10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(x) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2008

OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number 1-10485

TYLER TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	75-2303920
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)

5949 SHERRY LANE, SUITE 1400

DALLAS, TEXAS

75225

(Address of principal executive offices)

(Zip code)

(972) 713-3700

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):  

Large accelerated filer  [  ]     Accelerated filer  [X]     Non-accelerated filer  [  ]      Smaller Reporting Company  [  ]

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)  Yes [  ] No [X]

The number of shares of common stock of registrant outstanding on October 23, 2008 was 36,330,337.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

TYLER TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
	Three months ended				Nine months ended
	September 30,				September 30,
	2008		2007		2008		2007
Revenues:
Software licenses	$	11,372	$	8,145	$	31,646	$	24,431
Subscriptions		3,526		2,559		10,503		7,272
Software services		18,600		15,872		54,973		44,213
Maintenance		28,353		22,132		79,102		62,526
Appraisal services		5,289		4,927		14,249		16,514
Hardware and other		1,497		1,297		5,084		4,420
Total revenues		68,637		54,932		195,557		159,376
Cost of revenues:
Software licenses		2,071		1,886		6,838		5,818
Acquired software		472		427		1,369		1,248
Software services, maintenance and subscriptions		31,988		26,795		93,555		77,677
Appraisal services		3,098		3,248		9,269		11,340
Hardware and other		1,058		946		3,684		3,304
Total cost of revenues		38,687		33,302		114,715		99,387
Gross profit		29,950		21,630		80,842		59,989
Selling, general and administrative expenses		15,985		12,691		46,155		38,448
Research and development expense		1,416		639		5,485		3,266
Amortization of customer and trade name intangibles		612		372		1,770		1,075
Non-cash legal settlement related to warrants		-		-		9,045		-
Operating income		11,937		7,928		18,387		17,200
Other income, net		398		441		1,044		1,252
Income before income taxes		12,335		8,369		19,431		18,452
Income tax provision		5,976		3,209		9,700		7,141
Net income	$	6,359	$	5,160	$	9,731	$	11,311
Earnings per common share:
Basic	$	0.17	$	0.13	$	0.26	$	0.29
Diluted	$	0.16	$	0.12	$	0.25	$	0.27
Basic weighted average common shares outstanding		38,474		38,688		38,093		38,717
Diluted weighted average common shares outstanding		40,019		41,395		39,626		41,673
See accompanying notes.

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TYLER TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(In thousands, except par value and share amounts)
	September 30,
	2008			December 31,
	(Unaudited)			2007
ASSETS
Current assets:
Cash and cash equivalents	$	23,779		$	9,642
Restricted cash equivalents		5,082			4,462
Short-term investments available-for-sale		500			41,590
Accounts receivable (less allowance for losses of $1,841 in 2008
and  $1,851 in 2007)		66,430			63,965
Prepaid expenses		7,693			7,726
Other current assets		1,771			1,324
Deferred income taxes		1,839			2,355
Total current assets		107,094			131,064
Accounts receivable, long-term portion		681			398
Property and equipment, net		24,773			9,826
Non-current investments available-for-sale		4,893			-
Other assets:
Goodwill		88,733			71,677
Customer related intangibles, net		28,071			17,706
Software, net		7,034			9,588
Other intangibles, net		2,577			1,074
Sundry		220			175
	$	264,076		$	241,508
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,590		$	3,323
Accrued liabilities		26,265			18,905
Deferred revenue		91,029			73,714
Income taxes payable		-			632
Total current liabilities		119,884			96,574
Deferred income taxes		8,889			7,723
Commitments and contingencies
Shareholders' equity:
Preferred stock, $10.00 par value; 1,000,000 shares authorized,
none issued		-			-
Common stock, $0.01 par value; 100,000,000 shares authorized;
48,147,969 shares issued in 2008 and 2007		481			481
Additional paid-in capital		150,561			149,568
Accumulated other comprehensive loss, net of tax		(167	)		-
Retained earnings		45,363			35,632
Treasury stock, at cost; 10,321,534 and 9,528,467 shares in 2008
and 2007, respectively		(60,935	)		(48,470	)
Total shareholders' equity		135,303			137,211
	$	264,076		$	241,508
See accompanying notes.

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TYLER TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	Nine months ended September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	9,731		$	11,311
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization		8,989			7,795
Non-cash legal settlement related to warrants		9,045			-
Share-based compensation expense		2,719			1,705
Changes in operating assets and liabilities, exclusive of
effects of acquired companies:
Accounts receivable		63			6,532
Income tax receivable		(972	)		(800	)
Prepaid expenses and other current assets		515			504
Accounts payable		(833	)		(1,465	)
Accrued liabilities		3,555			(1,289	)
Deferred revenue		12,587			245
Net cash provided by operating activities		45,399			24,538
Cash flows from investing activities:
Proceeds from sales of short-term investments		44,565			21,103
Purchases of short-term investments		(8,625	)		(29,940	)
Cost of acquisitions, net of cash acquired		(23,868	)		(9,005	)
Investment in software development costs		-			(158	)
Additions to property and equipment		(17,375	)		(2,575	)
Acquired lease		(1,387	)		-
(Increase) decrease in restricted investments		(620	)		500
(Increase) decrease in other		(38	)		40
Net cash used by investing activities		(7,348	)		(20,035	)
Cash flows from financing activities:
Purchase of treasury shares		(28,968	)		(11,134	)
Contributions from employee stock purchase plan		872			833
Proceeds from exercise of stock options		1,617			3,291
Excess tax benefits from share-based compensation expense		560			1,118
Warrant exercise in connection with legal settlement		2,005			-
Net cash used by financing activities		(23,914	)		(5,892	)
Net increase (decrease) in cash and cash equivalents		14,137			(1,389	)
Cash and cash equivalents at beginning of period		9,642			17,212
Cash and cash equivalents at end of period	$	23,779		$	15,823
See accompanying notes.

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Tyler Technologies, Inc.

Notes to Condensed Financial Statements

(Unaudited)

(Tables in thousands, except per share data)

(1) Basis of Presentation

We prepared the accompanying condensed financial statements following the requirements of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States, or GAAP, for interim reporting.  As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted for interim periods.  Balance sheet amounts are as of September 30, 2008 and December 31, 2007 and operating result amounts are for the three and nine months ended September 30, 2008 and 2007, and include all normal and recurring adjustments that we considered necessary for the fair summarized presentation of our financial position and operating results.  As these are condensed financial statements, one should also read the financial statements and notes included in our latest Form 10-K for the year ended December 31, 2007.  Revenues, expenses, assets and liabilities can vary during each quarter of the year.  Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

Although we have a number of operating divisions, separate segment data has not been presented as they meet the criteria set forth in Statement of Financial Accounting Standards (“SFAS”) No. 131, "Disclosures About Segments of an Enterprise and Related Information" to be presented as one segment.

Certain other amounts for the previous period have been reclassified to conform to the current period presentation.

(2) Revenue Recognition

Software Arrangements:

We earn revenue from software licenses, subscriptions, software related services, post-contract customer support (“PCS” or “maintenance”), and hardware.  PCS includes telephone support, bug fixes, and rights to upgrades on a when-and-if available basis.  We provide services that range from installation, training, and basic consulting to software modification and customization to meet specific customer needs.  In software arrangements that include rights to multiple software products, specified upgrades, PCS, and/or other services, we allocate the total arrangement fee among each deliverable based on the relative fair value of each.

We typically enter into multiple element arrangements, which include software licenses, software services, PCS and occasionally hardware.  The majority of our software arrangements are multiple element arrangements, but for those arrangements that involve significant production, modification or customization of the software, or where software services are otherwise considered essential to the functionality of the software in the customer’s environment, we use contract accounting and apply the provisions of Statement of Position (“SOP”) 81-1 “Accounting for Performance of Construction – Type and Certain Production – Type Contracts.”

If the arrangement does not require significant production, modification or customization or where the software services are not considered essential to the functionality of the software, revenue is recognized when all of the following conditions are met:

i.           persuasive evidence of an arrangement exists;

ii.           delivery has occurred;

iii.           our fee is fixed or determinable; and

iv.           Collectibility is probable.

For multiple element arrangements, each element of the arrangement is analyzed and we allocate a portion of the total arrangement fee to the elements based on the fair value of the element using vendor-specific objective evidence of fair value (“VSOE”), regardless of any separate prices stated within the contract for each element.  Fair value is considered the price a customer would be required to pay if the element was sold separately based on our historical experience of stand-alone sales of these elements to third parties.  For PCS, we use renewal rates for continued support arrangements to determine fair value.  For software services, we use the fair value we charge our customers when those services are sold separately.  We monitor our transactions to insure we maintain and periodically revise VSOE to reflect fair value.   In software arrangements in which we have the fair value of all undelivered elements but not of a delivered element, we apply the “residual method” as allowed under SOP 98-9 in accounting for any element of a multiple element arrangement involving software that remains undelivered such that any discount inherent in a contract is allocated to the delivered element.  Under the residual method, if the fair value of all undelivered elements is determinable, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered element(s) and is recognized as revenue assuming the other revenue recognition criteria are met.  In software arrangements in which we do not have VSOE for all undelivered elements, revenue is deferred until fair value is determined or all elements for which we do not have VSOE have been delivered.  Alternatively, if sufficient VSOE does not exist and the only undelivered element is services that do not involve significant modification or customization of the software, the entire fee is recognized over the period during which the services are expected to be performed.

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Software Licenses

We recognize the revenue allocable to software licenses and specified upgrades upon delivery of the software product or upgrade to the customer, unless the fee is not fixed or determinable or collectibility is not probable.  If the fee is not fixed or determinable, including new customers whose payment terms are three months or more from shipment, revenue is generally recognized as payments become due from the customer.  If collectibility is not considered probable, revenue is recognized when the fee is collected.  Arrangements that include software services, such as training or installation, are evaluated to determine whether those services are essential to the product’s functionality.

A majority of our software arrangements involve “off-the-shelf” software.  We consider software to be off-the-shelf software if it can be added to an arrangement with minor changes in the underlying code and it can be used by the customer for the customer’s purpose upon installation.  For off-the-shelf software arrangements, we recognize the software license fee as revenue after delivery has occurred, customer acceptance is reasonably assured, that portion of the fee represents a non-refundable enforceable claim and is probable of collection, and the remaining services such as training are not considered essential to the product’s functionality.

For arrangements that involve significant production, modification or customization of the software, or where software services are otherwise considered essential, we recognize revenue using contract accounting.  We generally use the percentage-of-completion method to recognize revenue from these arrangements.  We measure progress-to-completion primarily using labor hours incurred, or value added.  The percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract because we have the ability to produce reasonably dependable estimates of contract billings and contract costs.  We use the level of profit margin that is most likely to occur on a contract.  If the most likely profit margin cannot be precisely determined, the lowest probable level of profit in the range of estimates is used until the results can be estimated more precisely.  These arrangements are often implemented over an extended time period and occasionally require us to revise total cost estimates.  Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates.  Changes to total estimated contract costs, if any, are recorded in the period they are determined.  Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.

For arrangements that include new product releases for which it is difficult to estimate final profitability except to assume that no loss will ultimately be incurred, we recognize revenue under the completed contract method.  Under the completed contract method, revenue is recognized only when a contract is completed or substantially complete.   Historically these amounts have been immaterial.

Subscription-Based Services

Subscription-based services primarily consist of revenues derived from application service provider (“ASP”) arrangements and other hosted service offerings, software subscriptions and disaster recovery services.

We recognize revenue for ASP and other hosting services, software subscriptions, term license arrangements with renewal periods of twelve months or less and disaster recovery ratably over the period of the applicable agreement as services are provided.  Disaster recovery agreements and other hosting services are typically renewable annually.  ASP and software subscriptions are typically for periods of three to six years and automatically renew unless either party cancels the agreement.  The majority of the ASP and other hosting services and software subscriptions also include professional services as well as maintenance and support.  In certain ASP arrangements, the customer also acquires a license to the software.

For ASP and other hosting arrangements, we evaluate whether each of the elements in these arrangements represents a separate unit of accounting, as defined by Emerging Issues Task Force (“EITF”) 00-21, using all applicable facts and circumstances, including whether (i) we sell or could readily sell the element unaccompanied by the other elements, (ii) the element has stand-alone value to the customer, (iii) there is objective reliable evidence of the fair value of the undelivered item, and (iv) there is a general right of return.  We consider the applicability of EITF No. 00-03, “Application of SOP 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’sHardware” on a contract-by-contract basis.  In hosted term-based agreements, where the customer does not have the contractual right to take possession of the software, hosting fees are recognized on a monthly basis over the term of the contract commencing when the customer has access to the software.  For professional services associated with hosting arrangements that we determine do not have stand-alone value to the customer, we recognize the services revenue ratably over the remaining contractual period once hosting has gone live and we may begin billing for the hosting services.  We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met.

5

If we determine that the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty, and can feasibly maintain the software on the customer’s hardware or enter into another arrangement with a third party to host the software, we recognize the license, professional services and hosting services revenues pursuant to SOP 97-2.

Software Services

Some of our software arrangements include services considered essential for the customer to use the software for the customer’s purposes.  For these software arrangements, both the software license revenue and the services revenue are recognized as the services are performed using the percentage-of-completion contract accounting method.  When software services are not considered essential, the fee allocable to the service element is recognized as revenue as we perform the services.

Computer Hardware Equipment

Revenue allocable to computer hardware equipment, which is based on VSOE, is recognized when we deliver the equipment and collection is probable.

Postcontract Customer Support

Our customers generally enter into PCS agreements when they purchase our software licenses.  Our PCS agreements are typically renewable annually.  Revenue allocated to PCS is recognized on a straight-line basis over the period the PCS is provided.  All significant costs and expenses associated with PCS are expensed as incurred.  Fair value for the maintenance and support obligations for software licenses is based upon the specific sale renewals to customers.

Appraisal Services:

For our property appraisal projects, we recognize revenue using the proportionate performance method of revenue recognition since many of these projects are implemented over one to three year periods and consist of various unique activities.  Under this method of revenue recognition, we identify each activity for the appraisal project, with a typical project generally calling for bonding, office set up, training, routing of map information, data entry, data collection, data verification, informal hearings, appeals and project management.  Each activity or act is specifically identified and assigned an estimated cost.  Costs which are considered to be associated with indirect activities, such as bonding costs and office set up, are expensed as incurred.  These costs are typically billed as incurred and are recognized as revenue equal to cost.  Direct contract fulfillment activities and related supervisory costs such as data collection, data entry and verification are expensed as incurred.  The direct costs for these activities are determined and the total contract value is then allocated to each activity based on a consistent profit margin.  Each activity is assigned a consistent unit of measure to determine progress towards completion and revenue is recognized for each activity based upon the percentage complete as applied to the estimated revenue for that activity.  Progress for the fulfillment activities is typically based on labor hours or an output measure such as the number of parcel counts completed for that activity.  Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.

Other:

The majority of deferred revenue consists of unearned support and maintenance revenue that has been billed based on contractual terms in the underlying arrangement with the remaining balance consisting of payments received in advance of revenue being earned under software licensing, subscription-based services, software and appraisal services and hardware installation.  Unbilled revenue is not billable at the balance sheet date but is recoverable over the remaining life of the contract through billings made in accordance with contractual agreements.  The termination clauses in most of our contracts provide for the payment for the fair value of products delivered and services performed in the event of an early termination.

6

Prepaid expenses and other current assets include direct and incremental costs, consisting primarily of commissions associated with arrangements for which revenue recognition has been deferred and third party subcontractor payments.  Such costs are expensed at the time the related revenue is recognized.

(3) Acquisitions

In August 2008, we completed the acquisition of all the capital stock of School Information Systems, Inc. (“SIS”) which develops and sells a full suite of student information and financial management systems for K-12 schools.  The purchase price, including transaction costs and excluding cash balances acquired, was approximately $9.9 million in cash and approximately 70,000 shares of Tyler common stock valued at $1.2 million.

In the first quarter of 2008, we completed the acquisitions of all of the capital stock of VersaTrans Solutions Inc. (“VersaTrans”) and certain assets of Olympia Computing Company, Inc. d/b/a Schoolmaster (“Schoolmaster”).  VersaTrans is a provider of student transportation management software solutions for school districts and school transportation providers across North America, including solutions for school bus routing and planning, redistricting, GPS fleet tracking, fleet maintenance and field trip planning.  Schoolmaster provides a full suite of student information systems, which manage such functions as grading, attendance, scheduling, guidance, health, admissions and fund raising.  The combined purchase price for these transactions excluding cash acquired and including transaction costs, was approximately $13.9 million in cash and approximately 126,000 shares of Tyler common stock valued at $1.7 million.

The operating results of these acquisitions are included in our results of operations since their respective dates of acquisition.

We believe these acquisitions will complement our business model by expanding our presence in the education market and will give us additional opportunities to provide our customers with solutions tailored specifically for local governments.

In connection with these three transactions we acquired total tangible assets of approximately $3.6 million and assumed total liabilities of approximately $8.2 million. We recorded goodwill of $17.0 million, $7.7 million of which is expected to be deductible for tax purposes, and other intangible assets of $14.3 million. The $14.3 million of intangible assets is attributable to acquired software, customer relationships and trade name that will be amortized over a weighted average period of approximately 10 years.  Our balance sheet as of September 30, 2008 reflects the preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition.

(4)   Financial Instruments

Assets recorded at fair value in the balance sheet as of September 30, 2008 are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  Hierarchical levels, defined by SFAS 157 “Fair Value Measurements” are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets are as follows:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date

Level 2 – Inputs other than Level 1 inputs that are either directly or indirectly observable; and

Level 3 – Unobservable inputs developed using estimates and assumptions developed by management,

                which reflect those that a market participant would use.

We measure the following financial assets at fair value on a recurring basis.  The fair value of these financial assets was determined using the following inputs at September 30, 2008:

			Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents (1)	$	28,861	$	28,861	$	-	$	-
Short-term investments available-for-sale (1)		500		500		-		-
Non-current investments available-for-sale (2)		4,893		-		-		4,893
Total	$	34,254	$	29,361	$	-	$	4,893

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(1)   Cash and cash equivalents consist primarily of money market funds with original maturity dates of three months or less, for which we determine fair value through quoted market prices.  Level 1 financial assets also include auction rate municipal securities which were sold at par during the period October 1, 2008 through October 17, 2008.

(2) Investments available-for-sale consists of auction rate municipal securities (“ARS”).  ARS were originally considered Level 2 financial assets and valued using estimated market values as of the balance sheet date obtained from an independent pricing service employed by our broker dealers.  These independent pricing services carried these investments at par value, due to the overall quality of the underlying investments and taking into account credit support through insurance policies guaranteeing each of the bonds’ payment of principal and accrued interest, and the anticipated future market for such investments. However, in the three months ending September 30, 2008, we began using discounted cash flow analysis to more accurately measure possible liquidity discounts.  Because the discounted cash flow analysis included unobservable inputs we transferred these securities to Level 3 financial assets.

At September 30, 2008 our ARS consist solely of collateralized debt obligations supported by municipal and state agencies and do not include mortgage-backed securities, have redemption features which call for redemption at 100% of par value and have a current credit rating of A or AAA. The ratings on the ARS take into account credit support through insurance policies guaranteeing each of the bonds’ payment of principal and accrued interest, if it becomes necessary.  To date we have collected all interest payable on all of our ARS when due and expect to continue to do so in the future.  Historically, the carrying value (par value) of the ARS approximated fair market value due to the frequent resetting of variable interest rates.  Beginning in February 2008, however, the auctions for ARS began to fail and were largely unsuccessful, requiring us to hold them beyond their typical auction reset dates.  As a result, the interest rates on these investments reset to the maximum based on formulas contained in the securities.  The rates are generally equal to or higher than the current market for similar securities.  The par value of the ARS associated with these failed auctions will not be available to us until a successful auction occurs, a buyer is found outside of the auction process, the securities are called or the underlying securities have matured.  Due to these liquidity issues, we performed a discounted cash flow analysis to determine the estimated fair value of these investments. The assumptions used in preparing the models include, but are not limited to, interest rate yield curves for similar securities, market rates of returns, and the expected term of each security.  In making assumptions of required rates of return, we considered risk-free interest rates and credit spreads for investments of similar credit quality.    As a result of the lack of liquidity in the ARS market, we recorded an after tax temporary unrealized loss on our ARS of $167,000, net of related tax effects of $90,000, in the three months ended September, 30, 2008, which is included in accumulated other comprehensive loss on our balance sheet.  We deemed the loss to be temporary because we do not plan to sell any of the ARS prior to maturity at an amount below the original purchase value and, at this time, do not deem it probable that we will receive less than 100% of the principal and accrued interest.  Based on our cash and cash equivalents balance of $28.9 million, expected operating cash flows and the liquidation of $500,000 of ARS subsequent to the period ending September 30, 2008, we do not believe a lack of liquidity associated with our ARS will adversely affect our ability to conduct business, and believe we have the ability to hold the securities throughout the currently estimated recovery period.  We will continue to evaluate any changes in the market value of the failed ARS that have not been liquidated subsequent to quarter-end and in the future, depending upon existing market conditions, we may be required to record an other-than-temporary decline in market value.  We are not certain how long we may be required to hold each security.  However, given our current cash position, liquid cash equivalents and cash flow from operations we believe we have the ability and we intend to hold the failed ARS as long-term investments until the market stabilizes.  The following table reflects the activity for the ARS measured at fair value using Level 3 inputs (in thousands):

	Three months ended			Nine months ended
Auction Rate Securities:	September 30, 2008			September 30, 2008
Balance at beginning of period	$	-		$	-
Transfers into level 3		5,150			5,150
Unrealized losses included in accumulated other
comprehensive income		(257	)		(257	)
Balance as of September 30, 2008	$	4,893		$	4,893

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(5) Comprehensive Income

The following table provides the composition of other comprehensive income:

	Three months ended					Nine months ended
	September 30,					September 30,
	2008			2007		2008			2007
Net income, as reported	$	6,359		$	5,160	$	9,731		$	11,311
Unrealized losses-auction rate securities, net of tax		(167	)		-		(167	)		-
Comprehensive income	$	6,192		$	5,160	$	9,564		$	11,311

(6) Shareholders’ Equity

The following table details activity in our common stock:

	Nine months ended September 30,
	2008						2007
	Shares			Amount			Shares			Amount
Purchases of common stock		(2,194	)	$	(31,322	)		(889	)	$	(11,134	)
Stock option exercises		325			1,617			767			3,291
Employee stock plan purchases		78			892			77			853
Shares issued for acquisitions		196			2,863			-			-
Warrant exercises in connection with legal settlement		802			11,050			-			-

As of September 30, 2008 we have authorization from our board of directors to repurchase up to 1.6 million additional shares of Tyler common stock. During the period October 1, 2008 through October 20, 2008 we purchased 1.5 million shares of our common stock for an aggregate purchase price of $20.6 million.  On October 23, 2008, our board of directors authorized the repurchase of an additional 2.0 million shares.

On June 27, 2008, we settled outstanding litigation related to two Stock Purchase Warrants owned by Bank of America, N. A. (“BANA”).  In July 2008, as a result of this settlement, BANA paid us $2.0 million and we issued to BANA 801,883 restricted shares of Tyler common stock.  See Note 10 – Commitments and Contingencies for further information.

