause to be paid all taxes, if any, on the transfer and sale of
the Shares to be sold by such Selling Shareholder hereunder and the fees and
expenses, if any, of counsel and accountants retained by such Selling
Shareholder. The Company agrees with the Selling Shareholders to pay all costs
and expenses incident to the performance of the obligations of the Selling
Shareholders under this Agreement (except as set forth above), including, but
not limited to, all expenses incident to the delivery of the certificates for
the Shares to be sold by the Selling Shareholders, the costs and expenses
incident to the preparation, printing and filing of the Registration Statement
(including all exhibits thereto) and the Prospectus and any amendments or
supplements thereto, the expenses of qualifying the Shares to be sold by the
Selling Shareholders under the state securities or Blue Sky laws, all filing
fees and the reasonable fees and expenses of counsel for the Underwriters
payable in connection with the review of the offering of the Shares by the NASD,
and the cost of furnishing to the Underwriters the required copies of the
Registration Statement and Prospectus and any amendments or supplements thereto;
provided that each Selling Shareholder agrees to pay or cause to be paid its pro
rata share (based on the percentage which the number of Shares sold by such
Selling Shareholder bears to the total number of Shares sold) of all
underwriting discounts and commissions.
15.
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8. EXPENSES. The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memoranda and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offer and sale under state securities laws as provided in Section
6(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey; (iv) the filing fees and the reasonable fees and expenses of
counsel to the Underwriters incident to securing any required review by the NASD
of the terms of the sale of the Shares; (v) the cost of preparing stock
certificates; (vi) the cost and charges of any transfer agent or registrar; and
(vii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section. It is understood, however, that, except as provided in this Section 8,
Section 10 and Section 13 hereof, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected with
any offers they may make.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder, as to the Shares to be delivered at each Time of
Delivery, shall be subject, in their discretion, to the condition that all
representations and warranties and other statements of the Company and the
Selling Shareholders herein are, at and as of such Time of Delivery, true and
correct, the condition that the Company and the Selling Shareholders shall each
have performed all of their respective obligations hereunder theretofore to be
performed, and the following additional conditions:
(A) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 6(a) hereof;
no stop order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(B) Cooley Godward LLP, counsel to the Underwriters, shall have furnished
to you such opinion or opinions, dated such Time of Delivery, with respect to
this Agreement, the Registration Statement, the Prospectus, and other related
matters as you
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may reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(C) Farella Braun & Martel LLP, counsel to the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(I) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of California,
with corporate power and authority to own its properties and conduct its
business as described in the Registration Statement and Prospectus;
(II) The Company has an authorized capitalization as set forth in the
Prospectus under the caption "Description of Capital Stock." All of the issued
shares of capital stock of the Company have been duly authorized and validly
issued, are fully paid and non-assessable and, to the best of such counsel's
knowledge, were not issued in violation of any preemptive right, registration
right, right of first refusal or other similar right to subscribe for or
purchase any securities which have not been waived. The Shares have been duly
authorized and when issued and paid for as contemplated by this Agreement will
be validly issued, fully paid and non-assessable and will conform in all
material respects to the description of the Class B Common Stock contained in
the Prospectus under the caption "Description of Capital Stock";
(III) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws of each
other jurisdiction within the United States in which it owns or leases
properties, or conducts any business, so as to require such qualification, or is
subject to no material liability or disability by reason of failure to be so
qualified in any such jurisdiction (such counsel being entitled to rely in
respect of the opinion in this clause upon certificates of public officials and
in respect of matters of fact upon certificates of officers of the Company,
provided that such counsel provide you with copies of such certificates and
shall state that they believe that both you and they are justified in relying
upon such certificates);
(IV) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of organization; and all of the issued shares of capital stock of
each such subsidiary have been duly and validly authorized and issued, are fully
paid and non-assessable, and are owned directly by the Company, to our
knowledge, free and clear of all liens, encumbrances, equities or claims (such
counsel being entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon certificates of
officers of the Company or its subsidiaries, provided that such counsel shall
state that they believe that both you and they are justified in relying upon
such opinions and certificates);
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(V) To the best of such counsel's knowledge, neither the Company
nor any of its subsidiaries is infringing or otherwise violating any trademarks,
trade names, patents, mask works, copyrights, licenses, trade secrets or other
intellectual property rights of others, and to the best of such counsel's
knowledge there are no infringements by others of any of the Company's or any of
its subsidiaries' trademarks, trade names, patents, mask works, copyrights,
licenses, trade secrets or other intellectual property rights which in the
judgment of such counsel could affect materially the use thereof by the Company
or any of its subsidiaries; and
(VI) To the best of such counsel's knowledge, the Company and each
of its subsidiaries owns or possesses sufficient licenses or other rights to use
all trademarks, trade names, patents, mask works, copyrights, licenses, trade
secrets or other intellectual property rights necessary to conduct the business
now being or proposed to be conducted by the Company and its subsidiaries as
described in the Prospectus.
(VII) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings, actions
or suits pending or threatened to which the Company or any of its subsidiaries
is or may be a party or of which property owned or leased by the Company or any
of its subsidiaries is or may be the subject, or related to environmental or
discrimination matters, which actions, suits or proceedings, might, individually
or in the aggregate, prevent or adversely affect the transactions contemplated
by this Agreement or result in a material adverse change in or affecting the
general affairs, management, financial position, shareholders' equity or results
of operations of the Company; no labor disturbance by the employees of the
Company or any of its subsidiaries exists or is imminent which might be expected
to affect adversely such general affairs, management, financial position,
shareholders' equity or results of operations; and neither the Company nor any
of its subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or governmental body;
(VIII) The Company has full corporate power and authority to enter
into this Agreement and this Agreement has been duly authorized, executed and
delivered by the Company;
(IX) The issuance and sale of the Shares being delivered at such
Time of Delivery by the Company and the performance by the Company of its
obligations under this Agreement and the consummation of the transactions herein
contemplated will not (i) result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument filed as an exhibit to
the Registration Statement to which the Company is a party or by which the
Company or any of its subsidiaries is a party or to which the Company or any of
its subsidiaries is bound or to which any of the property or assets of
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the Company or any of its subsidiaries is subject, (ii) violate the provisions
of the Articles of Incorporation or Bylaws of the Company or (iii) violate any
statute or any order, rule or regulation of the State of California or the
United States (except that such counsel need express no opinion as to state
securities or Blue Sky laws or as to compliance with the antifraud provisions of
federal and state securities laws);
(X) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issuance and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares registration of the Class B Common
Stock under the Exchange Act, and such consents, approval, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws or the bylaws and rules of the NASD in connection with the
purchase and distribution of the Shares by the Underwriters;
(XI) To the best of such counsel's knowledge, there are no
contracts or other documents required to be described in the Registration
Statement or to be filed as exhibits to the Registration Statement by the Act or
by the rules and regulations thereunder which have not been described or filed
as required;
(XII) The statements under the captions "Management - Stock Option
Plans", "Description of Capital Stock" and "Shares Eligible for Future Sale" in
the Prospectus, insofar as such statements constitute a summary of documents
referred to therein or matters of law, are accurate summaries and fairly and
correctly present, in all material respects, the information called for with
respect to such documents and matters (provided, however, that such counsel may
rely on representations of the Company with respect to the factual matters
contained in such statements, and provided further that such counsel shall state
that nothing has come to the attention of such counsel which leads them to
believe that such representations are not true and correct in all material
respects);
(XIII) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company" as defined in the Investment Company Act;
(XIV) The Shares have been authorized for inclusion on the Nasdaq
National Market, subject to notice of issuance; and
(XV) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such Time of
Delivery (other than the financial statements, including the notes and schedules
thereto, or any other financial or accounting information as set forth or
referred to therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of the Act and the rules
and regulations thereunder;
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Such counsel shall also state that they have participated in discussion
with your representatives and those of the Company, and while they have not
independently verified and are not passing upon and do not assume the
responsibility for, the accuracy, fairness or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
such counsel's attention which gives them reason to believe that, as of its
effective date, the Registration Statement or any further amendment thereto made
by the Company prior to such Time of Delivery (other than the financial
statements, including the notes and schedules thereto, or any other financial or
accounting information as set forth or referred to therein, as to which such
counsel need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that, as of its date,
the Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial statements,
including the notes and schedules thereto, or any other financial or accounting
information as set forth or referred to therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading or that, as of such
Time of Delivery, either the Registration Statement or the Prospectus or any
further amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements, including the notes and
schedules thereto, or any other financial or accounting information as set forth
or referred to therein, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and they do not know of any
amendment to the Registration Statement required to be filed which is not filed
as required.
Such counsel shall also include a statement in such opinion as to the
matters set forth in this paragraph. The Registration Statement has become
effective under the Act. To the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued by
the Commission nor has any proceeding been instituted or contemplated for that
purpose under the Act. The Prospectus has been filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations under the Act within the
time period required thereby.
(D) Farella Braun & Martell LLP, counsel to the Selling Shareholders,
shall have furnished to you their written opinion, dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that:
(I) This Agreement and the Custody Agreement have been duly
authorized, executed and delivered by or on behalf of each of the Selling
Shareholders; the Custodian has been duly and validly authorized to act as the
custodian of the Shares to
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be sold by each such Selling Shareholder; the performance of this Agreement and
the Custody Agreement and the consummation of the transactions therein
contemplated by the Selling Shareholders do not, to the knowledge of such
counsel, violate or conflict with any judgment, ruling, decree, order, statute,
rule or regulation of any court or other governmental agency or body applicable
to any Selling Shareholder (except that such counsel need express no opinion as
to state securities or Blue Sky laws or as to compliance with the antifraud
provisions of federal and state securities laws);
To such counsel's knowledge, no consent, approval, authorization or
order of, or any filing or declaration with, any court or governmental agency or
body is required for consummation by the Selling Shareholders of the
transactions on their part contemplated by this Agreement and the Custody
Agreement, except such as have been made or obtained under the Act and as may be
required under state securities or Blue Sky laws or the by-laws and rules of the
NASD in connection with the purchase and distribution by the Underwriters of the
Shares (as to which such counsel need express no opinion) and such as have been
obtained or made under the Act or the rules and regulations thereunder;
(II) Immediately prior to the date hereof, based solely on the
examination of the Company's stock record books and a certificate from each
Selling Stockholder, each Selling Shareholder was the sole registered owner of
the Shares to be sold by the Selling Shareholder on the date hereof; upon
registration of the Shares to be sold by the Selling Shareholder in the names of
the Underwriters in the stock records of the Company, assuming the Underwriters
purchased such Shares in good faith and without notice of any adverse claim
within the meaning of the applicable Uniform Commercial Code, the Underwriters
will have acquired the Shares free of any adverse claim, any lien in favor of
the Company and any restrictions on transfer imposed by the Company; and
(III) Each of this Agreement and the Custody Agreement is a valid and
binding agreement of each Selling Shareholder, constitutes a valid and binding
obligation of each Selling Shareholder and is enforceable against each Selling
Shareholder in accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and limitations on the availability of equitable remedies.
(E) At 10:00 a.m., Boston time, on the effective date of the Registration
Statement and the effective date of the most recently filed post-effective
amendment to the Registration Statement and also at each Time of Delivery, Ernst
& Young LLP shall have furnished to you a letter or letters, dated the
respective date of delivery thereof, in form and substance satisfactory to you,
to the effect set forth in Annex 1 hereto;
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(F) (i) Neither the Company nor any of its subsidiaries have sustained
since the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, other than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock (excluding the grant of stock options under the
Company's Amended and Restated 1996 Equity Incentive Plan which in any event
have not exceeded the unallocated reserve for such plan as described in the
Prospectus) or long-term debt of the Company or any change, or any development
involving a prospective change, in or affecting the business, management,
financial position, shareholders' equity or results of operations of the Company
and its subsidiaries, other than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i) or (ii), is in
your judgment so material and adverse as to make it impracticable or inadvisable
to proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner contemplated
in the Prospectus;
(G) On or after the date hereof there shall not have occurred any of the
following: (i) additional material governmental restrictions, not in force and
effect on the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally established on
the New York Stock Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally shall have been
suspended on either such Exchange or in the over the counter market by the NASD,
or a general banking moratorium shall have been established by federal or New
York authorities, (ii) an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in your judgment, to affect adversely the marketability
of the Shares, or (iii) there shall be any action, suit or proceeding pending or
threatened, or there shall have been any development or prospective development
involving particularly the business or properties or securities of the Company
or any of its subsidiaries or the transactions contemplated by this Agreement,
which, in your judgment, has materially and adversely affect the Company's
business or earnings and make it impracticable or inadvisable to offer or sell
the Shares;
(H) The Shares to be sold by the Company at such Time of Delivery shall
have been accepted for quotation, subject to notice of issuance, on the Nasdaq
National Market;
(I) Each director, executive officer, shareholder of the Company's capital
stock (other than the Selling Shareholders) and holder of options to purchase
the Company's
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capital stock shall have executed and delivered to you lock-up agreements in the
form attached hereto as Annex III. Each of the Selling Shareholders shall have
executed and delivered to you lock-up agreements in the form attached hereto as
Annex II; and
(J) The Company and the Selling Shareholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of officers
of the Company and of the Selling Shareholders, respectively, satisfactory to
you, as to the accuracy of the representations and warranties of the Company and
of the Selling Shareholders, respectively, herein at and as of such Time of
Delivery, as to the performance by the Company and the Selling Shareholders of
all of their obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request and the
Company shall have furnished or caused to be furnished certificates as to the
matters set forth in subsections (a) and (g) of this Section, and as to such
other matters as you may reasonably request.
10. INDEMNIFICATION AND CONTRIBUTION.
(A) The Company will indemnify and hold harmless each Underwriter and each
person, if any, who controls such Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement thereto
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through you
expressly for use therein.
(B) Each Selling Shareholder, severally and not jointly, will indemnify
and hold harmless each Underwriter and each person, if any, who controls such
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i) a
breach of such Selling Shareholder's representations and
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warranties contained in Section 2, (ii) an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or (iii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by such Selling
Stockholder expressly for use therein, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; and, provided further, that the liability of the Selling
Shareholders under the indemnity agreement in this Section 10 shall not exceed
the total initial public offering price of the Shares sold by the Selling
Shareholders under this Agreement, less underwriters' discounts.
(C) Each Underwriter will indemnify and hold harmless the Company and the
Selling Shareholders against any losses, claims, damages or liabilities to which
the Company or the Selling Shareholders may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through you
expressly for use therein; and will reimburse the Company and the Selling
Shareholders for any legal or other expenses reasonably incurred by the Company
or the Selling Shareholders in connection with investigating or defending any
such action or claim as such expenses are incurred.
(D) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection to the
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extent prejudiced by failure to notify. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party. No indemnifying party shall be liable for
the settlement of any action or claim affected without its written consent.
(E) If the indemnification provided for in this Section 10 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Shareholders, respectively, bear to the total
underwriting discounts and
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commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Shareholders on
the one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Selling Stockholder
shall be liable for contribution under this Section 10 in circumstances where
such Selling Stockholder would not be required to provide indemnification if
indemnification were available. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(F) The obligations of the Company and the Selling Shareholders under this
Section 10 shall be in addition to any liability which the Company and the
Selling Shareholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriter under this Section 10
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and to each person, if any, who controls the
Company or any Selling Shareholder within the meaning of the Act.
11. TERMINATION.
(A) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your
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discretion arrange for you or another party or other parties to purchase such
Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company and the Selling Shareholders shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company that you
have so arranged for the purchase of such Shares, or the Company and the Selling
Shareholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Shareholders shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(B) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company and the
Selling Shareholders shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(C) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company and the
Selling Shareholders shall not exercise the right described in subsection (b)
above to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of the
Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company or the
Selling Shareholders, except for the expenses to be borne by the Company and the
Selling Shareholders and the Underwriters as provided in Section 8 hereof and
the indemnity and
27.
<PAGE>
contribution agreements in Section 10 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
12. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company and
shall survive delivery of and payment for the Shares.
13. EXPENSES OF TERMINATION. If this Agreement shall be terminated pursuant to
Section 11 hereof, the Company or the Selling Shareholders shall not then be
under any liability to any Underwriter except as provided in Section 8 and
Section 10 hereof; but, if for any other reason this Agreement is terminated,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company and
the Selling Shareholders shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Section 8 and Section 10 hereof.
14. NOTICE. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Adams, Harkness & Hill, Inc. on behalf of you as the
Representatives; and in all dealing with any Selling Shareholders hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Shareholders made or given by any
or all of the Attorneys-in-Fact for such Selling Shareholders.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the Representatives in care of Adams, Harkness
& Hill, Inc., 60 State Street, Boston, MA 02109, Attention: Joseph W. Hammer;
if to the Company shall be delivered or sent by mail, telex or facsimile
transmission to the address of the Company set forth in the Registration
Statement, Attention: President; and if to a Selling Shareholder shall be
delivered or sent by mail, telex or facsimile transmission to James L. Bildner
on behalf of the Selling Shareholders at the Company; provided, however, that
any notice to an Underwriter pursuant to Section 10(d) hereof shall be delivered
or sent by mail, telex or facsimile transmission to such Underwriter at its
address set forth in its Underwriter's Questionnaire or telex constituting such
Questionnaire, which address will be supplied to
28.
<PAGE>
the Company by you on request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
15. MISCELLANEOUS.
(A) This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters and the Company and the Selling Shareholders and, to the
extent provided in Sections 10 and 12 hereof, the officers and directors of the
Company and each person who controls the Company and the Selling Shareholders or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
(B) Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
(C) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
(D) This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company and the
Selling Shareholders for examination, upon request, but without warranty on your
part as to the authority of the signors thereof.
29.
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
the Selling Shareholders represents by so doing that he has been duly appointed
as Attorney-in-Fact by the Selling Shareholders pursuant to a validly existing
and binding Power-of-Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
TIER TECHNOLOGIES, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
THE SELLING SHAREHOLDERS NAMED IN SCHEDULE
II ATTACHED HERETO
By:_______________________________________
Name:_____________________________________
Title: Attorney-in-Fact
Accepted as of the date
hereof at Boston, Massachusetts
ADAMS, HARKNESS & HILL, INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
By:____________________________________
(Adams, Harkness & Hill, Inc.
on behalf of each of the
underwriters)
30.
<PAGE>
SCHEDULE I
Number of
Optional
Total Shares to be
Number of Purchased if
Firm Maximum
Shares to be Option
Purchased Exercised
--------- ---------
Adams, Harkness & Hill, Inc.
NationsBanc Montgomery Securities, Inc.
Total........................
31.
<PAGE>
SCHEDULE II
SELLING SHAREHOLDERS
32.
<PAGE>
ANNEX I
Pursuant to Section 9(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the consolidated financial statements and any
supplementary financial information and schedules (and, if applicable,
prospective financial statements and/or pro forma financial information)
examined by them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public Accountants
of the unaudited consolidated interim financial statements, selected
consolidated financial data, pro forma financial information, prospective
financial statements and/or condensed financial statements derived from audited
consolidated financial statements of the Company for the periods specified in
such letter, as indicated in their reports thereon, copies of which have been
furnished to the representatives of the Underwriters (the "Representatives");
(iii) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company for the
five most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years;
(iv) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited consolidated financial statements and other information
referred to below, a reading of the latest available interim consolidated
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the latest
audited consolidated financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may be specified
in such letter, nothing came to their attention that caused them to believed
that:
(A) the unaudited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus do not
33.
<PAGE>
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder, or are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with the basis for the
audited consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus;
(B) any other unaudited consolidated income statement data and
consolidated balance sheet items included in the Prospectus do not agree with
the corresponding items in the unaudited consolidated financial statements from
which such data and items were derived, and any such unaudited data and items
were not determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial statements included
in the Prospectus;
(C) the unaudited consolidated financial statements which were not
included in the Prospectus but from which were derived any unaudited condensed
consolidated financial statements referred to in Clause (A) and any unaudited
consolidated income statement data and consolidated balance sheet items included
in the Prospectus and referred to in Clause (B) were not determined on a basis
substantially consistent with the basis for the audited consolidated financial
statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial statements
included in the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the published rules
and regulations thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the date of
such letter, there have been any changes in the consolidated capital stock
(other than issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and upon conversions
of convertible securities, in each case which were outstanding on the date of
the latest financial statements included in the Prospectus) or any increase in
the combined long-term debt of the Company and its subsidiaries, or any
decreases in combined net current assets or net assets or other items specified
by the Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the latest
balance sheet included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (E) there
were any decreases in consolidated net revenues or operating profit or the total
or per share amounts of consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the Representatives,
in each case as compared with the
34.
<PAGE>
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each case for
decreases or increases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(v) In addition to the examination referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraphs (iii) and (iv) above,
they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
35.
<PAGE>
ANNEX II
FORM OF LOCK-UP AGREEMENT
FOR EXECUTION BY THE
SELLING SHAREHOLDERS
36.
<PAGE>
ANNEX III
FORM OF LOCK-UP AGREEMENT
FOR EXECUTION BY THE COMPANY'S
OFFICERS, DIRECTORS, SHAREHOLDERS (OTHER
THAN SELLING SHAREHOLDERS) AND OPTIONHOLDERS
37.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TIER TECHNOLOGIES, INC.
James L. Bildner and George K. Ross do hereby certify that:
FIRST: They are the duly elected and acting Chairman of the Board
and Chief Executive Officer, and Senior Vice President and
Chief Financial Officer, respectively, of TIER TECHNOLOGIES,
INC., a California corporation (the "Corporation").
SECOND: The Articles of Incorporation of this corporation are
amended and restated in full to read as follows:
ARTICLE I
The name of the Corporation is TIER TECHNOLOGIES, INC.
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business, or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. AUTHORIZED CAPITALIZATION. The Corporation is authorized to issue
three classes of shares designated "Class A Common Stock," "Class B Common
Stock" and "Preferred Stock," respectively. The total number of shares of all
classes of stock that the Corporation shall have authority to issue is forty-
nine million, nine hundred four thousand, seven hundred sixty-two (49,904,762)
shares. The number of shares of Class A Common Stock that the Corporation is
authorized to issue is two million, three hundred four thousand, seven hundred
sixty-two (2,304,762) shares. The number of shares of Class B Common Stock that
the Corporation is authorized to issue is forty-two million, six hundred
thousand (42,600,000) shares. The number of shares of Preferred Stock that the
Corporation is authorized to issue is five million (5,000,000) shares.
B. PREFERRED STOCK.
1. The Preferred Stock may be issued from time to time in one or
more series. Except as otherwise provided in this Article III, the Board of
Directors is hereby
<PAGE>
authorized to determine and alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock, and to fix the number of shares of any such series of Preferred Stock,
and the designation of any such series of Preferred Stock. The Board of
Directors, within the limits and restrictions stated in this Article III or any
resolution of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
shares of such series then outstanding) the number of any series subsequent to
the issuance of shares of that series.
2. RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE SERIES A
CONVERTIBLE PREFERRED STOCK.
(A) Four Hundred Twenty Thousand Nine Hundred and Fifty Three
(420,953) shares of Preferred Stock are designated Series A Convertible
Preferred Stock (the "Series A Preferred") with the rights, preferences and
privileges specified herein.
(B) (I) Dividend Provisions. Subject to the rights of series of
-------------------
preferred stock which may from time to time come into existence, the holders of
shares of the Series A Preferred shall be entitled to receive dividends on the
Series A Preferred, when, as and if declared by the Board of Directors, out of
any assets legally available therefor, in proportion to the number of shares of
Series A Preferred which is held by each such holder. Such dividends shall not
be cumulative.
(II) Liquidation Preference. Upon the dissolution,
----------------------
liquidation or winding-up of the Corporation and upon the completion of any
other distribution that may be required with respect to series of preferred
stock that may from time to time come into existence, if assets remain in the
Corporation, the holders of the Series A Preferred shall be entitled to receive,
prior and in preference to any distribution of any of the assets of the
Corporation to the holders of common stock by reason of their ownership thereof,
an amount equal to $5.25 for each outstanding share of Series A Preferred. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series A Preferred shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of preferred stock that may from time to time
come into existence, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred in proportion to the amount of such stock owned by each such
holder.
(C) Class A Common Stock and Class B Common Stock. Upon the
---------------------------------------------
completion of the distribution to the holders of Series A Preferred required by
subparagraph (b)(ii) of this Section 2 and any other distribution that may be
required with respect to series of preferred stock that may from time to time
come into existence, if assets remain in the Corporation, the holders of the
Class A Common Stock and the Class B Common Stock (collectively, the "Common
Stock") shall be entitled to share all of the remaining assets of the
Corporation ratably.
(D) (I) Conversion. Each share of Series A Preferred shall be
----------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such
2
<PAGE>
share, at the office of the Corporation or any transfer agent for the Series A
Preferred, into such number of fully paid and non-assessable shares of Class B
Common Stock as is determined by dividing $4.75 by the Conversion Price
applicable to such share, determined as hereinafter provided, in effect on the
date the certificate is surrendered for conversion. The price at which shares of
Class B Common Stock shall be deliverable upon conversion of such shares of
Series A Preferred (the "Conversion Price") shall initially be $4.75 per share
of Class B Common Stock. Such initial Conversion Price shall be adjusted as
hereinafter provided.
(II) Automatic Conversion. Each share of Series A Preferred
--------------------
shall be automatically converted into such number of fully paid and non-
assessable shares of Class B Common Stock as is determined by dividing $4.75 by
the then-effective Conversion Price applicable to such share: (i) on June 30,
2003; or (ii) immediately upon the closing of the sale of any class of the
Corporation's common stock in a firm commitment, underwritten public offering
registered under the Securities Act of 1933, as amended (the "Act").
(III) Fractional Shares. No fractional shares of Class B
-----------------
Common Stock shall be issued upon conversion of shares of Series A Preferred. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(IV) Mechanics of Conversion.
-----------------------
(A) In order for a holder of shares of Series A
Preferred to convert any such shares into shares of Class B Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
A Preferred, at the office of the transfer agent for the Series A Preferred (or
at the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of shares of Series A Preferred represented by such
certificate or certificates. Such notice shall state such holder's name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of Class B Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of shares of
Series A Preferred, or to his or its nominees, a certificate or certificates for
the number of shares of Class B Common Stock to which such holder shall be
entitled, together with cash in lieu of any fraction of a share.
(B) The Corporation shall at all times when shares of
Series A Preferred shall be outstanding, reserve and keep available out of its
authorized but unissued shares, for the purpose of effecting the conversion of
all of the shares of Series A Preferred, such number of its duly authorized
shares of Class B Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series A Preferred.
3
<PAGE>
(C) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared but unpaid dividends on the
shares of Series A Preferred surrendered for conversion or on the shares of
Class B Common Stock delivered upon conversion.
(D) All shares of Series A Preferred which shall have
been surrendered for conversion as provided by subparagraph (d)(i) in this
Section 2 or which are converted automatically as provided by subparagraph
(d)(ii) of this Section 2, shall no longer be deemed to be outstanding and all
rights with respect to such shares, including the rights, if any, to receive
notices and to vote, shall immediately cease and terminate on the Conversion
Date, except only the right of the holders thereof to receive shares of Class B
Common Stock in exchange therefor and payment of any dividends declared but
unpaid thereon. Any shares of Series A Preferred so converted shall be retired
and canceled and shall not be reissued, and the Corporation (without the need
for shareholder action) may from time to time take such appropriate action as
may be necessary to reduce the authorized shares of Series A Preferred
accordingly.
(E) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issuance or delivery of shares
of Class B Common Stock upon conversion of shares of Series A Preferred pursuant
to this Section 2. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Class B Common Stock in a name other than that in which
the shares of Series A Preferred so converted were registered, and no such
issuance or delivery shall be made unless and until the person or entity
requesting such issuance has paid to the Corporation the amount of any such tax
or has established, to the satisfaction of the Corporation, that such tax has
been paid.
(F) (1) Adjustments to Conversion Price for Certain
-------------------------------------------
Diluting Issues: For purposes of this Subsection (d)(iv)(F) of this Section 2,
- ---------------
the following definitions shall apply:
(I) "Options" shall mean rights, options or
-------
warrants to subscribe for, purchase or otherwise acquire shares of Common Stock
or Convertible Securities, excluding options described in subsection
(d)(iv)(F)(IV)(cc), (dd) and (ff) of this Section 2.
(II) "Original Issue Date" shall mean the
-------------------
date on which a share of Series A Preferred was first issued.
(III) "Convertible Securities" shall mean any
----------------------
evidences of indebtedness, shares (other than Series A Preferred or Common Stock
or the convertible securities described in Subsection (d)(iv)(F)(IV)(dd) of this
Section 2 or other securities directly or indirectly convertible into or
exchangeable for shares of Common Stock.
4
<PAGE>
(IV) "Additional Common Shares" shall mean
------------------------
all shares of Common Stock issued (or, pursuant to Subsection (d)(iv)(F)(3) of
this Section 2, deemed to be issued) by the Corporation after the Original Issue
Date, other than:
(AA) shares of Common Stock issued or
issuable as a dividend or distribution on shares of Series A Preferred;
(BB) shares of Common Stock issued or
issuable upon conversion of Series A Preferred;
(CC) options or shares of Common Stock
that may be issued from time to time to employees or directors of, or
consultants to, the Corporation or its subsidiaries pursuant to options granted
under one or more stock option plans or stock purchase plans or agreements
approved by the Board of Directors of the Corporation; subject in the case of
Messrs. James L. Bildner and William G. Barton to an aggregate limit of 750,000
shares of Common Stock of the Corporation (net of any repurchases of shares or
cancellations or expirations of options) so granted during the period beginning
on the Original Issue Date and ending on the closing of a firm-commitment
underwritten public offering of the Corporation's common stock registered under
the Act, and as adjusted for all subdivisions and combinations;
(DD) options, convertible securities
or shares of Common Stock that may be issued from time to time in connection
with acquisitions of stock or assets or other business combinations;
(EE) shares of Common Stock for which
adjustment of the Conversion Price is made pursuant to Subsections (d)(iv)(G),
(H) and (I)(2) of this Section 2; and
(FF) shares of Common Stock issuable
upon exercise of options which are outstanding on the Original Issue Date.
(2) No Adjustment of Conversion Price.
---------------------------------
Notwithstanding anything in this Section 2 to the contrary, no adjustment in the
number of shares of Class B Common Stock into which the shares of Series A
Preferred are convertible shall be made, by adjustment in the Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection (d)(iv)(F)(V) of this Section 2) for an Additional Common Share
issued or deemed to be issued by the Corporation is less than the Conversion
Price in effect on the date of, and immediately prior to, the issuance of such
Additional Common Shares, or (b) if prior to such issuance, the Corporation
receives written notice from the holders of at least a majority of the then
outstanding shares of Series A Preferred agreeing that no such adjustment shall
be made as the result of the issuance of Additional Common Shares.
(3) (I) Deemed Issue of Additional Common
Shares. If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities, then the maximum
number of shares of
5
<PAGE>
Common Stock (as set forth in the instrument relating thereto without regard to
any provision contained therein designed to protect against dilution) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Common Shares issued as of the time of such
issue, provided that Additional Common Shares shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Subsection
(d)(iv)(F)(v) of this Section 2 hereof) of such Additional Common Shares would
be less than the Conversion Price in effect on the date of and immediately prior
to such issue, as the case may be, and provided further that in any such case in
which Additional Common Shares are deemed to be issued: (II) No further
adjustment in the Conversion Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock issued upon the exercise of
such Options or conversion or exchange of such Convertible Securities;
(II) No further adjustment in the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock issued upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(III) If such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
decrease or increase in the number of shares of Common Stock issuable upon the
exercise, conversion or exchange thereof, the Conversion Price computed upon the
original issue thereof, and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities (provided, however,
that no such adjustment of the Conversion Price shall effect an adjustment of
the Class B Common Stock previously issued upon conversion of the Series A
Preferred);
(IV) Upon the expiration or termination of
any unexercised Option or Convertible Security, the Conversion Price computed
upon the original issue thereof shall be readjusted to reflect such expiration
or termination; and
(V) No readjustment pursuant to
subparagraphs III or IV above shall have the effect of increasing the Conversion
Price to an amount which exceeds the lower of (i) the Conversion Price on the
original adjustment date, or (ii) the Conversion Price that would have resulted
from any issuances of Additional Common Shares between the original adjustment
date and such readjustment date.
(4) Adjustment of Conversion Price Upon Issuance
--------------------------------------------
of Additional Common Shares. In the event the Corporation, at any time after the
- ---------------------------
Original Issue Date, shall issue Additional Common Shares (including Additional
Common Shares deemed to be issued pursuant to Subsection (d)(iv)(F)(3) of this
Section 2), without consideration or for a consideration per share less than the
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, (A) the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of
6
<PAGE>
shares of Common Stock which the aggregate consideration received or to be
received by the Corporation for the total number of Additional Common Shares so
issued would purchase at such Conversion Price in effect immediately prior to
such issuance; and (B) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue plus the number of
Additional Common Shares so issued. For the purposes of the above calculation,
the number of shares of Common Stock outstanding immediately prior to such issue
shall be calculated on a fully diluted basis, as if all shares of Series A
Preferred and all Convertible Securities had been fully converted into shares of
Common Stock immediately prior to such issuance and any outstanding options or
other rights for the purchase of shares of stock or convertible securities had
been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock, if so convertible) as of
such date, but not including in such calculation any additional shares of Common
Stock issuable with respect to shares of Series A Preferred, Convertible
Securities, or outstanding options, warrants or other rights for the purchase of
shares of stock or convertible securities, solely as a result of the adjustment
of the respective Conversion Prices (or other conversion ratios) resulting from
the issuance of the Additional Common Shares causing the adjustment in question.
(5) Determination of Consideration. For purposes
------------------------------
of this Subsection (d)(iv)(F)(5) of this Section 2, the consideration received
by the Corporation for the issue of any Additional Common Shares shall be
computed as follows:
(I) Cash and Property: Such consideration
-----------------
shall:
(AA) insofar as it consists of cash, be
computed at the aggregate of cash received by the Corporation, excluding amounts
paid or payable for accrued interest or accrued dividends;
(BB) insofar as it consists of property
other than cash, be computed at the fair market value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(CC) in the event Additional Common
Shares are issued together with other shares or securities or other assets of
the Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (aa) and (bb) above,
as determined in good faith by the Board of Directors.
(II) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Corporation for Additional Common Shares
deemed to have been issued pursuant to Subsection (d)(iv)(F)(3) of this Section
2, relating to Options and Convertible Securities, shall be determined by
dividing,
(AA) the total amount, if any, received
or receivable by the Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set
7
<PAGE>
forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(BB) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(III) Multiple Closing Dates. In the event
----------------------
the Corporation shall issue on more than one date Additional Common Shares which
are comprised of shares of the same series or class of preferred shares, and
such issuance dates occur within a period of no more than 120 days, then the
Conversion Price shall be adjusted only once on account of such issuances, with
such adjustment to occur upon the final such issuance and to give effect to all
such issuances as if they occurred on the date of the final such issuance.
(G) Adjustment for Share Splits and Combinations. If
--------------------------------------------
the Corporation at any time or from time to time after the Original Issue Date
shall effect a subdivision of the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Common
Stock, the Conversion Price then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this paragraph shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(H) Adjustment for Certain Dividends and
------------------------------------
Distributions. In the event the Corporation at any time, or from time to time
- -------------
after the Original Issue Date shall make or issue, or fix a record date for the
determination of holders of shares of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of Common Stock,
then and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, if such record date shall have been fixed and
such dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Price shall be recomputed accordingly as of
the
8
<PAGE>
close of business on such record date and thereafter the Conversion Price shall
be adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of shares of Series A Preferred
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred had been converted
into shares of Common Stock on the date of such event.
(I) Adjustments for Other Dividends and Distributions.
-------------------------------------------------
In the event the Corporation at any time or from time to time after the Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of shares of Common Stock entitled to receive, a dividend or other
distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of shares of Series A Preferred shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
shares of Series A Preferred been converted into shares of Common Stock on the
date of such event and had they thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this paragraph with respect to
the rights of the holders of shares of Series A Preferred; and provided further,
however, that no such adjustment shall be made if the holders of shares of
Series A Preferred simultaneously receive a dividend or other distribution of
such securities in an amount equal to the amount of such securities as they
would have received if all outstanding shares of Series A Preferred had been
converted into shares of Common Stock on the date of such event.
(1) Adjustment for Reclassification, Exchange, or
---------------------------------------------
Substitution. If the shares of Class B Common Stock issuable upon the conversion
- ------------
of the shares of Series A Preferred shall be changed into the same or a
different number of any class or classes of shares, whether by capital
reorganization, reclassification, or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above), then and in each
such event the holder of each such share of Series A Preferred shall have the
right thereafter to convert such share into the kind and amount of capital stock
and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Class B
Common Stock into which each such share of Series A Preferred might have been
converted immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.