(7) Income Tax Provision

For the three and nine months ended September 30, 2008, we had an effective income tax rate of 48.4% and 49.9%, respectively, compared to 38.3% and 38.7%  for the three months and nine months ended September 30, 2007.   Our effective income tax rate increased approximately twelve points compared to the prior year periods due to a non-cash legal settlement related to warrants charge of $9.0 million, which was not deductible.  The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 35% primarily due to a non-cash legal settlement related to warrants charge which was not deductible, state income taxes, non-deductible share-based compensation expense, the qualified manufacturing activities deduction and non-deductible meals and entertainment costs.

We made federal and state income tax payments, net of refunds, of $10.1 million in the nine months ended September 30, 2008, compared to $6.9 million in net payments for the same period of the prior year.

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(8) Earnings Per Share

The following table details the reconciliation of basic earnings per share to diluted earnings per share:

	Three months ended				Nine months ended
	September 30,				September 30,
	2008		2007		2008		2007
Numerator for basic and diluted earnings per share:
Net income	$	6,359	$	5,160	$	9,731	$	11,311
Denominator:
Weighted-average basic common shares outstanding		38,474		38,688		38,093		38,717
Assumed conversion of dilutive securities:
Stock options		1,545		1,685		1,533		1,753
Warrants		-		1,022		-		1,203
Potentially dilutive common shares		1,545		2,707		1,533		2,956
Denominator for diluted earnings
per share - Adjusted weighted-average shares		40,019		41,395		39,626		41,673
Earnings per common share:
Basic	$	0.17	$	0.13	$	0.26	$	0.29
Diluted	$	0.16	$	0.12	$	0.25	$	0.27

(9) Share-Based Compensation                                                      

The following table summarizes share-based compensation expense related to share-based awards under SFAS No. 123R, “Share-Based Payment,” recorded in the statements of operations:

	Three months ended				Nine months ended
	September 30,				September 30,
	2008		2007		2008		2007
Cost of software services, maintenance and subscriptions	$	100	$	59	$	250	$	158
Selling, general and administrative expense		998		573		2,469		1,547
Total share-based compensation expense	$	1,098	$	632	$	2,719	$	1,705

(10) Commitments and Contingencies

On June 27, 2008, we settled outstanding litigation related to two Stock Purchase Warrants (the “Warrants”) owned by Bank of America, N. A. (“BANA”).  As disclosed in prior SEC filings, the Warrants entitled BANA to acquire 1.6 million shares of Tyler common stock at an exercise price of $2.50 per share.  The Warrants expired on September 10, 2007.  Prior to their expiration, BANA attempted to exercise the Warrants; however, the parties disputed whether or not BANA’s exercise was effective.  We filed suit for declaratory judgment seeking a court’s determination on the matter, and BANA asserted numerous counterclaims against us, including breach of contract and misrepresentation.

Following court-ordered mediation, in July 2008, BANA paid us $2.0 million and we issued to BANA 801,883 restricted shares of Tyler common stock.  Accordingly, as a result of the settlement, we recorded a non-cash legal settlement related to warrants charge of $9.0 million, which is not tax deductible, during the three months ended June 30, 2008.

In February 2008 our board of directors authorized negotiations to purchase a building in Falmouth, Maine that we currently lease from a related party.  We expect to purchase this building for approximately $10.0 million in the three months ending December 31, 2008.

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(11) Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board issued SFAS No. 141(R) “Business Combinations.”  SFAS No. 141(R) changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance.  SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited.  We are currently evaluating the impact of the pending adoption of SFAS 141(R) on our financial statements.

(12) Subsequent Event

On October 20, 2008, we entered into a new revolving bank credit agreement (the “Credit Facility”) and a related pledge and security agreement.  The Credit Facility matures October 19, 2009 and provides for total borrowings of up to $25.0 million and a $6.0 million Letter of Credit facility under which the bank will issue cash collateralized letters of credit.  Borrowings under the Credit Facility will bear interest at a rate of either LIBOR plus 1% or prime rate minus 1.5%.  As of October 20, 2008, our effective interest rate was 3% under the Credit Facility.   As of October 24, 2008 we had no outstanding borrowings under the Credit Facility.

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ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

The statements in this discussion that are not historical statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our business, financial condition, business strategy, plans and the objectives of our management, and future prospects.  In addition, we have made in the past and may make in the future other written or oral forward-looking statements, including statements regarding future operating performance, short and long-term revenue and earnings growth, the timing of the revenue and earnings impact for new contracts, backlog, the value of new contract signings, business pipeline, and industry growth rates and our performance relative thereto.  Any forward-looking statements may rely on a number of assumptions concerning future events and be subject to a number of uncertainties and other factors, many of which are outside our control, which could cause actual results to differ materially from such statements.  These include, but are not limited to:  our ability to improve productivity and achieve synergies from acquired businesses; technological risks associated with the development of new products and the enhancement of existing products; changes in the budgets and regulating environments of our government customers; competition in the industry in which we conduct business and the impact of competition on pricing, revenues and margins; with respect to customer contracts accounted for under the percentage-of-completion method of accounting, the performance of such contracts in accordance with our cost and revenue estimates; our ability to maintain health and other insurance coverage and capacity due to changes in the insurance market and the impact of increasing insurance costs on the results of operations; the costs to attract and retain qualified personnel, changes in product demand, the availability of products,  economic conditions, costs of compliance with corporate governance and public disclosure requirements as issued by the Sarbanes-Oxley Act of 2002 and New York Stock Exchange rules, changes in tax risks and other risks indicated in our filings with the Securities and Exchange Commission.  The factors described in this paragraph and other factors that may affect Tyler, its management or future financial results, as and when applicable, are discussed in Tyler's filings with the Securities and Exchange Commission, on its Form 10-K for the year ended December 31, 2007.  Except to the extent required by law, we are not obligated to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.  When used in this Quarterly Report, the words "believes," "plans," "estimates," "expects," "anticipates," "intends," "continue," "may," "will," "should," "projects," "forecast," "might," "could" or the negative of such terms and similar expressions as they relate to Tyler or our management are intended to identify forward-looking statements.

GENERAL

We provide integrated information management solutions and services for local governments. We develop and market a broad line of software products and services to address the information technology (“IT”) needs of cities, counties, schools and other local government entities. In addition, we provide professional IT services to our customers, including software and hardware installation, data conversion, training and for certain customers, product modifications, along with continuing maintenance and support for customers using our systems. We also provide subscription-based services such as application service provider arrangements and other hosting services as well as property appraisal outsourcing services for taxing jurisdictions.

On June 27, 2008, we settled outstanding litigation related to two Stock Purchase Warrants (the “Warrants”) owned by Bank of America, N. A. (“BANA”).  As disclosed in prior SEC filings, the Warrants entitled BANA to acquire 1.6 million shares of Tyler common stock at an exercise price of $2.50 per share.  Following court-ordered mediation, in July 2008, BANA paid us $2.0 million and we issued to BANA 801,883 restricted shares of Tyler common stock.  Accordingly, we recorded a non-cash legal settlement related to warrants charge of $9.0 million, which is not tax deductible, during the three months ended June 30, 2008.

In August 2008, we completed the acquisition of all the capital stock of School Information Systems, Inc. (“SIS”) which develops and sells a full suite of student information and financial management systems for K-12 schools.  The total purchase price, including transaction costs and excluding cash balances acquired, was approximately $9.9 million in cash and approximately 70,000 shares of Tyler common stock valued at $1.2 million.  In the first quarter of 2008, we acquired all of the capital stock of VersaTrans Solutions Inc. and certain assets of Olympia Computing Company, Inc. d/b/a Schoolmaster.  The combined purchase price, excluding cash acquired and including transaction costs, was approximately $13.9 million in cash and approximately 126,000 shares of Tyler common stock valued at $1.7 million.  See Note 3 in the Notes to the Unaudited Condensed Financial Statements.

As of September 30, 2008, our total full-time equivalent employee count increased to 1,938 from 1,640 at September 30, 2007. Approximately 49% of these additions or 146 full-time equivalent employees were added as a result of several acquisitions completed since September 30, 2007.

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  CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our condensed financial statements.  These condensed financial statements have been prepared following the requirements of accounting principles generally accepted in the United States (“GAAP”) for interim periods and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates, including those related to revenue recognition and amortization and potential impairment of intangible assets and goodwill and share-based compensation expense.  As these are condensed financial statements, one should also read expanded information about our critical accounting policies and estimates provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Form 10-K for the year ended December 31, 2007. There have been no material changes to our critical accounting policies and estimates from the information provided in our 10-K for the year ended December 31, 2007.

ANALYSIS OF RESULTS OF OPERATIONS

     Revenues

The following table sets forth the key components of our revenues for the periods presented as of September 30:

	Third Quarter										%			Nine Months										%
			% of					% of			Increase/					% of					% of			Increase/
($ in  thousands)	2008		Total			2007		Total			(Decrease)			2008		Total			2007		Total			(Decrease)
Software licenses	$	11,372		17	%	$	8,145		15	%		40	%	$	31,646		16	%	$	24,431		15	%		30	%
Subscription		3,526		5			2,559		5			38			10,503		5			7,272		5			44
Software services		18,600		27			15,872		29			17			54,973		28			44,213		28			24
Maintenance		28,353		41			22,132		40			28			79,102		41			62,526		39			27
Appraisal services		5,289		8			4,927		9			7			14,249		7			16,514		10			(14	)
Hardware and  other		1,497		2			1,297		2			15			5,084		3			4,420		3			15
Total revenues	$	68,637		100	%	$	54,932		100	%		25	%	$	195,557		100	%	$	159,376		100	%		23	%

Total revenues grew 15% and 14% for the three and nine months ended September 30, 2008, respectively, excluding the impact of acquisitions completed in the prior twelve months.

Software licenses.  Software license revenues consist of the following components for the periods presented as of September 30:

	Third Quarter						%		Nine Months						%
		% of			% of		Increase/			% of			% of		Increase/
	2008	Total		2007	Total		(Decrease)		2008	Total		2007	Total		(Decrease)
Financial management
and education	$       6,452	57	%	$    6,111	75	%	6	%	$    21,023	66	%	$    16,703	68	%	26	%
Courts and justice	3,914	34		1,188	15		229		7,754	25		5,039	21		54
Appraisal and tax and other	1,006	9		846	10		19		2,869	9		2,689	11		7
Total software license revenues	$     11,372	100	%	$    8,145	100	%	40	%	$    31,646	100	%	$    24,431	100	%	30	%

In the three months ended September 30, 2008, we signed 16 new material contracts with average software license fees of approximately $215,000 compared to 26 new material contracts signed in the three months ended September 30, 2007 with average software license fees of approximately $319,000.  In the nine months ended September 30, 2008, we signed 50 new material contracts with average software license fees of approximately $310,000 compared to 59 new material contracts signed in the nine months ended September 30, 2007 with average software license fees of approximately $447,000.  We consider contracts with a license fee component of $100,000 or more to be material.  The mix of our new contracts signed in the three months ended September 30, 2008 included more contacts with a license fee component of less than $100,000 compared to the prior year period.  Although a contract is signed in a particular quarter, the period in which the revenue is recognized may be different because we recognize revenue according to our revenue recognition policy as described in Note 2 in the Notes to the Unaudited Condensed Financial Statements.

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Changes in software license revenues consist of the following components:

 ·   Software license revenue related to our financial management and education solutions for three and nine months ended September 30, 2008 increased 6% and 26%, respectively, compared to the prior year periods mainly due to contract arrangements that included more software license revenue than in the past. Revenue from student information and management solutions as well as student transportation management solutions acquired in the last twelve months also contributed to increases in the three and nine months ended September 30, 2008.

·   Software license revenue related to our courts and justice software solutions for three and nine months ended September 30, 2008 increased 229% and 54%, respectively, compared to the prior year periods.  In the three months ended September 30, 2008 we recorded software license revenue of approximately $1.7 million from a contract which had been deferred in accordance with the terms of the contract.   In addition, since late 2007 we expanded our presence in the markets for municipal courts software solutions and public safety software solutions which contributed to the increase in both periods.

Subscriptions. Subscription-based services revenue primarily consists of revenues derived from application service provider (“ASP”) arrangements and other hosted service offerings, software subscriptions and disaster recovery services.  ASP and other software subscriptions agreements are typically for periods of three to six years and automatically renew unless either party cancels the agreement.  Disaster recovery and miscellaneous other hosted service agreements are typically renewable annually.  New ASP customers and existing customers converting to ASP arrangements provided approximately two-thirds of the subscription revenue increase with the remaining increase due to new disaster recovery customers and slightly higher rates for disaster recovery services.

Software services.  Changes in software services revenues consist of the following components:

·   Software services revenue related to financial management and education solutions, which comprise approximately half of our software services revenue in the periods presented, increased substantially compared to the three and nine months ended September 30, 2007.  This increase was driven in part by larger and more complex contracts, which include more programming and project management services.  In addition, we acquired a student transportation management solution in January 2008 which contributed approximately $1.1 million and $3.0 million to software service revenues for the three and nine months ended September 30, 2008, respectively.

·   Software services revenue related to courts and justice solutions experienced strong increases compared to the three and nine months ended September 30, 2007, reflecting increased capacity to deliver backlog following additions to our implementation and support staff over the last twelve to fourteen months.   In addition, increased contract volume for municipal courts software solutions and public safety software solutions also generated higher related services revenue.

Maintenance.  We provide maintenance and support services for our software products and third party software. Maintenance revenues increased 28% and 27% for the three and nine months ended September 30, 2008, respectively compared to the prior year periods.   Maintenance and support services grew 17% and 16% for the three and nine months ended September 30, 2008, respectively, excluding the impact of acquisitions completed in the prior twelve months.  This increase was due to growth in our installed customer base and slightly higher maintenance rates on most of our product lines.

Appraisal services.  Appraisal services revenue increased 7% for the three months ended September 30, 2008, and declined 14% for the nine months ended September 30, 2008, compared to the prior year periods.  The appraisal services business is driven in part by revaluation cycles in various states.   In late 2007, we substantially completed several projects related to the Ohio revaluation cycle, which occurs every six years, as well as a few other large contracts.  In mid-2008 we began a complete reappraisal of real property in Orleans Parish, Louisiana.  This contract is valued at approximately $12.0 million and consists of two separate phases expected to be complete by late 2010. We continue to expect appraisal revenue for the full year 2008 will be moderately lower than 2007.

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     Cost of Revenues and Gross Margins

The following table sets forth a comparison of the key components of our cost of revenues, and those components stated as a percentage of related revenues for the periods presented as of September 30:

	Third Quarter										Nine Months
			% of					% of					% of					% of
			Related					Related					Related					Related
($ in  thousands)	2008		Revenues			2007		Revenues			2008		Revenues			2007		Revenues
Software licenses	$	2,071		18	%	$	1,886		23	%	$	6,838		22	%	$	5,818		24	%
Acquired software		472		4			427		5			1,369		4			1,248		5
Software services, maintenance
and subscriptions		31,988		63			26,795		66			93,555		65			77,677		68
Appraisal services		3,098		59			3,248		66			9,269		65			11,340		69
Hardware and other		1,058		71			946		73			3,684		72			3,304		75
Total cost of revenue	$	38,687		56	%	$	33,302		61	%	$	114,715		59	%	$	99,387		62	%

The following table sets forth a comparison of gross margin percentage by revenue type for the periods presented as of September 30:

	Third Quarter									Nine Months
Gross Margin percentages	2008			2007			Change			2008			2007			Change
Software licenses and acquired software		77.6	%		71.6	%		6.0	%		74.1	%		71.1	%		3.0	%
Software services, maintenance and subscriptions		36.6			33.9			2.7			35.3			31.9			3.4
Appraisal services		41.4			34.1			7.3			34.9			31.3			3.6
Hardware and other		29.3			27.1			2.2			27.5			25.2			2.3
Overall gross margin		43.6	%		39.4	%		4.2	%		41.3	%		37.6	%		3.7	%

Software licenses. The main component of our cost of software license revenues is amortization expense for capitalized development costs on certain software products, with third party software costs making up the balance.  Once a product is released, we begin to amortize the costs associated with its development over the estimated useful life of the product.  Amortization expense is determined on a product-by-product basis at an annual rate not less than straight-line basis over the product’s estimated life, which is generally five years.  Development costs consist mainly of personnel costs, such as salary and benefits paid to our developers, and rent for related office space.

For the three and nine months ended September 30, 2008, our software license gross margin percentage rose compared to the prior year periods due to strong license fee revenue increases.  In addition, the three months ended September 30, 2008 benefitted from slightly lower software development amortization because certain software products became fully amortized during that period. The year-to-date gross margin grew at a slower rate because the first quarter product mix included more third party software, which has higher associated costs than proprietary software.

Software services, maintenance and subscription-based services.  Cost of software services, maintenance and subscriptions primarily consists of personnel costs related to installation of our software, conversion of customer data, training customer personnel and support activities and various other services such as ASP and disaster recovery.  For the three and nine months ended September 30, 2008, the software services, maintenance and subscriptions gross margin increased 2.7% and 3.4%, respectively from the prior year periods partly because maintenance and various other services such as ASP and disaster recovery costs typically grow at a slower rate than related revenues due to leverage in the utilization of our support and maintenance staff and economies of scale.  We have increased our implementation and support staff by 225 full-time equivalent employees since September 30, 2007 in order to expand our capacity to implement our contract backlog.  This increase includes 102 full-time equivalent employees related to acquisitions completed since September 30, 2007.

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In addition, approximately 0.6% of the gross margin increase for the nine months ended September 30, 2008 reflects the impact of revenue which had been deferred pending final acceptance on a certain contract.  There were no related costs associated with this revenue in 2008.

Appraisal services.   A high proportion of the costs of appraisal services revenue are variable, as we often hire temporary employees to assist in appraisal projects whose term of employment generally ends with the projects’ completion.  Our appraisal gross margin for the three months ended September 30, 2008 is higher than the prior year period due to higher revenues associated with the Orleans Parish reappraisal project.

Our blended gross margin for the three and nine months ended September 30, 2008 was higher than the prior year periods in part due to leverage in the utilization of our support and maintenance staff and economies of scale.   The blended gross margin for the three months ended September 30, 2008 also benefitted from a product mix that included more software license revenue, which inherently has higher gross margins, and less appraisal services revenue.

Selling, General and Administrative Expenses

The following table sets forth a comparison of our selling, general and administrative (“SG&A”) expenses for the periods presented as of September 30:

	Third Quarter						Change				Nine Months						Change
($ in thousands)	2008			2007			$		%		2008			2007			$		%
Selling, general and
administrative expenses	$	15,985		$	12,691		$	3,294	26	%	$	46,155		$	38,448		$	7,707	20	%
Percent of revenues		23.3	%		23.1	%						23.6	%		24.1	%

SG&A as a percentage of revenues for the three and nine months ended September 30, 2008 grew at a slower rate than the prior year periods due to significantly higher revenues and leverage in the utilization of our administrative and sales staff. Excluding the impact of acquisitions, our full-time equivalent SG&A employee count declined 2% from September 30, 2007.

     Research and Development Expense

The following table sets forth a comparison of our research and development expense for the periods presented as of September 30:

	Third Quarter						Change				Nine Months						Change
($ in thousands)	2008			2007			$		%		2008			2007			$		%
Research and
development expense	$	1,416		$	639		$	777	122	%	$	5,485		$	3,266		$	2,219	68	%
Percent of revenues		2.1	%		1.2	%						2.8	%		2.0	%

Research and development expense consist mainly of costs associated with the Microsoft Dynamics AX project, in addition to costs associated with other new product development efforts.  In January 2007, we entered into a strategic alliance with Microsoft Corporation to jointly develop core public sector functionality for Microsoft Dynamics AX to address the accounting needs of public sector organizations worldwide.  Research and development costs increased over the prior year periods because the Microsoft Dynamics AX development effort was not fully staffed until mid-2007.  In the nine months ended September 30, 2008 and 2007, we offset our research and development expense by $987,000 and $883,000, respectively, which were the amounts earned under the terms of our research and development agreement with Microsoft.  We amended this agreement in September 2008 to define the scope of reimbursable development through the balance of the project and now expect to offset research and development expense by approximately $850,000 each quarter through the end of 2010. The actual amount and timing of future research and development costs and related reimbursements and whether they are capitalized or expensed may vary.

Non-Cash Legal Settlement Related to Warrants

On June 27, 2008, we settled outstanding litigation related to two Stock Purchase Warrants (the “Warrants”) owned by Bank of America, N. A. (“BANA”).  As disclosed in prior SEC filings, the Warrants entitled BANA to acquire 1.6 million shares of Tyler common stock at an exercise price of $2.50 per share.  Following court-ordered mediation, in July 2008, BANA paid us $2.0 million and we issued to BANA 801,883 restricted shares of Tyler common stock.  Accordingly, we recorded a non-cash legal settlement related to warrants charge of $9.0 million, which is not tax deductible, during the three months ended June 30, 2008.

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    Amortization of Customer and Trade Name Intangibles

Acquisition intangibles are composed of the excess of the purchase price over the fair value of net tangible assets acquired that is allocated to acquired software and customer and trade name intangibles.  The remaining excess purchase price is allocated to goodwill that is not subject to amortization.  Amortization expense related to acquired software is included with cost of revenues while amortization expense of customer and trade name intangibles is recorded as a non-operating expense. The following table sets forth a comparison of amortization of customer and trade name intangibles for the periods presented as of September 30:

	Third Quarter				Change				Nine Months				Change
($ in thousands)	2008		2007		$		%		2008		2007		$		%
Amortization of customer
and trade name intangibles	$	612	$	372	$	240	65	%	$	1,770	$	1,075	$	695	65	%

In the nine months ended September 30, 2008, we completed three acquisitions, which increased amortizable customer and trade name intangibles by $12.3 million.  This amount will be amortized over approximately 11 years.

    Income Tax Provision

The following table sets forth comparison of our income tax provision for the periods presented as of September 30:

	Third Quarter						Change				Nine Months						Change
($ in thousands)	2008			2007			$		%		2008			2007			$		%
Income tax provision	$	5,976		$	3,209		$	2,767	86	%	$	9,700		$	7,141		$	2,559	36	%
Effective income tax rate		48.4	%		38.3	%						49.9	%		38.7	%

Our effective income tax rate increased approximately twelve points compared to the prior year periods due to a non-cash legal settlement related to warrants charge of $9.0 million, which was not deductible.  The effective income tax rates for the three and nine months ended September 30, 2008 and 2007 were different from the statutory United States federal income tax rate of 35% primarily due to a non-cash legal settlement related to warrants charge which was not deductible, as well as state income taxes, non-deductible share-based compensation expense, the qualified manufacturing activities deduction, and non-deductible meals and entertainment costs.

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FINANCIAL CONDITION AND LIQUIDITY

As of September 30, 2008, we had cash and cash equivalents (including restricted cash equivalents) of $28.9 million and current and non-current investments of $5.4 million, compared to cash and cash equivalents (including restricted cash equivalents) of $14.1 million and short-term investments of $41.6 million at December 31, 2007.  As of September 30, 2008 we had outstanding letters of credit totaling $5.1 million to secure surety bonds required by some of our customer contracts. These letters of credit expire through July 2009.