(2) Adjustment for Consolidation or Merger. In
--------------------------------------
case of any consolidation or merger of the Corporation with or into another
corporation (except one in which the holders of capital shares of the
Corporation immediately prior to such merger or consolidation continue to hold
at least a majority by voting power of the capital shares of the surviving
corporation) or the sale of all or substantially all of the assets of the
Corporation to another corporation, each share of Series A Preferred shall
thereafter be convertible (or shall be converted into a security which shall be
convertible) into the kind and amount of shares or other
9
<PAGE>
securities or property to which a holder of the number of shares of Class B
Common Stock of the Corporation deliverable upon conversion of such shares of
Series A Preferred would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions in
this Section 2 set forth with respect to the rights and interest thereafter of
the holders of shares of Series A Preferred, to the end that the provisions set
forth in this Section 2 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any capital shares or other property
thereafter deliverable upon the conversion of the shares of Series A Preferred.
(J) No Impairment. The Corporation will not, by
-------------
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 2 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of shares of Series A Preferred against impairment.
(K) Certificate as to Adjustments. Upon the occurrence
-----------------------------
of each adjustment or readjustment of the Conversion Price pursuant to this
Section 2, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Series A Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred, furnish or cause to be furnished to
such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Class B Common Stock and the amount, if any, of other property which
then would be received upon the conversion of the Series A Preferred.
(L) Notice of Record Date. In the event:
---------------------
(1) that the Corporation declares a dividend (or
any other distribution) on its Class B Common Stock payable in shares of Common
Stock or other securities of the Corporation;
(2) that the Corporation subdivides or combines
its outstanding shares of Class B Common Stock;
(3) of any reclassification of the Class B Common
Stock (other than a subdivision or combination of its outstanding Class B Common
Stock or a share dividend or share distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
10
<PAGE>
(4) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation; then the Corporation shall cause
to be filed at its principal office or at the office of the transfer agent of
the Series A Preferred, and shall cause to be mailed to the holders of the
Series A Preferred at their last addresses as shown on the records of the
Corporation or such transfer agent, at least ten days prior to the date
specified in (I) below or twenty days before the date specified in (II) below, a
notice stating
(I) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be taken,
the date as of which the holders of Class B Common Stock of record to be
entitled to such dividend, distribution, subdivision or combination are to be
determined, or
(II) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Class B Common Stock of record shall be entitled to exchange their shares of
Class B Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or winding up.
(E) Voting Rights. In addition to possessing any voting rights
-------------
provided for by the California Corporations Code, the holders of the Series A
Preferred shall vote as a class with the holders of the Class B Common Stock on
all matters and shall have the same voting rights as the holders of the Class B
Common Stock, based upon the number of shares of Class B Common Stock into which
each holder's shares of Series A Preferred are convertible.
(F) Status of Converted Series A Preferred. In the event any
--------------------------------------
shares of Series A Preferred shall be converted pursuant to Section 2 hereof,
the Shares so converted shall be canceled and shall not be reissuable by the
Corporation.
C. CLASS A COMMON STOCK. The shares of Class A Common Stock and shares of
Class B Common Stock shall be identical in all respects and shall have equal
rights and privileges, except as set forth in this paragraph C and in paragraph
D of this Article III. Upon dissolution of the Corporation, the Class A Common
Stock and Class B Common Stock are entitled to share ratably in the assets
thereof that may be available for distribution after satisfaction of creditors
and the payment of any liquidation preference of any outstanding shares of
Preferred Stock.
1. DIVIDENDS.
(A) Subject to the rights of the Series A Preferred set forth in
Section B.2.(b)(i) of this Article III, and subject to the provisions of Section
C.1(b) below with respect to dividends or distributions in shares of Class A
Common Stock or shares of Class B Common Stock: (i) such dividends or
distributions as may be determined from time to time may be declared and paid or
made upon each share of Class A Common Stock out of any source at the time
lawfully available for the payment of dividends, provided that concurrently
identical dividends or distributions are declared and paid or made upon each
share of Class B Common
11
<PAGE>
Stock and (ii) such dividends or distributions as may be determined from time to
time may be declared and paid or made upon each share of Class B Common Stock
out of any source at the time lawfully available for the payment of dividends,
provided that concurrently identical dividends or distributions are declared and
paid or made upon each share of Class A Common Stock.
(B) No dividend may be declared or paid or made upon any share
of the Corporation in shares of Class A Common Stock. Subject to the rights of
the Series A Preferred set forth in Section B.2.(b)(i) of this Article III: (i)
in the event that a dividend or distribution is declared and paid or made upon
shares of Class A Common Stock in shares of Class B Common Stock, concurrently
an identical dividend or distribution must be declared and paid or made upon
each share of Class B Common Stock in shares of Class B Common Stock and (ii) in
the event that a dividend or distribution is declared and paid or made upon
shares of Class B Common Stock in shares of Class B Common Stock, concurrently
an identical dividend or distribution must be declared and paid or made upon
each share of Class A Common Stock in shares of Class B Common Stock.
2. STOCK COMBINATIONS AND SUBDIVISIONS. The Corporation shall not
effect a combination (reverse stock split) or a subdivision (stock split) of
either the Class A Common Stock or the Class B Common Stock except in compliance
with the following: (i) the Class A Common Stock shall not be combined or
subdivided unless at the same time there is a proportionate combination or
subdivision of the Class B Common Stock, (ii) the Class B Common Stock shall not
be combined or subdivided unless at the same time there is a proportionate
combination or subdivision of the Class A Common Stock and (iii) neither the
Class A Common Stock nor the Class B Common Stock shall be combined or
subdivided unless an amendment to these Amended and Restated Articles of
Incorporation is approved by (in addition to any other approval by holders of
shares of the Corporation which may be required) the holders of shares of Class
B Common Stock as provided in subsection D.3(c) of this Article III.
3. VOTING. Subject to the provisions of subsections B.2(e) and D.3
of this Article III and except as otherwise required by applicable law related
to class voting rights, the holders of Class A Common Stock shall vote together
with the holders of Class B Common Stock as a single class, provided that the
holders of Class A Common Stock shall have ten (10) votes per share and the
holders of Class B Common Stock shall have one (1) vote per share on all matters
that may be submitted to a vote or consent of the shareholders. Without
limiting the generality of the foregoing:
(A) With respect to the election of Directors (whether such
election is by vote at a meeting of shareholders or by written consent of
shareholders), the holders of Class A Common Stock, Class B Common Stock and
Series A Preferred shall be entitled, voting as a single class to elect the
remaining Directors not subject to the priority right of the holders of Class B
Common Stock to elect one or more Directors as set forth in Subsection D.3(a) of
this Article III. Vacancies on the Board of Directors created by (i) the death,
resignation or removal of a Director who was elected by the holders of Class A
Common Stock, Class B Common Stock
12
<PAGE>
and Series A Preferred voting as a single class or (ii) by an increase in the
authorized number of Directors if such vacancy is not to be filled by the
holders of Class B Common Stock voting as a separate class in accordance with
Section D.3(a) of this Article III, may be filled by those Directors (acting by
majority vote, though less than a quorum, or by the act of a sole remaining
Director) who were elected by the holders of Class A Common Stock, Class B
Common Stock and Series A Preferred voting as a single class.
(B) Except as may otherwise be required by law, any Director
elected by the holders of Class A Common Stock, Class B Common Stock and Series
A Preferred voting as a single class, or who was elected by those Directors who
were elected by the holders of Class A Common Stock, Class B Common Stock and
Series A Preferred Stock voting as a single class to fill a vacancy, may be
removed from office with or without cause by the holders of shares of Class A
Common Stock, Class B Common Stock and Series A Preferred voting as a single
class, provided that, to the extent permitted by applicable law, any such
Director may be removed for cause by the Board of Directors.
4. CONVERSION UPON TRANSFER.
(A) Each share of Class A Common Stock shall automatically be
converted into one share of Class B Common Stock in the event that the record or
beneficial ownership of such share of Class A Common Stock shall be transferred
in any manner or for any reason, voluntarily or involuntarily, by operation of
law or otherwise, provided, however, that if the beneficial or record ownership
------------------
of such share of Class A Common Stock is transferred (i) by any holder of Class
A Common Stock to a voting trust created for the holders of Class A Common Stock
("Voting Trust"), (ii) from such Voting Trust to the holder that transferred
such share of Class A Common Stock into the Voting Trust, or (iii) by any person
who was the beneficial holder of fifteen percent (15%) or more of the issued and
outstanding shares of Class A Common Stock (and who was also either the record
holder of such shares of Class A Common Stock or the record holder of one or
more voting trust certificates ("Voting Trust Certificates") for such shares of
Class A Common Stock held in the Voting Trust) as of the date of filing of these
Amended and Restated Articles of Incorporation with the California Secretary of
State (the "Filing Date"), regardless of the number of such shares of Class A
Common Stock, if any, held by such person on any subsequent date (each such
person being referred to as a "15% Class A Holder") to any other 15% Class A
Holder, (including, for purposes of this clause (iii), transfers among 15% Class
A Holders which occur by means of a transfer of record or beneficial ownership
of one or more Voting Trust Certificates), then such share of Class A Common
Stock which is transferred as described in clause (i), (ii) or (iii) shall not
be converted into a share of Class B Common Stock, and provided, further, that
----------------------
any share of Class A Common Stock which is transferred as described in clause
(i), (ii) or (iii) shall remain subject to the provisions of this Section C.4 of
Article III. A pledge of Class A Common Stock as security for an obligation of
a holder of such stock shall not be considered a transfer for purposes of this
paragraph, unless and until beneficial ownership is transferred to the
pledgeholder. The conversion into Class B Common Stock shall be deemed to have
occurred (whether or not certificates representing such shares are surrendered)
as of the close of business on the date of transfer, and the person or persons
entitled to receive shares of Class B Common Stock issuable upon such conversion
shall
13
<PAGE>
be treated for all purposes as the record holder or holders of such shares of
Class B Common Stock on that date. For purposes of this Section C.4 of
Article III, "beneficial ownership" shall be determined in accordance with Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended, as in
effect on the Filing Date.
(B) Before any shares of Class B Common Stock shall be delivered
upon conversion, the holder of shares of Class A Common Stock whose shares have
been converted into Class B Common Stock shall deliver the certificate(s)
representing such shares to the Corporation or its duly authorized agent (or if
such certificates have been lost, stolen or destroyed, such holder shall execute
an agreement satisfactory to the Corporation to indemnify the Corporation from
any loss incurred by it in connection with such conversion), specifying the
place where the Common Stock issued in conversion thereof shall be sent. The
endorsement of the certificates shall be in a form satisfactory to the
Corporation or such agent, as the case may be.
(C) The Corporation shall, at all times, reserve and keep
available out of the authorized and unissued shares of Class B Common Stock,
solely for the purpose of effecting the conversion of the outstanding Class A
Common Stock, such number of shares of Class B Common Stock as shall from time
to time be sufficient to effect the conversion of all of the outstanding Class A
Common Stock and if, at any time, the number of authorized and unissued shares
of Class B Common Stock shall not be sufficient to effect conversion of the then
outstanding Class A Common Stock, the Corporation shall take such corporate
action as may be necessary to increase the number of authorized and unissued
shares of Class B Common Stock to such number as shall be sufficient for such
purposes.
(D) The Corporation shall pay any and all issuance and other
taxes that may be payable in respect of any issuance or delivery of shares of
Class B Common Stock on conversion of Class A Common Stock. The Corporation
shall not, however, be required to pay any tax which may be payable with respect
to the issuance of any Class B Common Stock in a name other than that in which
the Class A Common Stock so converted was registered, and no such issuance or
delivery shall be made unless and until the person requesting such issuance has
paid to the Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(E) All shares of Class B Common Stock which may be issued upon
conversion of the shares of Class A Common Stock will, upon issuance by the
Corporation, be validly issued, fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issuance thereof.
(F) All certificates representing shares of Class A Common Stock
surrendered for conversion or otherwise acquired by the Corporation (all such
shares being referred to as "Converted Shares") shall be appropriately canceled
on the books of the Corporation. Such shares shall not be reissuable by the
Corporation and the authorized number of shares of Class A Common Stock of the
Corporation shall be reduced by such amount. Within ninety (90) days after each
anniversary of the Filing Date referred to in subsection C.4(a)
14
<PAGE>
of this Article III the Corporation shall file with the California Secretary of
State an amendment (a "Reduction Amendment") to these Amended and Restated
Articles of Incorporation to reflect the reduction in the authorized number of
shares of Class A Common Stock by an amount equal to the number of Converted
Shares which have become Converted Shares since the most recent to occur of the
Filing Date or the date of filing of the immediately prior Reduction Amendment
or other amendment to these Amended and Restated Articles of Incorporation
("Other Amendment") (such shares being referred to as "New Converted Shares"),
provided that, (i) the Corporation shall not be required to file a Reduction
- -------------
Amendment unless the number of New Converted Shares shall equal at least 50,000
(adjusted for any stock dividends, combinations or subdivisions subsequent to
the Filing Date), (ii) if on any occasion the Corporation shall elect to file an
Other Amendment, then it shall include in such Other Amendment provisions to
reflect any reduction in the authorized number of shares of Class A Common Stock
due to such shares having become New Converted Shares since the most recent to
occur of the Filing Date or the date of filing of the immediately prior
Reduction Amendment or Other Amendment, and (iii) if one or more Reduction
Amendments cannot be filed with the California Secretary of State without
obtaining approval of some or all of the shareholders of the Corporation, the
Corporation shall not be required to file such Reduction Amendments, and in that
case it shall follow the procedure indicated in clause (ii) above, and when all
of the authorized shares of Class A Common Stock have been converted or
otherwise reacquired by the Corporation the Class A Common Stock shall be
automatically eliminated and these Amended and Restated Articles of
Incorporation shall be amended to eliminate any statement of rights,
preferences, privileges and restrictions relating solely to the Class A Common
Stock.
D. CLASS B COMMON STOCK.
1. DIVIDENDS AND DISTRIBUTIONS. Subject to the provisions of
Sections B.2(b)(i) and C.1 of this Article III, dividends and distributions may
be declared and paid or made upon the Class B Common Stock as may be permitted
by applicable law.
2. STOCK COMBINATIONS AND SUBDIVISIONS. Subject to the provisions of
paragraph C.2 of this Article III, the Class B Common Stock may be combined or
subdivided in such manner as may be permitted by applicable law.
3. VOTING. The holders of the Class B Common Stock shall have the
voting rights set forth below in addition to the rights set forth in Section C.3
of this Article III:
(a) With respect to the election of the Board of Directors
(whether such election is by vote at a meeting of shareholders or by written
consent of shareholders), the holders of Class B Common Stock, voting as a
separate class, shall be entitled to elect that number of Directors which is the
largest integral number which is less than fifty percent (50%) of the authorized
number of Directors. Such election shall be from a slate of Director nominees
separate from a slate of Director nominees from which holders of Class A Common
Stock, Class B Common Stock and Series A Preferred voting as a single class
shall elect Directors. Vacancies on the Board of Directors created by (i) the
death, resignation or removal of a Director who was elected by the holders of
Class B Common Stock or (ii) by an increase in the authorized
15
<PAGE>
number of Directors, if such vacancy is to be filled by the holders of Class B
Common Stock voting as a separate class in accordance with the immediately
preceding sentence, may be filled by those Directors (acting by majority vote,
though less than a quorum, or by the act of a sole remaining Director) who were
elected by the holders of Class B Common Stock.
(b) The holders of Class B Common Stock will be entitled to vote
as a separate class on the removal, with or without cause, of any Director
elected by the holders of Class B Common Stock; provided that, to the extent
permitted by applicable law, any such Director may be removed for cause by the
Board of Directors.
(c) The Corporation shall not, without the vote or written
consent by the holders of a majority of the then outstanding shares of Class B
Common Stock, voting together as a single class:
(i) increase the total number of authorized shares of Class
A Common Stock; or
(ii) amend these Amended and Restated Articles of
Incorporation or the Corporation's Bylaws if such amendment would change any of
the rights, preferences or privileges provided for the benefit of the Class B
Common Stock or would increase the rights, preferences or privileges of the
Class A Common Stock.
(d) At any meeting of the Corporation's shareholders at which
directors are elected or at which a vote is taken on the removal of a director
or directors elected by the holders of Class B Common Stock pursuant to
subsection D.3(a) of this Article III, then, in addition to any other quorum
requirement which must be satisfied, the presence, either in person or by proxy,
of the holders of a majority of the then outstanding shares of Class B Common
Stock shall be required to constitute a quorum for such meeting.
E. VOTING RIGHTS IF ONLY ONE CLASS OUTSTANDING. Notwithstanding anything
in these Amended and Restated Articles of Incorporation to the contrary, the
holders of Class B Common Stock shall have exclusive voting power on all matters
at any time when no shares of Class A Common Stock or Preferred Stock are issued
and outstanding, the holders of Class A Common Stock shall have exclusive voting
power on all matters at any time when no shares of Class B Common Stock or
Preferred Stock are issued and outstanding, and the holders of Preferred Stock
shall have exclusive voting power on all matters at any time when no shares of
Class A Common Stock or Class B Common Stock are issued and outstanding.
ARTICLE IV
A. LIABILITY FOR MONETARY DAMAGES. The liability of the directors of the
Corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
B. INDEMNIFICATION. This Corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the California
Corporations Code) for breach of duty to the
16
<PAGE>
Corporation and its shareholders through bylaw provisions or through agreements
with the agents, or through shareholder resolutions, or otherwise, in excess of
the indemnification otherwise permitted by Section 317 of the Corporations Code,
subject to the limits on such excess indemnification set for in Section 204 of
the Corporations Code.
ARTICLE V
Effective on the first date when the Corporation has outstanding securities
designated as qualified for trading as a national market system security on the
National Association of Securities Dealers Automated Quotation System (or any
successor national market system) and has at least 800 holders of its equity
securities as of the record date for the Corporation's most recent annual
meeting of shareholders, the ability of shareholders to cumulate votes in the
election of directors shall be automatically eliminated.
THIRD: The foregoing Amended and Restated Articles of Incorporation have
been duly approved by the Board of Directors.
FOURTH: The foregoing Amended and Restated Articles of Incorporation have
been duly approved by the required vote of shareholders in accordance with
Sections 902 and 903 of the California Corporations Code. The total number of
outstanding shares of each class entitled to vote with respect to the Amended
and Restated Articles of Incorporation is 2,284,762 shares of Class A Common
Stock, 3,335,238 shares of Class B Common Stock and 420,953 shares of Preferred
Stock. The number of shares of each class voting in favor of the Amended and
Restated Articles of Incorporation equaled or exceeded the vote required. The
percentage vote required of each class entitled to vote was a majority of the
shares of Class A Common Stock, a majority of the shares of Class B Common
Stock, a majority of the shares of Preferred Stock and a majority of all such
shares voting together as a class.
James L. Bildner and George K. Ross further declare under penalty of
perjury under the laws of the State of California that the matters set forth in
this certificate are true and correct of their own knowledge.
Dated: _______________, 1997, at Walnut Creek, California
________________________________
James L. Bildner
Chairman of the Board and
Chief Executive Officer
________________________________
George K. Ross
Senior Vice President and
Chief Financial Officer
17
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
TIER TECHNOLOGIES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I - Offices...................................................... 1
Section 1. Principal Office........................................... 1
Section 2. Other Offices.............................................. 1
ARTICLE II - Shareholders' Meetings and Voting Rights................... 1
Section 1. Place of Meetings.......................................... 1
Section 2. Annual Meeting............................................. 1
Section 3. Postponement of Annual Meeting............................. 1
Section 4. Special Meetings........................................... 1
Section 5. Notice of Meetings......................................... 2
Section 6. Manner of Giving Notice.................................... 5
Section 7. Quorum and Transaction of Business......................... 6
Section 8. Adjournment and Notice of Adjourned Meetings............... 6
Section 9. Waiver of Notice, Consent to Meeting or Approval of Minutes 7
Section 10. Action by Written Consent Without a Meeting................ 7
Section 11. Voting..................................................... 8
Section 12. Persons Entitled to Vote or Consent........................ 9
Section 13. Proxies.................................................... 9
Section 14. Inspectors of Election..................................... 9
ARTICLE III - Board of Directors.........................................10
Section 1. Powers.....................................................10
Section 2. Number of Directors........................................10
Section 3. Election Of Directors, Term, Qualifications................11
Section 4. Resignations...............................................11
Section 5. Removal....................................................11
Section 6. Vacancies..................................................12
Section 7. Regular Meetings...........................................12
Section 8. Participation by Telephone.................................13
Section 9. Special Meetings...........................................13
Section 10. Notice of Meetings.........................................13
Section 11. Place of Meetings..........................................13
Section 12. Action by Written Consent Without a Meeting................13
Section 13. Quorum and Transaction of Business.........................13
Section 14. Adjournment................................................14
Section 15. Organization...............................................14
Section 16. Compensation...............................................14
Section 17. Committees.................................................14
ARTICLE IV - Officers....................................................15
Section 1. Officers...................................................15
</TABLE>
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<TABLE>
<S> <C>
Section 2. Appointment................................................15
Section 3. Inability to Act...........................................15
Section 4. Resignations...............................................15
Section 5. Removal....................................................15
Section 6. Vacancies..................................................16
Section 7. Chairman of the Board......................................16
Section 8. Chief Executive Officer....................................16
Section 9. Chief Operating Officer....................................16
Section 10. Chief Financial Officer....................................16
Section 11. Vice Presidents............................................17
Section 12. Secretary..................................................17
Section 13. Compensation...............................................18
ARTICLE V - Contracts, Loans, Bank Accounts, Checks and Drafts...........18
Section 1. Execution of Contracts and Other Instruments...............18
Section 2. Loans......................................................19
Section 3. Bank Accounts..............................................19
Section 4. Checks, Drafts, Etc........................................19
ARTICLE VI - Certificates for Shares and Their Transfer..................19
Section 1. Certificate for Shares.....................................20
Section 2. Transfer on the Books......................................20
Section 3. Lost, Destroyed and Stolen Certificates....................20
Section 4. Issuance, Transfer and Registration of Shares..............21
ARTICLE VII - Inspection of Corporate Records............................21
Section 1. Inspection by Directors....................................21
Section 2. Inspection by Shareholders.................................21
Section 3. Written Form...............................................22
ARTICLE VIII - Miscellaneous.............................................22
Section 1. Fiscal Year................................................22
Section 2. Annual Report..............................................22
Section 3. Record Date................................................23
Section 4. Bylaw Amendments...........................................23
Section 5. Construction and Definition................................23
Section 6. Corporate Seal.............................................24
ARTICLE IX - Indemnification.............................................24
Section 1. Indemnification of Directors, Officers, Employees And
Other Agents..........................................................24
ARTICLE X - Loans to Officers and Others.................................27
Section 1. Certain Corporate Loans and Guaranties.....................27
</TABLE>
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ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal executive office of the
corporation shall be located at such place as the Board of Directors may from
time to time authorize. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the board of directors shall fix and designate a principal business office in
the State of California.
SECTION 2. OTHER OFFICES. Additional offices of the corporation shall be
located at such place or places, within or outside the State of California, as
the Board of Directors may from time to time authorize.
ARTICLE II
SHAREHOLDERS' MEETINGS AND VOTING RIGHTS
SECTION 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
the principal executive office of the corporation, or at any other place, within
or outside the State of California, which may be fixed either by the Board of
Directors or by the written consent of all persons entitled to vote at such
meeting, given either before or after the meeting and filed with the Secretary
of the Corporation.
SECTION 2. ANNUAL MEETING. The annual meeting of the shareholders of the
corporation shall be held on any date and time which may from time to time be
designated by the Board of Directors. At such annual meeting, directors shall be
elected and any other business may be transacted which may properly come before
the meeting.
SECTION 3. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors and the
Chairman of the Board and the President shall each have authority to hold at an
earlier date and/or time, or to postpone to a later date and/or time, the annual
meeting of shareholders.
SECTION 4. SPECIAL MEETINGS.
(a) Special meetings of the shareholders, for any purpose or
purposes, may be called only by the Board of Directors, the Chairman of the
Board, the President, the Chief Executive Officer, or the holders of shares
entitled to cast not less than ten percent (10%) of the voting power at the
meeting. In calculating "voting power" for purposes of these bylaws, special
voting rights set forth in the corporation's Articles of Incorporation, as
amended or restated, shall be taken into account, giving effect to separate
class or series votes as applicable.
(b) Upon written request to the Chairman of the Board of Directors,
the President, any vice president or the Secretary of the corporation by any
person or persons (other than the Board of Directors) entitled to call a special
meeting of the shareholders, such officer forthwith shall cause notice to be
given to the shareholders entitled to vote, that a meeting will be held at a
time requested by the person or persons calling the meeting, such time to be not
less than thirty-five (35) nor more than sixty (60) days after receipt of such
request. If such notice is not given
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within twenty (20) days after receipt of such request, the person or persons
calling the meeting may give notice thereof in the manner provided by law or in
these bylaws. Nothing contained in this Section 4 shall be construed as
limiting, fixing or affecting the time or date when a meeting of shareholders
called by action of the Board of Directors may be held.
SECTION 5. NOTICE OF MEETINGS. Except as otherwise may be required by law
and subject to subsection 4(b) above, written notice of each meeting of
shareholders shall be given to each shareholder entitled to vote at that meeting
(as provided in Section 12 below), by the Secretary, assistant secretary or
other person charged with that duty, not less than ten (10) (or, if sent by
third class mail, thirty (30)) nor more than sixty (60) days before such
meeting.
Notice of any meeting of shareholders shall state the date, place and hour
of the meeting and,
(a) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted at such
meeting;
(b) in the case of an annual meeting, the general nature of matters
which the Board of Directors, at the time the notice is given, intends to
present for action by the shareholders;
(c) in the case of any meeting at which directors are to be elected,
the names of the nominees intended at the time of the notice to be presented by
management for election; and
(d) in the case of any meeting, if action is to be taken on any of
the following proposals, the general nature of such proposal:
(1) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 310 (relating to certain transactions in
which a director has an interest);
(2) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 902 (relating to amending the Articles of
Incorporation of the corporation);
(3) a proposal to approve a transaction within the provisions of
California Corporations Code, Sections 181 and 1201 (relating to
reorganization);
(4) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 1900 (winding up and dissolution);
(5) a proposal to approve a plan of distribution within the
provisions of California Corporations Code, Section 2007 (relating to certain
plans providing for distribution not in accordance with the liquidation rights
of preferred shares, if any).
At a special meeting, notice of which has been given in accordance
with this Section, action may not be taken with respect to business, the general
nature of which has not
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been stated in such notice. At an annual meeting, action may be taken with
respect to business stated in the notice of such meeting, given in accordance
with this Section, and, subject to subsection 5(d) above and subsections 5(e)
and 5(f) below, with respect to any other business as may properly come before
the meeting.
(e) Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the corporation.
Nominations of persons for election to the Board of Directors may be made at any
annual meeting of shareholders (x) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (y) by any shareholder
of the corporation (i) who is a shareholder of record on the date of the giving
of the notice provided for in this subsection 5(e) and on the record date for
the determination of shareholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in this subsection 5(e).
In addition to any other applicable requirements, for a nomination to
be made by a shareholder, such shareholder must have given timely notice thereof
in proper written form to the Secretary of the corporation.
To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than sixty (60) days nor more than ninety (90) days prior
to the date of the annual meeting; provided, however, that in the event that
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less than seventy (70) days' notice or prior public disclosure of the date of
the annual meeting is given or made to shareholders, notice by the shareholder
in order to be timely must be so received not later than the close of business
on the tenth (10th) day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, a shareholder's notice to the Secretary
must set forth (a) as to each person whom the shareholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation of employment of the
person, (iii) the class or series and number of shares of capital stock of the
corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the shareholder giving the
notice (i) the name and record address of such shareholder, (ii) the class or
series and number of shares of capital stock of the corporation which are owned
beneficially or of record by such shareholder, (iii) a description of all
arrangements or understandings between such shareholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such shareholder, (iv) a
representation that such shareholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice, (v) if the shareholder
intends to solicit proxies in support of such shareholder's nominee(s), a
representation to that effect, and (vi) any other information relating to such
shareholder that would be required to be disclosed in a proxy
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statement or other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Exchange Act
and the rules and regulations promulgated thereunder. Such notice must be
accompanied by a written consent of each proposed nominee to being named as a
nominee and to serve as a director if elected.
Compliance by a shareholder with the notice provisions and other
requirements of this subsection 5(e) shall not create a duty of the corporation
to include the shareholder's nominee(s) in the corporation's proxy statement or
proxy and the corporation shall retain any discretion it has to omit such
nominee(s) from the corporation's proxy statement and proxy.
No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
subsection 5(e). If the Chairman of the annual meeting determines that a
nomination was not made in accordance with the foregoing procedures, the
Chairman shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
(f) No business may be transacted at an annual meeting of
shareholders, other than business that is either (x) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (y) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (z) otherwise properly
brought before the annual meeting by any shareholder of the corporation (i) who
is a shareholder of record on the date of the giving of the notice provided for
in this Section 5(f) and on the record date for the determination of
shareholders entitled to vote at such annual meeting and (ii) who complies with
the notice procedures set forth in this subsection 5(f).
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a shareholder, such shareholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than sixty (60) days nor more than ninety (90) days prior
to the date of the annual meeting; provided, however, that in the event that
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less than seventy (70) days' notice or prior public disclosure of the date of
the annual meeting is given or made to shareholders, notice by the shareholder
in order to be timely must be so received not later than the close of business
on the tenth (10th) day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, a shareholder's notice to the Secretary
must set forth as to each matter such shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such shareholder, (iii) the
class or series and number of shares of capital stock of the corporation which
are owned beneficially or of record by such shareholder, (iv) a description of
all arrangements or understandings between such shareholder and any other person
or persons
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(including their names) in connection with the proposal of such business by such
shareholder and any material interest of such shareholder in such business, (v)
a representation that such shareholder intends to appear in person or by proxy
at the annual meeting to bring such business before the meeting, and (vi) if the
shareholder intends to solicit proxies in support of such shareholder's
proposal, a representation to that effect.
No business shall be conducted at the annual meeting of shareholders
except business brought before the annual meeting in accordance with the
procedures set forth in this subsection 5(f), provided, however, that, once
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business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this subsection 5(f) shall be deemed to preclude the
discussion by any shareholder of any such business. If the Chairman of an
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted.
SECTION 6. MANNER OF GIVING NOTICE. Notice of any meeting of shareholders
shall be given either personally or by first-class mail, or, if the corporation
has outstanding shares held of record by 500 or more persons (determined as
provided in California Corporations Code Section 605) on the record date for
such meeting, notice may be sent by third-class mail, or by telegraphic or other
written communication, addressed to the shareholder at the address of that
shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal executive office, or
if published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if they shall be available to the shareholder on written demand by the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.
SECTION 7. QUORUM AND TRANSACTION OF BUSINESS.
(a) Where a separate vote by class or series is required with respect
to any matter pursuant to the corporation's Articles of Incorporation, as
amended or restated, the holders of shares entitled to cast a majority of the
votes which would be cast by all shares of such class or series entitled to vote
thereon shall be required in order to constitute a quorum at any meeting of the
shareholders. With respect to any other matter, the holders of shares entitled
to cast a majority of the votes which could be voted thereon shall constitute a
quorum. If a quorum is present, the affirmative vote of the majority of the
voting power represented at the meeting on
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any matter shall be the act of the shareholders, except as otherwise required by
law or by the Articles of Incorporation, and except as provided in
subsection (b) below.
(b) The shareholders present at a duly called or held meeting of the
shareholders at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, provided that any action taken (other than adjournment) is
approved by at least a majority of the voting power required to constitute a
quorum.
(c) In the absence of a quorum, no business other than adjournment
may be transacted, except as described in subsection (b) above.
SECTION 8. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of shareholders may be adjourned from time to time, whether or not a quorum is
present, by the affirmative vote of a majority of shares represented at such
meeting either in person or by proxy and entitled to vote at such meeting.
In the event any meeting is adjourned, it shall not be necessary to give
notice of the time and place of such adjourned meeting pursuant to Sections 5
and 6 above; provided that if any of the following three events occur, such
notice must be given:
(a) announcement of the adjourned meeting's time and place is not
made at the meeting at which the adjournment is taken or
(b) such meeting is adjourned for more than forty- five (45) days or
(c) after the adjournment, a new record date is fixed for the
adjourned meeting.
At the adjourned meeting, the corporation may transact any business which
might have been transacted at the original meeting.
SECTION 9. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF MINUTES.
(a) Subject to subsection (b) of this Section 9, the transactions of
any meeting of shareholders, however called and noticed, and wherever held,
shall be as valid as though made at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the persons entitled to vote but not
present in person or by proxy signs a written waiver of notice or a consent to
holding of the meeting or an approval of the minutes thereof.
(b) A waiver of notice, consent to the holding of a meeting or
approval of the minutes thereof need not specify the business to be transacted
at, nor the purpose of the meeting; provided that in the case of proposals
described in subsection (d) of Section 5 above, the general nature of such
proposals must be described in any such waiver of notice and such proposals can
only be approved by waiver of notice, not by consent to holding of the meeting
or approval of the minutes.
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(c) All waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
(d) A person's attendance at a meeting shall constitute waiver of
notice of and presence at such meeting, except when such person objects at the
beginning of the meeting to transaction of any business because the meeting is
not lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters which are required
by law or these bylaws to be in such notice (including those matters described
in subsection (d) of Section 5 above), but are not so included if such person
expressly objects to consideration of such matter or matters at any time during
the meeting.
SECTION 10. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which
may be taken at any meeting of shareholders may be taken without a meeting and
without prior notice if written consents setting forth the action so taken are
signed by the holders of the outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors; provided
that any vacancy on the Board of Directors (other than a vacancy created by
removal) which has not been filled by the board of directors may be filled by
the written consent of a majority of the voting power entitled to vote for the
election of directors.
Any written consent may be revoked pursuant to California Corporations Code
Section 603(c) prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
Such revocation must be in writing and will be effective upon its receipt by the
Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of any corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote on such matters who have not consented
thereto in writing. This notice shall be given in the manner specified in
Section 6 above. In the case of approval of (i) a transaction within the
provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has an interest), (ii) a transaction within the
provisions of California Corporations Code, Section 317 (relating to
indemnification of agents of the corporation), (iii) a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization), and (iv) a plan of distribution within the provisions of
California Corporations Code, Section 2007 (relating to certain plans providing
for distribution not in accordance with the liquidation rights of preferred
shares, if any), the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
SECTION 11. VOTING. Voting at any meeting of shareholders need not be by
ballot; provided, however, that elections for directors must be by ballot if
balloting is demanded by a shareholder at the meeting and before the voting
begins.
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Every person entitled to vote at an election for directors may cumulate the
votes to which such person is entitled, i.e., such person may cast a total
number of votes equal to the number of directors to be elected by the class or
series of stock held by such person multiplied by the number of votes to which
such person's shares are entitled, and may cast said total number of votes for
one or more candidates in such proportions as such person thinks fit; provided,
--------
however, no shareholder shall be entitled to so cumulate such shareholder's
- -------
votes unless the candidates for which such shareholder is voting have been
placed in nomination prior to the voting and a shareholder has given notice at
the meeting, prior to the vote, of an intention to cumulate votes; provided,
--------
further, that effective on the first date when the corporation has outstanding
- -------------
securities designated as qualified for trading as a national market system
security on the National Association of Securities Dealers Automated Quotation
System (or any successor national market system) and has at least 800 holders of
its equity securities as of the record date for its most recent annual meeting
of shareholders, the ability of shareholders to cumulate votes in the election
of directors shall be automatically eliminated. In any election of directors,
the candidates receiving the highest number of votes, up to the number of
directors to be elected, shall be elected.
Each shareholder shall be entitled to that number of votes for each share
held as is set forth in the Articles of Incorporation of the corporation, as
amended or restated, except as may otherwise be required by law.
Any shareholder may vote part of such shareholder's shares in favor of a
proposal and refrain from voting the remaining shares or vote them against the
proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote.
No shareholder approval, other than unanimous approval of those entitled to
vote, will be valid as to proposals described in subsection 5(d) above, unless
the general nature of such business was stated in the notice of meeting or in
any written waiver of notice.
SECTION 12. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of Directors
may fix a record date pursuant to Section 3 of Article VIII of these bylaws to
determine which shareholders are entitled to notice of and to vote at a meeting
or consent to corporate actions, as provided in Sections 10 and 11 above. Only
persons in whose name shares otherwise entitled to vote stand on the stock
records of the corporation on such date shall be entitled to vote or consent.