The following table sets forth a summary of cash flows for the periods presented as of September 30:

Nine months ended September 30,	2008			2007
Cash flows provided by (used by):
Operating activities	$	45,399		$	24,538
Investing activities		(7,348	)		(20,035	)
Financing activities		(23,914	)		(5,892	)
Net increase (decrease) in cash and cash equivalents	$	14,137		$	(1,389	)

Operating Activities

Net cash provided by operating activities continues to be our primary source of funds to finance operating needs and capital expenditures.  Other capital resources include cash on hand and access to the capital markets.  For the nine months ended September 30, 2008, operating activities provided net cash of $45.4 million, primarily generated from net income of $9.7 million, non-cash legal settlement related to warrants charge of $9.0 million, non-cash depreciation and amortization charges of $9.0 million, non-cash share-based compensation expense of $2.7 million, and a decrease in net operating assets of $14.9 million.  Net operating assets declined mainly due to several advance payments from customers.

As of September 30, 2008, we had $5.7 million of principal invested in ARS that had experienced failed auctions.  Of this amount, we were able to liquidate $500,000 for cash at par during the period October 1, 2008 through October 17, 2008.   The liquidity of ARS has been negatively impacted by the uncertainty in the credit markets and the exposure of these securities to the financial condition of bond insurance companies.    We will not be able to liquidate any of our non-current ARS until a future auction is successful, the issuer calls the security, a buyer is found outside the auction process or the securities are redeemed.  Based on our cash and cash equivalents at September 30, 2008 and our expected operating cash flows, we do not anticipate the current lack of liquidity of these investments will have a material effect on our ability to conduct business.

Our days sales outstanding (“DSO”) was 87 days at September 30, 2008 and 95 days at December 31, 2007.  DSOs decreased compared to the fourth quarter of 2007 because of annual maintenance billing collections.  Our maintenance billings typically peak in December and June of each year and are followed by collections in the subsequent quarter.    DSO is calculated based on quarter-end accounts receivable divided by the quotient of annualized quarterly revenues divided by 360 days.

Investing activities used cash of $7.3 million in the nine months ending September 30, 2008 compared to $20.0 million cash used for the same period in 2007.  In the nine months ended September 30, 2008, we liquidated $35.9 million of short-term investments in ARS for cash at par, and we completed the acquisitions of School Information Systems, Inc, VersaTrans Solutions Inc. and certain assets of Olympia Computing Company, Inc. d/b/a Schoolmaster that expanded our presence in the education market.  The combined purchase price, excluding cash acquired and including transaction costs, was approximately $23.9 million in cash and approximately 196,000 shares of Tyler common stock valued at $2.9 million.  We also paid $2.5 million primarily for land in Lubbock, Texas in connection with a planned office development and paid $12.7 million for an office building, land, and a related tenant lease in Yarmouth, Maine. Capital expenditures and acquisitions were funded from cash generated from operations.

For the nine months ended September 30, 2007, net cash used by investing activities of $20.0 million included cash payments of $9.0 million for the acquisitions of EDP Enterprises, Inc. and Advanced Data Systems, Inc., along with an office building. Other investing activities in the nine months ended September 30, 2007 were primarily comprised of a net investment of $8.8 million in short term investments and investments of $2.6 million in property and equipment.

Financing activities used cash of $23.9 million, in the nine months ending September 30, 2008 compared to $5.9 million in the same period for 2007.  Cash used in financing activities was primarily comprised of purchases of treasury shares, net of proceeds from stock option exercises and employee stock purchase plan activity.

18

During the nine months ended September 30, 2008, we purchased 2.2 million shares of our common stock for an aggregate purchase price of $31.3 million.  At September 30, 2008, we had authorization to repurchase up to 1.6 million additional shares of Tyler common stock.   A summary of the repurchase activity during the nine months ended September 30, 2008 is as follows:

Period	Total number of shares repurchased	Additional number of shares authorized that may be repurchased		Average price paid per share	Maximum number of shares that may be repurchased under current authorization
January 1 through January 31	814	-	$	12.92	967
February 1 through February 29	-	-		-	967
March 1 through March 31	-	-		-	967
April 1 through April 30	-	-		-	967
Additional authorization by the board of directors	-	2,000		-	2,967
May 1 through May 31	-	-		-	2,967
June 1 through June 30	283	-		13.80	2,684
July 1 through July 31	163	-		14.08	2,521
August 1 through August 31	15	-		15.41	2,506
September 1 through September 30	919	-		15.64	1,587
Total nine months ended September 30, 2008	2,194	2,000	$	14.28

During the period October 1, 2008 through October 20, 2008 we purchased 1.5 million shares of our common stock for an aggregate purchase price of $20.6 million.

The repurchase program, which was approved by our board of directors, was announced in October 2002, and was amended in April and July 2003, October 2004, October 2005, May 2007 and May 2008.  On October 23, 2008, our board of directors authorized the repurchase of an additional 2.0 million shares.  There is no expiration date specified for the authorization and we intend to repurchase stock under the plan from time to time in the future.

During the second quarter of 2008, we began construction of an office development located in Lubbock, Texas to consolidate our Lubbock based workforce and support planned long-term growth.  The office development is scheduled for completion in early 2010 and expected to cost approximately $12.0 million to $13.0 million.  As of September 30, 2008, we have paid $2.5 million, primarily for land.  We expect to capitalize additional costs of approximately $1.0 million in 2008, related to the construction of this facility.

In July 2008 we paid $12.7 million for an office building and land in Yarmouth, Maine as part of a plan to consolidate our workforce in the Portland, Maine area and to support long-term growth.  This building will be leased to third-party tenants through July 2011, at which time we expect to begin occupying the facility.

We also expect to purchase for approximately $10.0 million an office building in Falmouth, Maine that we currently lease from a related party.  The building purchase is expected to close in the three months ended December 31, 2008.

None of these real estate investments are expected to preclude us from taking advantage of other opportunities to invest our cash in growing our business, and it is possible that we will leverage these assets in the future.

On October 20, 2008, we entered into a new revolving bank credit agreement (the “Credit Facility”) and a related pledge and security agreement.  The Credit Facility matures October 19, 2009 and provides for total borrowings of up to $25.0 million and a $6.0 million Letter of Credit facility under which the bank will issue cash collateralized letters of credit.  Borrowings under the Credit Facility will bear interest at a rate of either LIBOR plus 1% or prime rate minus 1.5%.  As of October 20, 2008, our effective interest rate was 3% under the Credit Facility.  As of September 30, 2008 we had no debt and outstanding letters of credit totaling $5.1 million under a previous agreement to secure surety bonds required by some of our customer contracts.  As of October 24, 2008 we had no outstanding borrowings under the Credit Facility.

We made federal and state income tax payments, net of refunds of $10.1 million in the nine months ended September 30, 2008 compared to $6.9 million in the comparable prior year.

19

From time to time we engage in discussions with potential acquisition candidates.  In order to consummate any such opportunities, which could require significant commitments of capital, we may be required to incur debt or to issue additional potentially dilutive securities in the future.  No assurance can be given as to our future acquisitions and how such acquisitions may be financed.  In the absence of future acquisitions, we believe our current cash balances and expected future cash flows from operations will be sufficient to meet our anticipated cash needs for working capital, capital expenditures and other activities through the next twelve months.  If operating cash flows are not sufficient to meet our needs, we may borrow under our revolving credit facility.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and interest rates.  We are exposed to risk related to our investments in ARS. Liquidity for ARS is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually every 28 to 35 days.  Because of the short interest rate reset period, we have historically recorded ARS as short-term investments available-for-sale.  The liquidity of ARS has been negatively impacted by the uncertainty in the credit markets and the exposure of these securities to the financial condition of bond insurance companies.  We will not be able to liquidate any of our non-current ARS until a future auction is successful, the issuer calls the security, a buyer is found outside the auction process or the securities are redeemed.  Moreover, if the issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may in the future be required to record an impairment charge on these investments.  Maturity dates for these ARS investments range from 2017 to 2042.

We have no outstanding debt at September 30, 2008, and are therefore not subject to any interest rate risk.

ITEM 4.  Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the Securities and Exchange Commission (“SEC”), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC.  Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by our management, with the participation of the Chief Executive and the Chief Financial Officer, the Chief Executive and Chief Financial Officer believe that these controls and procedures are effective to ensure that we are able to collect, process and disclose the information we are required to disclose in the reports we file with the Securities and Exchange Commission within the required time periods.

Part II. OTHER INFORMATION

ITEM 1.  Legal Proceedings

Other than ordinary course, routine litigation incidental to our business, there are no material legal proceedings pending to which we are party or to which any of our properties are subject.

ITEM 1A.  Risk Factors

In addition to the other information set forth in this report, one should carefully consider the discussion of various risks and uncertainties contained in Part I, “Item 1A. Risk Factors” in our 2007 Annual Report on Form 10-K.  We believe those risk factors are the most relevant to our business and could cause our results to differ materially from the forward-looking statements made by us.  Please note, however, that those are not the only risk factors facing us.  Additional risks that we do not consider material, or of which we are not currently aware, may also have an adverse impact on us.  Our business, financial condition and results of operations could be seriously harmed if any of these risks or uncertainties actually occurs or materializes.  In that event, the market price for our common stock could decline, and our shareholders may lose all or part of their investment.  During the first nine months of 2008, there were no material changes in the information regarding risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2007.

20

ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds

      None

ITEM 3.  Defaults Upon Senior Securities

      None

ITEM 4.  Submission of Matters to a Vote of Security Holders

       None

ITEM 5.  Other Information

      None

ITEM 6.  Exhibits

Exhibit   4.1	Second Amended and Restated Credit Agreement by and between Tyler Technologies, Inc. and Bank of Texas, N.A. dated October 20, 2008
Exhibit   4.2	Second Amended and Restated Pledge and Security Agreement by and between Tyler Technologies, Inc. and Bank of Texas, N.A. dated October 20, 2008
Exhibit 31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certifications Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TYLER TECHNOLOGIES, INC.
By:	/s/ Brian K. Miller
	Brian K. Miller
	Executive Vice President and Chief Financial Officer (principal financial officer and an authorized signatory)

Date: October 23, 2008

22

EX-4.1

SECOND AMENDED AND RESTATED

CREDIT AGREEMENT

By and Between

TYLER TECHNOLOGIES, INC.

and

BANK OF TEXAS, N.A.

as Lender

Dated as of October 20, 2008

TABLE OF CONTENTS

	Page
ARTICLE I DEFINITIONS	1
ARTICLE II THE CREDIT facility	12
Section 2.1. Commitment.	12
Section 2.2. Borrowing Procedure.	13
ARTICLE III INTEREST RATE PROVISIONS	15
Section 3.1. Interest Rate Determination	15
Section 3.2. Additional Interest Rate Provisions.	16
ARTICLE IV PREPAYMENTS AND OTHER PAYMENTS	17
Section 4.1. Required Payments.	17
Section 4.2. Optional Prepayments	18
Section 4.3. Notice of Payments	18
Section 4.4. Place of Payment or Prepayment	18
Section 4.5. No Prepayment Premium or Penalty	18
Section 4.6. Increased Costs.	18
Section 4.7. Taxes.	19
Section 4.8. Reduction or Termination of the Commitment	20
Section 4.9. Payments on Business Day	20
ARTICLE V	21
Section 5.1. Commitment Fees.	21
Section 5.2. Fees Not Interest; Nonpayment	21
ARTICLE VI	22
Section 6.1. Organization and Qualification; Subsidiaries	22
Section 6.2. Authorization	22
Section 6.3. No Conflicts	22
Section 6.4. Enforceability	22
Section 6.5. Accuracy of Information; No Material Adverse Change	22
Section 6.6. Taxes	23
Section 6.7. Litigation and Other Proceedings	23
Section 6.8. No Defaults	23
Section 6.9. Solvency	23
Section 6.10. Representations and Warranties	23
Section 6.11. Margin Regulations	24
Section 6.12. Licenses, Permits, Trademarks, etc	24
Section 6.13. Compliance with Governmental Requirements	24
Section 6.14. ERISA	24
Section 6.15. Title to Properties	24
Section 6.16. Burdensome Contracts	24
ARTICLE VII	24
Section 7.1. Conditions to Initial Advance	24
Section 7.2. Conditions to each Loan, Continuation or Conversion	26
ARTICLE VIII	27
Section 8.1. Financial Statements and Information	27
Section 8.2. Maintenance of Existence and Good Standing	28

i

TABLE OF CONTENTS

	Page
Section 8.3. Compliance With Governmental Requirements	28
Section 8.4. Payment of Obligations	29
Section 8.5. Notification of Material Adverse Change	29
Section 8.6. Notification of Defaults	29
Section 8.7. Notification of Exchange Act Filings	29
Section 8.8. Notification of Proceedings Affecting Collateral	29
Section 8.9. Additional Information	30
Section 8.10. Books and Records	30
Section 8.11. Insurance	30
Section 8.12. Deposit Relationship	30
Section 8.13. Collateral Audit	30
ARTICLE IX	30
Section 9.1. Debt	31
Section 9.2. Liens	31
Section 9.3. Organizational Documents	31
Section 9.4. No Subsidiaries	31
Section 9.5. Dividends	32
Section 9.6. Acquisitions	32
Section 9.7. Mergers, Consolidations, etc	32
Section 9.8. Change of Name	32
Section 9.9. Financial Covenants	32
Section 9.10. Investments	32
Section 9.11. Subordinated Debt; Seller Note	32
Section 9.12. Character of Business	32
ARTICLE X	33
Section 10.1. Events of Default	33
Section 10.2. Remedies	34
Section 10.3. Certain Other Remedial Matters	34
ARTICLE XI	35
Section 11.1. Waivers, Etc	35
Section 11.2. Reimbursement of Expenses	35
Section 11.3. Venue	35
Section 11.4. Notices	36
Section 11.5. GOVERNING LAW	36

Section 11.6. Survival of Representations, Warranties and Covenants	36
Section 11.7. Counterparts; Execution by Facsimile Transmission	37
Section 11.8. Separability	37
Section 11.9. Descriptive Headings	37
Section 11.10. Setoff	37
Section 11.11. Successors and Assigns; Participations.	38
Section 11.12. Interest	38
Section 11.13. Indemnification	39
Section 11.14. Payments Set Aside	40
Section 11.15. Amendments, Etc	40
Section 11.16. Relationship of the Parties	40
Section 11.17. Certain Matters of Construction	41
Section 11.18. USA Patriot Act Notice	41
Section 11.19. FINAL AGREEMENT	41

ii

SECOND AMENDED AND RESTATED

CREDIT AGREEMENT

Tyler Technologies, Inc. a Delaware corporation (“Borrower”) and Bank of Texas, N.A., a national banking association (“Lender”), hereby agree as follows:

W I T N E S S E T H:

WHEREAS, Borrower and Lender entered into that certain Amended and Restated Credit Agreement dated February 11, 2005 (the “Existing Agreement”), in which Bank of Texas committed to provide a revolving credit loan and a letter of credit facility to Borrower; and

WHEREAS, the Existing Agreement was subsequently amended to terminate the revolving credit loan provided therein; and

WHEREAS, Borrower has requested that Lender renew and extend the letter of credit facility and provide a new revolving credit loan to Borrower; and

WHEREAS, Lender has agreed to such request on the terms and conditions herein contained.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

As used herein, the following words and terms shall have the respective meanings indicated opposite each of them:

“Accounts Receivable” shall mean all of Borrower’s and Guarantors’ accounts, instruments, contract rights, chattel paper, documents, and general intangibles arising from the sale of goods and/or the rendition of services by Borrower or any Guarantor in the ordinary course of business, and the proceeds thereof and all security and guaranties therefor, whether now existing or hereafter created, and all returned, reclaimed or repossessed goods, and all books and records pertaining to the foregoing.

“Acquisition” shall mean any transaction or series of related transactions in which Borrower acquires all or substantially all of the stock or other equity interests in, or all or substantially all of the assets of, any Person or, in the case of a Person that is a corporation or other business entity, any division thereof.

“Additional Costs” shall mean, with respect to any Rate Period in the case of any LIBOR Rate Portion, all costs, losses or payments, as reasonably determined by Lender in its sole and absolute discretion, that Lender incurs, suffers or makes by reason of any increase in the cost to Lender of agreeing to make or making, funding or maintaining any LIBOR Rate Portion because of or arising from (a) the introduction of, or any change in or in the interpretation or administration of, any law or regulation or (b) the compliance with any request from any central bank or other Governmental Authority (whether or not having the force of law).

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

Page 1

“Adjusted LIBOR Rate” shall mean with respect to a LIBOR Rate Portion on the first day of the Rate Period, a rate per annum equal to the sum of (a) the quotient of (i) the LIBOR Rate on the first day of the Rate Period, divided by (ii) the remainder of 1.00 minus the LIBOR Reserve Requirement, if any, on the first day of the Rate Period, plus (b) the FDIC Percentage in effect on first day of the Rate Period, together with any additional impositions, assessments, fees or surcharges that may be imposed on Lender (expressed as a percentage), to the extent such impositions, assessments, fees or surcharges are not reflected in the FDIC Percentage or the LIBOR Reserve Requirement and are generally imposed on banks with capitalization and supervisory risk factors comparable to Lender, plus (c) the Applicable Margin.

“Advance” means a borrowing under the Revolving Commitment, (a) made by Lender on a Borrowing Date, or (b) converted or continued by Lender on the same date of conversion or continuation, consisting, in either case, of the aggregate amount of Advances of the same Type and for the same Rate Period.

“Affiliate” shall mean any Person controlled by, controlling or under common control with Borrower.

“Agreement” shall mean this Second Amended and Restated Credit Agreement, as the same may be amended, modified or supplemented from time to time.

“Applicable Margin” means the margin related to Base Rate Portions or LIBOR Rate Portions, as applicable, as set forth in Schedule I attached hereto.

“Authorized Officer” shall mean, as to any Person, the Chairman, the President, Chief Executive Officer, Chief Financial Officer, Vice President, Treasurer or other officer duly authorized by the board of directors of such Person.

“Bankruptcy Code” shall mean the United States Bankruptcy Code of 1978, as amended, and any successor statute.

“Base Rate” means (a) the prime rate of interest set by BOK Financial Corporation, in its sole discretion, on a daily basis as published by BOK Financial Corporation from time to time, minus (b) the Applicable Margin.

“Base Rate Portion” shall mean any Loan which bears interest at the Base Rate.

“Borrower”  shall have the meaning set forth in the first paragraph of this Agreement.

“Borrowing Date” shall mean a date upon which Borrower has an Advance delivered pursuant to Section 2.2(a) or a Letter of Credit issued pursuant to Section 2.2(b).

“Business Day” shall mean a day when Lender is open for business, provided that, if the applicable Business Day relates to any LIBOR Rate Portion, it shall mean a day when Lender is open for business and on which commercial banks are open for international business (including dealings in Dollar deposits) in London.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

Page 2

“Capital Expenditures” means the expenditures of any Person which are capitalized on the balance sheet of such Person in accordance with GAAP (including that portion of Capitalized Lease Obligations which should be capitalized on a balance sheet of such Person in accordance with GAAP) and which are made in connection with the purchase, construction or improvement of items properly classified on such balance sheet as property, plant, equipment or other fixed assets or intangibles.

“Capitalized Lease” means, as to any Person, a lease of (or other agreement conveying the right to use) real and/or personal property to such Person as lessee, with respect to which the obligations of such Person to pay rent or other amounts are required to be classified and accounted for as a capital lease on a balance sheet of such Person in accordance with GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board).

“Capitalized Lease Obligations” means, as to any Person, the obligation of such Person to pay rent or other amounts under a Capitalized Lease and, for purposes of this Agreement, the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP.

“Cash Collateralize” shall have the meaning set forth in Section 2.2(d)(iii).

“Closing Date” shall mean the date on which each of the conditions set forth in Section 7.1 have been satisfied.

“Code” shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder issued by the Internal Revenue Service.

“Collateral” shall have the meaning set forth in the Security Agreements, the Pledge Agreements and any other Loan Document which grants a Lien in favor of Lender as security for the Obligations.

“Contingent Obligation” shall mean, with respect of any Person, any obligation of such Person guaranteeing or intended to guarantee any Debt or other obligation (the “primary obligation”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, that notwithstanding the foregoing, the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business.  The amount of any Contingent Obligation of any Person shall be the amount of the primary obligation or such lesser amount to which the maximum exposure of such Person shall have been specifically limited.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

Page 3

“Contribution Agreement” means the contribution agreement, if any, to be executed by each Guarantor in favor of the other Guarantors and approved by Lender, as required by this Agreement and as it may from time to time be renewed, extended, amended and restated.

“Conversion/Continuation Date” shall have the meaning set forth in Section 3.1(b).

“Credit Period” shall mean the period commencing on the Closing Date and ending on the Maturity Date, or such earlier date of termination of Lender’s obligation to make Advances or issue Letters of Credit hereunder.

“Current Maturities” shall mean, with respect to any Person, on any date of calculation, the current liabilities of such Person attributable to the principal portion of its long-term debt, determined in accordance with GAAP for the coming 12 months.

“Debt” shall mean, with respect to any Person at any time, without duplication, (a) indebtedness for borrowed money or for the deferred purchase price of property or services purchased, excluding trade accounts payable within 120 days after the creation thereof, (b) all indebtedness of others for borrowed money or for the deferred purchase price of property or services secured by a Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person, (c) Capitalized Lease Obligations, (d) all obligations payable out of the proceeds of production from property of such Person, whether or not the obligation secured thereby shall have been assumed by such Person, and (e) Contingent Obligations of such Person.

“Default” shall mean any of the events specified in Section 10.1, whether or not there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act.

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

“Distribution” by any Person, shall mean (a) with respect to any stock issued by such Person or any partnership or joint venture interest of such person, the retirement, redemption, repurchase, or other acquisition for value of such stock, partnership or joint venture interest, (b) the declaration or payment (without duplication) of any dividend or other distribution, whether monetary or in kind, on or with respect to any stock, partnership or joint venture of any Person, and (c) any other payment or distribution of assets of a similar nature or in respect of an equity investment.

“EBITDA” shall mean, based on trailing four quarters, determined in accordance with GAAP for Borrower and its Subsidiaries on a consolidated basis, the sum of net income, less income or plus loss from discontinued operations and extraordinary items, plus income taxes, plus depreciation, plus amortization, plus interest expense, plus any other non-cash expenses, each as deducted in determining such net income.  The calculation of EBITDA shall include any new Subsidiary acquired by Borrower in an Acquisition, as long as Lender has received and reviewed audited consolidated financial statements for such Subsidiary, and all notes thereto, including a balance sheet and statements of income, retained earnings and cash flows, all prepared in conformity with GAAP on a consolidated basis and accompanied by a report and unqualified opinion of an independent certified public accountants satisfactory to Lender stating that such accountants have conducted audits of such financial statements in accordance with generally accepted auditing standards and that, in their opinion, such financial statements present fairly, in all material respects, such new Subsidiary’s financial position as of their date and the results of such new Subsidiary’s operations and cash flows for the period covered, in conformity with GAAP.  The calculation of EBITDA may include any new Subsidiary without the audited financial statements and opinion required by the preceding sentence only with the express written consent of Lender.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

Page 4

“Environmental Laws” shall mean any and all Governmental Requirements relating to:  (a) the environment, which includes, without limitation, ambient air, surface water, ground water, land surface or subsurface strata; (b) emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment; or (c) otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes.

“ERISA” shall have the meaning set forth in Section 6.14.

“Event of Default” shall mean any of the events specified in Section 10.1, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act.

“Expiration Date” shall mean the last day of a Rate Period.