If no record date is fixed:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day 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;
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(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given;
(c) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting;
provided, however, that the Board of Directors shall fix a new record date if
the meeting is adjourned for more than forty-five (45) days from the date set
for the original meeting.
Shares of the corporation held by its subsidiary or subsidiaries (as
defined in California Corporations Code, Section 189(b)) are not entitled to
vote in any matter.
SECTION 13. PROXIES. Every person entitled to vote or execute consents
may do so either in person or by one or more agents authorized to act by a
written proxy executed by the person or such person's duly authorized agent and
filed with the Secretary of the corporation; provided that no such proxy shall
be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy. The manner of execution,
suspension, revocation, exercise and effect of proxies is governed by law.
SECTION 14. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Directors may appoint any persons, other than nominees for office,
to act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the majority of shares represented in
person or proxy shall determine whether one (1) or three (3) inspectors are to
be appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of any
shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
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(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWERS. Subject to the provisions of law or any limitations in
the Articles of Incorporation or these bylaws, as to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised, by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person, provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board of
Directors.
SECTION 2. NUMBER OF DIRECTORS. The authorized number of directors of the
corporation shall be not less than a minimum of five (5) nor more than a maximum
of nine (9) (which maximum number in no case shall be greater than two times
said minimum, minus one) and the number of directors presently authorized is
five (5). The exact number of directors shall be set within these limits from
time to time (a) by approval of the Board of Directors, or (b) by the
affirmative vote of a majority of the voting power represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least the required quorum) or by the written
consent of shareholders pursuant to Section 10 of Article II, above.
Any amendment of these bylaws changing the maximum or minimum number of
directors may be adopted only by the affirmative vote of a majority of the
voting power; provided, an amendment reducing the minimum number of directors to
less than five (5), cannot be adopted if votes cast against its adoption at a
meeting or the shares not consenting to it in the case of action by written
consent are equal to more than 16-2/3 percent of the outstanding voting power.
No reduction of the authorized number of directors shall remove any
director prior to the expiration of such director's term of office.
SECTION 3. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The directors
shall be elected at each annual meeting of shareholders to hold office until the
next annual meeting. Each director, including a director elected or appointed to
fill a vacancy, shall hold office either until the expiration of the term for
which elected or appointed and until a successor has been elected
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and qualified, or until his or her death, resignation or removal. Directors need
not be shareholders of the corporation.
SECTION 4. RESIGNATIONS. Any director of the corporation may resign
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 6 below, to take office on the date that the
resignation becomes effective.
SECTION 5. REMOVAL. The Board of Directors may declare vacant the office
of a director who has been declared of unsound mind by an order of court or who
has been convicted of a felony.
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the voting
power with respect to such removal; provided, however, that until such time as
cumulative voting is eliminated pursuant to Section 11 of Article II of these
Bylaws and Article V of the Articles of Incorporation, unless the entire Board
is removed, no individual director may be removed when the votes cast against
such director's removal, or not consenting in writing to such removal, would be
sufficient to elect that director if voted cumulatively at an election at which
the same total number of votes cast were cast (or, if such action is taken by
written consent, all shares entitled to vote were voted) and the entire number
of directors authorized at the time of such director's most recent election were
then being elected; provided, further, that if, in accordance with the
corporation's Articles of Incorporation, as amended or restated, the holders of
the shares of any class or series, voting as a class or series, are entitled to
elect one or more directors, any director so elected may be removed as set forth
in the Articles of Incorporation, except or as may otherwise be required by
applicable law.
SECTION 6. VACANCIES. Vacancies created by the death, resignation or
removal of a director may be filled as follows:
(A) Vacancies on the Board of Directors created by the death,
resignation or removal of a director who was elected by the holders of Class B
Common Stock may be filled by those directors (acting by majority vote, though
less than a quorum, or by the act of a sole remaining director) who were elected
by the holders of Class B Common Stock.
(B) Vacancies on the Board of Directors created by the death,
resignation or removal of a director who was elected by the holders of Class A
Common Stock, Class B Common Stock and Series A Convertible Preferred Stock, if
any, voting as a single class, may be filled by those directors (acting by
majority vote, though less than a quorum, or by the act of a sole remaining
director) who were elected by the holders of Class A Common Stock, Class B
Common Stock and Series A Convertible Preferred Stock, if any), voting as a
single class.
Vacancies created by an increase in the authorized number of directors, or
a failure by the shareholders to elect the full authorized number of directors,
or any other reason that causes there to be fewer directors than the full
authorized number, may be filled by those directors (acting by
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majority vote, though less than a quorum, or by the act of a sole remaining
director) who were elected by the holders of such class (or classes) of shares
as would then be entitled to elect an additional director pursuant to the
corporation's Articles of Incorporation.
The shareholders may elect a director at any time to fill any vacancy not
filled by the directors. Except as otherwise provided in the corporation's
Articles of Incorporation or as otherwise required by law, any such election by
written consent, other than to fill a vacancy created by removal, requires the
consent of a majority of the voting power with respect to such director. Except
as otherwise provided in the corporation's Articles of Incorporation or as
otherwise required by law, any such election by written consent to fill a
vacancy created by removal requires the consent of all of the voting power with
respect to such director.
If, after the filling of any vacancy by the directors, the directors then
in office who have been elected by the shareholders constitute less than a
majority of the directors then in office, any holder or holders of an aggregate
of five percent (5%) or more of the voting power at that time and having the
right to vote for such directors may call a special meeting of shareholders to
be held to elect directors. The term of office of any director shall terminate
upon such election of a successor.
SECTION 7. REGULAR MEETINGS. Immediately after each annual meeting of
shareholders, and at such place fixed by the Board of Directors, or if no such
place is fixed at the place of the annual meeting, the Board of Directors shall
hold a regular meeting for the purposes of organization, the appointment of
officers and the transaction of other business. Other regular meetings of the
Board of Directors shall be held at such times, places and dates as fixed in
these bylaws or by the Board of Directors; provided, however, that if the date
for such a meeting falls on a legal holiday, then the meeting shall be held at
the same time on the next succeeding full business day. Regular meetings of the
Board of Directors held pursuant to this Section 7 may be held without notice.
SECTION 8. PARTICIPATION BY TELEPHONE. Members of the Board of Directors
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Such participation constitutes presence in person at such
meeting.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of Directors
for any purpose may be called by the Chairman of the Board or the President or
any vice president or the Secretary of the corporation or any two (2) directors.
SECTION 10. NOTICE OF MEETINGS. Notice of the date, time and place of all
meetings of the Board of Directors, other than regular meetings held pursuant to
Section 7 above shall be delivered personally, orally or in writing, or by
telephone or telegraph to each director, at least forty-eight (48) hours before
the meeting, or sent in writing to each director by first-class mail, charges
prepaid, at least four (4) days before the meeting. Such notice may be given by
the Secretary of the corporation or by the person or persons who called a
meeting. Such notice need not specify the purpose of the meeting. Notice of any
meeting of the Board of Directors need not be given to any director who signs a
waiver of notice of such meeting, or a consent to holding the
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meeting or an approval of the minutes thereof, either before or after the
meeting, or who attends the meeting without protesting prior thereto or at its
commencement such director's lack of notice. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
SECTION 11. PLACE OF MEETINGS. Meetings of the Board of Directors may be
held at any place within or without the state which has been designated in the
notice of the meeting or, if not stated in the notice or there is no notice,
designated in the bylaws or by resolution of the Board of Directors.
SECTION 12. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting, if all members of the Board of Directors individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board of Directors. Such action
by written consent shall have the same force and effect as a unanimous vote of
such directors.
SECTION 13. QUORUM AND TRANSACTION OF BUSINESS. A majority of the
authorized number of directors shall constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the authorized
number of directors present at a meeting duly held at which a quorum is present
shall be the act of the Board of Directors, unless applicable law, the Articles
of Incorporation or these bylaws specifically require a greater number. A
meeting at which a quorum is initially present may continue to transact
business, notwithstanding withdrawal of directors, if any action taken is
approved by at least a majority of the number of directors constituting a quorum
for such meeting. In the absence of a quorum at any meeting of the Board of
Directors, a majority of the directors present may adjourn the meeting, as
provided in Section 14 below.
SECTION 14. ADJOURNMENT. Any meeting of the Board of Directors, whether
or not a quorum is present, may be adjourned to another time and place by the
affirmative vote of a majority of the directors present. If the meeting is
adjourned for more than twenty-four (24) hours, notice of such adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
SECTION 15. ORGANIZATION. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. If there is no Chairman of
the Board or if the Chairman is not present, a Chairman chosen by a majority of
the directors present shall act as chairman. The Secretary of the corporation
or, in the absence of the Secretary, any person appointed by the Chairman shall
act as secretary of the meeting.
SECTION 16. COMPENSATION. Directors and members of committees may receive
such compensation, if any, for their services, and such reimbursement for
expenses, as may be fixed or determined by the Board of Directors.
SECTION 17. COMMITTEES. The Board of Directors may, by resolution adopted
by a majority of the authorized number of directors, designate one or more
committees, each
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consisting of two (2) or more directors, to serve at the pleasure of the Board
of Directors. The Board of Directors, by a vote of the majority of authorized
directors, may designate one or more directors as alternate members of any
committee, to replace any absent member at any meeting of such committee. Any
such committee shall have authority to act in the manner and to the extent
provided in the resolution of the Board of Directors, and may have all the
authority of the Board of Directors in the management of the business and
affairs of the corporation, except with respect to:
a. the approval of any action for which shareholders' approval or
approval of the outstanding shares also is required by the California
Corporations Code;
b. the filling of vacancies on the Board of Directors or any of its
committees;
c. the fixing of compensation of directors for serving on the Board
of Directors or any of its committees;
d. the adoption, amendment or repeal of these bylaws;
e. the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
f. a distribution to shareholders, except at a rate or in a periodic
amount or within a price range determined by the Board of Directors; or
g. the appointment of other committees of the Board of Directors or
the members thereof.
Any committee may from time to time provide by resolution for regular
meetings at specified times and places. If the date of such a meeting falls on
a legal holiday, then the meeting shall be held at the same time on the next
succeeding full business day. No notice of such a meeting need be given. Such
regular meetings need not be held if the committee shall so determine at any
time before or after the time when such meeting would otherwise have taken
place. Special meetings may be called at any time in the same manner and by the
same persons as stated in Sections 8 and 9, above for meetings of the Board of
Directors. The provisions of Sections 7, 10, 11, 12, 13 and 14 above shall
apply to committees, committee members and committee meetings as if the words
"committee" and "committee member" were substituted for the word "Board of
Directors," and "director," respectively, throughout such sections.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The corporation shall have a Chairman of the Board,
Chief Executive Officer, President, Chief Operating Officer, Chief Financial
Officer, Secretary and such other officers with such titles and duties as the
Board of Directors may determine. Any two or more offices may be held by the
same person.
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SECTION 2. APPOINTMENT. All officers shall be chosen and appointed by the
Board of Directors; provided, however, the Board of Directors may empower the
chief executive officer of the corporation to appoint such officers, other than
Chairman of the Board, President, Secretary or Chief Financial Officer, as the
business of the corporation may require. All officers shall serve at the
pleasure of the Board of Directors, subject to the rights, if any, of an officer
under a contract of employment.
SECTION 3. INABILITY TO ACT. In the case of absence or inability to act of
any officer of the corporation or of any person authorized by these bylaws to
act in such officer's place, the Board of Directors may from time to time
delegate the powers or duties of such officer to any other officer, or any
director or other person whom it may select, for such period of time as the
Board of Directors deems necessary.
SECTION 4. RESIGNATIONS. Any officer may resign at any time upon written
notice to the corporation, without prejudice to the rights, if any, of the
corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the Chief Executive Officer or President, the Secretary or the Board of
Directors, unless a different time is specified in the notice for effectiveness
of such resignation. The acceptance of any such resignation shall not be
necessary to make it effective unless otherwise specified in such notice.
SECTION 5. REMOVAL. Any officer may be removed from office at any time,
with or without cause, but subject to the rights, if any, of such officer under
any contract of employment, by the Board of Directors or by any committee to
whom such power of removal has been duly delegated, or, with regard to any
officer who has been appointed by the chief executive officer pursuant to
Section 2 above, by the chief executive officer or any other officer upon whom
such power of removal may be conferred by the Board of Directors.
SECTION 6. VACANCIES. A vacancy occurring in any office for any cause may
be filled by the Board of Directors, in the manner prescribed by this Article of
the bylaws for initial appointment to such office.
SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there be
such an officer, shall, if present, preside at all meetings of the Board of
Directors and shall exercise and perform such other powers and duties as may be
assigned from time to time by the Board of Directors or prescribed by these
bylaws. If no Chief Executive Officer or President is appointed, the Chairman of
the Board is the general manager and chief executive officer of the corporation,
and shall exercise all powers of the Chief Executive Officer or President
described in Section8 below.
SECTION 8. CHIEF EXECUTIVE OFFICER. Subject to such powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the Chief Executive Officer (or the President, if so titled)
shall be the general manager and chief executive officer of the corporation and
shall have general supervision and control over the business and affairs of the
corporation, subject to the control of the Board of Directors. The Chief
Executive Officer may sign and execute, in the name of the corporation, any
instrument authorized by the
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Board of Directors, except when the signing and execution thereof shall have
been expressly delegated by the Board of Directors or by these bylaws to some
other officer or agent of the corporation. The Chief Executive Officer shall
have all the general powers and duties of management usually vested in the
president of a corporation, and shall have such other powers and duties as may
be prescribed from time to time by the Board of Directors or these bylaws. The
Chief Executive Officer shall have discretion to prescribe the duties of other
officers and employees of the corporation in a manner not inconsistent with the
provisions of these bylaws and the directions of the Board of Directors.
SECTION 9. CHIEF OPERATING OFFICER. If a Chief Operating Officer is
appointed, such Officer shall have general supervision and control over the
operations and administration of the corporation, subject to the control of the
Board of Directors, Chairman of the Board (if any is appointed) and Chief
Executive Officer. The Chief Operating Officer may sign and execute, in the name
of the corporation, any instrument authorized by the Board of Directors, except
when the signing and execution thereof shall have been expressly delegated by
the Board of Directors or by these bylaws to some other officer or agent of the
corporation. The Chief Operating Officer shall have all the general powers and
duties of management usually vested in the chief operating officer of a
corporation, and shall have such other powers and duties as may be prescribed
from time to time by the Board of Directors or these bylaws.
SECTION 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall:
a. Be responsible for all functions and duties of the treasurer of
the corporation.
b. Keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of account for the corporation.
c. Receive or be responsible for receipt of all monies due and
payable to the corporation from any source whatsoever; have charge and custody
of, and be responsible for, all monies and other valuables of the corporation
and be responsible for deposit of all such monies in the name and to the credit
of the corporation with such depositories as may be designated by the Board of
Directors or a duly appointed and authorized committee of the Board of
Directors.
d. Disburse or be responsible for the disbursement of the funds of
the corporation as may be ordered by the Board of Directors or a duly appointed
and authorized committee of the Board of Directors.
e. Render to the chief executive officer and the Board of Directors a
statement of the financial condition of the corporation if called upon to do so.
f. Exercise such powers and perform such duties as are usually vested
in the office of chief financial officer of a corporation, and exercise such
other powers and perform such other duties as may be prescribed by the Board of
Directors or these bylaws.
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If any assistant financial officer is appointed, the assistant financial
officer, or one of the assistant financial officers, if there are more than one,
in the order of their rank as fixed by the Board of Directors or, if they are
not so ranked, the assistant financial officer designated by the Board of
Directors, shall, in the absence or disability of the Chief Financial Officer or
in the event of such officer's refusal to act, perform the duties and exercise
the powers of the Chief Financial Officer, and shall have such powers and
discharge such duties as may be assigned from time to time pursuant to these
bylaws or by the Board of Directors.
SECTION 11. VICE PRESIDENTS. In the absence or disability of the Chief
Executive Officer or President, in the event of a vacancy in the office of Chief
Executive Officer or President, or in the event such officer refuses to act, the
Vice President shall perform all the duties of the Chief Executive Officer or
President and, when so acting, shall have all the powers of, and be subject to
all the restrictions on, the Chief Executive Officer or President. If at any
such time the corporation has more than one vice president, the duties and
powers of the Chief Executive Officer or President shall pass to each vice
president in order of such vice president's rank as fixed by the Board of
Directors or, if the vice presidents are not so ranked, to the vice president
designated by the Board of Directors. The vice presidents shall have such other
powers and perform such other duties as may be prescribed for them from time to
time by the Board of Directors or pursuant to Sections1 and 2 above or
otherwise pursuant to these bylaws.
SECTION 12. SECRETARY. The Secretary shall:
a. Keep, or cause to be kept, minutes of all meetings of the
corporation's shareholders, Board of Directors, and committees of the Board of
Directors, if any. Such minutes shall be kept in written form.
b. Keep, or cause to be kept, at the principal executive office of
the corporation, or at the office of its transfer agent or registrar, if any, a
record of the corporation's shareholders, showing the names and addresses of all
shareholders, and the number and classes of shares held by each. Such records
shall be kept in written form or any other form capable of being converted into
written form.
c. Keep, or cause to be kept, at the principal executive office of
the corporation, or if the principal executive office is not in California, at
its principal business office in California, an original or copy of these
bylaws, as amended.
d. Give, or cause to be given, notice of all meetings of
shareholders, directors and committees of the Board of Directors, as required by
law or by these bylaws.
e. Keep the seal of the corporation, if any, in safe custody.
f. Exercise such powers and perform such duties as are usually vested
in the office of secretary of a corporation, and exercise such other powers and
perform such other duties as may be prescribed from time to time by the Board of
Directors or these bylaws.
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If any assistant secretaries are appointed, the assistant secretary, or one
of the assistant secretaries in the order of their rank as fixed by the Board of
Directors or, if they are not so ranked, the assistant secretary designated by
the Board of Directors, in the absence or disability of the Secretary or in the
event of such officer's refusal to act or if a vacancy exists in the office of
Secretary, shall perform the duties and exercise the powers of the Secretary and
discharge such duties as may be assigned from time to time pursuant to these
bylaws or by the Board of Directors.
SECTION 13. COMPENSATION. The compensation of the officers shall be fixed
from time to time by the Board of Directors, and no officer shall be prevented
from receiving such compensation by reason of the fact that such officer is also
a director of the corporation.
ARTICLE V
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS
SECTION 1. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as these
bylaws may otherwise provide, the Board of Directors or its duly appointed and
authorized committee may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and such authorization may be general or confined
to specific instances. Except as so authorized or otherwise expressly provided
in these bylaws, no officer, agent, or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or in any amount.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and advances
at any time for the corporation from any bank, trust company, or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the corporation and, when authorized as aforesaid,
may mortgage, pledge, hypothecate or transfer any and all stocks, securities and
other property, real or personal, at any time held by the corporation, and to
that end endorse, assign and deliver the same as security for the payment of any
and all loans, advances, indebtedness, and liabilities of the corporation. Such
authorization may be general or confined to specific instances.
SECTION 3. BANK ACCOUNTS. The Board of Directors or its duly appointed and
authorized committee from time to time may authorize the opening and keeping of
general and/or special bank accounts with such banks, trust companies, or other
depositories as may be selected by the Board of Directors, its duly appointed
and authorized committee or by any officer or officers, agent or agents, of the
corporation to whom such power may be delegated from time to time by the Board
of Directors. The Board of Directors or its duly appointed and authorized
committee
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may make such rules and regulations with respect to said bank accounts, not
inconsistent with the provisions of these bylaws, as are deemed advisable.
SECTION 4. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes, acceptances or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer or officers,
agent or agents, of the corporation, and in such manner, as shall be determined
from time to time by resolution of the Board of Directors or its duly appointed
and authorized committee. Endorsements for deposit to the credit of the
corporation in any of its duly authorized depositories may be made, without
countersignature, by the President or any vice president or the Chief Financial
Officer or any assistant financial officer or by any other officer or agent of
the corporation to whom the Board of Directors or its duly appointed and
authorized committee, by resolution, shall have delegated such power or by hand-
stamped impression in the name of the corporation.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATE FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue any shares as only partly
paid, the certificate issued to represent such partly paid shares shall have
stated thereon the total consideration to be paid for such shares and the amount
paid thereon.
SECTION 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or
transfer agent (if any) of the corporation of a certificate for shares of the
corporation duly endorsed, with reasonable assurance that the endorsement is
genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable federal
and state securities laws and if the corporation has no statutory duty to
inquire into adverse claims or has discharged any such duty and if any
applicable law relating to the collection of taxes has been complied with, it
shall be the duty of the corporation, by its Secretary or transfer agent, to
cancel the old certificate, to issue a new certificate to the person entitled
thereto and to record the transaction on the books of the corporation.
SECTION 3. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of any
certificate for shares of the corporation alleged to have been lost, destroyed
or stolen shall notify the corpora-
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tion by making a written affidavit or affirmation of such fact. Upon receipt of
said affidavit or affirmation the Board of Directors, or its duly appointed and
authorized committee or any officer or officers authorized by the board so to
do, may order the issuance of a new certificate for shares in the place of any
certificate previously issued by the corporation and which is alleged to have
been lost, destroyed or stolen. However, the Board of Directors or such
authorized committee, officer or officers may require the owner of the allegedly
lost, destroyed or stolen certificate, or such owner's legal representative, to
give the corporation a bond or other adequate security sufficient to indemnify
the corporation and its transfer agent and/or registrar, if any, against any
claim that may be made against it or them on account of such allegedly lost,
destroyed or stolen certificate or the replacement thereof. Said bond or other
security shall be in such amount, on such terms and conditions and, in the case
of a bond, with such surety or sureties as may be acceptable to the Board of
Directors or to its duly appointed and authorized committee or any officer or
officers authorized by the Board of Directors to determine the sufficiency
thereof. The requirement of a bond or other security may be waived in particular
cases at the discretion of the Board of Directors or its duly appointed and
authorized committee or any officer or officers authorized by the Board of
Directors so to do.
SECTION 4. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board
of Directors may make such rules and regulations, not inconsistent with law or
with these bylaws, as it may deem advisable concerning the issuance, transfer
and registration of certificates for shares of the capital stock of the
corporation. The Board of Directors may appoint a transfer agent or registrar
of transfers, or both, and may require all certificates for shares of the
corporation to bear the signature of either or both.
ARTICLE VII
INSPECTION OF CORPORATE RECORDS
SECTION 1. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries and
to inspect the physical properties of the corporation and any of its
subsidiaries. Such inspection may be made by the director in person or by agent
or attorney, and the right of inspection includes the right to copy and make
extracts.
SECTION 2. INSPECTION BY SHAREHOLDERS.
A. INSPECTION OF CORPORATE RECORDS.
i. A shareholder or shareholders holding at least five percent in
the aggregate of the outstanding voting shares of the corporation or who hold at
least one percent of such voting shares and have filed a Schedule 14A with the
United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have an absolute right to do either or both
of the following:
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(1) Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five business days'
prior written demand upon the corporation; or
(2) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and upon the tender
of its usual charges for such a list (the amount of which charges shall be
stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand.
ii. The record of shareholders shall also be open to inspection
and copying by any shareholder or holder of a voting trust certificate at any
time during usual business hours upon written demand on the corporation, for a
purpose reasonably related to such holder's interest as a shareholder or holder
of a voting trust certificate.
iii. The accounting books and records and minutes of proceedings
of the shareholders and the Board of Directors and of any committees of the
Board of Directors of the corporation and of each of its subsidiaries shall be
open to inspection, copying and making extracts upon written demand on the
corporation of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours, for a purpose reasonably related to
such holder's interests as a shareholder or as a holder of such voting trust
certificate.
iv. Any inspection, copying, and making of extracts under this
subsection (a) may be done in person or by agent or attorney.
B. INSPECTION OF BYLAWS. The original or a copy of these bylaws
shall be kept as provided in Section12 of ArticleIV of these bylaws and shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is not in
California, and the corporation has no principal business office in the state of
California, a current copy of these bylaws shall be furnished to any shareholder
upon written request.
SECTION 3. WRITTEN FORM. If any record subject to inspection pursuant to
Section2 above is not maintained in written form, a request for inspection is
not complied with unless and until the corporation at its expense makes such
record available in written form.
ARTICLE VIII
MISCELLANEOUS
SECTION 1. FISCAL YEAR. Unless otherwise fixed by resolution of the Board
of Directors, the fiscal year of the corporation shall end on the 30th day of
September in each calendar year.
21
<PAGE>
SECTION 2. ANNUAL REPORT.
a. Subject to the provisions of subsection(b) below, the Board of
Directors shall cause an annual report to be sent to each shareholder of the
corporation in the manner provided in Section 6 of Article II of these bylaws
not later than one hundred twenty (120) days after the close of the
corporation's fiscal year. Such report shall include a balance sheet as of the
end of such fiscal year and an income statement and statement of changes in
financial position for such fiscal year, accompanied by any report thereon of
independent accountants or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation. When there are more than
100 shareholders of record of the corporation's shares, as determined by Section
605 of the California Corporations Code, additional information as required by
Section 1501(b) of the California Corporations Code shall also be contained in
such report, provided that if the corporation has a class of securities subject
to the reporting requirements of Section13 of the Exchange Act, that Act shall
take precedence. Such report shall be sent to shareholders at least fifteen
(15) days prior to the next annual meeting of shareholders after the end of the
fiscal year to which it relates.
b. If and so long as there are fewer than 100 holders of record of
the corporation's shares, the requirement of sending of an annual report to the
shareholders of the corporation is hereby expressly waived.
SECTION 3. RECORD DATE. The Board of Directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of or to vote at any meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or entitled to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than sixty (60) days nor less than ten
(10) days prior to the date of the meeting nor more than sixty (60) days prior
to any other action or event for the purpose of which it is fixed. If no record
date is fixed, the provisions of Section11 of Article II of these bylaws shall
apply with respect to notice of meetings, votes, and consents and the record
date for determining shareholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolutions
relating thereto, or the sixtieth (60th) day prior to the date of such other
action or event, whichever is later.
Only shareholders of record at the close of business on the record date
shall be entitled to notice and to vote or to receive the dividend, distribution
or allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Articles of Incorporation,
by agreement or by law.
SECTION 4. BYLAW AMENDMENTS. Except as otherwise provided by law or
Section2 of ArticleIII of these bylaws, these bylaws may be amended or
repealed by the Board of Directors or by the affirmative vote of a majority of
the voting power; provided, however, after issuance of shares, a bylaw
specifying or changing a fixed number of directors or the maximum or minimum
22
<PAGE>
number or changing from a fixed to a variable board or vice versa may only be
adopted by approval of the outstanding voting power as provided herein.
SECTION 5. CONSTRUCTION AND DEFINITION. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions
contained in the California Corporations Code shall govern the construction of
these bylaws. Without limiting the foregoing, "shall" is mandatory and "may" is
permissive.
SECTION 6. CORPORATE SEAL. If the Board of Directors adopts a corporate
seal such seal shall have inscribed thereon the name of the corporation and the
state and date of its incorporation. If and when a seal is adopted by the Board
of Directors, such seal may be engraved, lithographed, printed, stamped,
impressed upon, or affixed to any contract, conveyance, certificate for shares,
or other instrument executed by the corporation.
ARTICLE IX
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) Directors. The corporation shall indemnify its directors to the
fullest extent not prohibited by the California General Corporation Law;
provided, however, that the corporation may limit the extent of such
indemnification by individual contracts with its directors; and, provided,
further, that the corporation shall not be required to indemnify any director in
connection with any proceeding (or part thereof) initiated by such person or any
proceeding by such person against the corporation or its directors, 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, or (iii)such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the California General Corporation Law.
(b) Officers, Employees and Other Agents. The corporation shall have
power to indemnify its officers, employees and other agents as set forth in the
California General Corporation Law.
(c) Determination by the Corporation. Promptly after receipt of a
request for indemnification hereunder (and in any event within 90 days thereof)
a reasonable, good faith determination as to whether indemnification of the
director is proper under the circumstances because each director has met the
applicable standard of care shall be made by:
(1) a majority vote of a quorum consisting of directors who are
not parties to such proceeding;
(2) if such quorum is not obtainable, by independent legal
counsel in a written opinion; or
23
<PAGE>
(3) approval or ratification by the affirmative vote of a
majority of the voting power represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also constitute at
least the required quorum) or by written consent of a majority of the voting
power; where in each case the shares owned by the person to be indemnified shall
not be considered entitled to vote thereon.
(d) Good Faith.
(1) For purposes of any determination under this bylaw, a
director shall be deemed to have acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the corporation and its
shareholders, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his or her conduct was unlawful, if his
or her action is based on information, opinions, reports and statements,
including financial statements and other financial data, in each case prepared
or presented by:
(1) one or more officers or employees of the corporation
whom the director believed to be reliable and competent in the matters
presented;
(2) counsel, independent accountants or other persons as to
matters which the director believed to be within such person's professional
competence; and
(3) a committee of the Board upon which such director does
not serve, as to matters within such committee's designated authority, which
committee the director believes to merit confidence; so long as, in each case,
the director acts without knowledge that would cause such reliance to be
unwarranted.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in the best interests
of the corporation and its shareholders or that he or she had reasonable cause
to believe that his conduct was unlawful.
(3) The provisions of this paragraph(d) shall not be deemed to
be exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the
California General Corporation Law.
(e) Expenses. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any director in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it shall be
determined ultimately that such person is not entitled to be indemnified under
this bylaw or otherwise.
(f) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors under this
bylaw shall be deemed to be contractual rights and be effective to the same
extent and as if provided for in a contract between the corporation and the
director. Any right to indemnification or advances granted by this bylaw
24
<PAGE>
to a director shall be enforceable by or on behalf of the person holding such
right 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. The claimant 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 as a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any proceeding in
advance of its final disposition when the required undertaking has been tendered
to the corporation) that the claimant has not met the standards of conduct that
make it permissible under the California General Corporation Law for the
corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its board of directors, independent legal
counsel or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the California General Corporation Law, nor an actual determination
by the corporation (including its board of directors, independent legal counsel
or its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(g) Non-Exclusivity of Rights. To the fullest extent permitted by the
corporation's Articles of Incorporation and the California General Corporation
Law, the rights conferred on any person by this bylaw shall not be exclusive of
any other right which such person may have or hereafter acquire under any
statute, provision of the Articles of Incorporation, bylaws, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding
office. The corporation is specifically authorized to enter into individual
contracts with any or all of its directors, officers, employees or agents
respecting indemnification and advances, to the fullest extent permitted by the
California General Corporation Law and the corporation's Articles of
Incorporation.
(h) Survival of Rights. The rights conferred on any person by this
bylaw shall continue as to a person who has ceased to be a director and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(i) Insurance. The corporation, upon approval by the board of
directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this bylaw.
(j) Amendments. Any repeal or modification of this bylaw shall only
be prospective and shall not affect the rights under this bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
25
<PAGE>
(k) Employee Benefit Plans. The corporation shall indemnify the
directors and officers of the corporation who serve at the request of the
corporation as trustees, investment managers or other fiduciaries of employee
benefit plans to the fullest extent permitted by the California General
Corporation Law.
(l) Saving Clause. If this bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director to the fullest extent
permitted by any applicable portion of this bylaw that shall not have been
invalidated, or by any other applicable law.
(m) Certain Definitions. For the purposes of this bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding, including expenses of
establishing a right to indemnification under this bylaw or any applicable law.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this bylaw with respect to the resulting or surviving corporation as he or
she would have with respect to such constituent corporation if its separate
existence had continued.
(4) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
26
<PAGE>
ARTICLE X
LOANS TO OFFICERS AND OTHERS
SECTION 1. CERTAIN CORPORATE LOANS AND GUARANTIES. If the corporation has
outstanding shares held of record by 100 or more persons on the date of approval
by the Board of Directors, the corporation may make loans of money or property
to, or guarantee the obligations of, any officer of the corporation or its
parent or any subsidiary, whether or not a director of the corporation or its
parent or any subsidiary, or adopt an employee benefit plan or plans authorizing
such loans or guaranties, upon the approval of the Board of Directors alone, by
a vote sufficient without counting the vote of any interested director or
directors, if the Board of Directors determines that such a loan or guaranty or
plan may reasonably be expected to benefit the corporation.
27
<PAGE>
EXHIBIT 10.6
<TABLE>
<CAPTION>
CORPORATE RESOLUTION TO BORROW
- ---------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,250,000.00 03-13-1997 05-31-1998 704-00488
- ---------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
================================================================================
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF TIER TECHNOLOGIES, INC.
(THE "CORPORATION"), HEREBY CERTIFY THAT the Corporation is organized and
existing under and by virtue of the laws of the State of California as a
corporation for profit, with its principal office at 1350 TREAT BOULEVARD, SUITE
250, WALNUT CREEK, CA 94596, and is duly authorized to transact business in the
State of California.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on MARCH 13, 1997, at which a quorum was present and voting, or
by other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that ANY TWO (2) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
WILLIAM G. BARTON PRESIDENT X____________________
JAMES L. BILDNER CHAIRMAN X____________________
GEORGE K. ROSS SVP/CFO X____________________
</TABLE>
acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from WESTAMERICA BANK
("Lender"), on such terms as may be agreed upon between the Corporation and
Lender, such sum or sums of money as in their judgment should be borrowed;
however, not exceeding at any one time the amount OF FOUR MILLION & 00/100
DOLLARS ($4,000,000.00), in addition to such sum or sums of money as may be
currently borrowed by the Corporation from Lender.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accomodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Lender, and also to execute and deliver to Lender one
or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, any portion of the notes, or
any other evidence of credit accomodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accomodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing,
<PAGE>
03-13-1997 CORPORATE RESOLUTION TO BORROW
LOAN NO 704-00488 (CONTINUED)
================================================================================
however the same may be evidenced, any property now or hereafter belonging
to the Corporation or in which the Corporation now or hereafter may have an
interest, including without limitation all real property and all personal
property (tangible or intangible) of the Corporation. Such property may be
mortgaged, pledged, transferred, endorsed, hypothecated, or encumbered at
the time such loans are obtained or such indebtedness is incurred, or at
any other time or times, and may be either in addition to or in lieu of any
property theretofore mortgaged, pledged, transferred, endorsed,
hypothecated, or encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be required by
Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any enter written instruments,
any chattel paper, or any other collateral, of any kind or nature, which
Lender may deem necessary or proper in connection with or pertaining to the
giving of the liens and encumbrances. Notwithstanding the foregoing, any
one of the above authorized persons may execute, deliver, or record
financing statements.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or
to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements, INCLUDING AGREEMENTS WAIVING THE RIGHT TO A TRIAL BY JURY, as
they may in their discretion deem reasonably necessary or proper in order
to carry into effect the provisions of these Resolutions. The following
person or persons currently are authorized to request advances and
authorize payments under the line of credit until Lender receives written
notice of revocation of their authority: WILLIAM G. BARTON, PRESIDENT;
JAMES L. BILDNER, CHAIRMAN: and GEORGE ROSS, SVP/CFO.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation,, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever. The Corporation has no corporate seal, and therefore,
no seal is affixed to this certificate.
2
<PAGE>
03-13-1997 CORPORATE RESOLUTION TO BORROW
LOAN NO 704-00488 (CONTINUED)
================================================================================
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON MARCH 13, 1997 AND ATTEST
THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR GENUINE
SIGNATURES.
CERTIFIED TO AND ATTESTED BY:
X____________________________
X____________________________
NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
All rights reserved.
[CA-C10 70400488.LN C2.OVL]
3
<PAGE>
<TABLE>
<CAPTION>
PROMISSORY NOTE
- ---------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,250,000.00 03-13-1997 05-31-1998 704-00488
- ---------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
================================================================================
PRINCIPAL AMOUNT: $2,250,000.00 INITIAL RATE: 9.750% DATE OF NOTE: MARCH 13,
1997
PROMISE TO PAY. TIER TECHNOLOGIES, INC. ("BORROWER") PROMISES TO PAY TO
WESTAMERICA BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF TWO MILLION TWO HUNDRED FIFTY THOUSAND & 00/100
DOLLARS ($2,250,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST
ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MAY 31,
1998. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID
INTEREST BEGINNING MARCH 31, 1997, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE
ON THE LAST DAY OF EACH MONTH AFTER THAT. Interest on this Note is computed on
a 365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Westamerica Bank
Index Rate (the "Index"). THE BANK'S INDEX RATE IS ESTABLISHED BY BANK IN ITS
SAN RAFAEL HEADQUARTERS OFFICE AS OF THE DATE OF THIS NOTE, AND AS OF EACH DATE
THAT BANK MAY ADJUST SUCH INDEX RATE. LOANS MAY BE MADE BY BANK AT, ABOVE OR
BELOW THE INDEX RATE. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each Day. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.500
PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 9.750% PER
ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
minimum Interest charge of $50.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower's making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material
<PAGE>
03-13-1997 PROMISSORY NOTE
LOAN NO 704-00488 (CONTINUED)
================================================================================
respect either now or at the time made or furnished. (e) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(f) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (g) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (h) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate on this Note to 5.500 percentage points
over the Index. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE
IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF MARIN COUNTY, THE STATE OF CALIFORNIA. LENDER AND
BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
COLLATERAL. This Note is secured by THAT CERTAIN COMMERCIAL SECURITY AGREEMENT
DATED MARCH 13,1997.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: WILLIAM G. BARTON,
PRESIDENT; JAMES L. BILDNER, CHAIRMAN; AND GEORGE ROSS, SVP/CFO. Borrower
agrees to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; or (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender.
5
<PAGE>
03-13-1997 PROMISSORY NOTE
LOAN NO 704-00488 (CONTINUED)
================================================================================
GENERAL PROVISIONS. This note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
TIER TECHNOLOGIES, INC.
BY: COPY BY:________________________
--------------------------
JAMES L. BILDNER, CHAIRMAN GEORGE K. ROSS, SVP/CFO
================================================================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.23 (c) 1997 CFI ProServices, Inc. All
rights reserved. [CA-D20 70400488.LN C2.OVL]
6
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL GUARANTY
- ---------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
GURANTOR: BRADLEY H NICKLES
5638 E. MONTE CRISTO
SCOTSDALE, AZ 85254
- --------------------------------------------------------------------------------
AMOUNT OF GUARANTY. THE PRINCIPAL AMOUNT OF THIS GUARANTY IS FOUR MILLION &
00/100 DOLLARS ($4,000,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, BRADLEY H. NICKELS
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO
WESTAMERICA BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
TIER TECHNOLOGIES, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET
FORTH IN THIS GUARANTY. THE OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY ARE
CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means TIER TECHNOLOGIES, INC..
GUARANTOR. The word "Guarantor" means BRADLEY H. NICKELS.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated March 13, 1997.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means WESTAMERICA BANK, its successors and
assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE SUM OF THE PRINCIPAL AMOUNT OF $4,000,000.00,
PLUS ALL INTEREST THEREON, PLUS ALL OF LENDER'S COSTS, EXPENSES, AND ATTORNEYS'
FEES INCURRED IN CONNECTION WITH OR RELATING TO (A) THE COLLECTION OF THE
INDEBTEDNESS, (B) THE COLLECTION AND SALE OF ANY COLLATERAL FOR THE INDEBTEDNESS
OR THIS GUARANTY, OR (C) THE ENFORCEMENT OF THIS GUARANTY.
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
ATTORNEYS' FEES INCLUDE, WITHOUT LIMITATION, ATTORNEYS' FEES WHETHER OR NOT
THERE IS A LAWSUIT, AND IF THERE IS A LAWSUIT, ANY FEES AND COSTS FOR TRIAL AND
APPEALS.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other guaranties. The
liability of Guarantor will be the aggregate liability of Guarantor under the
terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness
within the limits set forth in the preceding section of this Guaranty.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted. Any married person who signs this Guaranty
hereby expressly agrees that recourse under this agreement may be had against
both his or her separate property and community property, whether now owned or
hereafter acquired.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new
Indebtedness" does not include Indebtedness which at the time of notice of
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by Lender
prior to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. IT IS
ANTICIPATED THAT FLUCTUATIONS MAY OCCUR IN THE AGGREGATE AMOUNT OF INDEBTEDNESS
COVERED BY THIS GUARANTY, AND IT IS SPECIFICALLY ACKNOWLEDGED AND AGREED BY
GUARANTOR THAT REDUCTIONS IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO DOLLARS
($0.00), PRIOR TO WRITTEN REVOCATION OF THIS GUARANTY BY GUARANTOR SHALL NOT
CONSTITUTE A TERMINATION OF THIS GUARANTY. THIS GUARANTY IS BINDING UPON
GUARANTOR AND GUARANTOR'S HEIRS, SUCCESSORS AND ASSIGNS SO LONG AS ANY OF THE
GUARANTEED INDEBTEDNESS REMAINS UNPAID AND EVEN THOUGH THE INDEBTEDNESS
GUARANTEED MAY FROM TIME TO TIME BE ZERO DOLLARS ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. GUARANTOR AUTHORIZES LENDER, EITHER BEFORE
OR AFTER ANY REVOCATION HEREOF, WITHOUT NOTICE OR DEMAND AND WITHOUT LESSENING
GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO TIME: (A) PRIOR TO
REVOCATION AS SET FORTH ABOVE, TO MAKE ONE OR MORE ADDITIONAL SECURED OR
UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR
OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE,
RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR
PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS,
INCLUDING INCREASES AND DECREASES OF THE RATE OF
8
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER
THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND; HOLD SECURITY FOR THE PAYMENT OF
THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE,
FAIL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT
THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE NOT TO
SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER
GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER MAY CHOOSE; (E) TO DETERMINE
HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE ON THE
INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER OF SALE
THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY THE
TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST, AS LENDER IN ITS
DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS
IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN OR TRANSFER THIS
GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional Indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; (c) proceed
against any collateral for the Indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the Indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the Indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (l) any statute
of limitations in any action under this Guaranty or on the Indebtedness; or (m)
any modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal,
9
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
extension, acceleration, or other change in the time payment of the Indebtedness
is due and any change in the interest rate, and including any such modification
or change in terms after revocation of this Guaranty on Indebtedness incurred
prior to such revocation.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any
rights and defenses Guarantor may have because Borrower's obligation is secured
by real property. These rights and defenses include, but are not limited to,
any rights and defenses based upon Section 580a, 580b, 580d, or 726 of the Code
of Civil Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be entitled
under state and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty, anti-
deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges that
Guarantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness is paid in
full, Guarantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Guarantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor' of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets
of Borrower, through bankruptcy, by an assignment for the benefit of creditors,
by voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so
10
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
requests, any notes or credit agreements now or hereafter evidencing any debts
or obligations of Borrower to Guarantor shall be marked with a legend that the
same are subject to this Guaranty and shall be delivered to Lender. Guarantor
agrees, and Lender hereby is authorized, in the name of Guarantor, from time to
time to execute and file financing statements and continuation statements and to
execute such other documents and to take such other actions as Lender deems
necessary or appropriate to perfect, preserve and enforce its rights under this
Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreements and understandings of Guarantor with
Lender with respect to the subject matter hereof and all prior
negotiations, drafts, and other extrinsic communications between Guarantor
and Lender shall have no evidentiary effect whatsoever. Guarantor further
agrees that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by Guarantor's
attorney with respect to this Guaranty; the Guaranty fully reflects
Guarantor's intentions and parol evidence is not required to interpret the
terms of this Guaranty. Guarantor hereby indemnifies and holds Lender
harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective
unless given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of MARIN
County, State of California. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and,
except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor
shall be in writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If there is
more than one Guarantor, notice to any Guarantor will constitute notice to
all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes
11
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
only and are not to be used to interpret or define the provisions of this
Guaranty. If a court of competent jurisdiction finds any provision of this
Guaranty to be invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision invalid or unenforceable as to
any other persons or circumstances, and all provisions of this Guaranty in
all other respects shall remain valid and enforceable. If any one or more
of Borrower or Guarantor are corporations or partnerships, it is not
necessary for Lender to inquire into the powers of Borrower or Guarantor or
of the officers, directors, partners, or agents acting or purporting to act
on their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MARCH 13,1997.
GUARANTOR:
X_______________________________
BRADLEY H. NICKELS
================================================================================
LASER PRO, Reg. U.S. Pat. &T.M. Off., Ver. 3.23(c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-E20 70400488.LN C2.OVL]
12
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL GUARANTY
- ---------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
GURANTOR: BRYAN D. McCAUL
2724 LAVENDER DRIVE
WALNUT CREEK, CA 94596
================================================================================
AMOUNT OF GUARANTY. THE PRINCIPAL AMOUNT OF THIS GUARANTY IS FOUR MILLION &
00/100 DOLLARS ($4,000,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, BRYAN D. MCCAUL
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO
WESTAMERICA BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
TIER TECHNOLOGIES, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET
FORTH IN THIS GUARANTY. THE OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY ARE
CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means TIER TECHNOLOGIES, INC..
GUARANTOR. The word "Guarantor" means BRYAN D. McCAUL.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated March 13, 1997.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means WESTAMERICA BANK, its successors and
assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE SUM OF THE PRINCIPAL AMOUNT OF $4,000,000.00,
PLUS ALL INTEREST THEREON, PLUS ALL OF LENDER'S COSTS, EXPENSES, AND ATTORNEYS'
FEES INCURRED IN CONNECTION WITH OR RELATING TO (A) THE COLLECTION OF THE
INDEBTEDNESS, (B) THE COLLECTION AND SALE OF ANY COLLATERAL FOR THE INDEBTEDNESS
OR THIS GUARANTY, OR (C) THE ENFORCEMENT OF THIS GUARANTY.
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
ATTORNEYS' FEES INCLUDE, WITHOUT LIMITATION, ATTORNEYS' FEES WHETHER OR NOT
THERE IS A LAWSUIT, AND IF THERE IS A LAWSUIT, ANY FEES AND COSTS FOR TRIAL AND
APPEALS.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other guaranties. The
liability of Guarantor will be the aggregate liability of Guarantor under the
terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness
within the limits set forth in the preceding section of this Guaranty.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted. Any married person who signs this Guaranty
hereby expressly agrees that recourse may be had against both his or her
separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new
Indebtedness" does not include Indebtedness which at the time of notice of
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by Lender
prior to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. IT IS
ANTICIPATED THAT FLUCTUATIONS MAY OCCUR IN THE AGGREGATE AMOUNT OF INDEBTEDNESS
COVERED BY THIS GUARANTY, AND IT IS SPECIFICALLY ACKNOWLEDGED AND AGREED BY
GUARANTOR THAT REDUCTIONS IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO DOLLARS
($0.00), PRIOR TO WRITTEN REVOCATION OF THIS GUARANTY BY GUARANTOR SHALL NOT
CONSTITUTE A TERMINATION OF THIS GUARANTY. THIS GUARANTY IS BINDING UPON
GUARANTOR AND GUARANTOR'S HEIRS, SUCCESSORS AND ASSIGNS SO LONG AS ANY OF THE
GUARANTEED INDEBTEDNESS REMAINS UNPAID AND EVEN THOUGH THE INDEBTEDNESS
GUARANTEED MAY FROM TIME TO TIME BE ZERO DOLLARS ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, WITHOUT NOTICE OR DEMAND AND WITHOUT LESSENING
GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO TIME: (A) PRIOR TO
REVOCATION AS SET FORTH ABOVE, TO MAKE ONE OR MORE ADDITIONAL SECURED OR
UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR
OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE,
RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR
PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS,
INCLUDING INCREASES AND DECREASES OF THE RATE OF
14
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER
THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF
THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE,
FAIL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT
THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE NOT TO
SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER
GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER MAY CHOOSE; (E) TO DETERMINE
HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE ON THE
INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER OF SALE
THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY THE
TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST AS LENDER IN ITS
DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS
IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN OR TRANSFER THIS
GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional Indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; (c) proceed
against any collateral for the Indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the Indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the Indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (l) any statute
of limitations in any action under this Guaranty or on the Indebtedness; or (m)
any modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal,
15
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
extension, acceleration, or other change in the time payment of the Indebtedness
is due and any change in the interest rate, and including any such modification
or change in terms after revocation of this Guaranty on Indebtedness incurred
prior to such revocation.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even it the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any
rights and defenses Guarantor may have because Borrower's obligation is secured
by real property. These rights and defenses include, but are not limited to,
any rights and defenses based upon Section 580a, 580b, 580d, or 726 of the Code
of Civil Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be entitled
under state and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty, anti-
deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges that
Guarantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness is paid in
full, Guarantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Guarantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets
of Borrower, through bankruptcy, by an assignment for the benefit of creditors,
by voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be
16
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
effective only for the purpose of assuring to Lender full payment in legal
tender of the Indebtedness. If Lender so requests, any notes or credit
agreements now or hereafter evidencing any debts or obligations of Borrower to
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreements and understandings of Guarantor with
Lender with respect to the subject matter hereof and all prior
negotiations, drafts, and other extrinsic communications between Guarantor
and Lender shall have no evidentiary effect whatsoever. Guarantor further
agrees that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by Guarantor's
attorney with respect to this Guaranty; the Guaranty fully reflects
Guarantor's intentions and parol evidence is not required to interpret the
terms of this Guaranty. Guarantor hereby indemnifies and holds Lender
harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective
unless given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of MARIN
County, State of California. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and,
except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor
shall be in writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If there is
more than one Guarantor, notice to any Guarantor will constitute notice to
all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors,
17
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
assigns, and transferees of each of them. Caption headings in this Guaranty
are for convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent
jurisdiction finds any provision of this Guaranty to be invalid or
unenforceable as to any person or circumstance, such finding shall not
render that provision invalid or unenforceable as to any other persons or
circumstances, and all provisions of this Guaranty in all other respects
shall remain valid and enforceable. If any one or more of Borrower or
Guarantor are corporations or partnerships, it is not necessary for Lender
to inquire into the powers of Borrower or Guarantor or of the officers,
directors, partners, or agents acting or purporting to act on their behalf,
and any Indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MARCH 13,1997.
GUARANTOR:
X______________________________
BRYAN D. MCCAUL
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-E20 7040048.LN C2.OVL]
18
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL GUARANTY
- ---------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
GUARANTOR: JAMES L. BILDNER
1350 TREAT BOULEVARD, SUITE 250
WALNUT CREEK, CA 94596
================================================================================
AMOUNT OF GUARANTY. THE PRINCIPAL AMOUNT OF THIS GUARANTY IS FOUR MILLION &
00/100 DOLLARS ($4,000,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, JAMES L. BILDNER
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO
WESTAMERICA BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
TIER TECHNOLOGIES, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET
FORTH IN THIS GUARANTY. THE OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY ARE
CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means TIER TECHNOLOGIES, INC..
GUARANTOR. The word "Guarantor" means JAMES L. BILDNER.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated March 13, 1997.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means WESTAMERICA BANK, its successors and
assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE SUM OF THE PRINCIPAL AMOUNT OF $4,000,000.00,
PLUS ALL INTEREST THEREON, PLUS ALL OF LENDER'S COSTS, EXPENSES, AND ATTORNEYS'
FEES INCURRED IN CONNECTION WITH OR RELATING TO (A) THE COLLECTION OF THE
INDEBTEDNESS, (B) THE COLLECTION AND SALE OF ANY COLLATERAL FOR THE INDEBTEDNESS
OR THIS GUARANTY, OR (C) THE ENFORCEMENT OF THIS GUARANTY.
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
ATTORNEYS' FEES INCLUDE, WITHOUT LIMITATION, ATTORNEYS' FEES WHETHER OR NOT
THERE IS A LAWSUIT, AND IF THERE IS A LAWSUIT, ANY FEES AND COSTS FOR TRIAL AND
APPEALS.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other guaranties. The
liability of Guarantor will be the aggregate liability of Guarantor under the
terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness
within the limits set forth in the preceding section of this Guaranty.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted. Any married person who signs this Guaranty
hereby expressly agrees that recourse may be had against both his or her
separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new
Indebtedness" does not include Indebtedness which at the time of notice of
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by Lender
prior to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty, A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. IT IS
ANTICIPATED THAT FLUCTUATIONS MAY OCCUR IN THE AGGREGATE AMOUNT OF INDEBTEDNESS
COVERED BY THIS GUARANTY, AND IT IS SPECIFICALLY ACKNOWLEDGED AND AGREED BY
GUARANTOR THAT REDUCTIONS IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO DOLLARS
($0.00), PRIOR TO WRITTEN REVOCATION OF THIS GUARANTY BY GUARANTOR SHALL NOT
CONSTITUTE A TERMINATION OF THIS GUARANTY. THIS GUARANTY IS BINDING UPON
GUARANTOR AND GUARANTOR'S HEIRS, SUCCESSORS AND ASSIGNS SO LONG AS ANY OF THE
GUARANTEED INDEBTEDNESS REMAINS UNPAID AND EVEN THOUGH THE INDEBTEDNESS
GUARANTEED MAY FROM TIME TO TIME BE ZERO DOLLARS ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, WITHOUT NOTICE OR DEMAND AND WITHOUT LESSENING
GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO TIME: (A) PRIOR TO
REVOCATION AS SET FORTH ABOVE, TO MAKE ONE OR MORE ADDITIONAL SECURED OR
UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR
OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE,
RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR
PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS,
INCLUDING INCREASES AND DECREASES OF THE RATE OF
20
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03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER
THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF
THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE,
FALL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT
THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE NOT TO
SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER
GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER MAY CHOOSE; (E) TO DETERMINE
HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE ON THE
INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER OF SALE
THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY THE
TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST, AS LENDER IN ITS
DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS
IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN OR TRANSFER THIS
GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional Indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; (c) proceed
against any collateral for the Indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the Indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the Indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (l) any statute
of limitations in any action under this Guaranty or on the Indebtedness; or (m)
any modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal,
21
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03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
extension, acceleration, or other change in the time payment of the Indebtedness
is due and any change in the interest rate, and including any such modification
or change in terms after revocation of this Guaranty on Indebtedness incurred
prior to such revocation.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any
rights and defenses Guarantor may have because Borrower's obligation is secured
by real property. These rights and defenses include, but are not limited to,
any rights and defenses based upon Section 580a, 580b, 580d, or 726 of the Code
of Civil Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be entitled
under state and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty, anti-
deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges that
Guarantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness is paid in
full, Guarantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Guarantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets
of Borrower, through bankruptcy, by an assignment for the benefit of creditors,
by voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to
22
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein, fully
incorporates the agreements and understandings of Guarantor with Lender with
respect to the subject matter hereof and all prior negotiations, drafts, and
other extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agrees that Guarantor has
read and fully understands the terms of this Guaranty; Guarantor has had the
opportunity to be advised by Guarantor's attorney with respect to this
Guaranty; the Guaranty fully reflects Guarantor's intentions and parol
evidence is not required to interpret the terms of this Guaranty. Guarantor
hereby indemnities and holds Lender harmless from all losses, claims,
damages, and costs (including Lender's attorneys' fees) suffered or incurred
by Lender as a result of any breach by Guarantor of the warranties,
representations and agreements of this paragraph. No alteration or amendment
to this Guaranty shall be effective unless given in writing and signed by the
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. It there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of MARIN
County, State of California. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
NOTICES. All notices required to be given by either party to the other under
this Guaranty shall be in writing, may be sent by telefacsimile, and, except
for revocation notices by Guarantor, shall be effective when actually
delivered or when deposited with a nationally recognized overnight courier,
or when deposited in the United States mail, first class postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above or to such other addresses as either party may designate to the other
in writing. All revocation notices by Guarantor shall be in writing and
shall be effective only upon delivery to Lender as provided above in the
section titled "DURATION OF GUARANTY." If there is more than one Guarantor,
notice to any Guarantor will constitute notice to all Guarantors. For notice
purposes, Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction so
require; and where there is more than one Borrower named in this Guaranty or
when this Guaranty is executed by more than one Guarantor, the words
"Borrower' and "Guarantor" respectively shall mean all and any one or more of
them. The words "Guarantor," "Borrower," and "Lender" include the heirs,
successors, assigns, and transferees of each of them. Caption headings in
this Guaranty are for convenience purposes only and are not to be used to
interpret or define the provisions of this Guaranty. If a court of competent
23
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03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
jurisdiction finds any provision of this Guaranty to be invalid or
unenforceable as to any person or circumstance, such finding shall not render
that provision invalid or unenforceable as to any other persons or
circumstances, and all provisions of this Guaranty in all other respects
shall remain valid and enforceable. If any one or more of Borrower or
Guarantor are corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the officers,
directors, partners, or agents acting or purporting to act on their behalf,
and any Indebtedness made or created in reliance upon the professed exercise
of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MARCH 13,1997.
GUARANTOR:
X_______________________________
JAMES L. BILDNER
================================================================================
LASER PRO, Reg. U.S. Pat. &T. M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
AlI rights reserved. [CA-E20 70400488.LN C2.OVL]
24
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
<S> <C>
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
GUARANTOR: WILLIAM G. BARTON
5248 BOULDER COURT
CONCORD, CA 94521
</TABLE>
================================================================================
AMOUNT OF GUARANTY. THE PRINCIPAL AMOUNT OF THIS GUARANTY IS FOUR MILLION &
00/100 DOLLARS ($4,000,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, WILLIAM G. BARTON
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO
WESTAMERICA BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
TIER TECHNOLOGIES, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET
FORTH IN THIS GUARANTY. THE OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY ARE
CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means TIER TECHNOLOGIES, INC..
GUARANTOR. The word "Guarantor" means WILLIAM G. BARTON.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated March 13, 1997.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any of
them, and any present or future judgments against Borrower, or any of them;
and whether any such Indebtedness is voluntarily or involuntarily incurred,
due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined; whether Borrower may be liable individually or
jointly with others, or primarily or secondarily, or as guarantor or surety;
whether recovery on the Indebtedness may be or may become barred or
unenforceable against Borrower for any reason whatsoever; and whether the
Indebtedness arises from transactions which may be voidable on account of
infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means WESTAMERICA BANK, its successors and
assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust. and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE SUM OF THE PRINCIPAL AMOUNT OF $4,000,000.00,
PLUS ALL INTEREST THEREON, PLUS ALL OF LENDER'S COSTS, EXPENSES, AND ATTORNEYS'
FEES INCURRED IN CONNECTION WITH OR RELATING TO (A) THE COLLECTION OF THE
INDEBTEDNESS, (B) THE COLLECTION AND SALE OF ANY COLLATERAL FOR THE INDEBTEDNESS
OR THIS GUARANTY, OR (C) THE ENFORCEMENT OF THIS GUARANTY. ATTORNEYS' FEES
INCLUDE, WITHOUT LIMITATION, ATTORNEYS' FEES WHETHER OR NOT THERE IS A LAWSUIT,
AND IF THERE IS A LAWSUIT, ANY FEES AND COSTS FOR TRIAL AND APPEALS.
<PAGE>
03-13-1997 COMMERCIAL GUARANTY
LOAN NO 704-00488 (CONTINUED)
================================================================================
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other guaranties. The
liability of Guarantor will be the aggregate liability of Guarantor under the
terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness
within the limits set forth in the preceding section of this Guaranty.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted. Any married person who signs this Guaranty
hereby expressly agrees that recourse may be had against both his or her
separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new
Indebtedness" does not include Indebtedness which at the time of notice of
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by Lender
prior to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. IT IS
ANTICIPATED THAT FLUCTUATIONS MAY OCCUR IN THE AGGREGATE AMOUNT OF INDEBTEDNESS
COVERED BY THIS GUARANTY, AND IT IS SPECIFICALLY ACKNOWLEDGED AND AGREED BY
GUARANTOR THAT REDUCTIONS IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO DOLLARS
($0.00), PRIOR TO WRITTEN REVOCATION OF THIS GUARANTY BY GUARANTOR SHALL NOT
CONSTITUTE A TERMINATION OF THIS GUARANTY. THIS GUARANTY IS BINDING UPON
GUARANTOR AND GUARANTOR'S HEIRS, SUCCESSORS AND ASSIGNS SO LONG AS ANY OF THE
GUARANTEED INDEBTEDNESS REMAINS UNPAID AND EVEN THOUGH THE INDEBTEDNESS
GUARANTEED MAY FROM TIME TO TIME BE ZERO DOLLARS ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, WITHOUT NOTICE OR DEMAND AND WITHOUT LESSENING
GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO TIME: (A) PRIOR TO
REVOCATION AS SET FORTH ABOVE, TO MAKE ONE OR MORE ADDITIONAL SECURED OR
UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR
OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE,
RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR
PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS,
INCLUDING INCREASES AND DECREASES OF THE RATE OF INTEREST ON THE INDEBTEDNESS;
EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL LOAN TERM;
(C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF THIS GUARANTY OR THE
INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE,
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03-13-1997 COMMERCIAL GUARANTY
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================================================================================
SUBORDINATE, FALL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH
OR WITHOUT THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE
NOT TO SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR
OTHER GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER MAY CHOOSE; (E) TO
DETERMINE HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE
ON THE INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER
OF SALE THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY
THE TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST, AS LENDER IN
ITS DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR GRANT
PARTICIPATIONS IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN OR
TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower,
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional Indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; (c) proceed
against any collateral for the Indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the Indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the Indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (l) any statute
of limitations in any action under this Guaranty or on the Indebtedness; or (m)
any modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal, extension, acceleration, or other change in the
time payment of the Indebtedness is due and any change in the
27
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03-13-1997 COMMERCIAL GUARANTY
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================================================================================
interest rate, and including any such modification or change in terms after
revocation of this Guaranty on Indebtedness incurred prior to such revocation.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any
rights and defenses Guarantor may have because Borrower's obligation is secured
by real property. These rights and defenses include, but are not limited to,
any rights and defenses based upon Section 580a, 580b, 580d, or 726 of the Code
of Civil Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be entitled
under state and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty, anti-
deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges that
Guarantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness is paid in
full, Guarantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Guarantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets
of Borrower, through bankruptcy, by an assignment for the benefit of creditors,
by voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to
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03-13-1997 COMMERCIAL GUARANTY
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================================================================================
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein, fully
incorporates the agreements and understandings of Guarantor with Lender with
respect to the subject matter hereof and all prior negotiations, drafts, and
other extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agrees that Guarantor has
read and fully understands the terms of this Guaranty; Guarantor has had the
opportunity to be advised by Guarantor's attorney with respect to this
Guaranty; the Guaranty fully reflects Guarantor's intentions and parol
evidence is not required to interpret the terms of this Guaranty. Guarantor
hereby indemnifies and holds Lender harmless from all losses, claims,
damages, and costs (including Lender's attorneys' fees) suffered or incurred
by Lender as a result of any breach by Guarantor of the warranties,
representations and agreements of this paragraph. No alteration or amendment
to this Guaranty shall be effective unless given in writing and signed by the
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of MARIN
County, State of California. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
NOTICES. All notices required to be given by either party to the other under
this Guaranty shall be in writing, may be sent by telefacsimile, and, except
for revocation notices by Guarantor, shall be effective when actually
delivered or when deposited with a nationally recognized overnight courier,
or when deposited in the United States mail, first class postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above or to such other addresses as either party may designate to the other
in writing. All revocation notices by Guarantor shall be in writing and
shall be effective only upon delivery to Lender as provided above in the
section titled "DURATION OF GUARANTY." If there is more than one Guarantor,
notice to any Guarantor will constitute notice to all Guarantors. For notice
purposes, Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction so
require; and where there is more than one Borrower named in this Guaranty or
when this Guaranty is executed by more than one Guarantor, the words
"Borrower" and "Guarantor" respectively shall mean all and any one or more of
them. The words "Guarantor," "Borrower," and "Lender" include the heirs,
successors, assigns, and transferees of each of them. Caption headings in
this Guaranty are for convenience purposes only and are not to be used to
interpret or define the provisions of this Guaranty. If a court of competent
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03-13-1997 COMMERCIAL GUARANTY
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================================================================================
jurisdiction finds any provision of this Guaranty to be invalid or
unenforceable as to any person or circumstance, such finding shall not render
that provision invalid or unenforceable as to any other persons or
circumstances, and all provisions of this Guaranty in all other respects
shall remain valid and enforceable. If any one or more of Borrower or
Guarantor are corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the officers,
directors, partners, or agents acting or purporting to act, on their behalf,
and any Indebtedness made or created in reliance upon the professed exercise
of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MARCH 13,1997.
GUARANTOR:
X_____________________________
WILLIAM G. BARTON
================================================================================
LASER PRO, Reg. U.S. Pat. &T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-E20 70400488.LN C2.OVL]
30
<PAGE>
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$2,250,000 03-13-1997 05-31-1998 704-00488
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
<S> <C>
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
</TABLE>
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN TIER TECHNOLOGIES,
INC. (REFERRED TO BELOW AS "GRANTOR"); AND WESTAMERICA BANK (REFERRED TO BELOW
AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY
INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER
SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL,
IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section,
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means TIER TECHNOLOGIES, INC., its successors
and assigns
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
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03-13-1997 COMMERCIAL SECURITY AGREEMENT
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================================================================================
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more of them, to Lender,
as well as all claims by Lender against Grantor, or any one or more of
them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means WESTAMERICA BANK, its successors and
assigns.
NOTE. The word "Note" means the note or credit agreement dated March 13,
1997, in the principal amount of $2,250,000.00 from TIER TECHNOLOGIES, INC,
to Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the documents
evidencing or constituting the Collateral, and Grantor will note Lender's
interest upon any and all chattel paper if not delivered to Lender for
possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor, file a
carbon, photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor promptly
will notify Lender before any change in Grantor's name including any change to
the assumed business names of Grantor. THIS IS A CONTINUING SECURITY
AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL OR ANY PART OF THE
INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY
NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and its
certificate or articles of incorporation and bylaws do not prohibit any term
or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is enforceable
in accordance with its terms, is genuine, and complies with applicable laws
concerning form, content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have authority and
capacity to contract and are in fact obligated as they appear to be on the
Collateral. At the time any account becomes subject to a security interest in
favor of Lender, the account shall be a good and valid account representing an
undisputed, bona fide indebtedness incurred by the account debtor, for
merchandise held subject to delivery instructions or theretofore shipped or
delivered pursuant to a contract of sale, or for services theretofore
performed by Grantor with or for the account debtor;
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03-13-1997 COMMERCIAL SECURITY AGREEMENT
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there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver to
Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral from
its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of its
business, including the sales of inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other
titled property, Grantor shall not take or permit any action which would
require application for certificates of title for the vehicles outside the
State of California, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to buyers
who qualify as a buyer in the ordinary course of business. A sale in the
ordinary course of Grantor's business does not include a transfer in partial
or total satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to any
lien, security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior written consent of
Lender. This includes security interests even if junior in right to the
security interests granted under this Agreement. Unless waived by Lender, all
proceeds from any disposition of the Collateral (for whatever reason) shall be
held in trust for Lender and shall not be commingled with any other funds;
provided however, this requirement shall not constitute consent by Lender to
any sale or other disposition. Upon receipt, Grantor shall immediately
deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's rights
in the Collateral against the claims and demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including such
information as Lender may require, including without limitation names and
addresses of account debtors and agings of accounts and general intangibles.
Insofar as the Collateral consists of inventory and equipment, Grantor shall
deliver to Lender, as often as Lender shall require, such lists, descriptions,
and designations of such Collateral as Lender may require to identify the
nature, extent, and location of such Collateral. Such information shall be
submitted for Grantor and each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all tangible
Collateral in good condition and repair. Grantor will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral.
Lender and its designated representatives and agents shall have the right at
all reasonable times to examine, inspect, and audit the Collateral wherever
located. Grantor shall immediately notify Lender of all cases involving the
return, rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising with
respect to the Collateral; and generally of all happenings and events
affecting the Collateral or the value or the amount of the Collateral.
33
<PAGE>
03-13-1997 COMMERCIAL SECURITY AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness, or
upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and so
long as Lender's interest in the Collateral is not jeopardized in Lender's
sole opinion. If the Collateral is subjected to a lien which is not
discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a
sufficient corporate surety bond or other security satisfactory to Lender in
an amount adequate to provide for the discharge of the lien plus any interest,
costs, attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall defend
itself and Lender and shall satisfy any final adverse judgment before
enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly with
all laws, ordinances, rules and regulations of all governmental authorities,
now or hereafter in effect, applicable to the ownership, production,
disposition, or use of the Collateral. Grantor may contest in good faith any
such law, ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Lender's interest in the
Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien on
the Collateral, used for the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened release of any hazardous waste or
substance, as those terms are defined in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization
Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of
Division 20 of the California Health and Safety Code, Section 25100, et seq.,
or other applicable state or Federal laws, rules, or regulations adopted
pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum and petroleum by-
products or any fraction thereof and asbestos. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances. Grantor
hereby (a) releases and waives any future claims against Lender for indemnity
or contribution in the event Grantor becomes liable for cleanup or other costs
under any such laws, and (b) agrees to indemnify and hold harmless Lender
against any and all claims and losses resulting from a breach of this
provision of this Agreement. This obligation to indemnify shall survive the
payment of the Indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with respect
to the Collateral, in form, amounts, coverages and basis reasonably acceptable
to Lender and issued by a company or companies reasonably acceptable to
Lender. Grantor, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted preference
claim in Borrower's bankruptcy will become a part of the Indebtedness and, at
Lender's option, shall be payable by Borrower as provided above in the
"EXPENDITURES BY LENDER" paragraph.
SEVERABLLITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision
34
<PAGE>
03-13-1997 COMMERCIAL SECURITY AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of any
of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withhold in the sole
discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for the
Indebtedness, Borrower irrevocably waives, disclaims and relinquishs all
claims against such other person which Borrower has or would otherwise have by
virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity, contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH
13.1997.
GRANTOR:
TIER TECHNOLOGIES, INC.
BY:____________________________ BY:____________________________
JAMES L. BILDNER, CHAIRMAN GEORGE K. ROSS, SVP/CFO
================================================================================
LASER PRO, Reg. U.S. Pat.& T.M. Off., Ver. 3.23(c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-E40 70400488.LN C2.OVL]
35
<PAGE>
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code and will remain effective, with certain exceptions, for 5 years
from date of filing.
- --------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) FILING OFFICE ACCT.#
(optional)
- --------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
WESTAMERICA BANK
SACTO/SOLANO CREDIT ADM.
2400 HILBORN ROAD
FAIRFIELD, CA 94533
- --------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION if applicable [_] LESSOR/LESSEE [_]CONSIGNOR/CONSIGNEE
- --------------------------------------------------------------------------------
[_]NON-UCC FILING
- -----------------
____________
I.DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b)
--------------------------------------------------------------------
1a. ENTITY'S NAME
OR TIER TECHNOLOGIES, INC.
--------------------------------------------------------------------
1.b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
--------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
1350 TREAT BOULEVARD, SUITE 250 WALNUT CREEK CA 94596
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1d. S.S. OR TAX 1.0.9 OPTIONAL Ie. TYPE OF ENTITY 1f. ENTITY'S STATE lg. ENTITY'S ORGANIZATIONAL
ADD'NL INFO OR COUNTRY OF ID.# if any
RE ENTITY ORGANIZATION
DEBTOR
94-3145844 [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2.ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME -insert only one debtor name (2a or
2b)
--------------------------------------------------------------------
2a. ENTITY'S NAME
OR
--------------------------------------------------------------------
2.b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
--------------------------------------------------------------------
36
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2d. S.S. OR TAX 1.0.9 OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL ID.# if any
ADD'NL INFO OR COUNTRY OF
RE ENTITY ORGANIZATION
DEBTOR
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3.SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME -
insert only one debtor name (3a or 3b)
--------------------------------------------------------------------
3a. ENTITY'S NAME
OR WESTAMERICA BANK
--------------------------------------------------------------------
3.b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
SACTO/SOLANO CREDIT ADM., FAIRFIELD CA 94533
2400 HILBORN ROAD
- --------------------------------------------------------------------------------
4.This FINANCING STATEMENT covers the following types or items of property:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES;
WHETHER ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL
RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO
ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER
ACCOUNTS PROCEEDS).
- --------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT assigned by the Secured 7. If filed in
BOX [ ] Party instead of the Debtor to perfect a security Florida (check
interest (a)in collateral already subject to a one) [ ]
security interest in another jurisdiction when it Documentary
was brought into this state, or when the debtor' stamp tax paid
location was changed to this state, or (b) in [X] Documentary
accordance with other statutory provisions stamp tax not
[additional data may be required] applicable
- --------------------------------------------------------------------------------
6. REQUIRED SIGNATURES(S) 8. [_]This FINANCING STATEMENT is to be filed [for
record](or recorded) in the REAL ESTATE RECORDS
Attach Addendum [if applicable]
- -------------------------------------------------------------------------------
GEORGE K. ROSS, SVP/CFO 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
[ADDITIONAL FEE]
(optional) [X] All Debtors [_] Debtor 1 [_] Debtor 2
- --------------------------------------------------------------------------------
JAMES L. BILDNER, CHAIRMAN CFI PROSERVICES, INC. 400 S.W. 6TH AVENUE,
PORTLAND, OREGON 97204
(4) DEBTOR COPY -- NATIONAL FINANCING STATEMENT (FORM UCC1) (TRANS) (REV.