“FDIC Percentage” shall mean, on any day, the net assessment rate (expressed as a percentage rounded to the next highest 1/100 of 1%), if any, which is in effect on such day (under the regulations of the Federal Deposit Insurance Corporation or any successor) for determining the assessments paid by Lender to the Federal Deposit Insurance Corporation (or any successor) for insuring Eurocurrency deposits made in Dollars at Lender’s principal offices.  Each determination of said percentage made by Lender shall, in the absence of manifest error, be binding and conclusive.

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Lender on such day on such transactions as determined by the Lender.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

Page 5

“Fixed Charge Coverage” shall mean the ratio of (i) EBITDA less cash paid for taxes and less Capital Expenditures (excluding such Capital Expenditures identified on Schedule II), to (ii) the sum of Current Maturities plus Interest Expense plus the Current Maturities of Capitalized Lease Obligations (without duplication of Interest Expense).

“Funded Debt” shall mean all outstanding liabilities for borrowed money and other interest-bearing liabilities, including current and long-term Debt, and unfunded commitments under any outstanding letters of credit, excluding Cash Collateralized Letters of Credit.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, which principles are applicable to the circumstances in question as of the date of determination, except as to the financial statements delivered pursuant to Section 8.1(b), subject to (a) changes resulting from year-end adjustments and (b) any non-conformity with such generally accepted accounting principles as a result of the absence of any footnotes required by such generally accepted accounting principles.

“Governmental Authority” shall mean any government, any state or other political subdivision thereof, or any Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Governmental Requirement” means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict, franchise, permit, certificate, license, award, authorization or other direction, guideline, or requirement of any Governmental Authority, including, without limitation, any requirement under common law.

“Guarantor” shall mean each Subsidiary executing a Guaranty of the Obligations in favor of Lender.

“Guaranty” shall mean the continuing guaranty of payment and performance of the Obligations, to be executed by each existing Guarantor in favor Lender pursuant to Section 9.4, as it may from time to time be renewed, extended, amended or restated.

 “Highest Lawful Rate” shall mean, with respect to Lender, the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged, or received with respect to the Loan and Note or on other amounts, if any, due to Lender pursuant to this Agreement or any other Loan Document, under laws applicable to Lender which are presently in effect, or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow.  At all times, if any, as Chapter 303 (“Chapter 303”) of the Texas Finance Code, shall establish the Highest Lawful Rate for any purpose under this Agreement or any other Loan Document, the Highest Lawful Rate shall be the “indicated rate ceiling” as defined in Chapter 303 from time to time in effect.  To the extent required by applicable law in determining the Highest Lawful Rate with respect to Lender as of any date, there shall be taken into account the aggregate amount of all payments and charges theretofore charged, reserved or received by Lender hereunder or under the other Loan Documents which constitute or are deemed to constitute interest under applicable law.

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“incur” (including the correlative terms “incurred,” “incurring,” “incurs” and “incurrence”), when used with respect to any Debt, shall mean create, incur, assume, guarantee or in any manner become liable in respect of such Debt.

“Indemnified Parties” shall have the meaning set forth in Section 11.13.

“Interest Expense” shall mean for any period, without duplication, the aggregate of all interest expense, all prepayment charges and all amortization of debt discount and expense, including, without limitation, all net amounts payable (or receivable) under Interest Rate Agreements and all interest expense attributable to Capitalized Leases, in each instance determined in accordance with GAAP.

“Interest Payment Date” shall mean (a) as to any Base Rate Portion, the fifteenth of each month, beginning with November 15, 2008 (or if any such date is not a Business Day, then the next succeeding Business Day); (b) as to any LIBOR Rate Portion in which the Rate Period with respect thereto is one month, the date on which such Rate Period ends; and (c) as to any LIBOR Rate Portion in which the Rate Period with respect thereto is greater than one month, the date on which each month during such Rate Period ends, and the date on which such Rate Period ends.

“Interest Rate Agreement” shall mean an interest rate swap agreement, interest rate cap agreement or similar arrangement.

“Investment” means, as applied to any Person, any direct or indirect purchase or other acquisition by such Person of stock or other securities of any other Person, or any direct or indirect loan, advance or capital contribution by such Person to any other Person, or any other item which would be classified as an “investment” on a balance sheet of such Person prepared in accordance with GAAP, including any direct or indirect contribution by such Person of property or assets to a joint venture, partnership or other business entity in which such Person retains an interest.

“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“Lender” shall have the meaning set forth in the first paragraph of this Agreement.

“Letter of Credit” shall mean a letter of credit issued for the account of Borrower (or a Guarantor designated by Borrower) upon application by Borrower pursuant to Section 2.2(b) and the other terms and conditions of this Agreement.

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“Letter of Credit Commitment” shall mean the obligation of Lender to issue Letters of Credit pursuant to this Agreement in an aggregate amount of principal outstanding at any time not to exceed $6,000,000, as the same may be increased with the express written consent of Lender or decreased pursuant to the terms of this Agreement.

“Letter of Credit Exposure” shall mean the aggregate of the undrawn portion of each Letter of Credit outstanding at any time.

“Letter of Credit Expiration Date” shall mean the date that is 364 days from the date of this Agreement.

“Letter of Credit Margin” shall mean the fee applicable to Letters of Credit as set forth on Schedule I hereto.

“LIBOR Rate” shall mean the rate of interest determined by Lender at which deposits in Dollars for the relevant Rate Period and comparable in amount to the LIBOR Rate Portion in question are offered based on information presented on the Telerate Screen as of 11:00 A.M. (London time) on the day which is two (2) Business Days prior to the first day of such Rate Period; provided, that if at least two such offered rates appear on the Telerate Screen in respect of such Rate Period, the arithmetic mean of all such rates (as determined by Lender) will be the rate used; provided, further, that if Telerate ceases to provide LIBOR quotations, such rate shall be the average rate of interest determined by Lender at which deposits in Dollars are offered for the relevant Rate Period by Lender (or its successor) to banks with combined capital and surplus in excess of $500,000,000 in the London interbank market as of 11:00 A.M. (London time) on the first day of such Rate Period.

“LIBOR Rate Portion” shall mean that portion or portion of the Loan which bears interest at the Adjusted LIBOR Rate.

“LIBOR Reserve Requirement” shall mean, on any day, that percentage (expressed as a decimal fraction) which is in effect on such date, if any, as provided by the Federal Reserve System for determining the maximum reserve requirements generally applicable to financial institutions regulated by the Federal Reserve Board comparable in size and type to Lender (including, without limitation, basic supplemental, marginal and emergency reserves) under Regulation D with respect to “Eurocurrency liabilities” as currently defined in Regulation D, or under any similar or successor regulation with respect to Eurocurrency liabilities or Eurocurrency funding (or, if reserves for Eurocurrency liabilities are not separately stated in such regulations, the other applicable category of liabilities which includes deposits by reference to which the interest rate on a LIBOR Rate Portion is determined).  Each determination by Lender of the LIBOR Reserve Requirement, shall, in the absence of manifest error, be conclusive and binding.

“Lien” shall mean (a) any interest in property (whether real, personal or mixed and whether tangible or intangible) which secures the payment of Debt or an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on the common law, statute or contract, including, without limitation, any such interest arising from (and irrespective of whether created by such owner or another Person) a mortgage, charge, pledge, security agreement, conditional sale, Capitalized Lease or trust receipt, or arising from a lease, consignment or bailment given for security purposes, and (b) any exception to or defect in the title to or ownership interest in such property, including, without limitation, reservations, rights of entry, possibilities of reverter, encroachments, easements, rights of way and restrictive covenants (other than minor exceptions to or irregularities in the title or ownership interest in such property which do not materially impair the use of such property for its intended purpose).

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“Loan” shall mean the revolving line of credit in the maximum amount of the Revolving Commitment and the letter of credit facility in the maximum amount of the Letter of Credit Commitment, each to be funded by Lender to Borrower pursuant to the term of this Agreement as the same may be renewed or extended or increased (with the prior written consent of Lender) from time to time.

“Loan Documents” shall mean this Agreement, the Note, the Guaranties, the Security Agreements, and all instruments, certificates and agreements now or hereafter executed or delivered to Lender pursuant to any of the foregoing and the transactions connected therewith, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing.

“Material Adverse Effect” shall mean any material adverse effect on (a) the financial condition, business, properties, assets, or operations of Borrower and its Subsidiaries on a consolidated basis, (b) the ability of Borrower and the Guarantors, on a consolidated basis, to repay the Obligations, (c) the ability of Borrower or any Guarantor to perform on a timely basis any other obligations under this Agreement or any other Loan Document to which it is a party, (d) the validity or enforceability of any Loan Document or (e) the rights and remedies of Lender under any Loan Document.

“Maturity Date” shall mean October 19, 2009.

“Moody’s” shall mean Moody’s Investors Service, Inc. and any successor thereto.

“Mortgage” shall mean the mortgage or deed of trust executed by Borrower to or for the benefit of Lender, evidencing the lien granted by Borrower to or for the benefit of Lender in the real property more particularly set forth therein securing the Obligations.

“Note” shall mean the promissory note or notes executed by Borrower in favor of Lender evidencing the obligation to repay the Loan, substantially in the form of Exhibit A, together with any renewals, extensions, modifications or amendments of the forgoing.

“Notice of Borrowing” shall have the meaning set forth in Section 2.2(a).

“Notice of Rate Change/Continuation” shall have the meaning set forth in Section 3.1(b).

“Obligations” shall mean the Loan and all of the other obligations of Borrower and the Subsidiaries now or hereafter existing under the Loan Documents, whether for principal, interest, fees, expenses, indemnification or otherwise.

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“Officer’s Certificate” shall mean a certificate signed in the name of Borrower by an Authorized Officer.

“Other Taxes” shall have the meaning set forth in Section 4.7(b).

“PBGC” shall have the meaning set forth in Section 6.14.

“Permitted Acquisition” shall mean an Acquisition which is agreed to by Borrower and the other party thereto with respect to which (a) the consideration paid by Borrower or any Subsidiary (whether in cash, by issuance of Subordinated Debt permitted under Section 9.1, by issuance of stock, by assumption of Debt or otherwise and including the value of any management, consulting, purchase or required performance agreement by Borrower or any Subsidiary in connection therewith), does not exceed, (i) for any single Acquisition, $5,000,000, and (ii) together with the consideration paid for all other Acquisitions consummated in the immediately preceding twelve (12) month period, $30,000,000, (b) Borrower has caused to be subordinate to the payment of the Obligations and unsecured, any Debt Borrower issues in connection with such Acquisition, and (c) Borrower has paid any Debt assumed in connection with such Acquisition unless such Debt is permitted under Section 9.1.

“Permitted Distribution” shall mean, with respect to the stock of Borrower, the repurchase of such stock by Borrower in an aggregate amount not to exceed $20,000,000 in the immediately preceding twelve (12) month period.  For purposes of calculating the aggregate amount allowed hereunder, such amount shall include only the stock repurchased by Borrower on a going forward basis, beginning as of the Closing Date, and shall not include any stock repurchased by Borrower before the Closing Date.

“Permitted Investments” shall mean (a) obligations, with a maturity of less than two years, with the full faith and credit of the United States of America, (b) direct obligations of any state of the United States, or municipality therein, rated in one of the two top classifications by S&P or Moody’s and maturing within one year from date of acquisition, (c) certificates of deposit, eurodollar time deposits or banker’s acceptances, maturing within two years from date of acquisition, issued by (1) Lender, or (2) any United States commercial bank having capital, surplus and undivided profits aggregating not less than $100 million and whose (or whose parent corporation’s) unsecured long-term debt is rated in one of the two top classifications by S&P or Moody’s, (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (b) and (c) above entered into with any financial institution meeting the qualifications specified in clause (c) above, (e) commercial paper of any United States corporation with a maturity of less than 270 days from date of acquisition and which is rated in one of the two top classifications by S&P or Moody’s, (f) indebtedness of any United States corporation with a maturity of less than 270 days from date of acquisition and which is (1) evidenced by bonds, notes, debentures or other instruments issued and authenticated under an indenture qualified under the Trust Indenture Act of 1939, as amended, and (2) rated in one of the two top classifications by S&P or Moody’s, (g) investments in money market or mutual funds at least ninety percent (90%) of the assets of which constitute Dollars or investments in securities of the type described in clauses (a) through (f) above (without regard to maturities), (h) Investments in money market or mutual funds (other than those described in clause (g) above) acquired through and maintained in an account with Lender or any Person controlled by, controlling or under common control with Lender, (i) Investments in wholly-owned Subsidiaries of Borrower, so long as Borrower has complied with the requirements of Section 9.4 with respect thereto, (j) expense advances to employees in the ordinary course of business for travel and lodging not to exceed $100,000 in the aggregate at any time outstanding, (k) Investments in demand deposit accounts maintained with FDIC member banks, and (l) Investments outstanding on the date of this Agreement that are disclosed in Schedule 9.10.

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“Person” shall mean an individual, partnership, joint venture, corporation, limited liability company, joint stock company, bank, trust, unincorporated organization and/or a government or any department or agency thereof.

“Pledge Agreement” shall mean the Pledge Agreement or Pledge Agreements executed by Borrower and any applicable Subsidiary, by which Borrower or such applicable Subsidiary pledges to Lender a security interest in all of the stock or other equity interests of the Subsidiaries.

“Rate Period” shall mean the period of time for which the LIBOR Rate shall be in effect as to any LIBOR Rate Portion which shall be a one, two or three month period of time, commencing with the Borrowing Date or the Expiration Date of the immediately preceding Rate Period, as the case may be, applicable to and ending on the effective date of any rate change or rate continuation made as provided in Section 3.1(b) as Borrower may specify in a Notice of Borrowing or Notice of Rate Change/Continuation, subject, however, to the early termination provisions of Section 3.2(a) relating to any LIBOR Rate Portion; provided, however, that: (i) any Rate Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Rate Period shall end on the next preceding Business Day, and (ii) no Rate Period shall extend beyond the Maturity Date.

“Revolving Commitment” shall mean the obligation of Lender to make Advances or issue Letters of Credit pursuant to this Agreement in an aggregate amount of principal outstanding at any time not to exceed $25,000,000, as the same may be increased with the express written consent of Lender or decreased pursuant to the terms of this Agreement.

“S&P” shall mean Standard & Poor’s Rating Group and any successor thereto.

“Security Agreements” shall mean (a) that certain Amended and Restated Security Agreement, dated as of the Closing Date executed by Borrower in favor of Lender, and (b) any Security Agreement executed by a Subsidiary in favor of Lender.

“Subordinated Debt” shall mean any Debt of Borrower (a) unsecured, and (b) subordinated to payment of the Obligations in form and substance satisfactory to Lender.

“Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, association, bank or other business entity of which 50% or more of the total voting power of shares of stock or other indicia of equity rights entitled to vote in the election of directors, managers, general partners, trustees or other members of the governing body thereof is at the time directly or indirectly owned by Borrower or any Subsidiary.

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“Taxes” shall have the meaning set forth in Section 4.7(a).

“Total Liabilities” shall mean and include without duplication (a) all items which in accordance with GAAP would be included on the liability side of a consolidated balance sheet of Borrower on the date as of which Total Liabilities is to be determined (excluding capital stock surplus, surplus reserves and deferred credits), (b) all Contingent Obligations, (c) all Debt secured by any Lien existing on any interest of Borrower or any Subsidiary in property owned subject to such lien whether or not the Debt secured thereby shall have been assumed, and (d) all leases sold by a Borrower or any Subsidiary with recourse to Borrower or any Subsidiary, provided that such term shall not mean or include any Debt in respect of which monies sufficient to pay and discharge the same in full (either on the expressed date of maturity thereof or on such earlier date as such Debt may be duly called for redemption and payment) shall be deposited with a depository, agency or trustee acceptable to Lender, in trust and on a fully perfected basis, for the payment thereof.

“Total Outstandings” means the sum of (a) the aggregate amount of all Advances, plus (b) the aggregate amount of all Letter of Credit Exposure.

“Type” shall mean any Base Rate Portion or any LIBOR Rate Portion.

ARTICLE II

THE CREDIT FACILITY

Section 2.1.           Commitment.

(a)           Revolving Line of Credit.  Upon the terms and conditions and relying upon the representations and warranties set forth herein and in the other Loan Documents, Lender agrees to make revolving Advances to Borrower from time to time in amounts not to exceed the maximum amount of the Commitment.  Within such limits and during such period and subject to the terms and conditions of this Agreement, Borrower may borrow, repay and reborrow Advances hereunder at any time prior to the Maturity Date.

(b)           Letters of Credit.  Subject to the terms and conditions set forth herein, Lender agrees (1) to issue Letters of Credit for the account of the Borrower from time to time on any Business Day during the period from the Closing Date until (i) with regard to Letters of Credit issued under the Revolving Commitment, the Maturity Date, and (ii) with regard to Letters of Credit issued under the Letter of Credit Commitment, the Letter of Credit Expiration Date, and (2) to honor drafts under the Letters of Credit; provided that Lender shall not be obligated to issue any Letter of Credit if as of the date of such issuance, (x) the aggregate amount of all Letter of Credit Exposure with regard to Letters of Credit issued under the Revolving Commitment would exceed the amount available under the Revolving Commitment, or (y) the outstanding amount of the Letter of Credit Exposure with regard to Letters of Credit issued under the Letter of Credit Commitment would exceed the amount available under the Letter of Credit Commitment.  Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.  All amounts Lender is required to advance under any Letter of Credit issued under the Revolving Commitment shall be deemed an Advance hereunder and shall bear interest as provided herein.  Borrower shall be liable for all costs and expenses, including, but not limited to, attorney’s fees and court costs, relating to such Letter of Credit, or any action related to such Letter of Credit, incurred by Lender in connection with such Letter of Credit.

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(c)           Promissory Notes.  Borrower shall execute and deliver to Lender (i) a Note, which shall be dated the Closing Date, in the principal amount of the Revolving Commitment, and payable to Lender as provided in the Note and in this Agreement, and (ii) a Note, which shall be dated the Closing Date, in the principal amount of the Letter of Credit Commitment, and payable to Lender as provided in the Note and in this Agreement.  Each Note shall bear interest on the unpaid principal amount thereof from time to time outstanding at the rate per annum determined as specified in Section 3.1, payable on each Interest Payment Date and on the Maturity Date, commencing with the first Interest Payment Date following the date of such Note.

(d)           Termination of Commitment.  The outstanding principal balance of each Note, together with all accrued but unpaid interest thereon, shall be due and payable in full on the Maturity Date.  The Revolving Commitment shall terminate on the Maturity Date and, after such date, Lender shall have no obligation hereunder to make Advances or to issue Letters of Credit under the Revolving Commitment.  The Letter of Credit Commitment shall terminate on the Letter of Credit Expiration Date, and, after such date, Letter of Credit Issuer shall have no obligation hereunder to issue Letters of Credit under the Letter of Credit Commitment.

(e)           Use of Proceeds.  All Advances and Letters of Credit made or issued pursuant to this Agreement shall be used solely for working capital needs of Borrower and its Subsidiaries and for Acquisitions and the repurchase by Borrower of issued and outstanding shares of Borrower’s stock.

Section 2.2.            Borrowing Procedure.

(a)           Amounts; Method of Borrowing.  Each Advance by Borrower hereunder shall be (i) in the case of a borrowing consisting of a LIBOR Rate Portion, in an aggregate amount of not less than $500,000 or an integral multiple of $250,000 in excess thereof; or (ii) in the case of a borrowing consisting of a Base Rate Portion, in an aggregate amount of not less than $250,000.  Each Advance by Borrower shall be made upon prior written notice from Borrower to Lender in the form of Exhibit B-1 hereto (a “Notice of Borrowing”), delivered to Lender not later than 10:00 a.m. (Dallas, Texas time) (i) on the third Business Day prior to the Borrowing Date, if such borrowing consists of a LIBOR Rate Portion; and (ii) on the Borrowing Date, if such borrowing consists of a Base Rate Portion.  Each Notice of Borrowing shall be irrevocable and shall specify (i) the amount of the proposed borrowing and of each LIBOR Rate Portion and/or Base Rate Portion comprising a part thereof; (ii) the Borrowing Date; (iii) with respect to any LIBOR Rate Portion, the Rate Period with respect to each such LIBOR Rate Portion and the Expiration Date of each such Rate Period; and (iv) the demand deposit account of Borrower at Lender in which the proceeds of the borrowing are to be deposited.  Delivery of any Notice of Borrowing to Lender shall constitute a representation by Borrower that the representations and warranties made by Borrower under the Loan Documents are true and correct as of the date of delivery of such Notice of Borrowing.

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(b)           Method of Issuing Letters of Credit.  Not less than five (5) Business Days prior to the requested date of issuance of any Letter of Credit, Borrower shall execute and deliver to Lender the customary letter of credit application and agreement in the form of Exhibit B-2 hereto (a “LOC Application”).  Nothing in this Agreement shall prohibit Letter of Credit Issuer from modifying the form of the LOC Application in effect from time to time in connection with the issuance of any Letter of Credit.  In the event of a direct conflict between the provisions of the LOC Application and this Agreement, the provisions of this Agreement shall govern.  In no event shall a Letter of Credit have an expiration date which is later than the earlier of (i) with regard to Letters of Credit issued under the Revolving Commitment, (1) the fifth Business Day prior to the Maturity Date and (2) one year after its issuance, unless Borrower shall have deposited with Lender cash collateral satisfactory to Lender in an aggregate amount equal to the Letter of Credit Exposure for such Letter of Credit, and (ii) with regard to Letters of Credit issued under the Letter of Credit Commitment, (1) the fifth Business Day prior to the Letter of Credit Expiration Date and (2) one year after its issuance.  Upon satisfaction of the conditions precedent set forth in Article VII, and subject to the other terms and conditions of this Agreement, Lender shall issue Letters of Credit for the account of Borrower (or a Guarantor designated by Borrower) within five (5) Business Days from receipt by Lender of the fully-executed LOC Application.

(c)           Obligation to Issue Letters of Credit.  The Lender shall be under no obligation to issue any Letter of Credit if:

(i)           any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Lender from issuing such Letter of Credit, or any Law applicable to the Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Lender shall prohibit, or request that the Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Lender with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Lender in good faith deems material to it; or

(ii)           the issuance of such Letter of Credit would violate one or more written policies of the Lender, which are applied indiscriminately to all borrowers of Lender.

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(d)           Cash Collateral.

(i)           Borrower shall Cash Collateralize all Letters of Credit issued under the Letter of Credit Commitment prior to the issuance of any such Letter of Credit.

(ii)           If, as of the Maturity Date, any Letter of Credit issued under the Revolving Commitment may for any reason remain issued and partially or wholly undrawn, Borrower shall immediately Cash Collateralize the then outstanding amount of all Letter of Credit Exposure (in an amount equal to such Letter of Credit Exposure determined by Lender as of the date of the Maturity Date).

(iii)           For purposes hereof, “Cash Collateralize” means to pledge and deposit with or deliver to the Lender, as collateral for the Letter of Credit Exposure, cash or deposit account balances pursuant to documentation in form and substance satisfactory to Lender.  Derivatives of such term have corresponding meanings.  Borrower hereby grants to Lender a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing.  Cash collateral shall be maintained in blocked, interest bearing deposit accounts at Lender.