12/18/95)
37
<PAGE>
<TABLE>
<CAPTION>
AGREEMENT TO PROVIDE INSURANCE
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$2,250,000.00 03-13-1997 05-31-1998 704-00488
- ----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
<S> <C>
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
</TABLE>
================================================================================
INSURANCE REQUIREMENTS. TIER TECHNOLOGIES, INC. ("Grantor') understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accomodations to Grantor by Lender. These
requirements are set forth in the security documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
COLLATERAL: ALL INVENTORY AND EQUIPMENT.
TYPE. All risks, including fire, theft and liability.
AMOUNT. Full insurable value.
BASIS. Replacement value.
ENDORSEMENTS. Lender's loss payable clause with stipulation that coverage
will not be canceled or diminished without a minimum of thirty (30) days'
prior written notice to Lender.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, on or before
closing, evidence of the required insurance as provided above, with an effective
date of March 13, 1997, or earlier. Grantor acknowledges and agrees that if
Grantor fails to provide any required insurance or fails to continue such
insurance in force, Lender may do so at Grantor's expense as provided in the
applicable security document. The cost of any such insurance, at the option of
Lender, shall be payable on demand or shall be added to the indebtedness as
provided in the security document. GRANTOR ACKNOWLEDGES THAT IF LENDER SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION,
THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accomodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 13,1997.
GRANTOR:
TIER TECHNOLOGIES, INC.
BY:_____________________________________ BY:_________________________________
JAMES L. BILDNER, CHAIRMAN GEORGE K. ROSS, SVP/CFO
<PAGE>
- --------------------------------------------------------------------------------
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE:________________ PHONE:____________
AGENT'S NAME:__________________________________________________________________
INSURANCE COMPANY:D____________________________________________________________
POLICY NUMBER:_________________________________________________________________
EFFECTIVE DATES:_______________________________________________________________
COMMENTS:______________________________________________________________________
- --------------------------------------------------------------------------------
================================================================================
LASER PRO, Reg. U.S. Pat. &T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices,Inc.
All rights reserved. [CA-l10 70400488.LN C2.OVL]
39
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,250,000.00 03-13-1997 05-31-1998 704-00488
- -------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
================================================================================
LOAN TYPE. This is a Variable Rate (1.500% over Westamerica Bank Index Rate,
making an initial rate of 9.750%), Revolving Line of Credit Loan to a
Corporation for $2,250,000.00 due on May 31, 1998.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[_] PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT.
[X] BUSINESS (INCLUDING REAL ESTATE INVESTMENT).
SPECIFIC PURPOSE. The specific purpose of this loan is: FUND SHORT-TERM WORKING
CAPITAL.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $2,250,000.00 as follows:
<TABLE>
<S> <C>
UNDISBURSED FUNDS: $1,567,884.28
AMOUNT PAID TO OTHERS ON BORROWER'S BEHALF: $ 682,115.72
$682,115.72 to PRINCIPAL REDUCTION OF #704-00305
-------------
Note Principal: $2,250,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges:
PREPAID FINANCE CHARGES PAID IN CASH: $ 1,250.00
$1,250.00 Loan Fees
-------------
TOTAL CHARGES PAID IN CASH: $ 1,250.00
</TABLE>
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED MARCH 13,1997.
BORROWER:
TIER TECHNOLOGIES, INC.
By:_______________________ By:_____________________________
JAMES L. BILDNER, CHAIRMAN GEORGE K. ROSS, SVP/CFO
================================================================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.23 (c)1997 CFI ProServices, Inc. All rights
reserved. [CA-120 70400488.LN C2.OVL]
<PAGE>
THIS STATEMENT IS PRESENTED FOR FILING PURSUANT TO THE CALIFORNIA UNIFORM
COMMERCIAL CODE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1. FILE NO. OF ORIG. 1A. DATE OF FILING OF ORIG. 1B. DATE OF ORIG. FINANCING 1C. PLACE OF FILING ORIG.
FINANCING STATEMENT FINANCING STATEMENT STATEMENT FINANCING STATEMENT
<S> <C> <C> <C>
94134986 07-05-1994 06-16-1994 Sacramento
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY,
FEDERAL TA NO.
TIER CORPORATION 94-3145844
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
1280 CIVIC DRIVE, SUITE 206 WALNUT CREEK 94596
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR FEDERAL TAX NC.
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO., FED. TAX NO. OR BANK TRANSIT AND
A.B.A. NO.
WESTAMERICA BANK
4550 MANGLES BOULEVARD 94-0475470
FAIRFIELD, CALIFORNIA
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY(IF ANY) 5A. SOCIAL SECURITY NO., FED. TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A [_] CONTINUATION-- The original Financing Statement between the foregoing
Debtor and Secured Party bearing the file number and date shown above
is continued. If collateral is crops or timber, check here [_] and
insert description of real property on which growing or to be grown in
Item 7 below.
B [_] RELEASE-- From the collateral described in the Financing Statement
bearing the file number shown above, the Secured Party releases the
collateral described in Item 7 below.
C [_] ASSIGNMENT-- The Secured Party certifies that the Secured Party has
assigned to the Assignee above named, all the Secured Party's rights
under the Financing Statement bearing the file number shown above in
the collateral described in Item 7 below.
D [_] TERMINATION-- The Secured Party certifies that the Secured Party no
longer claims a security interest under the Financing Statement
bearing the file number shown above.
E [x] AMENDMENT-- The Financing Statement bearing the file number shown
above is amended as set fourth in Item 7 below. (Signature of Debtor
required on all amendments.)
F [_] OTHER
41
<PAGE>
________________________________________________________________________________
7. AMEND DEBTOR'S NAME TO: TIER TECHNOLOGIES, INC.
________________________________________________________________________________
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C>
8.
9. This Space for Use of Filing Officer
(DATE) MARCH 13, 1997 (Date, Time, Filing Office)
--------------
___________________________________________________
C
By:________________________________________________ O
SIGNATURE (S) OF DEBTOR (S) (TITLE) D
WESTAMERICA BANK E
- ---------------------------------------------------
___
By:________________________________________________
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE) 1
2
___________________________________________________
10. RETURN COPY TO
NAME WESTAMERICA BANK 3
MAILING SACTO/SOLANO CREDIT ADM. 4
CITY AND 2400 HILBORN ROAD 5
STATE FAIRFIELD, CA 94533
6
7
9
(4) FILE COPY - DEBTOR
STANDARD FORM - FILING FEE $3.00
Uniform Commercial Code -- Form UCC-2
Approved by the Secretary of State
- --------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
LOAN AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,250,000.00 03-13-1997 05-31-1998 704-00488
- -------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
================================================================================
THIS LOAN AGREEMENT BETWEEN TIER TECHNOLOGIES, INC. ("BORROWER") AND WESTAMERICA
BANK ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS.
BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO
LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMODATIONS,
INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO
THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL ACCOMODATIONS, TOGETHER WITH ALL
FUTURE LOANS AND FINANCIAL ACCOMODATIONS FROM LENDER TO BORROWER, ARE REFERRED
TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS."
BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING
ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND
AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR
EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE
JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND SHALL REMAIN
SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of MARCH 13, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
ACCOUNT. The word "Account" means a trade account, account receivable. or
other right to payment for goods sold or services rendered owing to Borrower
(or to a third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.
BORROWER. The word "Borrower" means TIER TECHNOLOGIES, INC.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
BORROWING BASE. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $3,750,000.00; or (b) 80.000% of the
aggregate amount of Eligible Accounts.
BUSINESS DAY. The words "Business Day" mean a day on which commercial banks
are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.
<PAGE>
03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien,
charge, lien or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise. The word "Collateral" includes
without limitation all collateral described below in the section titled
"COLLATERAL."
DEBT. The word "debt' means all of Borrower's liabilities excluding
Subordinated Debt.
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable to
Lender. The net amount of any Eligible Account against which Borrower may
borrow shall exclude all returns, discounts, credits, and offsets of any
nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts
do not include:
(a) Accounts with respect to which the Account Debtor is an officer, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary
of, or affiliated with or related to Borrower or its shareholders,
officers, or directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower.
(e) Accounts which are subject to dispute, counterclaim, or setoff.
(f) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account
Debtor.
(g) Accounts with respect to which Lender, in its sole discretion, deems
the creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.
(h) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or debtor-
in-relief acts; or who has had appointed a trustee, custodian, or
receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or fails
generally to pay its debts (including its payrolls) as such debts become
due.
(i) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States.
(j) Accounts which have not been paid in full within 90 DAYS from the
invoice date.
(k) That portion of the Accounts of any single Account Debtor which
exceeds 20.000% of all of Borrower's Accounts.
(l) IF 20% OF ANY ACCOUNT EXCEEDS 90 DAYS PAST DUE, THE ENTIRE ACCOUNT
WILL BE DEEMED INELIGIBLE THAT PORTION OF THE ACCOUNT OF ANY SINGLE
ACCOUNT DEBTOR WHICH EXCEEDS 20% OF ALL BORROWER'S ACCOUNTS WILL BE
REVIEWED FOR ELIGIBILITY BY BANK OR A CASE BY CASE BASIS.
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the date of termination of
Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any Collateral
for the Indebtedness, including without limitation all Borrowers granting
such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in connection
with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor,
surety, or otherwise; whether recovery upon such Indebtedness may be or
hereafter may become barred by any statute of limitations; and whether such
Indebtedness may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means WESTAMERICA BANK, its successors and
assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT' below.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accomodations from Lender to Borrower,
whether now or hereafter existing, and however evidenced, including without
limitation those loans and financial accomodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of materialmen, mechanics, warehousemen, or
carriers, or other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (d) purchase money liens
or purchase money security interests upon or in any property acquired or held
by Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens
and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of Borrower's
assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements,
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection with the
Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings
or other agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but
including leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "'Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject to
the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered by
Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall be
in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall have
been executed by each Guarantor, delivered to Lender, and be in full
force and effect.
(e) Lender, at its option and for its sole benefit, shall have conducted
an audit of Borrower's Accounts, books, records, and operations, and
Lender shall be satisfied as to their condition.
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due and
payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and Borrower
shall have delivered to Lender the compliance certificate called for in
the paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
either orally or in writing by authorized persons. Lender may, but need not,
require that all oral requests be confirmed in writing. Each Advance shall
be conclusively deemed to have been made at the request of and for the
benefit of Borrower (a) when credited to any deposit account of Borrower
maintained with Lender or (b) when advanced in accordance with the
instructions of an authorized person. Lender, at its option, may set a
cutoff time, after which all requests for Advances will be treated as having
been requested on the next succeeding Business Day. Under no circumstances
shall Lender be required to make any Advance in an amount less than
$1,000.00.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount of
all Advances then outstanding and all accrued unpaid interest, together with
all other applicable fees, costs and charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's account,
which statements shall be considered to be correct and conclusively binding
on Borrower unless Borrower notifies Lender to the contrary within thirty
(30) days after Borrower's receipt of any such statement which Borrower deems
to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require (the "Collateral"), including without
limitation Borrower's present and future Accounts and general intangibles.
Lender's Security Interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and any
similar statements as may be required by applicable law, and will file such
financing statements and all such similar statements in the appropriate
location or locations. Borrower hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue any Security Interest. Lender may at any time, and
without further authorization from Borrower, file a carbon, photograph,
facsimile, or other reproduction of any financing statement for use as a
financing statement. Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of Lender's
security interest in the Collateral. Borrower promptly will notify Lender of
any change in Borrower's name including any change to the assumed business
names of Borrower. Borrower also promptly will notify Lender of any change
in Borrower's Social Security Number or Employer Identification Number.
Borrower further agrees to notify
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
Lender in writing prior to any change in address or location of Borrower's
principal governance office or should Borrower merge or consolidate with any
other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the Accounts,
Borrower agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligible Accounts and
Account balances and agings. The following is an accurate and complete list
of all locations at which Borrower keeps or maintains business records
concerning Borrower's Accounts: WALNUT CREEK, CA.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of
Accounts and Eligible Accounts, in form and substance satisfactory to the
Lender. Thereafter Borrower shall execute and deliver to Lender such
supplemental schedules of Eligible Accounts and such other matters and
information relating to Borrower's Accounts as Lender may request.
Supplemental schedules shall be delivered according to the following
schedule: MONTHLY WITHIN 20 DAYS OF MONTH END, SCHEDULE SHALL INCLUDE
PAYABLES.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; and (c) Lender, its
assigns, or agents shall have the right at any time and at Borrower's expense
to inspect, examine, and audit Borrower's records and to confirm with Account
Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California and
is validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged or
presently proposes to engage. Borrower also is duly qualified as a foreign
corporation and is in good standing in all states in which the failure to so
qualify would have a material adverse effect on its businesses or financial
condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not conflict
with, result in a violation of, or constitute a default under (a) any
provision of its articles of incorporation or organization, or bylaws, or any
agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms.
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq., or other applicable state or Federal laws,
rules, or regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower represents and
warrants that: (a) During the period of Borrower's ownership of the
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste or
substance by any person on, under, about or from any of the properties. (b)
Borrower has no knowledge of, or reason to believe that there has been (i)
any use, generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about or
from the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of any kind
by any person relating to such matters. (c) Neither Borrower nor any tenant,
contractor, agent or other authorized user of any of the properties shall
use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, about or from any of the properties;
and any such activity shall be conducted in compliance with all applicable
federal, state, and local laws, regulations, and ordinances, including
without limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any other
person. The representations and warranties contained herein are based on
Borrower's due diligence in investigating the properties for hazardous waste
and hazardous substances. Borrower hereby (a) releases and waives any future
claims against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws, and (b) agrees
to indemnify and hold harmless Lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to Borrower's
ownership or interest in the properties, whether or not the same was or
should have been known to Borrower. The provisions of this section of the
Agreement, including the obligation to indemnify, shall survive the payment
of the Indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith in
the ordinary course of business and for which adequate reserves have been
provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or affecting
any of the Collateral directly or indirectly securing repayment of Borrower's
Loan and Note, that
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
would be prior or that may in any way be superior to Lender's Security
Interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to any
such plan, (ii) Borrower has not withdrawn from any such plan or initiated
steps to do so, (iii) no steps have been taken to terminate any such plan,
and (iv) there are no unfunded liabilities other than those previously
disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 1350 TREAT BOULEVARD, SUITE 250, WALNUT CREEK, CA
94596. Unless Borrower has designated otherwise in writing this location is
also the office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Lender will be, true and
accurate in every material respect on the date as of which such information
is dated or certified; and none of such information is or will be incomplete
by omitting to state any material fact necessary to make such information not
misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect until
such time as Borrower's Indebtedness shall be paid in full, or until this
Agreement shall be terminated in the manner provided above, whichever is the
last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis, and
permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and, as soon
as available, but in no event later than forty five (45) days after the end
of each month, Borrower's balance sheet and profit and loss statement for the
period ended, prepared and certified as correct to the best knowledge and
belief by
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
Borrower's chief financial officer or other officer or person acceptable to
Lender. All financial reports required to be provided under this Agreement
shall be prepared in accordance with generally accepted accounting
principles, applied on a consistent basis, and certified by Borrower as being
true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports with
respect to Borrower's financial condition and business operations as Lender
may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities
in excess of 1.40 to 1.00. Except as provided above, all computations
made to determine compliance with the requirements in this paragraph
shall be made in accordance with generally accepted accounting
principles, applied on a consistence basis, and certified by Borrower as
being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and
with insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least thirty (30) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or default
of Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the name
of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values; and (f) the expiration date of the policy. In addition, upon request
of Lender (however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement cost of any Collateral. The cost of such
appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantors named
below, on Lender's forms, and in the amounts and under the conditions spelled
out in those guaranties.
<TABLE>
<CAPTION>
GUARANTORS AMOUNTS
---------- -------------
<S> <C>
BRADLEY H. NICKELS $4,000,000.00
BRYAN D. MCCAUL $4,000,000.00
WILLIAM G. BARTON $4,000,000.00
JAMES L. BILDNER $4,000,000.00
</TABLE>
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for the following specific
purposes: SHORT TERM WORKING CAPITAL EXCEPT AS OTHERWISE DEFINED IN BUSINESS
LOAN AGREEMENT.
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties income, or profits.
Provided however, Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claims, so long as (a) the legality of
the same shall be contested in good faith by appropriate proceedings, and (b)
Borrower shall have established on its books adequate reserves with respect
to such contested assessment, tax, charge, levy, lien, or claim in accordance
with generally acceptable accounting practices. Borrower, upon demand of
Lender, will furnish to Lender evidence of payment of the assessments, taxes,
charges, levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written statement of
any assessments, taxes, charges, levies, liens and claims against Borrower's
properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any event
which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and records.
If Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software programs
for the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit Lender
free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds with
a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's accounts,
except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
on its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income tax
payments to satisfy their liabilities under federal and state law which arise
solely from their status as Shareholders of a Subchapter S Corporation
because of their ownership of shares of stock of Borrower, or (d) purchase or
retire any of Borrower's outstanding shares or alter or amend Borrower's
capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise
or entity, or (c) incur any obligation as surety or guarantor other than in
the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
53
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
TANGIBLE NET WORTH. The definition of Tangible Net Worth, as defined under
paragraph heading "Definitions" is modified as follows: Net Worth, less
intangibles and deferred accounts.
COMPLIANCE CERTIFICATE. The certification requirements in the paragraph titled
"Compliance Certificate" is hereby waived, however the Lender reserves the
option to reinstate the requirements upon notification to the Borrower.
ADDITIONAL PROVISIONS:.
1) BORROWER SHALL MAINTAIN ANNUAL PROFITABILITY (DEFINED AS: NET PROFITS AFTER
DIVIDENDS AND TAXES).
2) BORROWER SHALL MAINTAIN A MINIMUM TANGIBLE NET WORTH (INCLUDING
SUBORDINATED DEBT) LESS INTANGIBLES OF $1,000,000.00. THIS INCREASES TO
$1,250,000.00 AS OF 9/30/97; AND INCREASES TO $1,750,000.00 AS OF 12/31/97 AND
THEREAFTER.
3) BORRROWER SHALL MAINTAIN A MAXIMUM RATIO OF TOTAL DEBT (LESS SUBORDINATED
DEBT) TO TANGIBLE NET WORTH (INCLUDING SUBORDINATED DEBT) OF 4.0/1. THIS RATIO
DECREASES TO 3.0 TO 1 AS OF 12/31/97 AND THEREAFTER.
4) BORROWER SHALL MAINTAIN A MINIMUM CASH FLOW COVERAGE RATIO OF 1.10/1 ON AN
ANNUAL BASIS (AS OF EACH FISCAL YEAR END) DEFINED AS: NET PROFIT PLUS
DEPRECIATION LESS DIVIDENDS TO CURRENT PORTION OF LONG TERM DEBT.
5) BORROWER SHALL LIMIT CAPITAL EXPENDITURES/CAPITALIZED LEASES TO A MAXIMUM
OF $250,000.00 IN ANY FISCAL YEAR. (EXCLUSIVE OF COMPANY ACQUISTIONS)
6) BORROWER SHALL NOT ALLOW OR INCUR ANY ADDITIONAL INDEBTEDNESS EXCEPT FOR
TRADE FINANCING INCURRED IN THE NORMAL COURSE OF BUSINESS
7) BORROWER SHALL NOT ALLOW ANY LIENS, PLEDGES OR ENCUMBRANCES OF ASSETS
EXCEPT FOR PURCHASE MONEY EQUIPMENT FINANCING IN THE NORMAL COURSE OF BUSINESS.
8) BORROWER SHALL PROVIDE TO BANK A COPY OF BORROWER'S AGING OF ACCOUNTS
RECEIVABLE AND ACCOUNTS PAYABLE (IN FORM AND SUBSTANCE SATISFACTORY TO BANK)
WITHIN 20 DAYS OF THE END OF EACH MONTH.
9) BORROWER SHALL PROVIDE TO BANK WITHIN 20 DAYS OF THE END OF EACH MONTH A
COMPLETED AND SIGNED ACCOUNTS RECEIVABLE AND INVENTORY TRANSACTION REPORT.
10) BORROWER SHALL COOPERATE WITH BANK'S PERFORMANCE OF PERIODIC (SEMI-ANNUAL)
COLLATERAL FIELD AUDIT/EXAMINATIONS OF BORROWER'S BOOKS AND RECORDS. BORROWER
SHALL PAY FOR THESE FIELD AUDITS WITHIN 30 DAYS OF BILLING BY BANK.
11) BORROWER SHALL PROVIDE COPIES OF FEDERAL TAX RETURNS WITHIN 10 DAYS OF
FILING.
12) BORROWER SHALL INDUCE GUARANTORS TO PROVIDE UPDATED FINANCIAL STATEMENTS
AND COPIES OF FEDERAL TAX RETURNS ANNUALLY.
13) BORROWER SHALL PROMPTLY ADVISE BANK IN WRITING OF ALL ACTIONS, SUITS AND
PROCEEDINGS PENDING OR TO THE KNOWLEDGE OF BORROWER THREATENED, INVOLVING THE
POSSIBILITY OF MONETARY JUDGEMENT OR PENALTY AGAINST BORROWER WHICH MIGHT IN THE
AGGREGATE EXCEED $100,000.00.
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
14) BORROWER SHALL NOT DECLARE OR PAY ANY DIVIDENDS, WITHDRAWALS,
DISTRIBUTIONS; ALSO NO EXCESSIVE SALARIES WHICH WOULD MATERIALLY DIMINISH
TANGIBLE NET WORTH.
15) BORROWER SHALL NOT ADVANCE OR LOAN FUNDS TO OWNERS OR OTHERS.
16) ANY USE OF LOAN FUNDS FOR ACQUISITION PURPOSES IS SUBJECT TO PRIOR
SATISFACTORY REVIEW BY BANK. BANK RESERVES THE RIGHT TO INSPECT THE ACQUISITION
BUY-SELL AGREEMENT; THE FINANCIAL STATEMENTS OF COMPANY TO BE ACQUIRED; AND
RECENT A/R AND A/P AGINGS OF THE COMPANY TO BE ACQUIRED. THESE ITEMS MUST BE
SUBMITTED TO BANK FOR REVIEW PRIOR TO FINALIZING ANY ACQUISITION.
17) UNDER THE NON-REVOLVING EQUIPMENT COMMITMENT: BANK AGREES TO ADVANCE 100%
OF THE PURCHASE PRICE OF NEW FIXED ASSETS BASED ON INVOICES PRESENTED TO BANK
(80% ON USED).
18) BANK AGREES TO TERM OUT THE THEN EXISTING BALANCE OF THE NON-REVOLVING
EQUIPMENT LINE COMMITMENT ON OR BEFORE EACH NOVEMBER 30 AND MAY 31; OVER A
PERIOD NOT TO EXCEED 54 MONTHS; THE BALANCE FULLY AMORTIZING WITH MONTHLY
INSTALLMENTS OF PRINCIPAL WITH INTEREST ADDED. THIS IS CONDITIONAL UPON
BORROWER BEING IN COMPLIANCE WITH ITS AGREEMENTS WITH BANK. A SEPARATE
PROMISSORY NOTE MAY BE DRAWN AND WILL BEAR INTEREST AT THE RATE DESCRIBED ON THE
NON-REVOLVING EQUIPMENT LINE NOTE.
19) NOTWITHSTANDING THE MATURITY OF THE REVOLVING LINE OF CREDIT, THE LINE WILL
BE SUBJECT TO AN ACCRUAL FEE ON ITS ANNIVERSARY DATE MAY 31,1997. THE FEE WILL
BE NEGOTIATED BY BANK AND BORROWER ON OR BEFORE MAY 31,1997.
20) A NON-REVOLVING LINE OF CREDIT FOR $1,500,000.00 IS PROVIDED FOR MAKING ONE
OR MORE ACQUISITIONS OF ASSETS OF OTHER COMPANIES. THE BALANCE OF BORROWER'S
EXISTING ACQUISITION LINE WILL BE CONSOLIDATED INTO THE NEW $1,500,000.00
FACILITY. OUTSTANDING BALANCES ON THE $1,500,000.00 NON-REVOLVING ACQUISITION
LINE WILL BE TERMED OUT ON OR BEFORE MAY 31, 1997; AND AGAIN ON OR BEFORE
DECEMBER 31, 1997 FOR ADDITIONAL BALANCES; FULLY AMORTIZED OVER A MAXIMUM OF
FOUR YEARS AT THE LINE NOTE RATE. A SEPARATE NOTE MAY BE DRAWN BY BANK TO
EFFECT THE TERM OUT ON OR BEFORE MAY 31,1997.
21) FOR BORROWING BASE PURPOSES THOSE FUNDS ADVANCED AND OUTSTANDING ON THE
NON-REVOLVING $1,500,000.00 ACQUISITION LINE OR SUBSEQUENT TERM OUT(S) OF SAME;
WILL BE DEEMED AS AN OUTSTANDING LINE BALANCE, TOGETHER WITH OUTSTANDING
OPERATING LINE BALANCES, AND TOGETHER WITH THE AGGREGATE AMOUNT OF ANY ISSUED
BUT UNDRAWN LETTERS OF CREDIT, FOR COVERAGE UNDER THE BORROWING BASE FORMULA
CALCULATIONS.
22) NOTWITHSTANDING THE TERMS OF THIS AGREEMENT BANK AGREES TO ALLOW A MAXIMUM
85% ADVANCE RATE AGAINST ELIGIBLE ACCOUNTS UNTIL 9-30-97. THERE IS A REVIEW
PERIOD AT 6-30-97, WHERE THE BANK WILL HAVE THE OPTION TO REVERT THE ADVANCE
RATE TO THE 80% LEVEL. AFTER 9-30-97 OR 6-30-97, AT BANK'S OPTION, THE ADVANCE
RATE REVERTS TO 80%.
23) NOTWITHSTANDING THE SECTION IN THIS AGREEMENT ON INELIGIBLE ACCOUNTS, BANK
AGREES TO ALLOW AS ELIGIBLE ACCOUNTS, THOSE FOREIGN ACCOUNTS RECEIVABLE DUE TO
BORROWER OR ANY OF ITS WHOLLY OWNED FOREIGN SUBSIDIARIES; ONLY TO THE EXTENT
THAT SUCH ACCOUNTS ARE INSURED, NAMING BANK AS ASSIGNEE OR LOSS PAYEE AS IT MAY
REQUIRE. THE INSURANCE COVERAGE MUST BE SATISFACTORY TO BANK IN ITS SOLE
DISCRETION. INSURED ACCOUNTS TO BE CONSIDERED FOR BORROWING LEASE ELIGIBILITY
SHALL BE SUBMITTED MONTHLY WITH BORROWER'S OTHER ACCOUNTS RECEIVABLE. THE
AMOUNTS CONSIDERED FOR ELIGIBILITY SHALL BE GROSS INSURED FOREIGN A/R LESS ANY
DEDUCTIBLES OR CO-PAY AMOUNTS. ANY FOREIGN ACCOUNTS TO BE DEEMED ELIGIBLE FOR
55
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03-13-1997 LOAN AGREEMENT
LOAN NO 704-00488 (CONTINUED)
================================================================================
BORROWING BASE PURPOSES MUST BE SATISFACTORY TO LENDER UPON LENDER'S REVIEW AND
LENDER'S SOLE DISCRETION.
24) THE $2,250,000.00 LINE OF CREDIT CONTAINS A $500,000.00 SUB-LIMIT WITHIN
THE LINE FOR ISSUANCE OF STAND-BY LETTERS OF CREDIT.
25) THE $500,000.00 LETTER OF CREDIT FACILITY FOR ISSUANCE OF STAND-BY LC'S
SHALL BE CONSIDERED A SUB-LIMIT UNDER THE $2,250,000.00 OPERATING LINE OF
CREDIT. LC'S ISSUED, BUT UNDRAWN SHALL BE MADE AS A REDUCTION IN THE
AVAILABILITY UNDER SAID LINE.
26) STAND-BY LETTERS OF CREDIT ISSUED ARE SUBJECT TO THE TERMS AND CONDITIONS
IN EACH WESTAMERICA BANK OR BANK OF AMERICA STAND-BY LETTER OF CREDIT
APPLICATION AND AGREEMENT SIGNED BY BORROWER.
27) THE MATURITY DATE OF ANY STAND-BY LETTER OF CREDIT SHALL NOT EXTEND BEYOND
ONE YEAR AND SHALL NOT MATURE BEYOND 5-31-98 WITHOUT AUTHORIZATION OF BANK.
28 THERE WILL BE A 2% PER ANNUM ISSUANCE FEE PLUS OUT OF POCKET EXPENSES
INCLUDING STANDARD NEGOTIATION FEES IF DRAWN, ON EACH STAND-BY LETTER OF CREDIT.
29) EACH LETTER OF CREDIT SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO LENDER
AND IN FAVOR OF BENEFICIARIES SATISFACTORY TO LENDER, PROVIDED THAT LENDER MAY
REFUSE TO ISSUE A LETTER OF CREDIT DUE TO THE NATURE OF THE TRANSACTION OR ITS
TERMS OR ITS CONNECTION WITH ANY TRANSACTION WHERE LENDER, DUE TO THE
BENEFICIARY OR THE NATIONALITY OR RESIDENCE OF SUCH BENEFICIARY WOULD BE
PROHIBITED BY ANY APPLICABLE LAW, REGULATION, OR ORDER FROM ISSUING SUCH LETTER
OF CREDIT.
30) PRIOR TO THE ISSUANCE OF EACH LETTER OF CREDIT, BORROWER SHALL DELIVER TO
LENDER A DULY EXECUTED FORM OF LENDER'S (OR BANK OF AMERICA'S) STANDARD FORM OF
APPLICATION FOR ISSUANCE OF LETTER OF CREDIT WITH PROPER INSERTIONS.
31) LETTERS OF CREDITS, ISSUED, BUT UNDRAWN SHALL BE CONSIDERED AN OUTSTANDING
LINE OF CREDIT BALANCE FOR BORROWING BASE CALCULATIONS PURPOSES.
32) BORROWER SHALL PROVIDE LENDER WITH ITS CURRENT OWNERSHIP/SHAREHOLDER LIST,
AND UPDATE AS THE CORPORATE OWNERSHIP CHANGES..
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on
the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained
in this Agreement or in any of the Related Documents, or failure of Borrower
to comply with or to perform any other term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
56
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03-13-1997 LOAN AGREEMENT
Loan No 704-00488 (CONTINUED)
================================================================================
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at any
time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any
part of Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor
against any collateral securing the Indebtedness, or by any governmental
agency. This includes a garnishment, attachment, or levy on or of any of
Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition. or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or parties
sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF MARIN
COUNTY, THE STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE THE RIGHT
TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY
EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
57
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03-13-1997 LOAN AGREEMENT
Loan No 704-00488 (CONTINUED)
================================================================================
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under this
Agreement shall be joint and several, and all references to Borrower shall
mean each and every Borrower. This means that each of the persons signing
below is responsible for all obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of
such interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any interest
in the Loans. Borrower further agrees that the purchaser of any such
participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant to
this Agreement. Lender may pay someone else to help collect the Loans and to
enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated post-
judgment collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above. Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the
purpose of the notice is to change the party's address. To the extent
permitted by applicable law, if there is more than one Borrower, notice to
any Borrower will constitute notice to all Borrowers. For notice purposes,
Borrower will keep Lender informed at all times of Borrower's current
address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
58
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03-13-1997 LOAN AGREEMENT
Loan No 704-00488 (CONTINUED)
================================================================================
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery to
Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required, and in all
cases such consent may be granted or withheld in the sole discretion of
Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO IT TERMS. THIS AGREEMENT IS DATED AS OF MARCH 13,1997.
BORROWER:
TIER TECHNOLOGIES, INC.
BY: /s/ JAMES L. BILDNER BY:/s/GEORGE K. ROSS
- ------------------------------- ------------------------
JAMES L. BILDNER, CHAIRMAN GEORGE K. ROSS. SVP/CFO
LENDER:
WESTAMERICA BANK
BY: /s/ JAMES P. BURKE
--------------------------------------
AUTHORIZED OFFICER
================================================================================
LASER PRO, Reg. U.S. Pat. &T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-C40 7040048.LN C2.OVL]
59
<PAGE>
<TABLE>
<CAPTION>
PROMISSORY NOTE
- ------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.00 03-13-1997 12-31-1997 704-00489
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
================================================================================
PRINCIPAL AMOUNT: $1,500,000.00 INITIAL RATE: 10.000% DATE OF NOTE: MARCH
PROMISE TO PAY. TIER TECHNOLOGIES, INC. ("BORROWER") PROMISES TO PAY TO
WESTAMERICA BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF ONE MILLION FIVE HUNDRED THOUSAND & 00/100
DOLLARS ($1,500,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST
ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON
DECEMBER 31, 1997. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF
ACCRUED UNPAID INTEREST BEGINNING MARCH 31, 1997, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE LAST DAY OF EACH MONTH AFTER THAT. Interest on this Note
is computed on a 365/360 simple interest basis; that is, by applying the ratio
of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Westamerica Bank Index
Rate (the "Index"). THE BANK'S INDEX RATE IS ESTABLISHED BY BANK IN ITS SAN
RAFAEL HEADQUARTERS OFFICE AS OF THE DATE OF THIS NOTE, AND AS OF EACH DATE THAT
BANK MAY ADJUST SUCH INDEX RATE. LOANS MAY BE MADE BY BANK AT, ABOVE OR BELOW
THE INDEX RATE. Lender will tell Borrower the current Index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than each Day. THE
INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE
UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.750 PERCENTAGE
POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 10.000% PER ANNUM.
NOTICE: Under no circumstances will the interest rate on this Note be more than
the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
MINIMUM INTEREST CHARGE OF $50.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower's making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or
<PAGE>
03-13-1997 PROMISSORY NOTE
Loan No 704-00489 (CONTINUED)
================================================================================
statement made or furnished to Lender by Borrower or on Borrower's behalf is
false or misleading in any material respect either now or at the time made or
furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part
of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against Borrower
under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest. This
includes a garnishment of any of Borrower's accounts with Lender. (g) Any
guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Note. (h) A material adverse change
occurs in Borrower's financial condition, or Lender believes the prospect of
payment or performance of the Indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate on this Note to 5.750 percentage points
over the Index. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated post-
judgment collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF MARIN COUNTY, THE STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
COLLATERAL. This Note is secured by THAT CERTAIN COMMERCIAL SECURITY AGREEMENT
DATED MARCH 13,1997.
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced, Borrower is not entitled to further loan
advances. Advances under this Note may be requested either orally or in writing
by Borrower or by an authorized person. Lender may, but need not, require that
all oral requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of their authority:
WILLIAM G. BARTON, PRESIDENT; JAMES L. BILDNER, CHAIRMAN; AND GEORGE K. ROSS,
SVP/CFO. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note: (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by
61
<PAGE>
<TABLE>
<CAPTION>
AGREEMENT TO PROVIDE INSURANCE
- ------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.00 03-13-1997 12-31-1997 704-00489
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
================================================================================
INSURANCE REQUIREMENTS. TIER TECHNOLOGIES, INC. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accomodations to Grantor by Lender. These
requirements are set forth in the security documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
COLLATERAL: ALL INVENTORY AND EQUIPMENT.
TYPE. All risks, including fire, theft and liability.
AMOUNT. Full insurable value.
BASIS. Replacement value.
ENDORSEMENTS. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of
thirty (30) days' prior written notice to Lender.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, on or before
closing, evidence of the required insurance as provided above, with an effective
date of March 13, 1997, or earlier. Grantor acknowledges and agrees that if
Grantor fails to provide any required insurance or fails to continue such
insurance in force, Lender may do so at Grantor's expense as provided in the
applicable security document. The cost of any such insurance, at the option of
Lender, shall be payable on demand or shall be added to the indebtedness as
provided in the security document. GRANTOR ACKNOWLEDGES THAT IF LENDER SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE
INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accomodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 13,1997.
GRANTOR:
TIER TECHNOLOGIES, INC.
By:_________________________________ By:_______________________________
JAMES L. BILDNER, CHAIRMAN GEORGE K. ROSS, SVP/CFO
<PAGE>
03-13-1997 AGREEMENT TO PROVIDE INSURANCE
Loan No 704-00489 (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE:_________________________________ PHONE:___________________________
AGENT'S NAME:______________________________________________________________
INSURANCE COMPANY:_________________________________________________________
POLICY NUMBER:_____________________________________________________________
EFFECTIVE DATES:___________________________________________________________
COMMENTS:__________________________________________________________________
- --------------------------------------------------------------------------------
================================================================================
LASER PRO, Reg. U.S. Pat.& T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-110 70400489.LN C2.OVL]
63
<PAGE>
<TABLE>
<CAPTION>
DISBURSEMENT REQUEST AND AUTHORIZATION
-----------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.00 03-13-1997 12-31-1997 704-00489
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
===============================================================================
LOAN TYPE. This is a Variable Rate (1.750% over Westamerica Bank Index Rate,
making an initial rate of 10.000%), Non-Revolving Line of Credit Loan to a
Corporation for $1,500,000.00 due on December 31, 1997.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[_] PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT.
[X] BUSINESS (INCLUDING REAL ESTATE INVESTMENT).
SPECIFIC PURPOSE. The specific purpose of this loan is: TO PURCHASE ASSETS OF
COMPANIES ACQUIRED BY BORROWER.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $1,500,000.00 as follows:
<TABLE>
<S> <C>
UNDISBURSED FUNDS: $ 559,465.70
AMOUNT PAID TO OTHERS ON BORROWER'S BEHALF: $ 940,534.30
$940,534.30 to PRINCIPAL REDUCTION OF LOAN #704-00476
-------------
NOTE PRINCIPAL: $1,500,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges:
PREPAID FINANCE CHARGES PAID IN CASH: $ 1,250.00
$1,250.00 Loan Fees
-------------
TOTAL CHARGES PAID IN CASH: $ 1,250.00
</TABLE>
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED MARCH 13,1997.
BORROWER:
TIER TECHNOLOGIES, INC.
BY:________________________________ BY:_________________________
JAMES L. BILDNER, CHAIRMAN GEORGE K. ROSS, SVP/CFO
================================================================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.23(c) 1997 CFI ProServices, Inc. All rights reserved. [CA-120 70400489.LN
C2.OVL]
<PAGE>
<TABLE>
<CAPTION>
CHANGE IN TERMS OF AGREEMENT
-----------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
399,500.00 05-31-1998 704-00491
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
===============================================================================
PRINCIPAL AMOUNT: $399,500.00 DATE OF AGREEMENT: MAY 31,
1997
DESCRIPTION OF EXISTING INDEBTEDNESS.
THAT CERTAIN NOTE DATED MARCH 13,1997, IN THE ORIGINAL AMOUNT OF $99,500.00,
CURRENTLY MATURING ON JULY 31, 1997 WITH AN OUTSTANDING BALANCE AS OF THIS DATE
OF $70,870.00.
DESCRIPTION OF COLLATERAL
THIS NOTE IS SECURED BY THAT CERTAIN COMMERCIAL SECURITY AGREEMENT DATED MARCH
13,1997.
DESCRIPTION OF CHANGE IN TERMS.
EFFECTIVE THE DATE OF THIS AGREEMENT THE MATURITY DATE IS CHANGED FROM JULY 31,
1997 TO MAY 31, 1998.
EFFECTIVE THE DATE OF THIS AGREEMENT THE FACE AMOUNT OF THE NOTE IS INCREASED
FROM $99,500.00 TO $399,500.00.
EFFECTIVE THE DATE OF THIS AGREEMENT THE COMMITMENT AMOUNT IS INCREASED FROM
$28,630.00 TO $328,630.00.
ACCRUED INTEREST SHALL BE PAYABLE ON THE LAST DAY OF EACH MONTH BEGINNING JUNE
30, 1997 AND ON MAY 31, 1998 ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED BUT
UNPAID INTEREST SHALL BE DUE AND PAYABLE.
EFFECTIVE THE DATE OF THIS AGREEMENT THAT CERTAIN LOAN AGREEMENT DATED MARCH 13,
1997 IS AMENDED AS FOLLOWS: BANK AGREES TO TERM OUT THE THEN EXISTING BALANCE OF
THE NON-REVOLVING EQUIPMENT LINE COMMITMENT ON OR BEFORE EACH NOVEMBER 30TH AND
MAY 31ST, OVER A PERIOD NOT TO EXCEED 36 MONTHS; THE BALANCE FULLY AMORTIZING
WITH MONTHLY INSTALLMENTS OF PRINCIPAL WITH INTEREST ADDED. THIS IS CONDITIONAL
UPON BORROWER BEING IN COMPLIANCE WITH ITS' AGREEMENT WITH BANK. A SEPARATE
PROMISSORY NOTE MAY BE DRAWN AND WILL BEAR INTEREST AT THE RATE DESCRIBED ON THE
NON-REVOLVING EQUIPMENT LINE NOTE. (PRESENTLY NOTE #704-00491).
THE FOLLOWING ADDITIONAL PROVISION IS ADDED TO THAT CERTAIN LOAN AGREEMENT DATED
MARCH 13, 1997: EQUIPMENT LINE OUTSTANDINGS ARE NOT SUBJECT TO COVERAGE UNDER
THE BORROWING BASE.
EFFECTIVE THE DATE OF THIS AGREEMENT THAT CERTAIN CORPORATE RESOLUTION TO BORROW
DATED MARCH 13, 1997 IN THE AMOUNT OF $4,000,000.00 EXECUTED BY BORROWER IS
REPALCED BY A CORPORATE RESOLUTION TO BORROW DATED MAY 31, 1997 IN THE AMOUNT OF
$4,300,000.00 WHICH SHALL BE EXECUTED BY BORROWER.
EFFECTIVE THE DATE OF THIS AGREEMENT THOSE FOUR COMMERCIAL GUARANTIES DATED
MARCH 13, 1997 ALL IN THE AMOUNT OF $4,000,000.00 EACH EXECUTED BY WILLIAM G.
BARTON, JAMES L. BILDNER, BRADLEY H. NICKELS AND BRYAN D. McCAUL ARE REPLACED BY
FOUR COMMERCIAL GUARANTIES DATED
<PAGE>
CHANGE IN TERMS OF AGREEMENT
Loan No 704-00491 (CONTINUED)
================================================================================
MAY 31, 1997 ALL IN THE AMOUNT OF $4,300,000.00 EACH WHICH SHALL BE EXECUTED BY
WILLIAM G. BARTON, JAMES L. BILDNER, BRADLEY H. NICKELS AND BRYAN D. MCCAUL.
BORROWER AGREES THAT UPON EXECUTION OF THIS AGREEMENT TO PAY A LOAN FEE OF
$750.00 AND A DOCUMENTATION FEE OF $150.00.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms
of the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a
satisfaction of the obligation(s). It is the intention of Lender to retain as
liable parties all makers and endorsers of the original obligation(s), including
accommodation parties, unless a party is expressly released by Lender in
writing. Any maker or endorser, including accommodation makers, will not be
released by virtue of this Agreement. If any person who signed the original
obligation does not sign this Agreement below, then all persons signing below
acknowledge that this Agreement is given conditionally, based on the
representation to Lender that the non-signing party consents to the changes and
provisions of this Agreement or otherwise will not be released by it. This
waiver applies not only to any initial extension, modification or release, but
also to all such subsequent actions.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE AGREEMENT.
BORROWER:
TIER TECHNOLOGIES, INC.
BY: /S/ JAMES L. BILDNER BY: /S/ GEORGE K. ROSS
------------------------------ --------------------------
JAMES L. BILDNER, CHAIRMAN GEORGE K. ROSS, SVP/CFO
================================================================================
VariabIe Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M.
Off., Ver. 3.23(c) 1997 CFI ProServices, Inc. All rights reserved. [CA-D20
7040049I.LN C2.OVL]
66
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL GUARANTY
-----------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
GUARANTOR: BRADLEY H. NICKELS
5638 EAST MONTE CRISTO
SCOTTSDALE, AZ 85254
================================================================================
AMOUNT OF GUARANTY. THE PRINCIPAL AMOUNT OF THIS GUARANTY IS FOUR MILLION THREE
HUNDRED THOUSAND & 00/100 DOLLARS ($4,300,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, BRADLEY H. NICKELS
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO
WESTAMERICA BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
TIER TECHNOLOGIES, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET
FORTH IN THIS GUARANTY. THE OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY ARE
CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means TIER TECHNOLOGIES, INC..
GUARANTOR. The word "Guarantor" means BRADLEY H. NICKELS.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated May 31, 1997.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any of
them, and any present or future judgments against Borrower, or any of them;
and whether any such Indebtedness is voluntarily or involuntarily incurred,
due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined; whether Borrower may be liable individually or
jointly with others, or primarily or secondarily, or as guarantor or surety;
whether recovery on the Indebtedness may be or may become barred or
unenforceable against Borrower for any reason whatsoever; and whether the
Indebtedness arises from transactions which may be voidable on account of
infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means WESTAMERICA BANK, its successors and
assigns.
RELATED DOCUMENTS. The words "Related Documents' mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE SUM OF THE PRINCIPAL AMOUNT OF $4,300,000.00,
PLUS ALL INTEREST THEREON, PLUS ALL OF LENDER'S COSTS, EXPENSES, AND ATTORNEYS'
FEES INCURRED IN CONNECTION WITH OR RELATING TO (A) THE COLLECTION OF THE
INDEBTEDNESS, (B) THE COLLECTION AND SALE OF ANY COLLATERAL FOR THE INDEBTEDNESS
OR THIS GUARANTY, OR (C) THE ENFORCEMENT OF THIS GUARANTY.
<PAGE>
05-31-1997 COMMERCIAL GUARANTY
Loan No 704-00491 (CONTINUED)
================================================================================
ATTORNEYS' FEES INCLUDE, WITHOUT LIMITATION, ATTORNEYS' FEES WHETHER OR NOT
THERE IS A LAWSUIT, AND IF THERE IS A LAWSUIT, ANY FEES AND COSTS FOR TRIAL AND
APPEALS.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness
within the limits set forth in the preceding section of this Guaranty.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted. Any married person who signs this Guaranty
hereby expressly agrees that recourse under this agreement may be had against
both his or her separate property and community property, whether now owned or
hereafter acquired.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new
Indebtedness" does not include Indebtedness which at the lime of notice of
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by Lender
prior to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. IT IS
ANTICIPATED THAT FLUCTUATIONS MAY OCCUR IN THE AGGREGATE AMOUNT OF INDEBTEDNESS
COVERED BY THIS GUARANTY, AND IT IS SPECIFICALLY ACKNOWLEDGED AND AGREED BY
GUARANTOR THAT REDUCTIONS IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO DOLLARS
($0.00), PRIOR TO WRITTEN REVOCATION OF THIS GUARANTY BY GUARANTOR SHALL NOT
CONSTITUTE A TERMINATION OF THIS GUARANTY. THIS GUARANTY IS BINDING UPON
GUARANTOR AND GUARANTOR'S HEIRS, SUCCESSORS AND ASSIGNS SO LONG AS ANY OF THE
GUARANTEED INDEBTEDNESS REMAINS UNPAID AND EVEN THOUGH THE INDEBTEDNESS
GUARANTEED MAY FROM TIME TO TIME BE ZERO DOLLARS ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, WITHOUT NOTICE OR DEMAND AND WITHOUT LESSENING
GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO TIME: (A) PRIOR TO
REVOCATION AS SET FORTH ABOVE, TO MAKE ONE OR MORE ADDITIONAL SECURED LOANS TO
BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR OTHERWISE TO EXTEND
ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE, RENEW, EXTEND,
ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR PAYMENT OR OTHER
TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS, INCLUDING INCREASES
AND DECREASES OF THE RATE OF
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INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER
THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF
THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE,
FALL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT
THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE NOT TO
SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER
GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER MAY CHOOSE; (E) TO DETERMINE
HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE ON THE
INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER OF SALE
THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY THE
TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST AS LENDER IN ITS
DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS
IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN OR TRANSFER THIS
GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional Indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; (c) proceed
against any collateral for the Indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the Indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; 0) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the Indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (l) any statute
of limitations in any action under this Guaranty or on the Indebtedness; or (m)
any modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal,
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extension, acceleration, or other change in the time payment of the Indebtedness
is due and any change in the interest rate, and including any such modification
or change in terms after revocation of this Guaranty on Indebtedness incurred
prior to such revocation.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any
rights and defenses Guarantor may have because Borrower's obligation is secured
by real property. These rights and defenses include, but are not limited to,
any rights and defenses based upon Section 580a, 580b, 580d, or 726 of the Code
of Civil Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be entitled
under state and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty, anti-
deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges that
Guarantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness is paid in
full, Guarantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Guarantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of I 1 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets
of Borrower, through bankruptcy, by an assignment for the benefit of creditors,
by voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to payment of
the claims of both Lender and Guarantor shall be paid to Lender and shall be
first applied by Lender to the Indebtedness of Borrower to Lender. Guarantor
does hereby assign to Lender all claims which it may have or acquire against
Borrower or against any assignee or trustee in bankruptcy of Borrower; provided
however, that
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================================================================================
such assignment shall be effective only for the purpose of assuring to Lender
full payment in legal tender of the Indebtedness. If Lender so requests, any
notes or credit agreements now or hereafter evidencing any debts or obligations
of Borrower to Guarantor shall be marked with a legend that the same are subject
to this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender
hereby is authorized, in the name of Guarantor, from time to time to execute and
file financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein, fully
incorporates the agreements and understandings of Guarantor with Lender with
respect to the subject matter hereof and all prior negotiations, drafts, and
other extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agrees that Guarantor has
read and fully understands the terms of this Guaranty; Guarantor has had the
opportunity to be advised by Guarantor's attorney with respect to this
Guaranty; the Guaranty fully reflects Guarantor's intentions and parol
evidence is not required to interpret the terms of this Guaranty. Guarantor
hereby indemnifies and holds Lender harmless from all losses, claims,
damages, and costs (including Lender's attorneys' fees) suffered or incurred
by Lender as a result of any breach by Guarantor of the warranties,
representations and agreements of this paragraph. No alteration or amendment
to this Guaranty shall be effective unless given in writing and signed by the
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of MARIN
County, State of California. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
NOTICES. All notices required to be given by either party to the other under
this Guaranty shall be in writing, may be sent by telefacsimile, and, except
for revocation notices by Guarantor, shall be effective when actually
delivered or when deposited with a nationally recognized overnight courier,
or when deposited in the United States mail, first class postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above or to such other addresses as either party may designate to the other
in writing. All revocation notices by Guarantor shall be in writing and
shall be effective only upon delivery to Lender as provided above in the
section titled "DURATION OF GUARANTY." If there is more than one Guarantor,
notice to any Guarantor will constitute notice to all Guarantors. For notice
purposes, Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction so
require; and where there is more than one Borrower named in this Guaranty or
when this Guaranty is executed by more than one Guarantor, the words
"Borrower" and "Guarantor" respectively shall mean all and any one or more of
them. The words "Guarantor," "Borrower," and "Lender" include the heirs,
successors,
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assigns, and transferees of each of them. Caption headings in this Guaranty
are for convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent jurisdiction
finds any provision of this Guaranty to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision invalid
or unenforceable as to any other persons or circumstances, and all provisions
of this Guaranty in all other respects shall remain valid and enforceable. If
any one or more of Borrower or Guarantor are corporations or partnerships, it
is not necessary for Lender to inquire into the powers of Borrower or
Guarantor or of the officers, directors, partners, or agents acting or
purporting to act on their behalf, and any Indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed under
this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MARCH 13,1997.
GUARANTOR:
X_______________________________
BRADLEY H. NICKELS
================================================================================
LASER PRO, Reg. U.S. Pat. &T.M. Off., Ver. 3.23(c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-E20 70400488.LN C2.OVL]
72
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COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
GUARANTOR: BRYAN D. MCCAUL
2724 LAVENDER DRIVE
WALNUT CREEK, CA 94596
================================================================================
AMOUNT OF GUARANTY. THE PRINCIPAL AMOUNT OF THIS GUARANTY IS FOUR MILLION &
00/100 DOLLARS ($4,000,000.00).
CONTINUING GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, BRYAN D. MCCAUL
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO
WESTAMERICA BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
TIER TECHNOLOGIES, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET
FORTH IN THIS GUARANTY. THE OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY ARE
CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means TIER TECHNOLOGIES, INC..
GUARANTOR. The word "Guarantor" means BRYAN D. McCAUL.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated March 13, 1997.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any of
them, and any present or future judgments against Borrower, or any of them;
and whether any such Indebtedness is voluntarily or involuntarily incurred,
due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined; whether Borrower may be liable individually or
jointly with others, or primarily or secondarily, or as guarantor or surety;
whether recovery on the Indebtedness may be or may become barred or
unenforceable against Borrower for any reason whatsoever; and whether the
Indebtedness arises from transactions which may be voidable on account of
infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means WESTAMERICA BANK, its successors and
assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE SUM OF THE PRINCIPAL AMOUNT OF $4,000,000.00,
PLUS ALL INTEREST THEREON, PLUS ALL OF LENDER'S COSTS, EXPENSES, AND ATTORNEYS'
FEES INCURRED IN CONNECTION WITH OR RELATING TO (A) THE COLLECTION OF THE
INDEBTEDNESS, (B) THE COLLECTION AND SALE OF ANY COLLATERAL FOR THE INDEBTEDNESS
OR THIS GUARANTY, OR (C) THE ENFORCEMENT OF THIS GUARANTY.
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05-31-1997 COMMERCIAL GUARANTY
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================================================================================
ATTORNEYS' FEES INCLUDE, WITHOUT LIMITATION, ATTORNEYS' FEES WHETHER OR NOT
THERE IS A LAWSUIT, AND IF THERE IS A LAWSUIT, ANY FEES AND COSTS FOR TRIAL AND
APPEALS.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other guaranties. The
liability of Guarantor will be the aggregate liability of Guarantor under the
terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness
within the limits set forth in the preceding section of this Guaranty.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted. Any married person who signs this Guaranty
hereby expressly agrees that recourse may be had against both his or her
separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new
Indebtedness" does not include Indebtedness which at the time of notice of
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by Lender
prior to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. IT IS
ANTICIPATED THAT FLUCTUATIONS MAY OCCUR IN THE AGGREGATE AMOUNT OF INDEBTEDNESS
COVERED BY THIS GUARANTY, AND IT IS SPECIFICALLY ACKNOWLEDGED AND AGREED BY
GUARANTOR THAT REDUCTIONS IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO DOLLARS
($0.00), PRIOR TO WRITTEN REVOCATION OF THIS GUARANTY BY GUARANTOR SHALL NOT
CONSTITUTE A TERMINATION OF THIS GUARANTY. THIS GUARANTY IS BINDING UPON
GUARANTOR AND GUARANTOR'S HEIRS, SUCCESSORS AND ASSIGNS SO LONG AS ANY OF THE
GUARANTEED INDEBTEDNESS REMAINS UNPAID AND EVEN THOUGH THE INDEBTEDNESS
GUARANTEED MAY FROM TIME TO TIME BE ZERO DOLLARS ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, WITHOUT NOTICE OR DEMAND AND WITHOUT LESSENING
GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO TIME: (A) PRIOR TO
REVOCATION AS SET FORTH ABOVE, TO MAKE ONE OR MORE ADDITIONAL SECURED OR
UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR
OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE,
RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR
PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS,
INCLUDING INCREASES AND DECREASES OF THE RATE OF
74
<PAGE>
05-31-1997 COMMERCIAL GUARANTY
LOAN NO 704-00491 (CONTINUED)
================================================================================
INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER
THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF
THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE,
FAIL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT
THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE NOT TO
SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER
GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER MAY CHOOSE; (E) TO DETERMINE
HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE ON THE
INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER OF SALE
THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY THE
TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST AS LENDER IN ITS
DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS
IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN OR TRANSFER THIS
GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional Indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; (c) proceed
against any collateral for the Indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the Indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the Indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (l) any statute
of limitations in any action under this Guaranty or on the Indebtedness; or (m)
any modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal,
75
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05-31-1997 COMMERCIAL GUARANTY
LOAN NO 704-00491 (CONTINUED)
================================================================================
extension, acceleration, or other change in the time payment of the Indebtedness
is due and any change in the interest rate, and including any such modification
or change in terms after revocation of this Guaranty on Indebtedness incurred
prior to such revocation.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even it the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any
rights and defenses Guarantor may have because Borrower's obligation is secured
by real property. These rights and defenses include, but are not limited to,
any rights and defenses based upon Section 580a, 580b, 580d, or 726 of the Code
of Civil Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be entitled
under state and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty, anti-
deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges that
Guarantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness is paid in
full, Guarantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Guarantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets
of Borrower, through bankruptcy, by an assignment for the benefit of creditors,
by voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that
76
<PAGE>
05-31-1997 COMMERCIAL GUARANTY
LOAN NO 704-00491 (CONTINUED)
================================================================================
such assignment shall be effective only for the purpose of assuring to Lender
full payment in legal tender of the Indebtedness. If Lender so requests, any
notes or credit agreements now or hereafter evidencing any debts or obligations
of Borrower to
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein, fully
incorporates the agreements and understandings of Guarantor with Lender with
respect to the subject matter hereof and all prior negotiations, drafts, and
other extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agrees that Guarantor has
read and fully understands the terms of this Guaranty; Guarantor has had the
opportunity to be advised by Guarantor's attorney with respect to this
Guaranty; the Guaranty fully reflects Guarantor's intentions and parol
evidence is not required to interpret the terms of this Guaranty. Guarantor
hereby indemnifies and holds Lender harmless from all losses, claims,
damages, and costs (including Lender's attorneys' fees) suffered or incurred
by Lender as a result of any breach by Guarantor of the warranties,
representations and agreements of this paragraph. No alteration or amendment
to this Guaranty shall be effective unless given in writing and signed by the
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of MARIN
County, State of California. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
NOTICES. All notices required to be given by either party to the other under
this Guaranty shall be in writing, may be sent by telefacsimile, and, except
for revocation notices by Guarantor, shall be effective when actually
delivered or when deposited with a nationally recognized overnight courier,
or when deposited in the United States mail, first class postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above or to such other addresses as either party may designate to the other
in writing. All revocation notices by Guarantor shall be in writing and
shall be effective only upon delivery to Lender as provided above in the
section titled "DURATION OF GUARANTY." If there is more than one Guarantor,
notice to any Guarantor will constitute notice to all Guarantors. For notice
purposes, Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction so
require; and where there is more than one Borrower named in this Guaranty or
when this Guaranty is executed by more than one Guarantor, the words
"Borrower" and "Guarantor" respectively shall mean all and any one or more of
them. The words "Guarantor," "Borrower," and "Lender" include the heirs,
successors,
77
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05-31-1997 COMMERCIAL GUARANTY
LOAN NO 704-00491 (CONTINUED)
================================================================================
assigns, and transferees of each of them. Caption headings in this Guaranty
are for convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent jurisdiction
finds any provision of this Guaranty to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision invalid
or unenforceable as to any other persons or circumstances, and all provisions
of this Guaranty in all other respects shall remain valid and enforceable. If
any one or more of Borrower or Guarantor are corporations or partnerships, it
is not necessary for Lender to inquire into the powers of Borrower or
Guarantor or of the officers, directors, partners, or agents acting or
purporting to act on their behalf, and any Indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed under
this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MARCH 13,1997.
GUARANTOR:
X______________________________
BRYAN D. MCCAUL
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-E20 7040048.LN C2.OVL]
78
<PAGE>
PROMMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$95,110.00 06-16-1997 06-30-2000 704-00511
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
================================================================================
PRINCIPAL AMOUNT: $95,110.00 INITIAL RATE: 10.250% DATE OF NOTE: JUNE 16,
1997
PROMISE TO PAY. TIER TECHNOLOGIES, INC. ("BORROWER") PROMISES TO PAY TO
WESTAMERICA BANK ('LENDER'), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF NINETY FIVE THOUSAND ONE HUNDRED TEN & 00/100
DOLLARS ($95,110.00), TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL BALANCE
FROM JUNE 17, 1997, UNTIL PAID IN FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN 35 PRINCIPAL
PAYMENTS OF $2,641.94 EACH AND ONE FINAL PRINCIPAL AND INTEREST PAYMENT OF
$2,664.66. BORROWER'S FIRST PRINCIPAL PAYMENT IS DUE JULY 31, 1997, AND ALL
SUBSEQUENT PRINCIPAL PAYMENTS ARE DUE ON THE LAST DAY OF EACH MONTH AFTER THAT.
IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ALL ACCRUED UNPAID
INTEREST DUE AS OF EACH PAYMENT DATE. BORROWER'S FIRST INTEREST PAYMENT IS DUE
JUNE 30, 1997, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE LAST DAY OF
EACH MONTH AFTER THAT. BORROWER'S FINAL PAYMENT DUE JUNE 30, 2000, WILL BE FOR
ALL PRINCIPAL AND ACCRUED INTEREST NOT YET PAID. Interest on this Note is
computed on a 365/360 simple interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Westamerica Bank
Index Rate (the "Index"). THE BANK'S INDEX RATE IS ESTABLISHED BY BANK IN ITS
SAN RAFAEL HEADQUARTERS OFFICE AS OF THE DATE OF THIS NOTE, AND AS OF EACH DATE
THAT BANK MAY ADJUST SUCH INDEX RATE. LOANS MAY BE MADE BY BANK AT, ABOVE OR
BELOW THE INDEX RATE. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each Day. The Index currently Is 8.500% per annum. The Interest rate to be
applied to the unpaid principal balance of this Note will be at a rate of 1.750
percentage points over the Index, resulting In an initial rate of 10.250% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum Interest
charge of $50.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result in
Borrower's making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this
<PAGE>
05-31-1997 COMMERCIAL GUARANTY
LOAN NO 704-00491 (CONTINUED)
================================================================================
Note or perform Borrower's obligations under this Note or any of the Related
Documents. (d) Any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any material respect
either now or at the time made or furnished. (e) Borrower becomes insolvent, a
receiver is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any
creditor tries to take any of Borrower's property on or in which Lender has a
lien or security interest. This includes a garnishment of any of Borrower's
accounts with Lender. (g) Any guarantor dies or any of the other events
described in this default section occurs with respect to any guarantor of this
Note. (h) A material adverse change occurs in Borrower's financial condition, or
Lender believes the prospect of payment or performance of the Indebtedness is
impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate on this Note to 5.750 percentage points
over the Index. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any court
costs. in addition to all other sums provided by law. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE
IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF MARIN COUNTY, THE STATE OF CALIFORNIA. LENDER AND
BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
COLLATERAL. This Note is secured by THAT CERTAIN COMMERCIAL SECURITY AGREEMENT
DATED MAY 13,1997.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them, Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
80
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
================================================================================
INSURANCE REQUIREMENTS. TIER TECHNOLOGIES, INC. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accomodations to Grantor by Lender. These
requirements are set forth in the security documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
COLLATERAL: ALL INVENTORY AND EQUIPMENT.
TYPE. All risks, including fire, theft and liability.
AMOUNT. Full insurable value.
BASIS. Replacement value.
ENDORSEMENTS. Lender's loss payable clause with stipulation that
coverage will not be canceled or diminished without a minimum of
thirty (30) days' prior written notice to Lender.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, on or before
closing, evidence of the required insurance as provided above, with an effective
date of June 16, 1997, or earlier. Grantor acknowledges and agrees that if
Grantor fails to provide any required insurance or fails to continue such
insurance in force, Lender may do so at Grantor's expense as provided in the
applicable security document. The cost of any such insurance, at the option of
Lender, shall be payable on demand or shall be added to the indebtedness as
provided in the security document. GRANTOR ACKNOWLEDGES THAT IF LENDER SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION,
THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accomodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 16,1997.
GRANTOR:
TIER TECHNOLOGY, INC..
BY: /s/ James L. Bildner By: /s/ George K. Ross
------------------------------ -------------------------------
JAMES L BILDNER, CHAIRMAN GEORGE K. ROSS, SVP/CFO
<PAGE>
06-16-1997 AGREEMENT TO PROVIDE INSURANCE
LOAN NO 704-00511 (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE: _______________________________________ PHONE:____________________
AGENT'S NAME:_______________________________________________________________
INSURANCE COMPANY:__________________________________________________________
POLICY NUMBER:______________________________________________________________
EFFECTIVE DATES:____________________________________________________________
COMMENTS:___________________________________________________________________
- --------------------------------------------------------------------------------
================================================================================
LASER PRO, Reg. U.S. Pat. &T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-I10 70400511.LN C 2.OVL]
82
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$95,110.00 06-16-1997 06-30-2000 704-00511
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: TIER TECHNOLOGIES, INC. LENDER: WESTAMERICA BANK
1350 TREAT BOULEVARD, SUITE 250 SACTO/SOLANO CREDIT ADM.
WALNUT CREEK, CA 94596 2400 HILBORN ROAD
FAIRFIELD, CA 94533
================================================================================
LOAN TYPE. This is a Variable Rate (1.750% over Westamerica Bank Index Rate,
making an initial rate of 10.250%), Principal Plus Interest Loan to a
Corporation for $95,110.00 due on June 30, 2000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[_] PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT.
[X] BUSINESS (INCLUDING REAL ESTATE INVESTMENT).
SPECIFIC PURPOSE. The specific purpose of this loan is: TERM OUT THE EXISTING
EQUIPMENT LINE BALANCE, ACCORDING TO BLA TERMS.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $95,110.00 as follows:
AMOUNT PAID TO OTHERS ON BORROWER'S BEHALF: $95,110.00
$95,110.00 to PRINCIPAL REDUCTION LOAN #704-00491
----------
NOTE PRINCIPAL: $95,110.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED JUNE 16,1997.
BORROWER:
TIER TECHNOLOGIES, INC.
BY: /s/ James L. Bildner By: /s/ George. K. Ross
------------------------------- ---------------------------
JAMES L. BILDNER, CHAIRMAN GEORGE K. ROSS, SVP/CFO
================================================================================
Variable Rate. Principal - Interest. LASER PRO, Reg. U.S. Pat. & T.M.
Off., Ver. 3.23(c) 1997 CFI ProServices, Inc. All rights reserved. [CA-120
70400511.LN C2.OVL]
<PAGE>
Exhibit 10.7
================================================================================
TIER TECHNOLOGIES, INC.
INVESTORS' RIGHTS AGREEMENT
================================================================================
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
RECITALS.................................................................... 1
1. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS....... 1
1
1.1 Definitions........................................................ 4
1.2 Restrictions on Transfer........................................... 6
1.3 Requested Registration
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>
1
<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 28, 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: /s/ James L. Bildner
--------------------------------
Title: CEO and Chairman of the Board
--------------------------------
INVESTORS
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
------------------------------------
Name: Allen I. Bildner
-----------------------------------
Signature: /s/ Allen I. Bildner
------------------------------
<PAGE>
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
------------------------------
Name: Ira Stepanian
-----------------------------------
Signature: /s/ Ira Stepanian
------------------------------
<PAGE>
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
------------------------------
Name: Nucon Capital Corporation
-----------------------------------
Signature: /s/ Daniel Weener, President
------------------------------
<PAGE>
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
------------------------------
<PAGE>
EXHIBIT A
INVESTORS
---------
1. Richard N. Goldman & Co.
2. Merchants' Fund
3. Ira Stepanian
4. John L. Newbold
5. Steven J. Sheftel
6. Nucon Capital Corporation
7. Josef von Rickenbach
8. Ronald E. English
9. Eunice Buckland
10. Richard K. Bendetson
11. Kevin M. McCafferty
12. Ralph Casazzone
13. Tucks Point LP
14. Samuel Cabot III
15. Allen I. Bildner
16. Donald Baron
17. Sherif A. Nada
18. Bernard K. Chiu
19. Albemarle Partners
20. Francis H. Zenie
21. Larry Moore
22. Ronald L. Rossetti
23. George K. Ross
24. William G. Barton
25. Benjamin A. Marsh
26. Scott H. Cummings
27. John W. Adams
28. Allyn C. Woodward, Jr.
<PAGE>
29. Frederick Mark D'Annolfo
30. Barry A. Sylvetsky
31. Peter Goodman
<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>
EXHIBIT 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
-------
3 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. Bildner
--------------------------------------
Title: CEO & Chairman of the Board
-----------------------------------
Address: 1350 Treat Blvd., Suite 250
Walnut Creek, CA 94596
The Investors: George K. Ross
------------------------------------------
Name of Investor
/s/ George K. Ross
------------------------------------------
Signature
Senior Vice President
and Chief Financial Officer
__________________________________________
Title (if Entity)
57 Hillcrest Avenue
Summit, NJ 07901
------------------------------------------
Address
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
<PAGE>
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
Merchants' Fund, Inc.
------------------------------------------
Name of Investor
/s/ Jennifer Newbold
------------------------------------------
Signature
Vice President
------------------------------------------
Title (if Entity)
4805 St. Elmo Avenue
Bethesda, MD 20814
------------------------------------------
Address
<PAGE>
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
Bernard K. Chiu
-----------------------------------------
Name of Investor
/s/ Bernard K. Chiu
-----------------------------------------
Signature
__________________________________________
Title (if Entity)
170 Pond Road
Wellesley, MA 02181
-----------------------------------------
Address
<PAGE>
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
Sherif Nada
-----------------------------------------
Name of Investor
/s/ Sherif Nada
-----------------------------------------
Signature
_________________________________________
Title (if Entity)
469 Walnut Street
Brookline, MA 02141
-----------------------------------------
Address
<PAGE>
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
Barry Sylvetsky
-----------------------------------------
Name of Investor
/s/ Barry Sylvetsky
-----------------------------------------
Signature
_________________________________________
Title (if Entity)
88 Stratford Road
Needham, MA 02192
-----------------------------------------
Address
<PAGE>
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
Ralph Casazzone
-----------------------------------------
Name of Investor
/s/ Ralph Casazzone
-----------------------------------------
Signature
_________________________________________
Title (if Entity)
170 Round Hill Road
Greenwich, CT 06831
-----------------------------------------
Address
<PAGE>
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
William G. Barton
-----------------------------------------
Name of Investor
/s/ William G. Barton
-----------------------------------------
Signature
_________________________________________
Title (if Entity)
5248 Boulder Court
Concord, CA 94521
-----------------------------------------
Address
<PAGE>
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
Francis H. Zenie
-----------------------------------------
Name of Investor
/s/ Francis H. Zenie
-----------------------------------------
Signature
_________________________________________
Title (if Entity)
186 Old Farm Lane
Attleboro, MA 02703
-----------------------------------------
Address
<PAGE>
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
Peter Goodman
-----------------------------------------
Name of Investor
/s/ Peter Goodman
-----------------------------------------
Signature
_________________________________________
Title (if Entity)
22 Rachel Road
Newton Centre, MA 02159
-----------------------------------------
Address
<PAGE>
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
Frederick Mark D'Annolfo
-----------------------------------------
Name of Investor
/s/ F. Mark D'Annolfo
-----------------------------------------
Signature
_________________________________________
Title (if Entity)
95 Suffolk Road
Chestnut Hill, MA 02107
-----------------------------------------
Address
<PAGE>
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>
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>
EXHIBIT 10.32
TIER TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Tier Technologies, Inc. by providing eligible employees with the opportunity
to acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Class B Common Stock, including shares of
Class B Common Stock purchased on the open market. The maximum number of shares
of Class B Common Stock which may be issued over the term of the Plan shall not
exceed 100,000 shares.
B. Should any change be made to the Class B Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Class B Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. PURCHASE PERIODS
A. Shares of Class B Common Stock shall be offered for purchase
under the Plan through a series of successive Purchase Periods until such time
as (i) the maximum number of shares of Class B Common Stock available for
issuance under the Plan shall have been purchased or (ii) the Plan shall have
been sooner terminated.
<PAGE>
B. Each Purchase Period shall be six (6) months in duration, unless
otherwise determined by the Plan Administrator prior to the start date of the
Purchase Period, and provided that the initial Purchase Period shall commence at
the Effective Time and shall terminate on the last business day in May 1998.
The next Purchase Period shall commence on the first business day in June 1998
and shall terminate on the last business day in November 1998; subsequent
Purchase Periods shall commence every six (6) months thereafter on the first
business day in December and June each year, unless otherwise designated by the
Plan Administrator. The Plan Administrator shall have complete discretion to
change the start date and the duration of a Purchase Period, provided Eligible
Employees are notified prior to the start date of any Purchase Period for which
such change is to be effective and provided, further, that no Purchase Period
shall have a duration exceeding twenty-seven (27) months.
V. ELIGIBILITY
A. Each Eligible Employee of a Participating Corporation shall be
eligible to participate in the Plan in accordance with the following provisions:
(i) An individual who is an Eligible Employee on the start
date of any Purchase Period under the Plan shall be eligible to commence
participation in that Purchase Period on such start date.