ARTICLE III

INTEREST RATE PROVISIONS

Section 3.1.            Interest Rate Determination.  The Loan shall bear interest on the unpaid principal amount thereof from time to time outstanding, until maturity, at a rate per annum (calculated based on a year of 360 days in each case for the actual days elapsed) as follows:

(a)           The principal balance of the Loan from time to time outstanding shall bear interest at an annual rate equal to the lesser of (i) with respect to any LIBOR Rate Portion, the Adjusted LIBOR Rate, and with respect to any Base Rate Portion, the Base Rate, as the case may be, with respect thereto or (ii) the Highest Lawful Rate, from the day of Advance to, but not including, (y) with respect to any Base Rate Portion, the Maturity Date and (z) with respect to any LIBOR Rate Portion, the Expiration Date of the Rate Period then in effect with respect thereto.

(b)           So long as no Default or Event of Default has occurred and is continuing, Borrower may at any time prior to the applicable Maturity Date (y) change the interest rates to apply to all or any portion of the Loan or (z) elect to continue all or any part of the outstanding principal balance of any LIBOR Rate Portion as portions of such Type by giving Lender an irrevocable written notice in the form of Exhibit C hereto (the “Notice of Rate Change/Continuation”) specifying (i) the date on which the applicable LIBOR Rate Portion or Base Rate Portion was made; (ii) the interest rate then applicable to such LIBOR Rate Portion or Base Rate Portion; (iii) with respect to any LIBOR Rate Portions, the Rate Period then applicable to each such LIBOR Rate Portion; (iv) the principal amount of such LIBOR Rate Portion to remain outstanding; and (v) the requested effective date of the rate change or continuation (the “Conversion/Continuation Date”).  In the case of the conversion of all or any part of any Base Rate Portion into a LIBOR Rate Portion or the continuation of any LIBOR Rate Portion, (x) such notice must be received by Lender at least three (3) full Business Days prior to the Conversion/Continuation Date, and otherwise at least one (1) full Business Day prior thereto, and (y) in either case such LIBOR Rate Portion shall be in an aggregate principal amount greater than or equal to $1,000,000 or in an integral multiple of $100,000 in excess thereof.  Each rate so specified shall become effective on the Conversion/Continuation Date and remain in effect until the expiration of the applicable Rate Period specified in such Notice of Rate Change/Continuation.  Each Notice of Rate Change/Continuation shall be irrevocable.

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(c)           If Borrower shall fail to choose, as provided in subsection (b) above, the rate of interest to become effective with respect to any LIBOR Rate Portions upon the Expiration Date of the Rate Period with respect thereto, such portion of the Loan shall bear interest at the Base Rate on and after such Expiration Date until Borrower shall have so chosen a different rate.

(d)           Nothing contained herein shall authorize Borrower (i) to convert any Base Rate Portion into or continue any LIBOR Rate Portion as a LIBOR Rate Portion unless the Expiration Date of the Rate Period for the new LIBOR Rate Portion occurs on or before the Maturity Date, (ii) to continue or change the interest rates applicable to any LIBOR Rate Portions prior to the Expiration Date of the Rate Period with respect thereto, or (iii) to convert any Base Rate Portion into a LIBOR Rate Portion or to continue any LIBOR Rate Portion if a Default or an Event of Default has occurred and is continuing.

(e)           Notwithstanding anything set forth herein to the contrary (other than Section 11.12), if an Event of Default has occurred and is continuing the Loan shall bear interest at a rate per annum which shall be equal to the lesser of (i) 3% above the Base Rate or (ii) the Highest Lawful Rate, which interest shall be due and payable on demand.

Section 3.2.            Additional Interest Rate Provisions.

(a)           Anything in this Agreement to the contrary notwithstanding, if at any time Lender determines (which determination shall be conclusive absent manifest error) that the introduction of or any change in any Governmental Regulation by any Governmental Authority charged with the interpretation or administration thereof shall make it unlawful for Lender to maintain or fund any LIBOR Rate Portion or to convert any Base Rate Portion into, or to continue, any LIBOR Rate Portion hereunder, Lender shall promptly give notice thereof to Borrower.  With respect to any LIBOR Rate Portion which is outstanding when Lender so notifies Borrower, upon such date as shall be specified in such notice, the Rate Period shall end and the lesser of (i) the Base Rate or (ii) the Highest Lawful Rate shall commence to apply in lieu of the Adjusted LIBOR Rate in respect of such portion of the Loan.  At least five (5) Business Days after such specified date, Borrower shall pay to Lender (y) accrued and unpaid interest on each affected LIBOR Rate Portion at the Adjusted LIBOR Rate in effect at the time of such notice to but not including such specified date plus (z) such amount or amounts (to the extent that such amount or amounts would not be usurious under applicable Governmental Regulation) as may be necessary to compensate Lender for any costs and losses incurred by it, but otherwise without penalty.  If notice has been given by Lender pursuant to the foregoing provisions of this Section 3.2, then, unless and until the circumstances giving rise to such notice no longer apply, such Adjusted LIBOR Rate shall not again apply to any portion of the Loan and the obligation of Lender to convert any portion of the Loan into, or to continue, any LIBOR Rate Portion as, a LIBOR Rate Portion shall be suspended.

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(b)           Subject to Section 11.12 hereof, Borrower will indemnify Lender against, and reimburse Lender on demand for, any loss, cost or expense incurred or sustained by Lender (including, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Lender to fund or maintain any LIBOR Rate Portion to Borrower ) as a result of (i) any Additional Costs incurred by Lender; (ii) any payment, prepayment or repayment (whether authorized or required hereunder or otherwise) of all or a portion of any LIBOR Rate Portion on a day other than the last day of a Rate Period for such LIBOR Rate Portion; (iii) any payment or prepayment (whether required hereunder or otherwise) of any LIBOR Rate Portion made after the delivery of a Notice of Borrowing or a Notice of Rate Change/Continuation, as the case may be, but before the applicable Borrowing Date or a Conversion/Continuation Date, as the case may be, if such payment or prepayment prevents the proposed borrowing from becoming fully effective; or (iv) after receipt by Lender of a Notice of Borrowing or a Notice of Rate Change/Continuation, as the case may be, the failure of any LIBOR Rate Portion to be made or effected by Lender due to any condition precedent to a borrowing not being satisfied by Borrower or due to any other action or inaction of Borrower.

(c)           The agreements contained in Sections 3.2(a) and 3.2(b) shall survive the termination of this Agreement and the payment in full of the Note and all other amounts payable hereunder.

ARTICLE IV

PREPAYMENTS AND OTHER PAYMENTS

Section 4.1.           Required Payments.

(a)           Interest Payment Dates.  Interest owed under the Note is due not later than 12:00 noon (Dallas, Texas time) on each Interest Payment Date, in immediately available funds in Dallas, Texas, to Lender at its address referred to in Section 11.4.

(b)           Principal Payment Date.  All outstanding principal owed under the Note is due not later than 12:00 noon (Dallas, Texas time) on the Maturity Date in immediately available funds in Dallas, Texas, to Lender at its address referred to in Section 11.4.

(c)           Intentionally Omitted.

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(d)           Excess Advances.  In the event that the sum of the outstanding Advances (including, without limitation, any Advances required to be made as a result of a draw on a Letter of Credit) plus the Letter of Credit exposure exceeds the maximum amount of the Commitment then in effect (such excess amount referred to herein as the “Excess Amount”), Borrower shall immediately pay to Lender the Excess Amount, together with any amount owed under Section 3.2(b) resulting from such payment.

Section 4.2.           Optional Prepayments.  Borrower shall have the right at any time and from time to time to prepay, in whole or in part any Advance; provided, that each partial prepayment shall be in an aggregate principal amount of at least $25,000, together with interest accrued thereon to the date of such prepayment and all amounts due, if any, under Section 3.2.

Section 4.3.           Notice of Payments.  Borrower shall give Lender at least three (3) Business Days’ prior written notice of each prepayment with respect to any LIBOR Rate Portion proposed to be made by Borrower pursuant to Section 4.2 on a day other than the last day of the Rate Period for such LIBOR Rate Portion, specifying the principal amount thereof to be prepaid, the prepayment date and the account of Borrower to be charged if such prepayment is to be so effected.  Notice of such prepayment having been given, the principal amount of the Loan specified in such notice, together with interest thereon to the date of prepayment, shall become due and payable on such prepayment date.  If Borrower pays or prepays any LIBOR Rate Portion prior to the end of the Rate Period applicable thereto, such payment shall be subject to Section 3.2(b).

Section 4.4.           Place of Payment or Prepayment.  All payments and prepayments made in accordance with the provisions of this Agreement or of the Note in respect of commitment fees or of principal or interest on the Note shall be made to Lender no later than 12:00 noon (Dallas, Texas time) in immediately available funds at the address referred to in Section 11.4.

Section 4.5.            No Prepayment Premium or Penalty.  Each prepayment pursuant to Section 4.2 shall be without premium or penalty, except as provided in Section 3.2(b).

Section 4.6.            Increased Costs.

(a)           Notwithstanding any other provision herein, but subject to Section 11.12, if after the date of this Agreement the introduction of or change in any applicable Governmental Regulation or any change in any Governmental Regulation or in the interpretation or administration thereof, or compliance by Lender (or any lending office of Lender) with any applicable guideline or request from any central bank or Governmental Authority (whether or not having the force of a Governmental Regulation) either (i) shall impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against loans made or commitments entered into by Lender, or (ii) shall impose on Lender any other conditions affecting this Agreement; and the result of any of the foregoing affects or would have the effect of reducing the rate of return on Lender’s capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender’s policies with respect to capital adequacy) then, subject to Section 11.12 hereof, Borrower shall pay to Lender such additional amount or amounts as will compensate Lender for such reduction. Notwithstanding the foregoing, in no event shall the compensation payable under this Section 4.6 (to the extent, if any, constituting interest under applicable laws) together with all amounts constituting interest under applicable laws and payable in connection with this Agreement, the Note and the other Loan Documents, exceed the Highest Lawful Rate.

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(b)           Lender will notify Borrower of any event which will entitle Lender to compensation pursuant to subsection (a) above.  A certificate of Lender setting forth in reasonable detail such amount or amounts as shall be necessary to compensate Lender as specified in subsection (a) above shall be conclusive absent manifest error.  Borrower agrees to pay to Lender for the account of Lender the amount shown as due on any such certificate within fifteen (15) days after its receipt of the same  Lender may not make any claim for compensation under this Section 4.6 by reason of any increased costs or reduction of return incurred or suffered by Lender more than ninety (90) days prior to the date on which such certificate is received by Borrower..

(c)           Subject to the last sentence of Section 4.6(b), failure on the part of Lender to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to the Loan shall not constitute a waiver of Lender’s rights to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to the Loan.

Section 4.7.           Taxes.

(a)           Subject to Section 11.12, any and all payments by Borrower hereunder or under the Note shall be made free and clear of and without deduction for any and all present or future taxes, deductions, charges or withholdings, and all liabilities with respect thereto, including, without limitation, such taxes, deductions, charges, withholdings or liabilities whatsoever (x) imposed, assessed, levied or collected on or in respect of the Loan solely as a result of the interest rate being determined by reference to the LIBOR Rate, or the provisions of this Agreement relating to the LIBOR Rate, or the recording, registration, notarization or other formalization of any thereof or any payments of principal, interest or other amounts made on or in respect of the Loan when the interest rate is determined by reference to the LIBOR Rate, or (y) imposed, assessed, levied or collected by any jurisdiction (or any political subdivision thereof) under or in which Borrower or any Subsidiary is organized or doing business, excluding, taxes imposed on Lender’s net income (including penalties and interest payable in respect thereof) and franchise taxes imposed on Lender by any jurisdiction (or any political subdivision thereof) under the laws of which Lender is organized or doing business (all such non-excluded taxes, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”).  Subject to Section 11.12 hereof, if Borrower shall be required by Governmental Regulation to deduct any Taxes from or in respect of any sum payable hereunder or under the Note to Lender (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.7) Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Governmental Regulation.  If requested by Lender, Borrower shall confirm that all applicable Taxes, if any, imposed on it by virtue of the transactions under this Agreement have been properly and legally paid by it to the appropriate taxing authorities by sending either (A) official tax receipts or notarized copies of such receipts to Lender within thirty (30) days after payment of any applicable tax or (B) a certificate executed by an Authorized Officer of Borrower confirming that such Taxes have been paid, together with evidence of such payment.

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(b)           In addition, subject to Section 11.12 hereof, Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Note or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or the Note (hereinafter referred to as “Other Taxes”).

(c)           Subject to Section 11.12 hereof, Borrower will indemnify Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 4.7) paid by Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted.  This indemnification shall be made within thirty (30) days from the date Lender makes written demand therefor.

(d)           Without prejudice to the survival of any other agreement of Borrower hereunder, the agreement and obligations of Borrower contained in this Section 4.7 shall survive the termination of this Agreement and the payment in full of the Note and all other amounts payable hereunder.

Section 4.8.            Reduction or Termination of the Commitment.  Borrower may at any time or from time to time reduce or terminate the Revolving Commitment or the Letter of Credit Commitment by giving not less than three (3) full Business Days’ prior written notice to such effect to Lender; provided, that any partial reduction shall be in an amount of not less than $500,000 or an integral multiple of $100,000 in excess thereof; and provided further, however, that no partial reduction shall reduce the aggregate amount of the Revolving Commitment or the Letter of Credit Commitment to an amount greater than zero and less than $1,000,000.  Promptly after Lender’s receipt of such notice of reduction, such reduction shall be effective on the date specified in the notice from Borrower with respect to such reduction.  The Revolving Commitment shall automatically terminate on the earlier of the Maturity Date or upon the acceleration of the maturity date of the Note.  The Letter of Credit Commitment shall automatically terminate on the earlier of the Letter of Credit Expiration Date or upon the acceleration of the maturity date of the Note.  Each reduction of the Revolving Commitment or the Letter of Credit Commitment hereunder shall be irrevocable.

Section 4.9.            Payments on Business Day.  Whenever any payment or prepayment hereunder or under the Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest; provided, however, if such extension would cause payment of interest on or principal of LIBOR Rate Portions to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

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ARTICLE V

COMMITMENT FEE AND OTHER FEES

Section 5.1.           Commitment Fees.

(a)           Upfront Commitment Fee.  Borrower agrees to pay to Lender, on the Closing Date, an upfront commitment fee in respect of the Revolving Commitment of in the amount of $25,000.

(b)           Unused Commitment Fee. Borrower agrees to pay to Lender a fee at a per annum rate equal to 15 basis points on the daily unused portion of the Revolving Commitment from the date hereof to and including the Maturity Date, payable in arrears at the end of each calendar quarter hereafter and on the Maturity Date (the amount of the Letter of Credit Exposure for Letters of Credit issued under the Revolving Commitment at any time shall reduce the unused portion of the Revolving Commitment for the purpose of calculating the fee under this Section 5.1(b)). Borrower may permanently reduce the Commitment in whole, or in part, pursuant to Section 4.8, provided, however, that the amount of the Revolving Commitment may not be reduced below the principal amount of the outstanding Advances and Letter of Credit Exposure.  All accrued fees under this Section 5.1(b) shall be payable on the effective date of any termination of the obligations of Lender to make Advances hereunder.

(c)           Letter of Credit Fees.  Borrower shall pay to Lender a letter of credit fee  at a per annum rate equal to: (i) the Letter of Credit Margin on the average daily Letter of Credit Exposure under the Letter of Credit Commitment, and (ii) the Revolving LC Margin on the average daily Letter of Credit Exposure under the Revolving Commitment.  Such fee shall be payable in arrears payable at the end of each calendar quarter hereafter and on the Maturity Date.  Borrower shall also pay to Lender at the time of issuance of each Letter of Credit and in connection with any re-issuance or draws thereunder, issuance fees and documentary charges in accordance with Lender’s standard schedule for such charges as in effect from time to time.

Section 5.2.            Fees Not Interest; Nonpayment.  The fees described in this Agreement represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention, or forbearance of money, and, subject to Section 11.12, the obligation of Borrower to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of Borrower to pay interest, other fees described in this Agreement, and expenses otherwise described in this Agreement.  Fees shall be payable when due in Dollars and in immediately available funds.  Subject to Section 11.12 hereof, all fees, including, without limitation, the fees referred to in Section 5.1 and any other fees payable pursuant to this Agreement, shall be non-refundable, and shall, to the fullest extent permitted by Governmental Regulation, bear interest, if not paid when due, at a rate per annum equal to the lesser of (a) 3% above the Base Rate or (b) the Highest Lawful Rate.

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ARTICLE VI

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants that:

Section 6.1.            Organization and Qualification; Subsidiaries.  Borrower is (i) duly organized, validly existing and in good standing under the laws of the state of its organization and has full legal right, power and authority to carry on its business as presently conducted and to execute, deliver and perform its obligations under this Agreement and all other Loan Documents executed by it, and (ii) is duly qualified to do business and in good standing in each jurisdiction in which the nature of the business it conducts in such jurisdiction makes such qualification necessary or desirable except where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect.  As of the Closing Date, Borrower does not own any Subsidiary.  Borrower owns all of the issued and outstanding stock of such Subsidiaries and there are no outstanding warrants or requirements of any type for the issuance of additional shares in such Subsidiaries.

Section 6.2.            Authorization.  Borrower’s execution, delivery and performance of the Loan Documents (i) have been duly authorized by all necessary action under such Person’s organizational documents and otherwise, (ii) do not and will not require any consent of any other person or entity, and (iii) do not and will not require any consent, license, permit authorization or other approval (including foreign exchange approvals) of any Governmental Authority, or any notice to, exemption by, any registration, declaration or filing with or the filing of any other action in respect of any Governmental Requirement.

Section 6.3.            No Conflicts.  Neither execution or delivery by Borrower of any Loan Document nor the fulfillment of or compliance with its terms and provisions will (i) violate any Governmental Requirement of any Governmental Authority or the basic organizational documents of such Person or (ii) conflict with or result in a breach of the terms, conditions or provisions of, or cause a default under, any material agreement, instrument, franchise,  license or concession to which such Person is a party or bound.

Section 6.4.            Enforceability.  Each Loan Document to which Borrower is a party has been duly and validly executed, issued and delivered by Borrower.  They are in proper legal form for prompt enforcement and they are Borrower’s valid and legally binding obligations enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance, reorganization, moratorium, or other similar laws at the time in effect affecting the rights of creditors generally.  Borrower’s obligations under the Loan Documents rank and will rank at least equal in priority of payment with all of Borrower’s other debt.

Section 6.5.            Accuracy of Information; No Material Adverse Change.  All information supplied to Lender and all statements made to Lender by or on behalf of Borrower in connection with this Agreement are and will be true, correct, complete, valid and genuine in all material respects.  Each of Borrower’s financial statements furnished to Lender pursuant to Section 7.1 of this Agreement fairly presents the financial condition and results of operations of Borrower as of its date and for the period then ended.  There has been no material adverse change in the financial condition or results of operations of Borrower since the last financial statements delivered by Borrower pursuant to Section 7.1(c) or 8.1, as applicable, and all assets listed on the last such statement so delivered are subject to Borrower’s management control and disposition and, except as shown therein, are available to satisfy any claim rightfully made pursuant to the Loan Documents executed by Borrower.

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Section 6.6.            Taxes.  Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due by the due date or extension thereof, including interest and penalties, except for taxes being diligently contested in good faith and for payment of which adequate reserves have been set aside.

Section 6.7.            Litigation and Other Proceedings.  There is no condemnation or other action, suit or proceeding pending or, to the best of Borrower’s knowledge, threatened against or affecting Borrower or any Collateral, at law or in equity, or before or by any Governmental Authority, which could reasonably be expected to result in any material adverse change in Borrower’s business or financial condition or in any Collateral or in other material property of Borrower or any interest in it.

Section 6.8.            No Defaults.  Borrower is not in default with respect to the payment of any debt for borrowed money which has an outstanding balance in excess of $100,000 or under any agreement or other papers evidencing or securing any such debt, which has not been waived, or with respect to any Governmental Requirement  under circumstances in which any such default could reasonably be expected to have a Material Adverse Effect, except in connection with the matters described or to which reference is made in Section 6.7.

Section 6.9.            Solvency.  Borrower is solvent and no bankruptcy or insolvency proceedings are pending or contemplated by or, to Borrower’s knowledge, against Borrower or any Guarantor.  After giving effect to the limitations on liability contained in the Guaranty and to the rights and obligations of the Borrower under the Contribution Agreements, Borrower’s liabilities and obligations under this Agreement and the other Loan Documents do not and will not render Borrower insolvent, cause Borrower’s liabilities to exceed Borrower’s assets or leave Borrower with too little capital to properly conduct all of its business as now conducted or contemplated to be conducted.

Section 6.10.          Representations and Warranties.  No representation or warranty contained in any Loan Document executed by Borrower or any then existing Subsidiary and, as of the date such statement is dated or certified, no statement contained in any certificate, schedule, list, financial statement or other papers furnished to Lender by or on behalf of Borrower contains or will contain any untrue statement of material fact, or omits or will omit to state a material fact necessary to make the statements contained therein not misleading, provided that, insofar as the foregoing representation and warranty addresses information provided to Borrower or any Subsidiary by customers, such representation and warranty is based solely upon investigation made by Borrower or any such Subsidiary in the normal course of business.

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Section 6.11.          Margin Regulations.  None of the proceeds of the Loan will be used for the purpose of purchasing or carrying, directly or indirectly, any margin stock or for any other purpose which would make such credit a “purpose credit” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System.

Section 6.12.           Licenses, Permits, Trademarks, etc.  Borrower possesses all material permits, licenses, patents, trademarks, trade names and copyrights required to conduct its business.

Section 6.13.          Compliance with Governmental Requirements.  Borrower and the property of Borrower covered by the Loan Documents are in compliance with all Governmental Requirements, except where the failure to comply with the same could not reasonably be expected to have a Material Adverse Effect, and Borrower manages and operates (and will continue to manage and operate) its business in accordance with good industry practices.

Section 6.14.          ERISA.  No event has occurred which could result in liability on Borrower to the Pension Benefit Guaranty Corporation (“PBGC”).  Borrower has met all requirements with respect to funding of each plan (a “Plan”) maintained for any of Borrower’s employees subject to Title IV of the Employee Retirement Benefit Act of 1974, as amended, and related regulations (“ERISA”), if any exists.  No event or condition has occurred that would permit any lien under ERISA to attach to any of the collateral for Borrower’s obligations in connection herewith.

Section 6.15.          Title to Properties.  Borrower has good, sufficient and legal title to, or valid leasehold interest in, all of the assets listed on its balance sheet, subject to no Liens except those permitted in Section 9.2.

Section 6.16.          Burdensome Contracts.  Borrower is not a party to any contract or agreement or subject to any restriction the performance of or the compliance with which could reasonably be expected to have a Material Adverse Effect.

ARTICLE VII

CONDITIONS

Section 7.1.            Conditions to Initial Advance.  Lender will not be obligated to make the initial Advance or issue any Letter of Credit hereunder unless all of the following conditions shall be satisfied at the time of such Advance or issuance:

(a)           Approvals.  Prior to the Closing Date, Borrower shall have obtained all orders, approvals or consents of all Persons required for the execution, delivery and performance by Borrower of the Loan Documents to which each such Person is a party.