(ii) An individual who first becomes an Eligible Employee after
the start date of any Purchase Period will not be eligible to commence
participation under the Plan until the start date of the next Purchase Period on
which he/she remains an Eligible Employee.
B. To participate in the Plan for a particular Purchase Period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (which may include a stock purchase agreement and a payroll
deduction authorization form) and file such forms with the Plan Administrator
(or its designate) on or before the start date for the Purchase Period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Class B Common Stock under the Plan may be any multiple
of one percent (1%) of the Cash Compensation paid to the Participant during that
Purchase Period, up to a maximum of ten percent (10%). The deduction rate so
authorized shall continue in effect for the remainder of the Purchase Period,
except to the extent such rate is changed in accordance with the following
guidelines:
(i) The Participant may, at any time during the Purchase Period,
reduce his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
Purchase Period.
2
<PAGE>
(ii) The Participant may, prior to the commencement of any new
Purchase Period, increase the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate (which may not exceed
the ten percent (10%) maximum) shall become effective as of the start date of
the Purchase Period following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
start date for the Purchase Period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of that Purchase Period. The amounts so collected shall be credited
to the Participant's book account under the Plan, but no interest shall be paid
on the balance from time to time outstanding in such account. The amounts
collected from the Participant shall not be held in any segregated account or
trust fund and may be commingled with the general assets of the Corporation and
used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Class B Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Class B Common Stock on any subsequent Purchase Date.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
-----------------------
separate purchase right for each Purchase Period in which he or she
participates. The purchase right shall be granted on the start date of the
Purchase Period and shall provide the Participant with the right to purchase
shares of Class B Common Stock, upon the terms set forth below. The purchase
right shall continue until the end of the Purchase Period, and shall be
automatically exercised on the last business day of the respective Purchase
Period each year (the last business day of May and the last business day of
November) or such other date as may be selected by the Plan Administrator as the
ending date for the Purchase Period). The Participant shall execute a stock
purchase agreement embodying such terms and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)), or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
------------------------------
automatically exercised on the respective Purchase Date, and shares of Class B
Common Stock shall accordingly be purchased on behalf of each Participant (other
than any Participant whose payroll deductions have previously been refunded in
accordance with the Termination of Purchase Right provisions below) on each such
Purchase Date. The purchase shall be effected by applying the Participant's
payroll deductions for the Purchase Period ending on such Purchase
3
<PAGE>
Date (together with any carryover deductions from the preceding Purchase Period)
to the purchase of whole shares of Class B Common Stock (subject to the
limitation on the maximum number of shares purchasable per Participant on any
one Purchase Date) at the purchase price in effect for the Participant for that
Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Class B
--------------
Common Stock will be purchased on the Participant's behalf on each Purchase Date
shall be equal to eighty-five percent (85%) of the lower of (i) the Fair Market
Value per share of Class B Common Stock on the start date for that Purchase
Period or (ii) the Fair Market Value per share of Class B Common Stock on that
Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Class B
----------------------------
Common Stock purchasable by a Participant on each Purchase Date shall be the
number of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions during the Purchase Period ending with
that Purchase Date (together with any carryover deductions from the preceding
Purchase Period) by the purchase price in effect for the Participant for that
Purchase Date. However, the maximum number of shares of Class B Common Stock
purchasable per Participant on any Purchase Date shall not exceed five hundred
(500) shares, subject to periodic adjustments in the event of certain changes in
the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
-------------------------
the purchase of shares of Class B Common Stock on any Purchase Date because they
are not sufficient to purchase a whole share of Class B Common Stock shall be
held for the purchase of Class B Common Stock on the next Purchase Date, or at
the option of the Plan Administrator, may be used to buy fractional shares.
However, any payroll deductions not applied to the purchase of Class B Common
Stock by reason of the limitation on the maximum number of shares purchasable by
the Participant on the Purchase Date shall be promptly refunded, without
interest.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next Purchase
Date , terminate his or her outstanding purchase right by filing the appropriate
form with the Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected during the Purchase
Period in which such termination occurs shall, at the Participant's election, be
immediately refunded, without interest, or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such purchase
right is terminated, then the payroll deductions collected with respect to the
terminated right shall be refunded as soon as possible, without interest.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the Purchase Period
for which the terminated purchase right was granted. In order to resume
participation in any subsequent Purchase Period, such
4
<PAGE>
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before the start date for that Purchase
Period.
(iii) Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while his or
her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for the
Purchase Period in which the purchase right so terminates shall be immediately
refunded. However, should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the Participant shall have
the election, exercisable up until the last business day of the Purchase Period
in which such leave commences, to (a) withdraw all the funds in the
Participant's payroll account at the time of the commencement of such leave or
(b) have such funds held for the purchase of shares at the end of such Purchase
Period. In no event, however, shall any further payroll deductions be added to
the Participant's account during such leave. Upon the Participant's return to
active service, his or her payroll deductions under the Plan shall automatically
resume at the rate in effect at the time the leave began, provided the
Participant returns to service prior to the expiration date of the Purchase
Period in which such leave began.
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
---------------------
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of whole shares of Class B Common Stock at a purchase price per share
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share of Class B Common Stock on the start date for the Purchase Period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Class B Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitation on the number of shares of
Class B Common Stock purchasable per Participant shall continue to apply to any
such purchase.
The Corporation shall use its best efforts to provide at least ten
(10) days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares
----------------------------
of Class B Common Stock which are to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall either (i)
make a pro-rata allocation of the available shares on a uniform and
nondiscriminatory basis, in which case the payroll deductions of each
Participant, to the extent in excess of the aggregate purchase price payable for
the Class B Common Stock pro-rated to such individual, shall be refunded,
without interest, or (ii) increase the number of shares then available for
issuance under the Plan, subject to shareholder approval, by an amount at least
sufficient to permit the purchase of all shares which are to be purchased
pursuant to outstanding purchase rights on such date
5
<PAGE>
I. ASSIGNABILITY. During the Participant's lifetime, the purchase
-------------
right shall be exercisable only by the Participant and shall not be assignable
or transferable by the Participant.
J. SHAREHOLDER RIGHTS. A Participant shall have no shareholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Class B Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Class B Common Stock accrued under any other purchase right granted under this
Plan and (ii) similar rights accrued under other employee stock purchase plans
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than twenty-
five thousand dollars ($25,000) worth of stock of the Corporation or any
Corporate Affiliate (determined on the basis of the Fair Market Value of such
stock on the date or dates such rights are granted) for each calendar year such
rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i) The right to acquire Class B Common Stock under each
outstanding purchase right shall accrue on each successive Purchase Date.
(ii) No right to acquire Class B Common Stock under any
outstanding purchase right shall accrue to the extent the Participant has
already accrued in the same calendar year the right to acquire Class B Common
Stock under one or more other purchase rights in an amount equal to twenty-five
thousand dollars ($25,000) worth of Class B Common Stock (determined on the
basis of the Fair Market Value of such stock on the date or dates of grant) for
each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Period, then the payroll
deductions which the Participant made during that Purchase Period with respect
to such purchase right shall be promptly refunded, without interest.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
6
<PAGE>
A. The Plan was adopted by the Board as of October 1, 1997, and
approved by the shareholders as of November ___, 1997. It shall become
effective at the Effective Time, provided no purchase rights granted under the
--------
Plan shall be exercised, and no shares of Class B Common Stock shall be issued
hereunder, until the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Class
B Common Stock issuable under the Plan on a Form S-8 registration statement
filed with the Securities and Exchange Commission), all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Class B Common Stock is listed for trading and all
other applicable requirements established by law or regulation. In the event
such shareholder approval is not obtained, or such compliance is not effected,
within twelve (12) months after the date on which the Plan is adopted by the
Board, the Plan shall terminate and have no further force or effect and all sums
collected from Participants during the initial offering period hereunder shall
be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in September 2007, (ii) the date
on which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following its termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any
time, to become effective immediately following the close of any Purchase
Period. However, the Board may not, without the approval of the Corporation's
shareholders, (i) materially increase the number of shares of Class B Common
Stock issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization as provided in
Section III.B hereof, (ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares of Class B Common Stock purchasable under
the Plan, or (iii) materially modify the requirements for eligibility to
participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
7
<PAGE>
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
D. The Plan is designed to qualify under Section 423 of the Code.
Payroll deductions will be made on an after-tax basis.
8
<PAGE>
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Tier Technologies, Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
-----
B. CASH COMPENSATION shall mean the (i) regular base salary paid to
-----------------
a Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus (ii) all of the following amounts to
the extent paid in cash: overtime payments, bonuses, commissions, profit-sharing
distributions and other incentive-type payments (including, in the case of any
amounts referred to in clause (i) or (ii), any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation or
any Corporate Affiliate). However, Eligible Earnings shall not include any
contributions (other than Code Section 401(k) or Code Section 125 contributions)
made on the Participant's behalf by the Corporation or any Corporate Affiliate
to any deferred compensation plan or welfare benefit program now or hereafter
established.
C. CLASS B COMMON STOCK shall mean the Corporation's Class B Common
--------------------
Stock.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
---------------------
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean Tier Technologies, Inc., a California
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Tier Technologies, Inc. which shall by appropriate
action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
--------------
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
A-1
<PAGE>
I. ELIGIBLE EMPLOYEE shall mean any employee, except any person who
-----------------
is engaged, on a regularly-scheduled basis for fewer than twenty (20) hours per
week or for fewer than five (5) months per calendar year, in the rendition of
personal services to any Participating Corporation as an employee for earnings
considered wages under Code Section 3401(a).
J. FAIR MARKET VALUE per share of Class B Common Stock on any
-----------------
relevant date shall be determined in accordance with the following provisions:
(i) If the Class B Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing selling
price per share of Class B Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling price
for the Class B Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Class B Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling price
per share of Class B Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the Class B
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Class B Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such quotation
exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Class B Common Stock is sold in the initial public
offering pursuant to the Underwriting Agreement.
K. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
L. PARTICIPANT shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
M. PARTICIPATING CORPORATION shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
N. PLAN shall mean the Corporation's Employee Stock Purchase Plan,
----
as set forth in this document.
O. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
A-2
<PAGE>
P. PURCHASE DATE shall mean the last business day of each Purchase
-------------
Period. The initial Purchase Date shall be May 29, 1998.
Q. PURCHASE PERIOD shall mean each successive period at the end of
---------------
which there shall be purchased shares of Class B Common Stock on behalf of each
Participant.
R. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
S. UNDERWRITING AGREEMENT shall mean the agreement among the
----------------------
Corporation, the selling shareholders and the underwriters managing the initial
public offering of the Class B Common Stock.
A-3
<PAGE>
EXHIBIT 10.33
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of November 7, 1997, by and between TIER
TECHNOLOGIES, INC., a California corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
-------
Borrower has requested from Bank the credit accommodations described below,
and Bank has agreed to provide the Credits to Borrower on the terms and
conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
As used herein, the terms defined in the preceding paragraphs shall have
the meanings set forth therein, and the following terms shall have the meanings
set forth after each, with all such meanings equally applicable to the singular
and plural of the terms defined:
"AAA" shall have the meaning set forth in Section 8.11(b) hereof.
"Applicable Line of Credit Margin" shall mean the following during each
fiscal quarter based on Borrower's ratio of Total Liabilities to Tangible Net
Worth for the immediately preceding fiscal quarter:
<TABLE>
<CAPTION>
Ratio of Total Liabilities Applicable Line
to Tangible Net Worth of Credit Margin
-------------------------- ----------------
<S> <C>
4.0 to 1.0 or greater 1.50%
3.0 to 1.0 or greater but
less than 4.0 to 1.0 1.25%
2.0 to 1.0 or greater but
less than 3.0 to 1.0 0.75%
1.0 to 1.0 or greater but
less than 2.0 to 1.0 0.25%
Less than 1.0 to 1.0 0%
</TABLE>
"Applicable Term Commitment Margin" shall mean the following during each
fiscal quarter based on Borrower's ratio of Total
<PAGE>
Liabilities to Tangible Net Worth for the immediately preceding fiscal quarter:
<TABLE>
<CAPTION>
Ratio of Total Liabilities Applicable Term
to Tangible Net Worth Commitment Margin
-------------------------- -----------------
<S> <C>
4.0 to 1.0 or greater 1.75%
3.0 to 1.0 or greater but
less than 4.0 to 1.0 1.50%
2.0 to 1.0 or greater but
less than 3.0 to 1.0 1.00%
1.0 to 1.0 or greater but
less than 2.0 to 1.0 0.50%
Less than 1.0 to 1.0 0%
</TABLE>
"Bankruptcy Code" shall mean the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time.
"Business Day" shall mean any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.
"Companies" shall mean Borrower and each Subsidiary.
"Credits" shall mean the Line of Credit and the Term Commitment.
"Dispute" shall have the meaning set forth in Section 8.11(a) hereof.
"Current Ratio" shall mean total current assets divided by total current
liabilities.
"EBITDA" shall mean net profit before tax plus interest expense (net of
capitalized interest expense), depreciation expense and amortization expense.
"EBITDA Coverage Ratio" shall mean EBITDA divided by the aggregate of total
interest expense plus the prior period current maturity of long-term debt and
the prior period current maturity of subordinated debt.
"Eligible Accounts Receivable" shall mean trade accounts created in the
ordinary course of any Company's business, upon which such Company's right to
receive payment is absolute and not contingent upon the fulfillment of any
condition whatsoever, and
-2-
<PAGE>
in which Bank has a perfected security interest of first priority, and shall not
include:
(i) any account which is more than ninety (90) days from the invoice
date;
(ii) that portion of any account for which there exists any right of
setoff, defense or discount (except regular discounts allowed in the
ordinary course of business to promote prompt payment) or for which any
defense or counterclaim has been asserted;
(iii) any account which represents an obligation of the United States
government or any agency or instrumentality thereof (but not any State, the
District of Columbia, any territory or any political subdivision thereof),
except accounts which represent obligations of the United States government
and for which the appropriate U.S. Government Assignment of Claims Act
forms have been duly executed and acknowledged;
(iv) any account which represents an obligation of an account debtor
located in a foreign country, except for any such account covered by
foreign credit insurance acceptable to Bank;
(v) any account which arises from the sale or lease to or performance
of services for, or represents an obligation of, an employee, affiliate,
partner, member, parent or subsidiary of any Company;
(vi) any account which represents an obligation of any account debtor
when twenty-five percent (25%) or more of the Companies' accounts from such
account debtor are not eligible pursuant to (i) above;
(vii) that portion of any account from an account debtor (other than
Unisys Corporation or the State of Missouri) which represents the amount
by which the Companies' total accounts from said account debtor exceeds
twenty-five percent (25%) of the Companies' total accounts, and that
portion of any account from Unisys Corporation or the State of Missouri
which represents the amount by which the Companies' total accounts from
either such account debtor exceeds thirty percent (30%) of the Companies'
total accounts;
(viii) any account deemed ineligible by Bank when Bank, in its
reasonable discretion, deems the creditworthiness or financial condition of
the account debtor, or the industry in which the account debtor is engaged,
to be unsatisfactory.
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<PAGE>
"Equipment Leases" shall mean those capital leases, if any, entered into
between Bank and Borrower to finance equipment acquisitions under the Term
Commitment subfeature therefor, as defined more fully in Section 2.2(c) hereof.
"ERISA" shall mean the Employment Retirement Income Security Act of 1974,
as amended or recodified from time to time.
"Event of Default" shall have the meaning set forth in Section 7.1 hereof.
"Guarantors" shall mean, only during such time as the guaranties described
in Section 2.6 hereof are in effect, James L. Bildner, William G. Barton, Bryan
D. McCaul and Bradley H. Nickels.
"Line of Credit" shall mean a revolving credit accommodation available to
Borrower in the maximum principal amount of $4,500,000, as defined more fully in
Section 2.1 hereof.
"Line of Credit Note" shall mean a promissory note executed by Borrower to
evidence advances under the Line of Credit, substantially in the form of Exhibit
-------
A attached hereto.
- -
"Loan Documents" shall mean this Agreement, the Notes and each other
document, contract and instrument required hereby or at any time hereafter
delivered to Bank in connection herewith.
"Notes" shall mean the Line of Credit Note and the Term Commitment Note.
"Plan" shall mean a defined employee benefit pension plan, as defined in
ERISA.
"Prime Rate" shall mean at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof in such
internal publication or publications as Bank may designate.
"Subsidiary" shall mean Tier Australia and Tier UK.
"Tangible Net Worth" shall mean the aggregate of total stockholders' equity
plus subordinated debt, less any intangible assets and any advances to
shareholders and/or employees.
"Term Commitment" shall mean a revolving credit accommodation available to
Borrower in the maximum principal amount of $500,000, as defined more fully in
Section 2.2 hereof.
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<PAGE>
"Term Commitment Note" shall mean a promissory note executed by Borrower to
evidence advances under the Line of Credit, substantially in the form of Exhibit
-------
B attached hereto.
- -
"Tier Australia" shall mean Tier Technologies (Australia) Pty Limited, an
Australian proprietary company.
"Tier UK" shall mean Tier Technologies (United Kingdom), Inc., a Delaware
corporation doing business in the United Kingdom.
"Total Liabilities" shall mean the aggregate of current liabilities and
non-current liabilities less subordinated debt and contingent deferred payments
related to acquisitions.
ARTICLE II
----------
THE CREDITS
-----------
SECTION 2.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
--------------
Agreement, Bank hereby agrees to make advances to Borrower under the Line of
Credit from time to time up to and including December 31, 1998, not to exceed at
any time the aggregate principal amount of Four Million Five Hundred Thousand
Dollars ($4,500,000), the proceeds of which shall be used by Borrower for
general corporate purposes. Borrower's obligation to repay advances under the
Line of Credit shall be evidenced by the Line of Credit Note, all terms of which
are incorporated herein by this reference.
(b) Limitation on Borrowings. Outstanding borrowings under the Line of
------------------------
Credit, to a maximum of the principal amount set forth above, shall not at any
time exceed an aggregate of eighty percent (80%) of the Companies' Eligible
Accounts Receivable, as determined by Bank upon receipt and review of all
collateral reports required hereunder and such other documents and collateral
information as Bank may from time to time require; provided however, that
notwithstanding the foregoing, outstanding borrowings against Tier Australia's
Eligible Accounts Receivable shall not at any time exceed an aggregate of One
Million Australian Dollars (A$1,000,000). Borrower acknowledges that said
borrowing base was established by Bank with the understanding that, among other
items, the aggregate of all discounts, credits and allowances for the
immediately preceding three (3) months at all times shall be less than five
percent (5%) of the Companies' gross sales for said period. If such dilution of
the Companies' accounts for the immediately preceding three (3) months at any
time exceeds five percent (5%) of the Companies' gross sales for said period, or
if there at any time exists any other matters, events, conditions or
contingencies
-5-
<PAGE>
which Bank reasonably believes may affect payment of any portion of the
Companies' accounts, Bank, in its reasonable discretion, may reduce the
foregoing advance rate against Eligible Accounts Receivable to a percentage
appropriate to reflect such additional dilution and/or establish additional
reserves against Eligible Accounts Receivable. Bank shall give Borrower prompt
notice of any such reduction in the advance rate and/or additional reserves
against Eligible Account Receivable and of the dilution that percentage that
gave rise to such change.
(c) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
SECTION 2.2. TERM COMMITMENT.
(a) Term Commitment. Subject to the terms and conditions of this
---------------
Agreement, Bank hereby agrees to make advances to Borrower under the Term
Commitment from time to time up to and including December 31, 1998, not to
exceed the aggregate principal amount of Five Hundred Thousand Dollars
($500,000), the proceeds of which shall be used to assist with Borrower's
purchase of new equipment. Borrower's obligation to repay advances under the
Term Commitment shall be evidenced by the Term Commitment Note, all terms of
which are incorporated herein by this reference.
(b) Limitation on Borrowings. Each advance under the Term Commitment
------------------------
shall be available to a maximum of eighty percent (80%) of the cost of the
equipment purchased with the proceeds thereof, net of sales tax and installation
costs, as evidenced by the seller's invoice therefor.
(c) Equipment Lease Subfeature. As a subfeature under the Term
--------------------------
Commitment, Bank agrees from time to time during the term thereof, if requested
by Borrower, to finance equipment acquisitions through Equipment Leases so long
as the requested Equipment Lease meets Bank's policies and parameters then in
effect for capital lease financing. Each Equipment Lease shall be for a term not
greater than two (2) years and subject to such other terms and conditions as
Bank shall determine at the time requested, and shall be evidenced by an
Equipment Lease in form and substance satisfactory to Bank, in its reasonable
discretion. The amount financed under each Equipment Lease shall be reserved
under the Term Commitment and shall not be available for advances thereunder.
-6-
<PAGE>
(d) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
period in which Bank will make advances under the Term Commitment borrow and
partially or wholly repay its outstanding borrowings, and reborrow, subject to
all the limitations, terms and conditions contained herein; provided however,
that the total outstanding borrowings under the Term Commitment (whether as
advances or Equipment Leases) shall not at any time exceed the maximum principal
amount available thereunder, as set forth above. The outstanding principal
balance of all advances under the Term Commitment as of December 31, 1998 shall
be amortized over two (2) years and shall be repaid in twenty-four (24) monthly
installments as set forth in the Term Commitment Note.
(e) Prepayment. Borrower may prepay principal on advances under the Term
----------
Commitment at any time, in any amount and without penalty.
SECTION 2.3. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
--------
shall bear interest at a rate per annum equal to the Prime Rate in effect from
time to time plus the Applicable Line of Credit Margin, which initially shall be
1.50%. The outstanding principal balance of the Term Commitment shall bear
interest at a rate per annum equal to the Prime Rate in effect from time to time
plus the Applicable Term Commitment Margin, which initially shall be 1.75%.
(b) Computation and Payment. Interest shall be computed on the basis of a
-----------------------
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Notes.
(c) Commitment Fee. Borrower shall pay to Bank a non-refundable
--------------
commitment fee for the Term Commitment equal to One Thousand Two Hundred Fifty
Dollars ($1,250), which commitment fee shall be due and payable in full upon
execution of this Agreement.
(d) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
---------------------
three-eighths percent (0.375%) per annum (computed on the basis of a 360-day
year, actual days elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a quarterly basis by Bank and shall be
due and payable by Borrower in arrears within five (5) days after each billing
is sent by Bank.
SECTION 2.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under each Credit by charging Borrower's
demand deposit account number 4584-477244 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there
-7-
<PAGE>
be insufficient funds in any such demand deposit account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
SECTION 2.5. COLLATERAL. As security for all indebtedness of Borrower to
Bank subject hereto, Borrower hereby grants to Bank a security interest of first
priority in all of Borrower's accounts receivable, general intangibles and other
rights, inventory and equipment, and Borrower shall cause each Subsidiary to
grant to Bank a security interest of first priority in all such Subsidiary's
accounts receivable, general intangibles and other rights to payment (with all
of the foregoing referred to collectively as the "Collateral"). Notwithstanding
the foregoing, Bank's security interest from Tier Australia shall be limited in
amount to Collateral with a value of One Million Australian Dollars
(A$1,000,000). All of the foregoing shall be evidenced by and subject to the
terms of such security agreements, financing statements and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank, within ten (10) calendar days after receipt of
each billing from Bank, for all costs and expenses incurred by Bank in
connection with any of the foregoing security, including without limitation,
filing fees and costs of appraisals, audits and title insurance.
SECTION 2.6. GUARANTIES. All indebtedness of Borrower to Bank shall be
guaranteed by each Guarantor in the maximum amount of Five Million Dollars
($5,000,000), inclusive of all principal, interest, fees, costs and expenses.
Each such guaranty shall be evidenced by and subject to the terms of a guaranty
substantially in the form of Exhibit C attached hereto. Said guaranties shall be
---------
terminated by Bank at such time, if any, as (a) Borrower has successfully
completed an initial public offering, and (b) immediately following the close of
such initial public offering Borrower has provided to Bank proforma financial
statements prepared by Borrower and in form and substance satisfactory to Bank,
reflecting Borrower's ratio of Total Debt to Tangible Net Worth to be less than
1.0 to 1.0.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 3.1. LEGAL STATUS. Borrower and Tier UK are corporations and
Tier Australia is a proprietary company, each of
-8-
<PAGE>
which is duly organized and existing and in good standing under the laws of the
state or country in which it is organized, and each of which licensed to do
business (and is in good standing as a foreign corporation, if applicable) in
all jurisdictions in which such qualification or licensing is required or in
which the failure to so qualify or to be so licensed could have a material
adverse effect on such Company.
SECTION 3.2. AUTHORIZATION AND VALIDITY. The Loan Documents have been
duly authorized, and upon their execution and delivery in accordance with the
provisions hereof will constitute legal, valid and binding agreements and
obligations of the Company or non-Bank other party which executes the same,
enforceable in accordance with their respective terms, subject to the effect of
general principles of equity and the effect of bankruptcy, insolvency or similar
laws.
SECTION 3.3. NO VIOLATION. The execution, delivery and performance by
each Company of its respective Loan Documents (a) do not violate any provision
of any law or regulation, (b) contravene any provision of the Articles or
Certificate of Incorporation, Certificate of Registration, By-Laws or other
organizational documents of such Company, or (c) result in any breach of or
default under any contract, obligation, indenture or other instrument to which
any Company is a party or by which any Company may be bound, where such breach
or default gives rise to the right of acceleration of such contract, obligation,
indenture or instrument.
SECTION 3.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which, if adversely decided, could have a material adverse
effect on the financial condition or operation of Borrower, or of the Companies
taken as a whole, other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
SECTION 3.5. CORRECTNESS OF FINANCIAL STATEMENT. The consolidated and
consolidating financial statements of the Companies dated September 30, 1997,
true copies of which have been delivered by Borrower to Bank prior to the date
hereof, (a) are complete and correct in all material respects and present fairly
the financial condition of the Companies, (b) disclose all liabilities of the
Companies that are required to be reflected or reserved against under generally
accepted accounting principles, whether liquidated or unliquidated, fixed or
contingent, and (c) have been prepared in accordance with generally accepted
accounting principles consistently applied. Since the date of such financial
statements there has been no material adverse change in the financial condition
of the Companies, nor has Borrower mortgaged, pledged, granted a security
interest in or
-9-
<PAGE>
otherwise encumbered any of its assets or properties, or any Subsidiary
mortgaged, pledged, granted a security interest in or otherwise encumbered any
of the Collateral, except in favor of Bank or as otherwise permitted by Bank in
writing.
SECTION 3.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of any Company's income tax payable with
respect to any year.
SECTION 3.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which any Company is a party or by which any Company
may be bound that requires the subordination in right of payment of any of such
Company's obligations subject to this Agreement to any other obligation of such
Company.
SECTION 3.8. PERMITS, FRANCHISES. Each Company possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is now
engaged in compliance with applicable law, where the failure to so possess would
have a material adverse effect on the financial condition or operations of
Borrower, or of the Companies taken as a whole.
SECTION 3.9. ERISA. Each of Borrower and Tier UK is in compliance in all
material respects with all applicable provisions of ERISA; neither Borrower nor
Tier UK has violated any provision of any Plan maintained or contributed to by
such Company; no Reportable Event as defined in ERISA has occurred and is
continuing with respect to any Plan initiated by Borrower or Tier UK; each of
Borrower and Tier UK has met its minimum funding requirements under ERISA with
respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.
SECTION 3.10. OTHER OBLIGATIONS. No Company is in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation, where such
default gives rise to the right of acceleration of such lease, commitment,
contract, instrument or obligation.
SECTION 3.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability
-10-
<PAGE>
Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic
Substances Control Act, as any of the same may be amended, modified or
supplemented from time to time. None of the operations of Borrower is the
subject of any federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of any
toxic or hazardous waste or substance into the environment. Borrower has no
material contingent liability in connection with any release of any toxic or
hazardous waste or substance into the environment.
ARTICLE IV
----------
CONDITIONS
----------
SECTION 4.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the granting
------------------------
of each of the Credits shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
-------------
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes from Borrower.
(ii) Corporate Resolution: Borrowing from Borrower.
(iii) Certificate of Incumbency from Borrower and Tier U.K.
(iv) Corporate Resolution: Third Party Collateral from Tier U.K.
(v) Such documents as are appropriate under the laws of the
Australian Capital Territory to authorize the grant by Tier
Australia of its security interests required hereunder and to
certify that those signing on behalf of Tier Australia are duly
authorized to do so.
(vi) Initial borrowing base certificate from Borrower.
(vii) All Security Agreements, UCC Financing Statements and other
applicable documents from each Company as are required by Bank or
under applicable law to create and perfect the security interests
described in Section 2.5 hereof.
(viii) All Continuing Guaranties required by Section 2.6 hereof.
(ix) UCC Termination Statements with respect to any security interests
in the assets of any Company
-11-
<PAGE>
existing in favor of WestAmerica Bank as of the date of this
Agreement.
(x) An analysis, reasonably satisfactory to Bank, with respect to the
authority of Tier Australia and Tier U.K. to grant to Bank the
security interests required hereby and the methods for creating
and perfecting (or the reasonable equivalent thereof under
applicable local law) said security interests.
(xi) Such other documents as Bank may require under any other Section
of this Agreement.
(c) Financial Condition. There shall have been no material adverse change,
-------------------
as reasonably determined by Bank, in the financial condition or business of
Borrower or any Guarantor, or of the Companies taken as a whole, nor any
material decline, as reasonably determined by Bank, in the market value of any
Collateral or a substantial or material portion of the assets of Borrower, or of
the Companies taken as a whole.
(d) Insurance. Borrower shall have delivered to Bank evidence of insurance
---------
coverage on all property of each Company, in form, substance, amounts, covering
risks and issued by companies satisfactory to Bank, and where required by Bank,
with loss payable endorsements in favor of Bank, including without limitation,
evidence that Bank has been named as loss payee on any insolvency risk, credit
risk and political risk insurance currently issued to any Company by The
Insurance Company of the State of Pennsylvania under Policy No. 649-9662 issued
July 31, 1997, and all endorsements to said Policy.
SECTION 4.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and in
----------
each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents which
-------------
may be required in connection with such extension of credit.
-12-
<PAGE>
ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, and where applicable shall cause each Subsidiary
to, unless Bank otherwise consents in writing:
SECTION 5.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and, immediately upon demand by Bank,
the amount by which the outstanding principal balance of any of the Credits at
any time exceeds any limitation on borrowings applicable thereto.
SECTION 5.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time during normal
business hours and upon reasonable notice, to inspect, audit and examine such
books and records, to make copies of the same, and to inspect the properties of
any Company; provided however, that so long as there exists no Event of Default,
Borrower shall be obligated to reimburse Bank for any costs and expenses
incurred in conducting only one (1) such audit and examination during each
fiscal year of Borrower.
SECTION 5.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year,
unqualified audited consolidated and consolidating financial statements of the
Companies, prepared by a certified public accountant acceptable to Bank, to
include balance sheet, income statement, statement of cash flow and all
footnotes;
(b) not later than 45 days after and as of the end of each fiscal quarter,
consolidated and consolidating financial statements of the Companies, prepared
by Borrower, to include balance sheet and income statement;
(c) not later than 20 days after and as of the end of each month, a
borrowing base certificate, an aged listing of accounts receivable and accounts
payable, and a reconciliation of ineligible accounts, prepared by Borrower for
each Company, together with a summary of such information for the Companies on a
combined basis;
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<PAGE>
(d) not later than 90 days after and as of the end of each fiscal year of
Borrower, a personal financial statement of each Guarantor, prepared by such
Guarantor, to include balance sheet, and within 15 days after filing, but in no
event later than each October 15, a copy of each Guarantor's filed Federal
income tax return for such year;
(e) from time to time such other information as Bank may reasonably
request.
SECTION 5.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of each Company's business; and comply with the provisions of all
documents pursuant to which each Company is organized and/or which govern any
Company's continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to any Company
and/or its business.
SECTION 5.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that in
which each Company is engaged, including but not limited to fire, extended
coverage, public liability, flood, property damage and workers' compensation,
with all such insurance carried with companies and in amounts satisfactory to
Bank, and deliver to Bank from time to time at Bank's request schedules setting
forth all insurance then in effect.
SECTION 5.6. FACILITIES. Keep all properties useful or necessary to each
Company's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 5.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as any Company may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which such
Company has made provision, to Bank's satisfaction, for eventual payment thereof
in the event such Company is obligated to make such payment.
SECTION 5.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against any Company, an adverse determination
of which could reasonably be expected to have a material adverse effect on
Borrower, or on the Companies taken as a whole.
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<PAGE>
SECTION 5.9. FINANCIAL CONDITION. Maintain the Companies' financial
condition on a consolidated basis as follows using generally accepted accounting
principles consistently applied and used consistently with prior practices
(except to the extent modified by the definitions herein):
(a) Current Ratio not at any time less than 1.0 to 1.0 through December
30, 1998, and 1.2 to 1.0 thereafter.
(b) Tangible Net Worth not at any time less than $1,200,000 initially,
with said amount to increase as of the end of each fiscal quarter by an amount
equal to 75% of the Companies' consolidated net income for such fiscal quarter
plus 100% of the net cash proceeds received by Borrower from any stock offering
during such fiscal quarter, all as reflected on the Companies' quarterly
financial statements required by Section 5.3(b) hereof.
(c) Total Liabilities divided by Tangible Net Worth not at any time
greater than that specified below for each period:
(i) 5.0 to 1.0 through December 30, 1997;
(ii) 4.5 to 1.0 from December 31, 1997, through June 29, 1998;
(iii) 4.0 to 1.0 from June 30, 1998, through September 29, 1998;
(iv) 3.0 to 1.0 from September 30, 1998, through December 30, 1998;
and
(v) 2.75 to 1.0 at December 31, 1998 and thereafter.
(d) Pre-tax profit not less than $1.00 on a quarterly basis, determined as
of each fiscal quarter end.
(e) EBITDA Coverage Ratio not less than 2.0 to 1.0 as of each fiscal
quarter end, determined on a rolling four-quarter basis.
SECTION 5.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default of
which Borrower has, or reasonably should have, knowledge, or any condition,
event or act which with the giving of notice or the passage of time or both
would constitute an Event of Default and of which Borrower has, or reasonably
should have, knowledge; (b) any change in the name or the organizational
structure of any Company; (c) the occurrence and nature of any Reportable Event
or Prohibited Transaction, each as defined in ERISA, or any funding deficiency
with respect to any Plan; or (d) any termination or cancellation
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<PAGE>
of any insurance policy which any Company is required to maintain, or any
uninsured or partially uninsured loss through liability or property damage, or
through fire, theft or any other cause affecting any Company's property in
excess of an aggregate of $50,000.
ARTICLE V
---------
NEGATIVE COVENANTS
------------------
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not, and will not permit the
Subsidiaries to, without Bank's prior written consent:
SECTION 6.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article II hereof.
SECTION 6.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) trade debt incurred in the normal course of any Company's business, (c)
additional purchase money obligations incurred, or capital leases entered into,
in connection with equipment acquisitions in amounts not to exceed an aggregate
of $500,000 outstanding at any time, and (d) any other liabilities of any
Company existing as of, and disclosed to Bank prior to, the date hereof.
SECTION 6.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
any Company's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of any
Company's assets except in the ordinary course of its business.
SECTION 6.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of any Company as security
for, any liabilities or obligations of any other person or entity, except any of
the foregoing in favor of Bank.
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<PAGE>
SECTION 6.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity in excess of an aggregate of $1,000,000
at any time outstanding, except any of the foregoing existing as of, and
disclosed to Bank prior to, the date hereof.
SECTION 6.6. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of any Company's
assets now owned or hereafter acquired, except (a) any of the foregoing in favor
of Bank, (b) purchase money security interests and/or liens under capital leases
as security for obligations permitted by Section 6.2 hereof, and (c) any of the
foregoing existing as of, and disclosed to Bank in writing prior to, the date
hereof.
ARTICLE VII
-----------
EVENTS OF DEFAULT
-----------------
SECTION 7.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) The failure to pay when due (i) any regularly scheduled principal, or
interest at any time owing under any of the Credits, or (ii) any fees or other
amounts payable under any of the Loan Documents (other than amounts referred to
in clause (i) of this subsection (a)) within ten (10) calendar days after
Borrower's receipt of demand therefor from Bank.
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by any Company or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of thirty (30) days from its occurrence; provided however,
that if such default is not capable of being cured within thirty (30) days and
the Company or other party in default has commenced and is diligently pursuing
such cure, said cure period shall be extended for such additional time, but not
to exceed sixty (60) days, as is reasonably required to cure the default.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which any Company or Guarantor has
incurred any debt
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<PAGE>
or other liability to any person or entity, including Bank, and with respect to
any such default which by its nature can be cured, such default shall continue
past the end of all cure periods, if any, applicable thereto.