(b)           Compliance with Law.  The business and operations of Borrower as conducted at all times relevant to the transactions contemplated by this Agreement to and including the close of business on the Closing Date shall have been and shall be in compliance (other than any failure to be in compliance that does not result in a Material Adverse Effect) with all applicable Governmental Regulations.  No Governmental Regulation shall prohibit the transactions contemplated by the Loan Documents, no order, judgment or decree of any Governmental Authority shall exist, and no litigation shall be pending or, to the best knowledge of Borrower, threatened, which in the judgment of Lender (A) would enjoin, prohibit or restrain the transactions contemplated by the Loan Documents or (B) could reasonably be expected to have a Material Adverse Effect.

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(c)           Financial Statements.  On the Closing Date, Lender shall have received and reviewed: (i) internally prepared, consolidated financial statements of Borrower as of December 31, 2007; (ii) a company prepared, consolidated financial projection for Borrower for the 2008 calendar year; and (iii) a certificate dated the Closing Date of the chief financial officer or the treasurer of Borrower certifying that the financial position of Borrower as of the Closing Date is not materially different from that presented in the December 31, 2007 consolidated balance sheet of Borrower attached to such certificate.

(d)           Insurance.  Lender shall have received evidence satisfactory to it of the existence of all insurance policies required by the Loan Documents, such policies designating Lender as the loss payee, providing for the giving of at least thirty (30) days’ notice to Lender of cancellation or material modification thereof, and otherwise complying with the provisions of Section 8.11. Lender shall have received such agreements, guaranties, subordinations (as to payment liens and security interests or both), releases and other agreements and assurances from other creditors of Borrower as Lender shall reasonably require.

(e)           Payment of Fees and Expenses.  Lender shall have received payment of (i) all fees described in Section 5 hereof and (ii) without limiting the obligations of Borrower under Section 11.2, the reasonable expenses of, or incurred by, Lender and its counsel, to the extent billed as of the Closing Date, in connection with the negotiation and closing of the transactions contemplated herein.

(f)           Required Documents and Certificates.  On the Closing Date, Lender shall have received the following, in each case in form, scope and substance satisfactory to Lender:

(i)           the Note;

(ii)           the Security Agreements;

(iii)           an Officer’s Certificate from Borrower dated as of the Closing Date certifying, inter alia, (A) the Articles of Incorporation and Bylaws (or equivalent corporate documents), as amended and in effect, of Borrower and each Subsidiary; (B) resolutions duly adopted by the Board of Directors of Borrower and each Subsidiary authorizing the transactions contemplated by the Loan Documents to which it is a party; and (C) the incumbency and specimen signatures of the officers of Borrower authorized to execute documents on its behalf;

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(iv)           a certificate from the appropriate public official of the jurisdiction in which Borrower and each Subsidiary is organized as to the continued existence and good standing of Borrower and each Subsidiary;

(v)           a legal opinion in form, substance and scope reasonably satisfactory to Lender from counsel for, and issued upon the express instructions of, Borrower; and

(vi)           certified copies of Requests for Information of Copies (Form UCC-11), or equivalent reports, listing all effective financing statements which name Borrower or any Subsidiary (under its present name, any trade names and any previous names) as debtor and which are filed, together with copies of all such financing statements.

(g)           Field Exam/Audit.  Lender shall have performed to its satisfaction a field exam/audit of Borrower’s assets, including, without limitation, the Eligible Accounts Receivables.

Section 7.2.           Conditions to each Loan, Continuation or Conversion.  Lender will not be obligated to make, continue or convert any Advance or LIBOR Rate Portion (including its initial Advance) hereunder unless all of the following conditions shall be satisfied at the time of such Advance, continuation or conversion:

(a)           Representations and Warranties.  The representations and warranties made, or deemed made, in or pursuant to this Agreement and the other Loan Documents shall be true and correct as of the date of the contemplated Advance, continuation or conversion as though originally made on such date, and Lender shall have received a certificate from an Authorized Officer of Borrower certifying that: (i) the representations and warranties of Borrower and its Subsidiaries contained in the Loan Documents (other than those representations and warranties limited by their terms to a specific date) shall be true and correct on and as of the particular Borrowing Date or the applicable Conversion/Continuation Date, as though made on and as of such date; (ii) no Event of Default or Default has occurred and is continuing; and (iii) no event has occurred since the date of the most recent financial statements delivered pursuant to Section 8.1(a), that has caused, or could reasonably be expected to cause, a Material Adverse Effect.

(b)           No Default.  No Event of Default or Default shall have occurred and be continuing.

(c)           Borrowing Documents.  On each Borrowing Date, Lender shall have received a Notice of Borrowing delivered in accordance with Section 2.2 and any necessary report or representation required to be delivered by Borrower subsequent to the Closing Date pursuant to Section 7.1(f) or Section 8.1(c), as the case may be.  Prior to the issuance of any Letter of  Credit, Lender shall have received an LOC Application as required by this Agreement.

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(d)           Conversion/Continuation Documents. On each Conversion/Continuation Date, Lender shall have received a Notice of Rate Change/Continuation and any documents or representations necessary to facilitate such action.

(e)           Security for the Loan.  Each Subsidiary, if any, shall have executed and delivered to Lender a Guaranty and a Contribution Agreement and Borrower and such Subsidiary shall have executed and delivered to Lender, and filed where appropriate, all security agreements, pledge agreements, financing statements and other documents, instruments and agreements so as to create in favor of Lender a first priority lien on all of the assets of Borrower and its Subsidiaries as collateral for the Obligations.

(f)           Other Documentation and Information.  Lender shall have received such other evidence, documentation and information as Lender may reasonably request.

Section 7.3.            Post-Closing Requirements.  As soon as possible, and in any event within thirty (30) days of the Closing Date, Borrower shall deliver to Lender

(a)           a Mortgage granting to Lender a first and prior lien on Borrower’s real property located in Lubbock, Texas, Longview, Texas, Dayton, Ohio, Yarmouth, Maine, and Bangor, Maine, and shall deliver to Lender, upon request, such title insurance policies, surveys, environmental reports and other property specific information requested by Lender in connection therewith;

(b)           a certificate from the appropriate public official of each jurisdiction in which Borrower is authorized and qualified to do business as to the due qualification and good standing of Borrower unless failure is not reasonably likely to have a Material Adverse Effect;

ARTICLE VIII

AFFIRMATIVE COVENANTS

Borrower covenants and agrees that, so long as Borrower may obtain Advances or issuances of Letters of Credit under this Agreement and until payment in full of the Obligations and termination of the Revolving Commitment and the Letter of Credit Commitment, Borrower will and will cause each Subsidiary, if any, to:

Section 8.1.            Financial Statements and Information.  Furnish or cause to be furnished to Lender a copy of each of the following within the times indicated:

(a)           as soon as available and in any event no later than one hundred twenty (120) days after the end of each fiscal year of Borrower, (i) annual audited consolidated financial statements for Borrower, and all notes thereto, including a balance sheet and statements of income, retained earnings and cash flows for such fiscal year and the immediately preceding fiscal year in comparative form, all prepared in conformity with GAAP on a consolidated basis and accompanied by a report and opinion of Ernst & Young LLP or other firm of independent certified public accountants satisfactory to Lender stating that such accountants have conducted audits of such financial statements in accordance with generally accepted auditing standards and that, in their opinion, such financial statements present fairly, in all material respects, Borrower’s financial position as of their date and the results of Borrower’s operations and cash flows for the period they covered in conformity with GAAP, (ii) copies of the internally prepared consolidating balance sheets and statements of income of Borrower and its Subsidiaries utilized in the preparation of the consolidated financial statements of Borrower furnished to Lender pursuant to clause (i) preceding and certified on behalf of Borrower by an appropriate officer or other responsible party acceptable to Lender, and (iii) a Compliance Certificate substantially in the form of Exhibit D;

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(b)           as soon as available and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of Borrower, (i), unaudited consolidated financial statements for Borrower, including a balance sheet as at the close of such quarter and an income statement and statement of cash flows for such quarter, all prepared in accordance with GAAP on a consolidated basis and certified on behalf of Borrower by an appropriate officer or other responsible party acceptable to Lender, and (ii) a Compliance Certificate substantially in the form of Exhibit D;

(c)           as soon as available and in any event within 30 calendar days after the end of each fiscal quarter, a complete aging of all accounts receivable by Borrower;

(d)           promptly following the discovery thereof, information in reasonable detail correcting any information provided to Lender in reliance upon information from a customer of Borrower which Borrower discovers to be inaccurate or misleading in any material respect;

(e)           promptly upon the filing thereof, copies of all registration statements, and annual, quarterly, monthly or other regular reports filed by or on behalf of Borrower or any of its Subsidiaries with the Securities and Exchange Commission; and

(f)           such other information relating to Borrower’s or any Subsidiary’s financial condition and affairs as Lender may from time to time reasonably request or as may be required from time to time by any Loan Document.

Section 8.2.            Maintenance of Existence and Good Standing.  Maintain its existence and obtain and maintain all franchises and permits necessary for Borrower and each Subsidiary continuously to be in good standing in the state of its organization with full power and authority to conduct its regular business and to own and operate its property.

Section 8.3.            Compliance With Governmental Requirements.  Conduct its business in substantial compliance with all Governmental Requirements and will comply with and punctually perform all of the covenants, agreements and obligations imposed upon it to the extent any failure to so comply could reasonably be expected to have a Material Adverse Effect or cause any representation or warranty in the Loan Documents to be false or misleading in any material respect.

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Section 8.4.            Payment of Obligations.  Pay punctually and discharge when due, or renew or extend, any debt incurred by it equal to or exceeding $100,000 and will discharge, perform and observe the covenants, provisions and conditions to be performed, discharged and observed on its part in connection therewith or in connection with any agreement or other instrument relating thereto or in connection with any mortgage, pledge or lien existing at any time upon any of the property or assets of Borrower securing the payment thereof, provided, however, that nothing contained in this Section 8.4 shall require Borrower to pay, discharge, renew or extend any such indebtedness or to discharge, perform or observe any such covenants, provisions and conditions so long as Borrower shall be diligently and in good faith contesting any claims which may be asserted against it with respect to any such indebtedness or any such covenants, provisions and conditions and shall set aside on its books reserves with respect thereto deemed adequate by Lender.

Section 8.5.            Notification of Material Adverse Change.  Promptly upon acquiring knowledge of any material adverse change in its assets, liabilities, financial condition, business, operations, affairs or circumstances, notify Lender in writing thereof, setting forth the nature of such change in reasonable detail and will take or cause to be taken all such steps as are necessary or appropriate to remedy promptly any such change.

Section 8.6.             Notification of Defaults.  Promptly upon acquiring knowledge thereof, notify Lender by telephone (and confirm such notice in writing within five (5) days) of the existence of any Default or Event of Default hereunder or of any default or event of default (however denominated) under any of the Loan Documents, or under the loan papers evidencing and/or securing any other Debt, specifying the nature and duration thereof and what action Borrower has taken, is taking and proposes to take with respect thereto.  In no event shall silence by Lender be deemed a waiver by it of a Default or an Event of Default.  Borrower will take all such steps as are necessary or appropriate to remedy promptly any such Default or Event of Default

Section 8.7.             Notification of Exchange Act Filings.  Promptly upon acquiring knowledge of the filing with the Securities and Exchange Commission of any Schedule 13D, 13G, or 14D-1 with respect to the acquisition of, or a tender offer with respect to, the capital stock of Borrower, furnish a copy of such filing to Lender.

Section 8.8.             Notification of Proceedings Affecting Collateral.  Immediately upon obtaining knowledge of the institution of any proceedings for the condemnation of the Collateral covered by the Loan Documents, the real property described in Section 7.2(e) or any material portion thereof, or any other legal proceedings arising out of injury or damage to the Collateral covered by the Loan Documents, the real property described in Section 7.2(e) or any material portion thereof, notify Lender in writing of the pendency of such proceedings.  Lender may (but shall not be required to) participate in any such proceedings, and Borrower or the applicable Subsidiary shall from time to time deliver to Lender all instruments requested by it to permit such participation.  Borrower or the applicable Subsidiary shall, at its expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceeding.

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Section 8.9.             Additional Information.  Furnish to Lender from time to time, within ten (10) days after Lender’s request thereof, such information relating to the Collateral or Borrower’s or any Subsidiary’s financial condition and affairs as Lender may from time to time request or as may be required from time to time by any Loan Document.

Section 8.10.           Books and Records.  At all times maintain proper books of record and account in accordance with sound accounting practice in which true, full and correct entries will be made of all its dealings and business affairs, and will set aside on its books adequate reserves for depletion, depreciation, obsolescence and/or amortization of its property, and all other reserves which, in accordance with sound accounting practice, should be set aside, and will write down, to the estimated salvage value thereof, all property not useful in its business.  Lender shall be entitled to have such books examined and audited, at the expense of Borrower, at any time (but, except during the continuance of a Default, not more than once in any fiscal quarter of Borrower) by representatives of Lender.

Section 8.11.           Insurance.  At all times maintain insurance with insurance companies rated acceptably to Lender or otherwise acceptable to Lender, in such amounts and against such risks as are satisfactory to Lender, including without limitation casualty and liability insurance complying with the loss payee and notice requirements specified in Section 7.1(d), and, in any event, as would be reasonably prudent for entities in the same or similar type and size of business and owning similar property in the same general area, and furnish to Lender, not less frequently than annually a certificate of insurance as to the insurance carried.  If Borrower or any Subsidiary shall at any time or times hereafter fail to obtain or maintain any of the policies of insurance required herein, or fail to pay any premium in whole or in part relating to such policies, Lender may, but shall not be obligated to, obtain or cause to be maintained insurance coverage, including at Lender’s option, the coverage provided by all or any of the policies of Borrower and its Subsidiaries and pay all or any part of the premium therefor, without waiving any default by Borrower, and any sums so disbursed by Lender shall be additional Advances to Borrower by Lender payable on demand.

Section 8.12.           Deposit Relationship. Except for demand depositary accounts maintained by Subsidiaries of Borrower for the purposes of facilitating deposits of collections in the ordinary course of business and of providing a source of daily petty cash requirements, Borrower will at all times during the term of this Agreement maintain, and cause its Subsidiaries (other than the Excluded Subsidiaries) to maintain, general operating accounts and day-to-day cash management accounts with Lender.

Section 8.13.           Collateral Audit.  Assist Lender with Lender’s audit of the Collateral, which audit or audits shall occur at Lender’s discretion.

ARTICLE IX

NEGATIVE COVENANTS

Borrower covenants and agrees that, so long as Borrower may obtain Advances or issuances of Letters of Credit under this Agreement and until payment in full of the Obligations, Borrower will not and will not permit any Subsidiary to, without obtaining the prior written consent of Lender:

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Section 9.1.            Debt.  Create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, or otherwise become or remain liable with respect to, any Debt, contingent or otherwise (including without limitation, any off balance sheet liabilities), except: (a) the Obligations; (b) Debt that is in the form of loans or advances from Borrower to any Guarantor or between Guarantors and that is not evidenced by promissory notes and, if requested by Lender, is expressly subordinated to the Note; (c) Subordinated Debt (i) existing on the date of this Agreement and described in Schedule 9.1 or (ii) incurred to make Permitted Acquisitions, provided that the aggregate amount of Subordinated Debt issued for such purpose shall not exceed $3,000,000 and shall relate only to Permitted Acquisitions made in the fiscal year in which it is counted; and (e) Debt existing on the date of this Agreement and described in Schedule 9.1.

Section 9.2.            Liens.  Create or suffer to be created or to exist any Lien excepting only (a) Liens in favor of Lender to secure the Obligations, (b) Liens subordinated to Liens in favor of Lender under terms acceptable to Lender in its sole discretion and to which Lender is a party, (c) Liens created by operation of law in the ordinary course of business for amounts not yet due (or being contested in good faith by appropriate proceedings or other appropriate actions which are sufficient to prevent enforcement of such Liens and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP), (d) Liens existing on the date of this Agreement and described in Schedule 9.2, (e) Liens securing Debt or Capital Leases permitted under Section 9.1(c), provided that no such Lien secures any Debt other than the Debt incurred in connection with the purchase or lease of the property subject thereto or encumbers any property (including the proceeds thereof) other than the property purchased or leased with the proceeds of the Debt secured thereby, (f)  Liens in the form of precautionary financing statements filed under the Uniform Commercial Code to reflect operating leases, (g) Liens in the form of zoning restrictions, restrictive covenants, rights of way, easements, licenses and other restrictions on the use of real property which do not materially impair the use of such real property in the ordinary operation of the business of Borrower or the applicable Subsidiary of Borrower utilizing the same, and (h) Liens in the form of purchase money security interests in favor of vendors from whom equipment is purchased in the ordinary course of business for resale to customers of Borrower or its Subsidiaries if (1) such Liens in favor of any vendor do not cover property other than equipment purchased from such vendor and (2) the Debt secured by such Liens is fully paid within 120 days after the creation thereof.

Section 9.3.            Organizational Documents.  Modify or amend its organization documents or suffer or permit a material modification or amendment to its organizational documents in any manner that reasonably could be expected to affect any rights of Lender under the Loan Documents or have a Material Adverse Effect.

Section 9.4.            No Subsidiaries.  Acquire or form any Subsidiary unless (a) such Subsidiary (i) is a wholly-owned Subsidiary, (ii) executes and delivers to Lender a Guaranty, (iii) enters into a Security Agreement in substantially the form of the Security Agreements executed by Subsidiaries on the Closing Date, and (iv) delivers such certificates, evidences of corporate action, financing statements, opinions of counsel and other documents as Lender may reasonably request and (b) Borrower or the appropriate Subsidiary executes a Pledge Agreement pledging to Lender the stock of such new Subsidiary, and delivers to Lender the applicable stock certificates and stock powers executed in blank, all of the items referred to in (a) and (b) above to be in form and substance reasonably satisfactory to Lender, in each case not later than 10 days after the acquisition or formation of such Subsidiary.

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Section 9.5.            Dividends.  Declare or pay any Distributions, except dividends declared and paid by any Guarantor to Borrower and Permitted Distributions.

Section 9.6.            Acquisitions. Make any Acquisition other than a Permitted Acquisition.

Section 9.7.            Mergers, Consolidations, etc. (a) Merge or consolidate with or into any other Person, (b) convey, transfer or otherwise dispose of all or substantially all of its assets to any Person, or (c) adopt or effect any plan of reorganization, recapitalization, liquidation or dissolution, except that (i) a Subsidiary of Borrower may be a party to any merger or consolidation that constitutes an Acquisition permitted by Section 9.6, provided that such Subsidiary shall be the survivor of any such merger or consolidation, (ii) any Guarantor may merge into or consolidate with Borrower (if Borrower is the survivor of any such merger or consolidation), and (iii) any Guarantor may merge into or consolidate with any other Guarantor.

Section 9.8.            Change of Name. Change its name without first notifying Lender in writing of such change at least thirty (30) days before its effective date.

Section 9.9.            Financial Covenants.  Permit:

(a)           On a consolidated basis as of the last day of any fiscal quarter, the ratio of Funded Debt to EBITDA less Capital Expenditures (excluding such Capital Expenditures identified on Schedule II) and less cash paid for Taxes for the preceding four fiscal quarters then ended to be greater than 2.0:1.0.

(b)           On a consolidated basis as of the last day of any fiscal quarter, the Fixed Charge Coverage for the preceding four fiscal quarters then ended to be less than 2.0:1.0.

Section 9.10.          Investments. Make or permit to remain outstanding any Investment other than Permitted Investments.

Section 9.11.         Subordinated Debt; Seller Note.  Permit any amendment or modification to the documents evidencing or governing any Subordinated Debt permitted by Section 9.1(d), or, directly or indirectly, voluntarily prepay, defease or in substance defease, purchase, redeem, retire, or otherwise acquire any such Subordinated Debt, or make any principal payment on the Subordinated Debt prior to payment in full of the Obligations and the termination of the Revolving Commitment.

Section 9.12.          Character of Business.  Change the general character of its business as conducted on the Closing Date, or engage in any type of business not reasonably related to its business as presently conducted.

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ARTICLE X

EVENTS OF DEFAULT; REMEDIES

Section 10.1.          Events of Default.  The occurrence of any of the following events shall constitute an “Event of Default” (herein so called) under this Agreement:

(a)           Borrower (i) shall fail to pay when due any payment or prepayment of the principal of the Note or (ii) shall fail to pay when due any interest on the Note or any other monetary amount due under this Agreement or any other Loan Document and such failure shall not have been cured within five (5) Business Days;

(b)           (i) any covenant contained in Sections 8.1, 8.2, 8.5, 8.6, 8.9, or Article IX of this Agreement is not fully and timely performed, observed or kept in all material respects or (ii) any other covenant, agreement or condition contained in this Agreement or in any other Loan Document is not fully and timely performed, observed or kept in all material respects and such failure or breach is not cured within thirty (30) days following the earlier of knowledge of such failure or breach by Borrower or the receipt by Borrower of written notice thereof from Lender;

(c)           any representation, warranty, certification or statement made or deemed to have been made by Borrower or any Subsidiary in this Agreement or by Borrower or any other Person in any certificate, financial statement or other document delivered pursuant to this Agreement, including, without limitation, any other Loan Document, shall prove to have been incorrect in any material respect when made;

(d)           any event or condition shall occur and continue unremedied or unwaived for a period beyond any applicable cure period provided pursuant to the terms of any Debt of Borrower or any Subsidiary in excess of $500,000, which entitles (or, with the giving of notice or lapse of time or both, would entitle) the holder of any such Debt to accelerate the maturity thereof;

(e)           Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(f)           an involuntary case or other proceeding shall be commenced against Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect;

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(g)           one or more final judgments or orders for the payment of money in an aggregate amount outstanding at any time in excess of $1,000,000 shall be rendered against Borrower or any Subsidiary and such judgment or order (i) shall continue unsatisfied and unstayed (unless bonded with a supersedeas bond at least equal to such judgment or order) for a period of thirty (30) days or (ii) is not fully paid and satisfied at least ten  days prior to the date on which any of its assets may be lawfully sold to satisfy such judgment or order;

(h)           one  or more judgments or orders for the payment of money shall be rendered against Borrower or any Subsidiary, whether or not otherwise bonded or stayed, which has a Material Adverse Effect; or

(i)            the sale, pledge, encumbrance, assignment or transfer, voluntarily or involuntarily, of any equity interest in any Guarantor, without the prior written consent of Lender.

Section 10.2.          Remedies.  If any of the Events of Default specified in Section 10.1 shall occur, then (a) Lender shall be entitled (i) by notice to Borrower, to declare the commitments and the obligation to make Advances or issue Letters of Credit hereunder to be terminated, whereupon the same shall forthwith terminate, and (ii) to declare the Note and all interest accrued and unpaid thereon, and all other amounts payable under the Note, this Agreement, and the other Loan Documents, to be forthwith due and payable, whereupon the notes, all such interest and all such other amounts, shall become and be forthwith due and payable without presentment, demand, protest, or further notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by Borrower, and (b) Lender may avail itself of any and all powers, rights and remedies available at law or provided in this Agreement, the Note, the other Loan Documents or any other document executed pursuant hereto or in connection herewith; provided, however, that with respect to any Event of Default described in Section 10.1(e) or 10.1(f), (x) the Revolving Commitment and Letter of Credit Commitment and the obligation of Lender to make Advances or issue Letters of Credit hereunder shall automatically be terminated and (y) the entire unpaid principal amount of the Note, all interest accrued and unpaid thereon and all such other amounts payable under the Note, this Agreement and the other Loan Documents, shall automatically become immediately due and payable, without presentment, demand, protest, or any notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by Borrower.

Section 10.3.          Certain Other Remedial Matters. Upon the occurrence of any Event of Default, Lender shall also have the right immediately and without notice, to take possession of and exercise possessory rights with regard to any property securing payment of the Obligations.  All powers, rights and remedies of Lender set forth in this Article X shall be cumulative and not exclusive of any other power, right or remedy available to Lender under any Governmental Requirement or under this Agreement, the Note, the other Loan Documents or any other document executed pursuant hereto or in connection herewith to enforce the performance or observance of the covenants and agreements contained in this Agreement and the other Loan Documents, and no delay or omission of Lender to exercise any power, right or remedy shall impair any such power, right or remedy, or shall be construed to be a waiver of the right to exercise any such power, right or remedy.  Every power, right or remedy of Lender set forth in this Agreement, the Note, the other Loan Documents or any other document executed pursuant hereto or in connection herewith, or afforded by Governmental Requirement may be exercised from time to time, and as often as may be deemed expedient by Lender.

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ARTICLE XI

MISCELLANEOUS

Section 11.1.          Waivers, Etc.  No failure or delay on the part of Lender in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  No course of dealing between Borrower and Lender shall operate as a waiver of any right of Lender.  No modification or waiver of any provision of this Agreement,  the Note or any other Loan Document nor consent to any departure by Borrower therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances.

Section 11.2.           Reimbursement of Expenses.  Whether or not the transactions contemplated by this Agreement shall be consummated, Borrower agrees to reimburse, within ten (10) days after written demand therefor, (a) Lender for its out-of-pocket expenses, including the reasonable fees and expenses of counsel to Lender, in connection with such transactions, or any of them, or otherwise in connection with this Agreement or any other Loan Document, including, without limitation, the negotiation, preparation, execution, administration, modification and enforcement of this Agreement or any other Loan Document and all fees, including the reasonable fees and expenses of counsel to Lender, costs and expenses of Lender in connection with audits, due diligence, transportation, computer, duplication, consultants, search reports, all filing and recording fees, appraisals, insurance, environmental inspection fees, survey fees and escrow fees, and (b) Lender for its out-of-pocket expenses, including the reasonable fees and expenses of its counsel, in connection with the enforcement of this Agreement or any other Loan Document.

Section 11.3.           Venue.  BORROWER AND LENDER AGREE THAT DALLAS COUNTY, TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY BORROWER OR LENDER, WHETHER IN CONTRACT, TORT OR OTHERWISE.  ANY ACTION OR PROCEEDING AGAINST BORROWER MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW.  TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION BORROWER MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM.  BORROWER AGREES THAT SERVICE OF PROCESS UPON BORROWER MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT BORROWER’S ADDRESSES SPECIFIED IN SECTION 11.4.  LENDER MAY SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR WITH RESPECT TO ANY OF BORROWER’S PROPERTIES IN COURTS IN OTHER PROPER JURISDICTIONS OR VENUES.

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Section 11.4.                Notices.  All notices and other communications provided for herein shall be in writing (including telex, facsimile, or cable communication) and shall be mailed, couriered, telecopied, telexed, cabled or delivered addressed as follows:

If to Borrower, to it at:

5949 Sherry Lane, Suite 1400

Dallas, Texas 75225

Attention:  Treasurer

Telephone: 972-713-3700

Fax: 972-713-3741

If to Lender, to it at:

Bank of Texas, N.A.

5956 Sherry Lane, Suite 1100

Dallas, Texas 75225

Attention:  Ryan Suchala

Telephone:  (214) 987-8876

Fax:  (214) 987-8892

or as to Borrower or Lender, to such other address as shall be designated by such party in a written notice to the other parties.  All such notices and communications shall, when mailed, delivered by courier, telecopied, telexed, transmitted, or cabled, become effective when three (3) Business Days have elapsed after being deposited in the mail (with first class postage prepaid and addressed as aforesaid), or when confirmed by telex answerback, transmitted to the correct telecopier, or delivered to the courier or the cable company, except that notices and communications from Borrower to Lender shall not be effective until actually received by Lender.

Section 11.5.               GOVERNING LAW.  EACH LOAN DOCUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA.

Section 11.6.               Survival of Representations, Warranties and Covenants. All representations, warranties and covenants contained herein or in the other Loan Documents or made in writing by Borrower or any Subsidiary in connection herewith or therewith shall survive the execution and delivery of this Agreement and the Note, and will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not, provided that the undertaking of Lender to make Advances to, or issue Letters of Credit for, Borrower shall not inure to the benefit of any successor or assign of Borrower.  No investigation at any time made by or on behalf of Lender shall diminish Lender’s right to rely thereon.

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Section 11.7.               Counterparts; Execution by Facsimile Transmission. This Agreement may be executed in several counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument.  The method of execution of each Loan Document may be by means of facsimile transmission, and delivery of such a facsimile transmission shall be deemed an original for purposes hereof, and each party so delivering a facsimile transmission shall promptly thereafter deliver the original version thereof.

Section 11.8.               Separability. Should any clause, sentence, paragraph or section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. Each covenant contained in this Agreement shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants.

Section 11.9.               Descriptive Headings.  The section headings in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatsoever in construing the terms and provisions of this Agreement.

Section 11.10.              Setoff.  Borrower, for itself and its Subsidiaries, hereby gives and confirms to Lender a right of setoff of all moneys, securities and other property of Borrower or any Subsidiary and the proceeds thereof, now or hereafter delivered to remain with or in transit in any manner to Lender, its correspondents or its agents from or for Borrower or any Subsidiary, whether for safekeeping, custody, pledge, transmission, collection or otherwise or coming into possession of Lender in any way, and also, any balance of any deposit accounts and credits of Borrower or any Subsidiary with, and any and all claims of security for the payment of the Note and of all other liabilities and obligations now or hereafter owed by Borrower or any Subsidiary to Lender, contracted with or acquired by Lender, whether such liabilities and obligations be joint, several, absolute, contingent, secured, unsecured, matured or unmatured, and Borrower, for itself and its Subsidiaries, hereby authorizes Lender at any time or times, while there is then continuing an Event of Default without prior notice, to apply such money, securities, other property, proceeds, balances, credits of claims, or any part of the foregoing, to any or all of the Obligations now or hereafter existing, whether such Obligations be contingent, unmatured or otherwise, and whether any collateral security therefor is deemed adequate or not.  The rights described herein shall be in addition to any collateral security described in any separate agreement executed by Borrower.

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Section 11.11.        Successors and Assigns; Participations.

(a)           All covenants, promises and agreements by or on behalf of Borrower, its Subsidiaries or Lender contained in this Agreement and the other Loan Documents shall bind and inure to the benefit of their respective successors and permitted assigns.  Neither Borrower nor any Subsidiary may assign or transfer any of its rights or obligations under the Loan Documents without the prior written consent of Lender, except in connection with the consummation of a transaction permitted under Section 9.7.

(b)           Lender may sell participations to one or more banks or other financial institutions in all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of any of its Commitment, the Loan and the Obligations of Borrower owing to it and the Note held by it).

(c)           Notwithstanding any other provision herein, Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 11.11, disclose to the assignee or participant or proposed assignee or participant, any information relating to Borrower or any Subsidiary furnished to Lender by or on behalf of Borrower or any Subsidiary.

Section 11.12.        Interest.  All agreements between Borrower and Lender, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made on the Note or otherwise, shall the amount contracted for, charged, reserved or received by Lender for the use, forbearance, or detention of the money to be loaned under this Agreement or otherwise or for the payment or performance of any covenant or obligation contained herein or in any other Loan Document exceed the Highest Lawful Rate.  If, as a result of any circumstances whatsoever, fulfillment by Borrower of any provision hereof or of any of such documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable usury law or result in Lender having or being deemed to have contracted for, charged, reserved or received interest (or amounts deemed to be interest) in excess of the maximum lawful rate or amount of interest allowed by applicable law to be so contracted for, charged, reserved or received by Lender, then, ipso facto, the obligation to be fulfilled by Borrower shall be reduced to the limit of such validity, and if, from any such circumstance, Lender shall ever receive interest or anything which might be deemed interest under applicable law which would exceed the Highest Lawful Rate, such amount which would be excessive interest shall be refunded to Borrower, or, to the extent (i) permitted by applicable law and (ii) such excessive interest does not exceed the unpaid principal balance of the Note and the amounts owing on other Obligations of Borrower to Lender under any Loan Document, applied to the reduction of the principal amount owing on account of the Note or the amounts owing on other Obligations of Borrower to Lender under any Loan Document and not to the payment of interest.  All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the indebtedness of Borrower to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full of the principal thereof (including the period of any renewal or extension thereof) so that the interest on account of such indebtedness shall not exceed the Highest Lawful Rate.  The terms and provisions of this Section 11.12 shall control and supersede every other provision hereof and of all other agreements between Borrower and Lender.  Borrower and Lender agree that Chapter 15 of the Texas Credit Code shall not apply to this Agreement, the Note, the Loan or the Commitment.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

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Section 11.13.        Indemnification.  Borrower agrees:

(a)           TO INDEMNIFY LENDER AND ITS AFFILIATES AND EACH OF ITS OFFICERS, DIRECTORS, EMPLOYEES, SHAREHOLDERS, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS (“INDEMNIFIED PARTIES”) FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY BORROWER OF THE PROCEEDS OF THE LOAN, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATION OF THE BUSINESS OF BORROWER OR THE SUBSIDIARIES, (IV) THE FAILURE OF BORROWER OR ANY OF THE SUBSIDIARIES TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT OR WITH ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF BORROWER OR ANY OF THE SUBSIDIARIES SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) ANY ASSERTION THAT LENDER WAS NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE LOAN DOCUMENTS OR (VII) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATIONS OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE NEGLIGENCE OF ANY INDEMNIFIED PARTY (EXCEPT AS TO THE EXTENT ANY SUCH INDEMNITY MATTERS HAVE BEEN CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, IT BEING THE INTENT OF THE PARTIES THAT EACH INDEMNIFIED PARTY SHALL BE INDEMNIFIED FROM INDEMNITY MATTERS CAUSED BY THE NEGLIGENCE, WHETHER SOLE, JOINT, CONCURRENT, CONTRIBUTORY, ACTIVE OR PASSIVE, OF SUCH INDEMNIFIED PARTY), PROVIDED, HOWEVER, THAT THE PROVISIONS OF THIS SECTION 11.13(a) SHALL NOT BE APPLICABLE TO ANY ACTION INITIATED BY BORROWER AGAINST LENDER FOR BREACH OF CONTRACTUAL OBLIGATION CONTAINED IN ANY OF THE LOAN DOCUMENTS IN WHICH BORROWER IS THE PREVAILING PARTY; AND

(b)           TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO BORROWER, THE SUBSIDIARIES, OR ANY OF THEIR PROPERTIES, INCLUDING, WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO BORROWER OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY BORROWER OR ANY SUBSIDIARY OF ANY OF ITS PROPERTIES OR PAST ACTIVITY ON ANY OF ITS PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY BORROWER OR ANY SUBSIDIARY OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE BUSINESS OF BORROWER OR ANY SUBSIDIARY.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

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(c)           Borrower’s obligations under this Section 11.13 shall survive the termination of this Agreement and the payment in full of the Note and all other amounts payable hereunder.

Section 11.14.       Payments Set Aside.  To the extent any payments on the Obligations or proceeds of any Collateral or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other Person under any debtor relief Law, then to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and shall continue in full force and effect, and Lender’s rights, powers and remedies under this Agreement and each other Loan Document shall continue in full force and effect, as if such payment had not been made or such enforcement or setoff had not occurred.  In such event, each Loan Document shall be automatically reinstated and Borrower and each Subsidiary shall take such action as may be reasonably requested by Lender to effect such reinstatement.

Section 11.15.        Amendments, Etc.  No amendment or waiver of any provision of this Agreement, the Note or any other Loan Document, nor consent to any departure by Borrower or any Subsidiary  herefrom or therefrom, shall in any event be effective unless the same shall be in writing and signed by Borrower and/or the applicable Subsidiary, as to amendments, and by Lender in all cases, and then, in any case, such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

Section 11.16.        Relationship of the Parties.  This Agreement provides for the making of a loan by Lender, in its capacity as a lender, to Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by Borrower to Lender.  The relationship between Lender and Borrower is limited to that of creditor/secured party, on the one hand, and debtor, on the other hand.  The provisions herein for compliance with financial, environmental, and other covenants, delivery of financial, environmental and other reports, and financial, environmental and other inspections, investigations, audits, examinations or tests are intended solely for the benefit of Lender to protect its interests as a lender in assuring payments of interest and repayment of principal and nothing contained in this Agreement or any other Loan Document shall be construed as permitting or obligating Lender to act as financial or business advisors or consultants to Borrower or any Subsidiary, as permitting or obligating Lender to control Borrower or any Subsidiary or to conduct or operate Borrower’s or any Subsidiary’s operations, as creating any fiduciary obligation on the part of Lender to Borrower or any Subsidiary, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Agreement.  Borrower acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Agreement and the other Loan Documents and to obtain the advice of such counsel with respect to all matters contained herein.  Borrower further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to Lender for the financial accommodations provided hereby and to execute and deliver this Agreement and the other Loan Documents.

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Section 11.17.        Certain Matters of Construction. The masculine and neuter genders used in this Agreement each includes the masculine, feminine and neuter genders, and whenever the singular number is used, the same shall include the plural where appropriate, and vice versa.  Wherever the term “including” or a similar term is used in this Agreement, it shall be read as if it were written “including by way of example only and without in any way limiting the generality of the clause or concept referred to.”

Section 11.18.        USA Patriot Act Notice.  Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow Lender to identify the Borrower in accordance with the Act.

Section 11.19.        FINAL AGREEMENT.  THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

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IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto duly authorized, have executed this Agreement effective as of October 20, 2008.

BORROWER:
TYLER TECHNOLOGIES, INC., a Delaware corporation
By:
	Brian K. Miller,
	Executive Vice President and
	Chief Financial Officer

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

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IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto duly authorized, have executed this Agreement effective as of October 20, 2008.

LENDER:

BANK OF TEXAS, N.A., a national

banking association

By:

Name:

Title:

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

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SCHEDULE I

PRICING SCHEDULE

TYPE OR FEE	MARGIN
Base Rate Portion	1.5%
LIBOR Rate Portion	1.0%
Letter of Credit	0.75%
Revolving LC Margin	1.0%

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

Page 1

SCHEDULE II

REAL ESTATE CAPITAL EXPENDITURES

(in thousands)						est		est		est
	Quarter	Quarter		Quarter		Quarter		Quarter		Quarter
	3/31/2008	6/30/2008		9/30/2008		12/31/2008		3/31/2008		6/30/2008		Total
Lubbock building (new construction)			2,210		284		2,106		2,900		2,500		10,000
Yarmouth (Cole Haan) building					11,320								11,320
Falmouth building							10,000						10,000
Totals	0		2,210		11,604		12,106		2,900		2,500		31,320

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

Page 1

SCHEDULE 9.10

PERMITTED INVESTMENTS

Tyler Technologies, Inc.
Investment Summary
As of October 17, 2008
			Taxable/
			Tax Adv/
Agent	Investment Description	Amount	Tax Free
Bear Stearns	Columbia FSD ser Tr Mun Resvs Cap (CAFXX)	$623,234	TF
	Berks County PA Mun	$800,000	TF
	Louisville & Jefferson Cnty KY Regl Arpt	$950,000	TF
	New York ST HSG FIN AGY	$675,000	TF
	Northeastern Pa Hosp & Edl Auth Hlth	$1,000,000	TF
		$4,048,234
BOSC Pershing Investment	Jefferson County Bond	$1,725,000	TF
		$1,725,000
Texas Capital Bank	Eurodollar investment	$10,346,070	T
		$10,346,070
Bank of Texas	Money Market Investment	$5,645,725	T
	Collected balance - earnings credit	$1,187,663	T
		$6,833,388
	Weighted average yield	$22,952,692
	Total Auction Rate Securities	$5,150,000

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – TYLER TECHNOLOGIES, INC.

Page 1

EXHIBIT A-1

Form of Revolving Note

PROMISSORY NOTE

(Revolving Line of Credit)

$25,000,000 Dallas, Texas October 20, 2008

FOR VALUE RECEIVED, the undersigned, TYLER TECHNOLOGIES, INC., a Delaware corporation (the “Undersigned”), promises to pay to the order of BANK OF TEXAS, N.A., a national banking association, and any successors and assigns (the “Payee”), at 5956 Sherry Lane, Suite 1100, Dallas, Texas 75225, the principal sum of Twenty Five Million and no/100 Dollars ($25,000,000) (or the unpaid balance of all principal advanced under this Note, if that amount is less) together with interest on the unpaid principal balance of this Note from day to day outstanding, as hereinafter provided.  All capitalized terms herein, unless otherwise defined, shall have the same definitions as those found in that certain Second Amended and Restated Credit Agreement by and between the Undersigned and Payee dated of even date herewith, as amended on the date hereof (as amended, the “Credit Agreement”).

This Note shall evidence the Undersigned’s indebtedness to Payee for Payee’s portion of the Revolving Commitment, and advances made thereunder.

The Loan shall bear interest on the unpaid principal amount thereof from time to time outstanding, until maturity, at the interest rates as provided in, and pursuant to the terms of, the Credit Agreement.

Interest and principal on this Note shall be due and payable as provided in the Credit Agreement.  The final principal payment and any unpaid interest owing hereunder shall be due and payable in full on the Maturity Date.  The principal balance hereof may be, and shall be required to be, prepaid as provided in the Credit Agreement.

This Note is a revolving promissory note; therefore, amounts advanced hereunder may be repaid, readvanced and repaid pursuant to the terms set forth in the Credit Agreement.

At the option of the holder of this Note the entire principal balance and accrued interest owing hereon shall become due and payable without further demand upon the occurrence at any time of any Event of Default under the Credit Agreement.

Except as otherwise set forth in this Note or the Credit Agreement, the Undersigned waives demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of intent to accelerate, notice of acceleration and all other notice of any kind, filing of suit and diligence in collecting this Note or enforcing any of the security herefor, and consents to all extensions which from time to time may be granted by the holder hereof and to all partial payments hereon, whether before or after maturity.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT A-1

Page 1

If this Note is not paid when due, whether at maturity or by acceleration or otherwise, or if it is collected through a bankruptcy, probate or other judicial or administrative proceeding, whether before or after maturity, the Undersigned agrees to pay all reasonable costs of collection, including, but not limited to, reasonable attorneys’ fees, incurred by the holder hereof.

Any provisions herein, or in any other document executed in connection herewith, or in any other agreement or commitment, whether written or oral, expressed or implied, to the contrary notwithstanding, the holder hereof shall in no event charge or be entitled to receive or collect, nor shall or may amounts received hereunder be credited, so that the holder hereof shall be paid, as interest, a sum greater than the maximum permitted by applicable law to be charged to the person, partnership, firm or corporation primarily obligated to pay this Note.  If any construction of this Note, or any and all other papers, agreements or commitments, indicates a different right given to the holder hereof to ask for, demand or receive any larger sum as interest, such is a mistake in calculation or wording, which this clause shall override and control; it being the intention of the parties that this Note and all other instruments executed in connection herewith shall in all things comply with applicable law, and proper adjustment shall automatically be made accordingly.  In the event the holder hereof ever receives, collects or applies as interest, any sum in excess of the maximum permitted by applicable law, such excess amount shall be applied to the reduction of the unpaid principal balance of this Note, in the inverse order of maturity, and not to interest, and if this Note is paid in full, any remaining excess shall be refunded to the Undersigned.  In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum permitted by applicable law, the Undersigned and the holder hereof shall, to the maximum extent permitted under applicable law: (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest; (ii) exclude voluntary prepayments and the effects thereof; and (iii) amortize, prorate, allocate and spread the total amount of interest throughout the entire term of this Note (including any renewals or extensions) so that the interest rate is uniform throughout the entire term of this Note and does not exceed the maximum permitted by applicable law.  The provisions of this paragraph shall control all existing and future agreements between the Undersigned and the holder hereof.

This Note is executed and delivered in the State of Texas and intended to be performed in Dallas County, Texas, and except to the extent that the laws of the United States of America may pre-empt or govern the terms hereof, this Note shall be governed by and construed in accordance with the laws of the State of Texas; and the Undersigned irrevocably agrees that in the event of any dispute involving this Note or any other instruments executed in connection herewith, venue for such dispute shall lie in any court of competent jurisdiction in Dallas County, Texas.

This Note and all the covenants, promises and agreements contained herein shall be binding upon and inure to the benefit of the respective heirs, devisees, legal and personal representatives, successors and assigns of the holder hereof and the Undersigned.

THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT A-1

Page 2

EXECUTED effective as of the date first written above.

TYLER TECHNOLOGIES, INC.
By:
	Brian K. Miller,
	Vice President-Finance

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT A-1

Page 3

EXHIBIT A-2

Form of Letter of Credit Facility Note

SECOND AMENDED AND RESTATED PROMISSORY NOTE

(Letter of Credit Facility)

$6,000,000 Dallas, Texas October 20, 2008

FOR VALUE RECEIVED, the undersigned, TYLER TECHNOLOGIES, INC., a Delaware corporation (the “Undersigned”), promises to pay to the order of BANK OF TEXAS, N.A., a national banking association, and any successors and assigns (the “Payee”), at 5956 Sherry Lane, Suite 1100, Dallas, Texas 75225, the principal sum of Six Million and no/100 Dollars ($6,000,000) (or the unpaid balance of all principal advanced under this Note, if that amount is less) together with interest on the unpaid principal balance of this Note from day to day outstanding, as hereinafter provided.  All capitalized terms herein, unless otherwise defined, shall have the same definitions as those found in that certain Second Amended and Restated Credit Agreement by and between the Undersigned and Payee dated of even date herewith, as amended on the date hereof (as amended, the “Credit Agreement”).  This Note amends and restates in its entirety that certain Amended and Restated Promissory Note (Letter of Credit Facility) (the “Existing Note”) dated January 31, 2007, executed by the Undersigned, payable to Bank of Texas, N.A. in the principal amount of $10,000,000.00.  All Liens securing the Existing Note are renewed and continued (and are not extinguished hereby) and secure this Note.

This Note shall evidence the Undersigned’s indebtedness to Payee for Payee’s portion of the Letter of Credit Commitment, and advances made thereunder.

The Loan shall bear interest on the unpaid principal amount thereof from time to time outstanding, until maturity, at the interest rates as provided in, and pursuant to the terms of, the Credit Agreement.

Interest and principal on this Note shall be due and payable as provided in the Credit Agreement.  The final principal payment and any unpaid interest owing hereunder shall be due and payable in full on the Maturity Date.  The principal balance hereof may be, and shall be required to be, prepaid as provided in the Credit Agreement.

This Note is a revolving promissory note; therefore, amounts advanced hereunder may be repaid, readvanced and repaid pursuant to the terms set forth in the Credit Agreement.

At the option of the holder of this Note the entire principal balance and accrued interest owing hereon shall become due and payable without further demand upon the occurrence at any time of any Event of Default under the Credit Agreement.

Except as otherwise set forth in this Note or the Credit Agreement, the Undersigned waives demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of intent to accelerate, notice of acceleration and all other notice of any kind, filing of suit and diligence in collecting this Note or enforcing any of the security herefor, and consents to all extensions which from time to time may be granted by the holder hereof and to all partial payments hereon, whether before or after maturity.