(e) The occurrence of any of the following which is not released or
satisfied within thirty (30) days from the date thereof, and solely with respect
to the Guarantors which are in amounts in excess of an aggregate of $50,000: (i)
the filing of a notice of judgment lien against any Company or Guarantor; (ii)
the recording of any abstract of judgment against any Company or Guarantor in
any county in which such Company or Guarantor has an interest in real property;
(iii) the service of a notice of levy and/or of a writ of attachment or
execution, or other like process, against the assets of any Company or
Guarantor; or (iv) the entry of a judgment against any Company or Guarantor.
(f) Any Company or Guarantor shall become insolvent, or shall suffer or
consent to or apply for the appointment of a receiver, trustee, custodian or
liquidator of itself or any of its property, or shall generally fail to pay its
debts as they become due, or shall make a general assignment for the benefit of
creditors; any Company or Guarantor shall file a voluntary petition in
bankruptcy, or seeking reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy Code, or
under any state or federal law granting relief to debtors, whether now or
hereafter in effect; or any involuntary petition or proceeding pursuant to the
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against any Company or Guarantor, or any Company or Guarantor shall file an
answer admitting the jurisdiction of the court and the material allegations of
any involuntary petition; or any Company or Guarantor shall be adjudicated a
bankrupt, or an order for relief shall be entered against any Company or
Guarantor by any court of competent jurisdiction under the Bankruptcy Code or
any other applicable state or federal law relating to bankruptcy, reorganization
or other relief for debtors.
(g) The death or incapacity of any Guarantor during such time as the
guaranties required by Section 2.6 hereof are in effect. The dissolution or
liquidation of any Company; or any Company, or any of its respective directors,
stockholders or members, shall take action seeking to effect the dissolution or
liquidation of such Company.
SECTION 7.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due
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<PAGE>
and payable without presentment, demand, protest or notice of dishonor, all of
which are hereby expressly waived by Borrower; (b) the obligation, if any, of
Bank to extend any further credit under any of the Loan Documents shall
immediately cease and terminate; and (c) Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or accorded by law,
including without limitation the right to resort to any or all security for any
of the Credits and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and remedies of
Bank may be exercised at any time by Bank and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided by law or
equity.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
SECTION 8.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 8.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: TIER TECHNOLOGIES, INC.
1350 Treat Blvd. Suite 250
Walnut Creek, CA 94596
Fax: (510) 937-03752
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Mt. Diablo Regional Commercial Banking Office
1320 Willow Pass Road, Suite 440
Concord, CA 94520
Fax: (510) 687-7079
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent
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by telecopy, upon receipt if received during normal business hours on a Business
Day, and otherwise on the immediately following Business Day.
SECTION 8.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank, within ten (10) calendar days after receipt of each billing from Bank, the
full amount of all payments, advances, charges, costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel), expended or incurred by Bank in connection
with (a) the negotiation and preparation of this Agreement and the other Loan
Documents, Bank's continued administration hereof and thereof, and the
preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Company or any other person or
entity.
SECTION 8.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter
acquire relating to any of the Credits, any Company, Guarantor or its respective
business, or any collateral required hereunder.
SECTION 8.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Credits and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only in writing signed by each party
hereto.
SECTION 8.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or
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<PAGE>
claim in connection with, this Agreement or any other of the Loan Documents to
which it is not a party.
SECTION 8.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 8.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 8.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 8.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 8.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
-----------
resolved by binding arbitration in accordance with the terms of this Agreement.
A "Dispute" shall mean any action, dispute, claim or controversy of any kind,
whether in contract or tort, statutory or common law, legal or equitable, now
existing or hereafter arising under or in connection with, or in any way
pertaining to, any of the Loan Documents, or any past, present or future
extensions of credit and other activities, transactions or obligations of any
kind related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the exercise
of any self-help, ancillary or other remedies pursuant to any of the Loan
Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
---------------
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other
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<PAGE>
administrator. If there is any inconsistency between the terms hereof and any
such rules, the terms and procedures set forth herein shall control. All
statutes of limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to matters
directly relevant to the Dispute being arbitrated. Judgment upon any award
rendered in an arbitration may be entered in any court having jurisdiction;
provided however, that nothing contained herein shall be deemed to be a waiver
by any party that is a bank of the protections afforded to it under 12 U.S.C.
(S)91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, (iii) shall have the power to award recovery of all costs
and fees, to order discovery, to impose sanctions and to take such other actions
as they deem necessary to the same extent a judge could pursuant to the Federal
Rules of Civil Procedure, the California Rules of Civil Procedure or other
applicable law, and (iv) shall not have the power to make any award which is not
supported by substantial evidence or which is based on legal error. All Dispute
shall be decided by a single arbitrator.
(e) Real Property Collateral; Judicial Reference. Notwithstanding anything
--------------------------------------------
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any
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<PAGE>
rights or benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations of
the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(f) Miscellaneous. To the maximum extent practicable, the AAA, the
-------------
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
TIER TECHNOLOGIES, INC. WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ George K. Ross By: /s/ Rick Freeman
---------------------- --------------------
Rick Freeman
Title: Chief Financial Officer Vice President
-----------------------
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<PAGE>
SECURITY AGREEMENT
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned TIER TECHNOLOGIES, INC. ("Debtor"), hereby grants and transfers to
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") a security interest in all of
the property of Debtor described as follows (collectively, the "Collateral"):
(a) all Debtor's accounts, deposit accounts, chattel paper, instruments,
documents and general intangibles (collectively, "Rights to Payment"), now
existing or at any time hereafter, and prior to the termination hereof, arising
(whether they arise from the sale, lease or other disposition of inventory or
from performance of contracts for service, manufacture, construction, repair or
otherwise or from any other source whatsoever), including all securities,
guaranties, warranties, indemnity agreements, insurance policies and other
agreements pertaining to the same or the property described therein, and in all
goods returned by or repossessed from Debtor's customers;
(b) all Debtor's inventory, goods held for sale or lease or to be
furnished under contracts for service, goods so leased or furnished, raw
materials, component parts, work in process or materials used or consumed in
Debtor's business (collectively, "Inventory"), and all warehouse receipts, bills
of lading and other documents evidencing goods owned or acquired by Debtor, and
all goods covered thereby, now or at any time hereafter, and prior to the
termination hereof, owned or acquired by Debtor, wherever located, and all
products thereof, whether in the possession of Debtor, warehousemen, bailees or
any other person, or in process of delivery, and whether located at Debtor's
places of business or elsewhere;
(c) all Debtor's goods, tools, machinery, furnishings, furniture and other
equipment (collectively, "Equipment"), now or at any time hereafter, and prior
to the termination hereof, owned or acquired by Debtor, wherever located,
whether in the possession of Debtor or any other person and whether located on
Debtor's property or elsewhere, and all improvements, replacements, accessions
and additions thereto;
together with whatever is receivable or received when any of the Collateral or
the proceeds thereof are sold, leased, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, including
without limitation, all Rights to Payment, including returned premiums, with
respect to any insurance relating to any of the foregoing, and all Rights to
Payment with respect to any cause of action affecting or relating to any of the
foregoing (collectively, "Proceeds").
<PAGE>
2. OBLIGATIONS SECURED. The obligations secured hereby (the
"Obligations") are the payment and performance of: (a) all present and future
Indebtedness of Debtor to Bank under or in connection with that certain Credit
Agreement between Debtor and Bank dated as of November 7, 1997, as amended from
time to time (collectively, with all substitutions therefor and replacements
thereof, the "Credit Agreement"); and (b) all obligations and Indebtedness of
Debtor and rights of Bank under this Agreement and the other Loan Documents (as
defined in the Credit Agreement). The word "Indebtedness" is used herein in its
most comprehensive sense and includes any and all advances, debts, obligations
and liabilities of Debtor heretofore, now or hereafter made, incurred or
created, whether voluntary or involuntary and however arising, whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Debtor may be liable individually or jointly with
others, or whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.
3. TERMINATION. This Agreement will terminate upon the performance of
all of the Obligations, and the termination of all commitments of Bank to extend
credit to Debtor under the Credit Agreement or any other Loan Documents existing
at the time Bank receives written notice from Debtor of the termination of this
Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans
hereunder, such obligations, if any, being set forth in the Credit Agreement.
Any money received by Bank in respect of the Collateral may be deposited, at
Bank's option, into a non-interest bearing account over which Debtor shall have
no control, and the same shall, for all purposes, be deemed Collateral
hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security interest
in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine,
free from liens, adverse claims, setoffs, default, prepayment, defenses and
conditions precedent of any kind or character, except the lien created hereby or
as otherwise agreed to by Bank, or as heretofore disclosed by Debtor to Bank, in
writing; (d) all statements contained herein and, where applicable, in the
Collateral are true and complete in all material respects; (e) no financing
statement covering any of the Collateral or Proceeds, and naming any secured
party other than Bank, is on file in any public office; (f) where Collateral
consists of Rights to Payment, to the best of Debtor's knowledge all persons
appearing to be obligated on the Collateral and Proceeds have authority and
capacity to contract and are bound as they appear to be, all property subject to
chattel paper has been properly registered
-2-
<PAGE>
and filed in compliance with law and to perfect the interest of Debtor in such
property, and all such Collateral and Proceeds comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable Federal Reserve Regulation Z and any State consumer credit
laws; and (g) where the Collateral consists of Equipment, Debtor is not in the
business of selling goods of the kind included within such Collateral, and
Debtor acknowledges that no sale of any such Collateral, including without
limitation, any such Collateral which Debtor may deem to be surplus, has been
consented to or acquiesced in by Bank, except as specifically set forth in
writing by Bank.
6. COVENANTS OF DEBTOR.
(a) Debtor agrees in general: (i) to pay all Obligations secured hereby
when due; (ii) to indemnify Bank against all losses, claims, demands,
liabilities and expenses of every kind caused by property subject hereto, except
to the extent the foregoing arise out of the gross negligence or willful
misconduct of Bank; (iii) to pay in accordance with Section 15 hereof all costs
and expenses, including reasonable attorneys' fees, incurred by Bank in the
perfection and preservation of the Collateral or Bank's interest therein and/or
the realization, enforcement and exercise of Bank's rights, powers and remedies
hereunder; (iv) to permit Bank to exercise its powers; (v) to execute and
deliver such documents as Bank reasonably deems necessary to create, perfect and
continue the security interests contemplated hereby; and (vi) not to change its
chief place of business or the places where Debtor keeps any of the Collateral
or Debtor's records concerning the Collateral and Proceeds without first giving
Bank written notice of the address to which Debtor is moving same.
(b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank
agrees otherwise in writing: (i) where applicable or practicable, to insure the
Collateral with Bank as loss payee, in form, substance and amounts, under
agreements, against risks and liabilities, and with insurance companies
reasonably satisfactory to Bank; (ii) where applicable, to operate the
Collateral in accordance with all applicable statutes, rules and regulations
relating to the use and control thereof, and not to use any Collateral for any
unlawful purpose or in any way that would void any insurance required to be
carried in connection therewith; (iii) not to remove the Collateral from
Debtor's premises, except (A) for deliveries of Inventory to buyers in the
ordinary course of Debtor's business, (B) Collateral which consists of mobile
goods as defined in the California Uniform Commercial Code, in which case Debtor
agrees not to remove or permit the removal of such Collateral from its state of
domicile for a period in excess of thirty (30) calendar days, and (C) Collateral
which consists of personal computers and
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<PAGE>
similar office equipment used by Debtor's employees, consultants, agents and
subcontractors in the ordinary course of Debtor's business at off-site
locations; (iv) to pay when due all license fees, registration fees and other
charges in connection with any Collateral; (v) not to permit any lien on the
Collateral or Proceeds, including without limitation, liens arising from repairs
to or storage of the Collateral, except in favor of Bank and except in
connection with purchase money security interests and/or capital leases to the
extent permitted by the Credit Agreement; (vi) not to sell, hypothecate or
dispose of, nor permit the transfer by operation of law of, any of the
Collateral or Proceeds or any interest therein, except (A) sales of Inventory to
buyers in the ordinary course of Debtor's business, and (B) replacement of
Equipment in the ordinary course of Debtor's business; (vii) to permit Bank to
inspect the Collateral at any time upon reasonable notice during normal business
hours; (viii) to keep, in accordance with generally accepted accounting
principles, complete and accurate records regarding all Collateral and Proceeds,
and to permit Bank to inspect the same and make copies thereof at any reasonable
time during normal business hours; (ix) if requested by Bank after the
occurrence of an Event of Default, to receive and use reasonable diligence to
collect Rights to Payment and Proceeds, in trust and as the property of Bank,
and to immediately endorse as appropriate and deliver such Rights to Payment and
Proceeds to Bank daily in the exact form in which they are received together
with a collection report in form satisfactory to Bank; (x) not to commingle
Rights to Payment or Proceeds, or collections thereunder, with other property;
(xi) to give only normal allowances and credits and to advise Bank thereof
immediately in writing if they affect any Rights to Payment or Proceeds in any
material respect; (xii) from time to time, when requested by Bank, to prepare
and deliver a schedule of all Collateral and Proceeds subject to this Agreement
and to assign in writing and deliver to Bank all accounts, contracts, leases and
other chattel paper, instruments, documents and other evidences thereof; (xiii)
in the event Bank elects to receive payments of Rights to Payment or Proceeds
hereunder, to pay all expenses incurred by Bank in connection therewith,
including expenses of accounting, correspondence, collection efforts, reporting
to account or contract debtors, filing, recording, record keeping and expenses
incidental thereto; and (xiv) to provide any service and do any other acts which
may be necessary to maintain, preserve and protect all Collateral and, as
appropriate and applicable, to keep all Collateral in good and saleable
condition, to deal with the Collateral in accordance with the standards and
practices adhered to generally by users and manufacturers of like property, and
to keep all Collateral and Proceeds free and clear of all defenses, rights of
offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney in fact to
perform any of the following powers, which are coupled
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<PAGE>
with an interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Bank's officers and employees, or any of them:
(a) whether or not an Event of Default has occurred: (i) to perform any
obligation of Debtor hereunder in Debtor's name or otherwise if Debtor has
failed to so perform after such notice as is reasonable under the then existing
circumstances; (ii) to give notice to account debtors or others of Bank's rights
in the Collateral and Proceeds; (iii) to release security; (iv) to prepare,
execute, file, record or deliver notes, assignments, schedules, designation
statements, financing statements, continuation statements, termination
statements, statements of assignment, applications for registration or like
papers to perfect, preserve or release Bank's interest in the Collateral and
Proceeds; (v) to verify facts concerning the Collateral and Proceeds by inquiry
of obligors thereon, or otherwise, in its own name or a fictitious name; (vi) to
prepare, adjust, execute, deliver and receive payment under insurance claims,
and to collect and receive payment of and endorse any instrument in payment of
loss or returned premiums or any other insurance refund or return, and to apply
such amounts received by Bank, at Bank's sole option, toward repayment of the
Indebtedness or replacement of the Collateral; and (vii) to enter onto Debtor's
premises in inspecting the Collateral; and
(b) after an Event of Default has occurred: (i) to enforce Bank's rights
and make extension agreements with respect to the Collateral; (ii) to release
persons liable on Collateral or Proceeds and to give receipts and acquittances
and compromise disputes in connection therewith; (iii) to resort to security in
any order; (iv) to take cash, instruments for the payment of money and other
property to which Bank is entitled; (v) to endorse, collect, deliver and receive
payment under instruments for the payment of money constituting or relating to
Proceeds; (vi) to make withdrawals from and to close deposit accounts or other
accounts with any financial institution, wherever located, into which Proceeds
may have been deposited, and to apply funds so withdrawn to payment of
Obligations; (vii) to preserve or release the interest evidenced by chattel
paper to which Bank is entitled hereunder and to endorse and deliver evidences
of title incidental thereto; (viii) to exercise all rights, powers and remedies
which Debtor would have, but for this Agreement, with respect to all Collateral
and Proceeds subject hereto; and (ix) to do all acts and things and execute all
documents in the name of Debtor or otherwise, deemed by Bank as necessary,
proper and convenient in connection with the preservation, perfection or
enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against
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the Collateral and Proceeds, and upon the failure of Debtor to do so, Bank at
its option may pay any of them and shall be the sole judge of the legality or
validity thereof and the amount necessary to discharge the same. Any such
payments made by Bank shall be obligations of Debtor to Bank, due and payable
within ten (10) calendar days after receipt of each billing from Bank, together
with interest at a rate determined in accordance with the provisions of Section
15 hereof, and shall be secured by the Collateral and Proceeds, subject to all
terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any defined Event of Default
under the Credit Agreement shall constitute an "Event of Default" under this
Agreement.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall
have the right to declare immediately due and payable all or any of the
Obligations and to terminate any commitments to make loans or otherwise extend
credit to Debtor. Bank shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on any Collateral or Proceeds
and to instruct such persons to deliver all Collateral and/or Proceeds directly
to Bank. All rights, powers, privileges and remedies of Bank shall be
cumulative. No delay, failure or discontinuance of Bank in exercising any
right, power, privilege or remedy hereunder shall affect or operate as a waiver
of such right, power, privilege or remedy; nor shall any single or partial
exercise of any such right, power, privilege or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy. Any waiver, permit, consent or
approval of any kind by Bank of any default hereunder, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective only
to the extent set forth in writing. It is agreed that public or private sales,
for cash or on credit, to a wholesaler or retailer or investor, or user of
property of the types subject to this Agreement, or public auction, are all
commercially reasonable since differences in the sales prices generally realized
in the different kinds of sales are ordinarily offset by the differences in the
costs and credit risks of such sales. While an Event of Default exists: (a)
Debtor will deliver to Bank from time to time, as requested by Bank, current
lists of all Collateral and Proceeds; (b) Debtor will not dispose of any of the
Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request,
Debtor will assemble and deliver all Collateral and Proceeds, and books and
records pertaining thereto, to Bank at a reasonably convenient place designated
by Bank; and (d) Bank may, without notice to Debtor, enter onto Debtor's
premises and take possession of the Collateral. With respect to any sale by
Bank of any Collateral
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subject to this Agreement, Debtor hereby expressly grants to Bank the right to
sell such Collateral using any or all of Debtor's trademarks, trade names, trade
name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Obligations, Bank may transfer all or any part of the Collateral
or Proceeds and shall be fully discharged thereafter from all liability and
responsibility with respect to any of the foregoing so transferred, and the
transferee shall be vested with all rights and powers of Bank hereunder with
respect to any of the foregoing so transferred; but with respect to any
Collateral or Proceeds not so transferred, Bank shall retain all rights, powers,
privileges and remedies herein given. Any proceeds of any disposition of any of
the Collateral or Proceeds, or any part thereof, may be applied by Bank to the
payment of expenses incurred by Bank in connection with the foregoing, including
reasonable attorneys' fees, and the balance of such proceeds may be applied by
Bank toward the payment of the Obligations in such order of application as Bank
may from time to time elect.
12. STATUTE OF LIMITATIONS. Until all Obligations shall have been paid in
full and all commitments by Bank to extend credit to Debtor have been
terminated, the power of sale and all other rights, powers, privileges and
remedies granted to Bank hereunder shall continue to exist and may be exercised
by Bank at any time and from time to time irrespective of the fact that the
Obligations or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Obligations.
13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several;
(b) Debtor hereby waives any right (i) to require Bank to make any presentment
or demand, or give any notice of nonpayment or nonperformance, protest, notice
of protest or notice of dishonor hereunder, (ii) to direct the application of
payments or security for any of the Obligations, or any indebtedness of
customers of Debtor, or (iii) to require proceedings against others or to
require exhaustion of security; and (c) Debtor hereby consents to extensions,
forbearances or alterations of the terms of the Obligations, the release or
substitution of security, and the release of any guarantors; provided however,
that in each instance, Bank believes in good faith that the action in question
is commercially reasonable in that it does not unreasonably increase the risk of
nonpayment of the Obligations. Until all Obligations shall have been paid in
full, Debtor shall not have any right of subrogation or contribution, and Debtor
hereby waives any benefit of or right to participate in any of the Collateral or
Proceeds or any other security now or hereafter held by Bank.
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<PAGE>
14. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Debtor or to Bank at its address
specified in, and given in accordance with the terms of, the Credit Agreement.
15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank, within
ten (10) calendar days after receipt of each billing from Bank, the full amount
of all payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of
Bank's in-house counsel), expended or incurred by Bank in exercising any right,
power, privilege or remedy conferred by this Agreement or in the enforcement
thereof, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to Debtor or in any way affecting any of the Collateral or
Bank's ability to exercise any of its rights or remedies with respect thereto.
All of the foregoing shall be paid by Debtor with interest from the date due
until paid in full at a rate per annum equal to the greater of ten percent (10%)
or the Prime Rate in effect from time to time.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and may be amended or
modified only in writing signed by Bank and Debtor.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California.
Debtor warrants that its chief executive office is located at 1350 Treat
Boulevard, Suite 250, Walnut Creek, CA 94596. Debtor further warrants that none
of the Collateral (except goods in transit and Equipment used at off-site
locations as permitted by Section 6(b)(iii)(C) hereof) is located or domiciled
at any other address.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of November 7,
1997.
TIER TECHNOLOGIES, INC.
By: /s/ George K. Ross
---------------------------
Title: Chief Financial Officer
------------------------
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EXHIBIT 10.34
TIER TECHNOLOGIES, INC.
VOTING TRUST AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of November 3, 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.
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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 transferor.
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.
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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.
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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 trustees, of
shares held by them 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 cash dividends or other
cash distributions to the Beneficiaries on the record date for any such 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 holders 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 their vote or action as such
holders.
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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
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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.
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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 it may be concerned, as fully and freely as though the
Trustees were not Trustees under this Agreement. The Trustees may act as
directors and/or officers of the Company or of any such subsidiary or controlled
or affiliated corporation and may vote the shares held hereunder in favor of
their election as directors and as directors may vote in favor of their election
as officers.
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. Each Trustee 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
such 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.
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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 General 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 General 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.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TRUSTEES:
/s/ James L. Bildner /s/ William G. Barton
- ----------------------------------- -----------------------------------
James L. Bildner William G. Barton
BENEFICIARIES:
/s/ William G. Barton /s/ Bradley H. Nickels
- ----------------------------------- -----------------------------------
William G. Barton Bradley H. Nickels
/s/ Bryan McCaul /s/ Leon Normand
- ----------------------------------- -----------------------------------
Bryan McCaul Leon Normand
/s/ James L. Bildner /s/ Wilson Hitchings
- ----------------------------------- -----------------------------------
James L. Bildner Wilson Hitchings
/s/ Robert Butorac /s/ Greg Bowen
- ----------------------------------- -----------------------------------
Robert Butorac Greg Bowen
/s/ Graham Pettifer /s/ James Hinson
- ----------------------------------- -----------------------------------
Graham Pettifer James Hinson
COMPANY:
Tier Technologies, Inc.,
a California corporation
By: /s/ James L. Bildner
----------------------------------------
James L. Bildner
Chairman
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>
TIER TECHNOLOGIES, INC.
AGREEMENT REGARDING TERMINATION OF
VOTING TRUST
THIS AGREEMENT ("Agreement") is entered into as of November 3, 1997,
between James L. Bildner and William G. Barton (with any successors, the
"Trustees" or individually, a "Trustee"), and the persons who have executed this
Agreement as beneficiaries or who become registered owners of voting trust
certificates pursuant to the terms of that certain Voting Trust Agreement of
even date herewith (individually, a "Beneficiary" and collectively, the
"Beneficiaries").
RECITALS
--------
The parties have entered into the Voting Trust Agreement of even date
herewith (the "Voting Trust Agreement") for the purpose of ensuring that, during
the term of the Voting Trust Agreement, the shares of Class A Common Stock of
Tier Technologies, Inc., a California corporation (the "Company"), represented
under the Voting Trust Agreement will be voted in a unified and consistent
manner.
It is the desire of the parties, however, that the voting trust (the
"Trust") that is the subject of the Voting Trust Agreement be terminated in the
event that an initial public offering of the shares of the Company (the "IPO")
is not completed by June 30, 1998.
Any terms capitalized but not defined herein shall have the meaning given
to them in the Voting Trust Agreement.
In consideration of the mutual agreements below, the parties hereto agree
as follows:
2. TERMINATION OF THE TRUST
2.4. In the event that the IPO has not become effective as of June 30,
1998, the Trust shall terminate and the provisions of Sections 6.2 and 6.3 of
the Voting Trust Agreement shall apply.
3. MISCELLANEOUS
3.4. This Agreement shall be binding on and inure to the benefit of the
Trustees and Beneficiaries hereunder and each and all of the heirs, executors,
administrators, successors and assigns thereof.
3.5. 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.
3.6. 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:
1
<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)
2.4. 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.
2.5. 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.
2.6. 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.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TRUSTEES:
/s/ James L. Bildner /s/ William G. Barton
- --------------------------------- ---------------------------------
James L. Bildner William G. Barton
BENEFICIARIES:
/s/ William G. Barton /s/ Bradley H. Nickels
- --------------------------------- ---------------------------------
William G. Barton Bradley H. Nickels
/s/ Bryan McCaul /s/ Leon Normand
- --------------------------------- ---------------------------------
Bryan McCaul Leon Normand
/s/ James L. Bildner /s/ Wilson Hitchings
- --------------------------------- ---------------------------------
James L. Bildner Wilson Hitchings
/s/ Robert Butorac /s/ Greg Bowen
- --------------------------------- ---------------------------------
Robert Butorac Greg Bowen
/s/ Graham Pettifer /s/ James Hinson
- --------------------------------- ---------------------------------
Graham Pettifer James Hinson
COMPANY:
Tier Technologies, Inc.,
a California corporation
By: /s/ James L. Bildner
-----------------------------
James L. Bildner
Chairman
3
<PAGE>
EXHIBIT 10.35
TIER TECHNOLOGIES, INC.
BUY-SELL AGREEMENT
THIS BUY-SELL AGREEMENT ("Agreement") is entered into as of
______________________ ___, 1997 between James L. Bildner ("Bildner") and
William G. Barton ("Barton").
RECITALS
--------
The holders of Class A Common Stock in Tier Technologies, Inc. (the
"Company") have created a voting trust (the "Trust") pursuant to the Voting
Trust Agreement of even date herewith (the "Voting Trust Agreement"). Bildner
and Barton (individually, a "Shareholder" and collectively, the "Shareholders"),
who are both trustees and beneficiaries of the Trust, seek to articulate, in the
form of this Agreement, procedures for the transfer of their Certificates (as
defined in the Voting Trust Agreement) in respect of shares of the Company
should such transfer become necessary or desirable.
NOW, THEREFORE, incorporating the foregoing Recitals and in
consideration of the mutual agreements and covenants contained herein, the
parties hereby agree as follows:
1.
APPLICABILITY
-------------
1.1 Applicability. The terms and procedures set forth in this
Agreement shall apply to the transfer of Certificates either during life
("intervivos"), as set forth in Section 3, or at death, as set forth in Section
4.
2.
ENFORCEMENT
-----------
2.1 Restriction on Transfer. To accomplish the purposes of this
Agreement and the Voting Trust Agreement, any transfer, sale, assignment,
hypothecation, encumbrance, or alienation, regardless of the manner,
circumstances, timing, or nature or such transfer, whether intervivos or at
death (collectively, "Transfer"), of any Certificate(s) is void and transfers no
right, title, or interest in or to those shares to the purported transferee,
buyer, assignee, pledgee, or encumbrance holder, except as specifically provided
herein.
2.2 Legend on Certificates. Each Certificate shall have the following
statement conspicuously printed on its face and each party shall cooperate in
the process of printing such statements:
1
<PAGE>
"The transfer, sale, assignment, hypothecation, encumbrance, or
alienation of this certificate is restricted by a Buy-Sell Agreement
dated ________, which may be inspected at the offices of the Company
during normal business hours. All of the terms and provisions of the
Buy-Sell Agreement are incorporated by this reference and made a part
of this certificate."
3.
INTERVIVOS TRANSFER
-------------------
3.1 Generally. The Articles of Incorporation of the Company provide
that certain Transfers shall cause Class A Common Stock to be converted to Class
B Common Stock (a "Conversion").
3.1.1 No Conversion. A Transfer of a Certificate that would not
result in a Conversion shall be permitted, with the terms of the Transfer to be
determined by the transferor and the transferee, in their sole discretion.
3.1.2 Conversion. An intervivos Transfer of a Certificate that
would result in Conversion shall be prohibited for 5 years from the date hereof.
After the expiration of 5 years from the date hereof, such a Transfer would be
permitted, subject to the right of first refusal discussed in Section 3.2
hereof.
3.1.3 Remain Subject. Any transferred Certificate shall remain
subject to this Agreement.
3.2 Right of First Refusal. Before either Shareholder makes an
intervivos Transfer of a Certificate which would result in Conversion, the other
shall have the opportunity to purchase the Certificate under the terms of this
Section 3.2. The party desiring to Transfer his Certificate (the "Transferring
Party") shall inform the other party (the "Non-Transferring Party") of his
intent to Transfer. The Non-Transferring Party shall have two (2) days to decide
whether to purchase the Certificate. If the Non-Transferring Party decides not
to purchase the Certificate, or fails to respond to the Transferring Party's
notice, then the Transferring Party may make an intervivos Transfer of his
Certificate subject to the terms of the Voting Trust Agreement. If the Non-
Transferring Party decides to purchase the Certificate, the terms of the
purchase shall be as provided in Sections 3.2.1 and 3.2.2.
3.2.1 Price. The purchase price for the Transfer described in
Section 3.2, stated on a per share of Class A Common Stock basis, shall be equal
to the market value of a share of Class B Common Stock of the Company on the
date that the Transferring Party notifies the Non-Transferring Party of his
intent to Transfer (pursuant to Section 3.2 hereof). The market value of the
Class B share shall be equal to the average of opening and closing values on the
day of the aforementioned notice. No premium or discount shall be taken for
differences in voting power between the Class A and Class B shares.
2
<PAGE>
3.2.2 Payment. Payment for the Transfer described in Section 3.2
shall be made within thirty (30) days of such Transfer, either in cash or with a
number of Class B Common Stock shares equal to the number of Class A Common
Stock shares represented by the transferred Certificate.
4.
TRANSFER AT DEATH
-----------------
4.1 Obligation to Purchase. Upon the death of either Shareholder, the
other (the "Survivor") shall have a fully recourse obligation to purchase the
Certificate of the deceased (the "Deceased"), under the terms set forth in this
Section 4.
4.2 Price. The purchase price for the Transfer described in Section
4.1, stated on a per share of Class A Common Stock basis, shall be equal to the
market value of a share of Class B Common Stock of the Company on the date of
the Deceased's death. The market value of the Class B share shall be equal to
the average of opening and closing values on the day of the aforementioned
notice. No premium or discount shall be taken for differences in voting power
between the Class A and Class B shares.
4.3 Payment. Payment for the Transfer described in Section 4.1 shall
be made as follows: As much of the purchase price as possible shall be paid in
cash, using solely the proceeds of the insurance policy described in Section 4.4
below. The remainder shall be paid within one hundred twenty (120) days of
death. The remainder may be paid (i) in cash; or (ii) with one share of Class B
Common Stock for each Class A Common Stock share represented by the transferred
Certificate, or any proportion of (i) and (ii).
4.4 Insurance. Each Shareholder shall obtain a 10-year level term
life insurance policy on the life of the other, in the amount of $5 million, for
the purpose of making the payment contemplated in Section 4.3 (individually, a
"Policy" and collectively, the "Policies"). Each Shareholder hereby consents to
the acquisition of such policies and agrees to cooperate in the acquisition and
administration of the policies. The details of the policies are set forth in
Exhibit A attached hereto.
4.5 Implementation. The following procedures shall apply to this
Section 4.
4.5.1 Beneficiary and Payment. Each Shareholder shall be the
named beneficiary and beneficial owner of the Policy on the life of the other
Shareholder, and shall make premium payments on such Policy to the appropriate
insurance company.
4.5.2 Transfers. The Shareholders agree that as long as this
Agreement is in effect, they will maintain the Policies and will not exercise
any of the rights, privileges, and benefits accruing under any policy they own
subject to this Agreement, nor will they Transfer any such policy.
3
<PAGE>
4.5.3 Delinquent Payment. The beneficial owner of each Policy
shall file with each insurance company insuring the life of a Shareholder under
this Agreement a request that copies of all delinquent payment notices be sent
to the insured Shareholder. If any premium is not paid in full on or before 10
days before it is due, the insured may pay the premium on behalf of the other
Shareholder. Payment by the insured shall be considered a loan to the other
Shareholder to be repaid on demand of the insured, with interest from the date
of payment at an annual rate equal to the maximum rate established by applicable
law as of such date.
4.5.4 Proceeds. On the death of either Shareholder, the Survivor
shall collect the proceeds of the Policy on the life of the Deceased and pay
those proceeds over to the authorized legal representative of the Deceased for
the purpose of the payment contemplated in Section 4.3. Any proceeds in excess
of the purchase price provided in Section 4.2 shall be paid to the estate of the
Deceased.
4.5.5 Release of Certificate. Once the full payment contemplated
by Section 4.3 has been made, the authorized legal representative of the
Deceased shall transfer the Certificate of the Deceased to the Survivor.
4.6 Death of Both Parties. Upon the death of the second to die of
Bildner and Barton, the Trust terminates and so shall any obligations under this
Agreement terminate.
5.
GENERAL PROVISIONS
------------------
5.1 Notice. Any notice required by this Agreement shall be faxed or
mailed to the other party at the address shown, which notice shall, where the
party required to provide notice is deceased, be faxed or mailed by the party's
authorized legal representative.
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)
5.2 Assurances. Each party will execute all certificates and other
documents and will do all such filing, recording, publishing and other acts as
the parties deem appropriate to comply with the requirements of law for the
execution and application of this Agreement.
5.3 Specific Performance. The parties recognize that irreparable injury
will result from a breach of any provision of this Agreement and that money
damages will be inadequate
4
<PAGE>
to fully remedy the injury. Accordingly, in the event of a breach or threatened
breach of one or more of the provisions of this Agreement, any party who may be
injured (in addition to any other remedies which may be available to that party)
will be entitled to one or more preliminary or permanent orders (i) restraining
and enjoining any act which would constitute a breach or (ii) compelling the
performance of any obligation which, if not performed, would constitute a
breach.
5.4 Complete Agreement. This Agreement supersedes all prior written and
oral statements by the parties with respect to the subject matter hereof,
including any prior representation, statement, condition or warranty. Any
modification of this Agreement must be in writing and be signed by all of the
parties.
5.5 Applicable Law. All questions concerning the construction, validity
and interpretation of this Agreement and the performance of the obligations
imposed by this Agreement will be governed by the laws of the State of
California.
5.6 Section Titles. The headings herein are inserted as a matter of
convenience only and do not define, limit or describe the scope of this
Agreement or the intent of the provisions hereof.
5.7 Binding Provisions. This Agreement is binding upon, and to the limited
extent specifically provided herein, inures to the benefit of, the parties
hereto and their respective heirs, executors, administrators, personal and legal
representatives, successors and assigns.
5.8 Terms. Common nouns and pronouns will be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the person
may in the context require.
5.9 Separability of Provisions. Each provision of this Agreement will be
considered separable. If, for any reason, any provision or provisions herein are
determined to be invalid and contrary to any existing or future law, such
invalidity will not impair the operation of or affect those portions of this
Agreement which are valid.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which, when
taken together, constitute one and the same document. The signature of any party
to any counterpart will be deemed a signature to, and may be appended to, any
other counterpart.
5.11 Termination. Any obligations under this Agreement shall terminate upon
the termination of the Trust.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
SHAREHOLDERS:
_________________________ ___________________________
James L. Bildner William G. Barton
6
<PAGE>
EXHIBIT A
---------
INSURANCE POLICIES
Exhibit A, 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......... 1,876,187 1,876,187 1,876,187 1,876,187
------------ ----------- ---------- ----------
Shares used in computing net
income per share.............. 12,358,784 7,285,085 7,516,921 6,894,942
============ =========== ========== ==========
Net income per share........... $ 0.04 $ 0.07 $ 0.05 $ 0.08
============ =========== ========== ==========
</TABLE>
<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,
except for Note 14, as to which the date is November 14, 1997, and our report
dated September 8, 1997 pertaining to Encore Consulting, Inc. included in
Amendment No. 1 to 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.
/s/ Ernst & Young
LLP
Walnut Creek, California
November 14, 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
the use of our report pertaining to Albanycrest Limited dated September 30,
1997 included in Amendment No. 1 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.
/s/ Ernst & Young
Reading, England
November 14, 1997