If this Note is not paid when due, whether at maturity or by acceleration or otherwise, or if it is collected through a bankruptcy, probate or other judicial or administrative proceeding, whether before or after maturity, the Undersigned agrees to pay all reasonable costs of collection, including, but not limited to, reasonable attorneys’ fees, incurred by the holder hereof.

Any provisions herein, or in any other document executed in connection herewith, or in any other agreement or commitment, whether written or oral, expressed or implied, to the contrary notwithstanding, the holder hereof shall in no event charge or be entitled to receive or collect, nor shall or may amounts received hereunder be credited, so that the holder hereof shall be paid, as interest, a sum greater than the maximum permitted by applicable law to be charged to the person, partnership, firm or corporation primarily obligated to pay this Note.  If any construction of this Note, or any and all other papers, agreements or commitments, indicates a different right given to the holder hereof to ask for, demand or receive any larger sum as interest, such is a mistake in calculation or wording, which this clause shall override and control; it being the intention of the parties that this Note and all other instruments executed in connection herewith shall in all things comply with applicable law, and proper adjustment shall automatically be made accordingly.  In the event the holder hereof ever receives, collects or applies as interest, any sum in excess of the maximum permitted by applicable law, such excess amount shall be applied to the reduction of the unpaid principal balance of this Note, in the inverse order of maturity, and not to interest, and if this Note is paid in full, any remaining excess shall be refunded to the Undersigned.  In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum permitted by applicable law, the Undersigned and the holder hereof shall, to the maximum extent permitted under applicable law: (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest; (ii) exclude voluntary prepayments and the effects thereof; and (iii) amortize, prorate, allocate and spread the total amount of interest throughout the entire term of this Note (including any renewals or extensions) so that the interest rate is uniform throughout the entire term of this Note and does not exceed the maximum permitted by applicable law.  The provisions of this paragraph shall control all existing and future agreements between the Undersigned and the holder hereof.

This Note is executed and delivered in the State of Texas and intended to be performed in Dallas County, Texas, and except to the extent that the laws of the United States of America may pre-empt or govern the terms hereof, this Note shall be governed by and construed in accordance with the laws of the State of Texas; and the Undersigned irrevocably agrees that in the event of any dispute involving this Note or any other instruments executed in connection herewith, venue for such dispute shall lie in any court of competent jurisdiction in Dallas County, Texas.

This Note and all the covenants, promises and agreements contained herein shall be binding upon and inure to the benefit of the respective heirs, devisees, legal and personal representatives, successors and assigns of the holder hereof and the Undersigned.

THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT A-1

Page 2

EXECUTED effective as of the date first written above.

TYLER TECHNOLOGIES, INC.
By:
	Brian K. Miller,
	Vice President-Finance

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT A-1

Page 3

EXHIBIT B-1

Notice of Borrowing

This Notice of Borrowing is being delivered by TYLER TECHNOLOGIES, INC., a Delaware corporation (“Borrower”), as borrower under that certain Second Amended and Restated Credit Agreement (the “Credit Agreement”), dated as of October 20, 2008, executed by Borrower and Bank of Texas, N.A., a national banking association (the “Lender”).  Unless defined herein or indicated otherwise, each capitalized term used herein shall have the meaning given to such term in the Credit Agreement.

1.           Borrower hereby requests an Advance in an amount equal to $____________ to be funded on ___________.  Borrower represents and warrants to Lender that the Advance herein requested does not exceed the amount which Borrower is entitled to receive pursuant to Section 2.1 (or any other provision) of the Credit Agreement.

2.           Borrower requests that of the Advance requested hereby, $_____________ bear interest based at the Base Rate and $_______________ bear interest based at the Adjusted LIBOR Rate.  With respect to the LIBOR Rate Portion, the Rate Period shall be ____ month(s), with the first day of the Rate Period being the date on which the LIBOR Rate Portion is funded.

3.           Borrower hereby certifies, represents and warrants to Lender that:

(b)           This Request for Advance has been duly authorized by all necessary action on the part of Borrower.

(c)           The representations and warranties contained in the Credit Agreement and the other Loan Documents remain true and correct in all material respects on and as of the date hereof (except to the extent any representation or warranty is made as of a particular date) with the same force and effect as though made on the date hereof.

(d)           No Default or Event of Default has occurred and is continuing, and the making of the Advance requested hereby shall not constitute a Default or Event of Default.

(e)           Borrower has performed and complied in all material respects with all agreements and conditions in the Credit Agreement and the other Loan Documents required to be performed or complied with by such Borrower on or prior to the date hereof, and each of the conditions precedent contained in the Credit Agreement applicable to the Advance requested hereby has been satisfied.

(f)           The proceeds of the Advance requested will not be used in violation of any provision of the Credit Agreement or any other Loan Document.

4.           Borrower acknowledges and agrees that the making of the Advance requested hereby shall not constitute a waiver of any condition precedent to the obligation of Lender to make further Advances.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT B-1

Page 1

EXECUTED as of _________________, 20___.

AUTHORIZED OFFICER:

TYLER TECHNOLOGIES, INC.,

a Delaware corporation

By:

Name:

Title:

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT B-1

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EXHIBIT B-2

Letter of Credit Application

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT B-2

EXHIBIT C

Notice of Rate Change/Continuation

This Notice of Rate Change/Continuation (the “Notice”) is being delivered by TYLER TECHNOLOGIES, INC., a Delaware corporation (“Borrower”), as borrower under that certain Second Amended and Restated Credit Agreement (the “Credit Agreement”), dated as of October 20, 2008, executed by Borrower, and Bank of Texas, N.A., a national banking association (the “Lender”).  Unless defined herein or indicated otherwise, each capitalized term used herein shall have the meaning given to such term in the Credit Agreement.

1.           Interest Rate Change

Pursuant to Section 3.1(b) of the Credit Agreement, Borrower hereby elects to change the interest rates applying to the portions of the Loan listed below.   Borrower provides the following information: (a) Amount of Loan to be affected, (b) date on which the current interest rate applicable to the affected portion of the Loan became effected, (c) Type of interest rate currently applied (LIBOR or Base Rate), (d) interest rate currently applicable to such portion, (e) Type of interest rate to be applied from the effective date of this Notice (LIBOR or Base Rate), and (f) if a LIBOR Portion is requested, the requested Rate Period.

Amount	Date	Type (current)	Rate (current)	Type of Interest to be Applied	Requested Rate Period
___________	______	____________	_______	_______________	___________
___________	______	____________	_______	_______________	___________
___________	______	____________	_______	_______________	___________

5.           Continuation of LIBOR Rate Portion

Pursuant to Section 3.1(b) of the Credit Agreement, Borrower hereby elects to continue the outstanding principal balances of the below listed LIBOR Rate Portions as such LIBOR Rate Portions.  Borrower provides the following information: (a) The principal amount of such LIBOR Rate Portion to remain outstanding, (b) first date of the current Rate Period, (c) current Rate Period, and (d) requested Rate Period

Amount to Remain Outstanding	Date	Current Rate Period	Requested Rate Period
_____________	_______	_______________	________________
_____________	_______	_______________	________________
_____________	_______	_______________	________________

6.           Borrower requests this rate change or continuation to be effective as of the ___ day of _____________, ______ (the “Conversion/Continuation Date”).  Each rate so specified shall become effective on the Conversion/Continuation Date and remain in effect until the expiration of the applicable Rate Period.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT C

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7.           Borrower hereby certifies, represents and warrants to Lender that:

8.           This Notice has been duly authorized by all necessary action on the part of Borrower.

9.           Borrower has performed and complied in all material respects with all agreements and conditions in the Credit Agreement and the other Loan Documents required to be performed or complied with by such Borrower on or prior to the date hereof.

10.           This Notice is irrevocable.

EXECUTED as of _________________, 20___.

AUTHORIZED OFFICER:

TYLER TECHNOLOGIES, INC.,

a Delaware corporation

By:

Name:

Title:

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT C

Page 2

EXHIBIT D

Compliance Certificate

This Compliance Certificate is furnished pursuant to that certain Second Amended and Restated Credit Agreement dated as of October 20, 2008 (as amended, modified, renewed or extended from time to time, the “Credit Agreement”) among TYLER TECHNOLOGIES, INC. (the “Borrower”), Bank of Texas, N.A., a national banking association (the “Lender”).  Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Credit Agreement.

THE UNDERSIGNED HEREBY CERTIFIES TO LENDER THAT:

1.           I am the duly elected                                                                 of the Borrower;

2.           I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements.

3.           The reviews described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below.

4.           Schedule I attached hereto sets forth financial data and computations evidencing the Borrower’s compliance with certain covenants of the Credit Agreement as of the ______ ended ________, all of which data and computations are true, complete and correct in all material respects, and are based upon and derived from the financial statements for the __________ ended ______________ concurrently being furnished by Borrower pursuant to Section 8.1 of the Credit Agreement prepared in accordance with GAAP.

5.           Schedule II attached hereto sets forth the various reports and deliveries which are required at this time under the Credit Agreement, and the other Loan Documents and the status of compliance.

Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event:

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT D

Page 1

The foregoing certifications are made and delivered this _____ day of ____________, ______.

TYLER TECHNOLOGIES, INC., a

Delaware corporation

By:

Name:

Title:

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT D

Page 2

SCHEDULE I

TO

COMPLIANCE CERTIFICATE

Compliance as of _________, ____ with

Section 9.9 of the Credit Agreement

1.	Section 9.9(a) — Funded Debt to EBITDA
(a)	Outstanding liabilities for borrowed money and other interest bearing liabilities		$_____________
(b)	Unfunded commitments under outstanding letters of credit (excluding cash collateralized letters of credit)		$_____________
(c)	Funded Debt (sum of (a) + (b))		$_____________
(d)	Consolidated net income for the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished]
(e)	Income from discontinued operations and extraordinary items for the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished]		$_____________
(f)	Loss from discontinued operations and extraordinary items for the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished]		$_____________
(g)	The following, each for the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished], as deducted in determining consolidated net income for such period:		$_____________
	(i)      Income Taxes	$______________
	(ii)     Depreciation	$______________
	(iii)    Amortization	$______________
	(iv)    Interest expense	$______________
	(v)     Other non-cash expenses	$______________	$______________

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT D

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(h)	EBITDA for the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished] (sum of (d) + (f) +(g) minus (e))	$______________
(i)	Cash paid for taxes during the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished]	$_____________
(j)	Cash paid for Capital Expenditures (as defined in the Credit Agreement) during the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished]	$_____________
(k)	Remainder derived by subtracting from (h) the sum of (i)+(j)	$_____________
(l)	Ratio of Funded Debt to EBITDA ((c) divided by (k))	______________
Borrower is in compliance with Section 9.9(a) of the Credit Agreement if line (l) is equal to less than 2.0.
2.	Section 9.9(b) - Fixed Charge Coverage
(a)	EBITDA for the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished] (line (h) from Section 1 preceding)	$_____________
(b)	Cash paid for taxes during the four fiscal quarters ended[quarter for which Compliance Certificate is being furnished]	$_____________
(c)	Cash paid for Capital Expenditures (as defined in the Credit Agreement) during the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished]	$_____________
(d)	Remainder derived by subtracting from (a) the sum of (b)+(c)	$_____________
(e)	Current Maturities (as defined in the Credit Agreement) as of the last day of the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished]	$______________
(f)	Interest Expense (as defined in the Credit Agreement) as of the last day of the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished]	$______________

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT D

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(g)	Current maturities of Capitalized Lease Obligations(as defined in the Credit Agreement), without duplication of interest expense included in (f), as of the last day of the four fiscal quarters ended [quarter for which Compliance Certificate is being furnished]	$______________
(h)	The sum of (e)+(f)+(g)	$______________
(i)	Fixed Charge Coverage (line (d) divided by line (h)	$______________

Borrower is in compliance with Section 9.9(b) of the Credit Agreement if line (i) is equal to or greater than 2.0.

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT D

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SCHEDULE II

TO

COMPLIANCE CERTIFICATE

Reports and Deliveries Currently Due

[For Compliance Certificate accompanying annual financial statements furnished under Section 8.1(a) of the Credit Agreement]:

Borrower’s consolidated financial statements for the fiscal year ended ____________, required and furnished pursuant to Section 8.1(a) of the Credit Agreement are furnished concurrently with this Compliance Certificate, as follows:

(j)	Consolidated balance sheet.
(k)	Consolidated statements of income, retained earnings and cash flows.
(l)	Notes to consolidated financial statements.
(m)	Report and opinion of [Ernst & Young LLP]
(n)	Consolidating balance sheets and statements of income for the fiscal year ended _________ (each certified by an Authorized Officer of Borrower) for each of Borrower and the following Subsidiaries:

[For Compliance Certificate accompanying quarterly financial statements furnished under Section 8.1(b) of the Credit Agreement]:

Borrower’s consolidated financial statements (unaudited) for the fiscal quarter ended ____________ (certified by an Authorized Officer of Borrower), required and furnished pursuant to Section 8.1(b) of the Credit Agreement are furnished concurrently with this Compliance Certificate, as follows:

(a)	Consolidated balance sheet (unaudited).
(b)	Consolidated statement of income (unaudited).
(c)	Consolidated statement of cash flow (unaudited).

SECOND AMENDED AND RESTATED CREDIT AGREEMENT – EXHIBIT D

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EX-4.2

 

SECOND AMENDED AND RESTATED

PLEDGE AND SECURITY AGREEMENT

THIS SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT is entered into as of October 20, 2008 by and between TYLER TECHNOLOGIES, INC., a Delaware corporation (“Borrower”),  and BANK OF TEXAS, N.A., a national banking association (“Lender”).

PRELIMINARY STATEMENT

Borrower and Lender are entering into a Second Amended and Restated Credit Agreement dated of even date herewith (as it may be amended or modified from time to time, the “Credit Agreement”), providing, subject to the terms and conditions thereof, for extensions of credit to be made by the Lender to the Borrower.  To induce Lender to enter into and extend credit to the Borrower under the Credit Agreement, Borrower is entering into this Second Amended and Restated Pledge and Security Agreement (as it may be amended or modified from time to time, the “Security Agreement”).

ACCORDINGLY, Borrower and Lender, hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1.  Terms Defined in Credit Agreement.  All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.

Section 1.2.  Terms Defined in Texas Business and Commerce Code.  Terms defined in the Texas Business and Commerce Code which are not otherwise defined in this Security Agreement are used herein as defined in the Texas Business and Commerce Code as in effect on the date hereof.

Section 1.3.  Definitions of Certain Terms Used Herein.  As used in this Security Agreement, in addition to the terms defined in the Preliminary Statement, the following terms shall have the following meanings:

“Accounts” means all rights to payment for goods sold or leased or services rendered by Borrower, whether or not earned by performance, together with all security interests or other security held by or granted to Borrower to secure such rights to payment.

“Article” means a numbered article of this Security Agreement, unless another document is specifically referenced.

“Chattel Paper” means any writing or group of writings which evidences both a monetary obligation and a security interest in or a lease of specific goods.

PLEDGE AND SECURITY AGREEMENT (Tyler Technologies, Inc.)

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“Collateral” means all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Investment Property, Instruments, Inventory, Pledged Deposits, Stock Rights and Other Collateral, wherever located, in which Borrower now has or hereafter acquires any right or interest, and the proceeds, insurance proceeds and products thereof, together with all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related thereto.

“Control” shall have the meaning set forth in Chapter 8 of the Texas Business and Commerce Code as in effect from time to time.

“Default” means an event described in Section 5.1.

“Documents” means all documents of title and goods evidenced thereby, including without limitation all bills of lading, dock warrants, dock receipts, warehouse receipts and orders for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers.

“Equipment” means all equipment, machinery, furniture and goods used or usable by Borrower in its business and all other tangible personal property (other than Inventory), and all accessions and additions thereto, including, without limitation, all Fixtures.

“Exhibit” refers to a specific exhibit to this Security Agreement, unless another document is specifically referenced.

“Fixtures” means all goods which become so related to particular real estate that an interest in such goods arises under any real estate law applicable thereto, including, without limitation, all trade fixtures.

“General Intangibles” means all intangible personal property (other than Accounts) including, without limitation, all contract rights, rights to receive payments of money, choses in action, causes of action, judgments, tax refunds and tax refund claims, patents, trademarks, trade names, copyrights, licenses, franchises, computer programs, software, goodwill, customer and supplier contracts, interests in general or limited partnerships, joint ventures or limited liability companies, reversionary interests in pension and profit sharing plans and reversionary, beneficial and residual interests in trusts, leasehold interests in real or personal property, rights to receive rentals of real or personal property and guarantee and indemnity claims.

“Investment Property” means stock or other securities, whether certificated or uncertificated, of any other Person, or any direct or indirect loan, advance or capital contribution by such Person to any other Person, or any other item which would be classified as an “investment” on a balance sheet of such Person prepared in accordance with GAAP, including any direct or indirect contribution by such Person of property or assets to a joint venture, partnership or other business entity in which such Person retains an interest.

“Instruments” means all negotiable instruments (as defined in §3-104 of the Texas Business and Commerce Code as in effect from time to time), certificated and uncertificated securities and any replacements therefor and Stock Rights related thereto, and other writings which evidence a right to the payment of money and which are not themselves security agreements or leases and are of a type which in the ordinary course of business are transferred by delivery with any necessary endorsement or assignment, including, without limitation, all checks, drafts, notes, bonds, debentures, government securities, certificates of deposit, letters of credit, preferred and common stocks, options and warrants.

PLEDGE AND SECURITY AGREEMENT (Tyler Technologies, Inc.)

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“Inventory” means all goods held for sale or lease, or furnished or to be furnished under contracts of service, or consumed in Borrower’s business, including without limitation raw materials, intermediates, work in process, packaging materials, finished goods, semi-finished inventory, scrap inventory, manufacturing supplies and spare parts, all such goods that have been returned to or repossessed by or on behalf of Borrower, and all such goods released to Borrower or to third parties under trust receipts or similar documents.

“Lenders” means each lender that is from time to time a party to the Credit Agreement, and its successors and assigns.

“Obligations” or “Secured Obligations” mean any and all existing and future indebtedness, obligation and liability of every kind, nature and character, direct or indirect, absolute or contingent (including all renewals, extensions and modifications thereof and all fees, costs and expenses incurred by Lenders in connection with the preparation, administration, collection or enforcement thereof), of Borrower to Lenders arising under or pursuant to this Security Agreement, the Credit Agreement and the promissory note or notes issued or hereafter issued under the Credit Agreement (including, without limitation, the Obligations as defined in the Credit Agreement.)

“Other Collateral” means any property of Borrower, other than real estate, not included within the defined terms Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Instruments, Inventory, Investment Property, Pledged Deposits and Stock Rights, including, without limitation, all cash on hand and all deposit accounts or other deposits (general or special, time or demand, provisional or final) with any bank or other financial institution, it being intended that the Collateral include all property of Borrower other than real estate.

“Person” shall mean an individual, partnership, joint venture, corporation, limited liability company, joint stock company, bank, trust, unincorporated organization and/or a government or any department or agency thereof.

“Pledged Deposits” means all time deposits of money, whether or not evidenced by certificates, which Borrower may from time to time designate as pledged to Lender as security for any Obligation, and all rights to receive interest on said deposits.

“Receivables” means the Accounts, Chattel Paper, Documents, Investment Property, Instruments or Pledged Deposits, and any other rights or claims to receive money which are General Intangibles or which are otherwise included as Collateral.

“Section” means a numbered section of this Security Agreement, unless another document is specifically referenced.

PLEDGE AND SECURITY AGREEMENT (Tyler Technologies, Inc.)

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“Security” has the meaning set forth in Chapter 8 of the Texas Business and Commerce Code as in effect from time to time

“Stock Rights” means any securities, dividends or other distributions and any other right or property which Borrower shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any securities or other ownership interests in a corporation, partnership, joint venture or limited liability company constituting Collateral and any securities, any right to receive securities and any right to receive earnings, in which Borrower now has or hereafter acquires any right, issued by an issuer of such securities.

“Unmatured Default” means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default.

The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

ARTICLE II

GRANT OF SECURITY INTEREST

Borrower hereby pledges, assigns and grants to Lender a security interest in all of Borrower’s right, title and interest in and to the Collateral to secure the prompt and complete payment and performance of the Secured Obligations.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender that:

Section 3.1.  Title, Authorization, Validity and Enforceability.  Borrower has good and valid rights in and title to the Collateral with respect to which it has purported to grant a security interest hereunder, free and clear of all Liens except for Liens permitted under Section 4.1.6, and has full power and authority to grant to Lender the security interest in such Collateral pursuant hereto.  The execution and delivery by Borrower of this Security Agreement has been duly authorized by proper corporate proceedings, and this Security Agreement constitutes a legal, valid and binding obligation of Borrower and creates a security interest which is enforceable against Borrower in all now owned and hereafter acquired Collateral except as limited by applicable bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance, reorganization, moratorium, or other similar laws at the time in effect affecting the rights of creditors generally.

Section 3.2.  Conflicting Laws and Contracts.  Neither the execution and delivery by Borrower of this Security Agreement, the creation and perfection of the security interest in the Collateral granted hereunder, nor compliance with the terms and provisions hereof will (i) violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Borrower or Borrower’s articles or certificate of incorporation or by-laws, or (ii) to the extent the same could reasonably be expected to have a Material Adverse Effect, violate the provisions of any indenture, instrument or agreement to which Borrower is a party or is subject, or by which it, or its property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien pursuant to the terms of any such indenture, instrument or agreement (other than any Lien of Lenders).

PLEDGE AND SECURITY AGREEMENT (Tyler Technologies, Inc.)

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Section 3.3.  Principal Location.  Borrower’s mailing address, and the location of its chief executive office and of the books and records relating to the Receivables, is disclosed in Exhibit “A”. Borrower has no other places of business except those set forth in Exhibit “A”.  The State in which Borrower was originally, and is still, incorporated is Delaware.

Section 3.4.  Property Locations.  The Inventory, Equipment and Fixtures are located solely at the locations described in Exhibit “A”.  All of said locations are owned by Borrower except for locations (i) which are leased by Borrower as lessee and designated in Part B of Exhibit “A” and (ii) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as designated in Part C of Exhibit “A”, with respect to which Inventory Borrower has delivered bailment agreements, warehouse receipts, financing statements or other documents satisfactory to Lender to protect Lender’s security interest in such Inventory.

Section 3.5.  No Other Names.  Since January 1, 2000, Borrower has not conducted business under any name except the name in which it has executed this Security Agreement.

Section 3.6.  No Default.  No Default or Unmatured Default exists.

Section 3.7.  Accounts and Chattel Paper.  The names of the obligors, amounts owing, due dates and other information with respect to the Accounts and Chattel Paper are and will be correctly stated in all material respects in all records of Borrower relating thereto and in all invoices and reports with respect thereto furnished to Lender by Borrower from time to time.  As of the time when each Account or each item of Chattel Paper arises, Borrower shall be deemed to have represented and warranted that such Account or Chattel Paper, as the case may be, and all records relating thereto, are genuine and in all material respects what they purport to be.

Section 3.8.  Filing Requirements.  None of the Equipment is covered by any certificate of title, except for the vehicles described in Part A of Exhibit “B”.  None of the Collateral is of a type for which security interests or liens may be perfected by filing under any federal statute except for (i) the vehicles described in Part B of Exhibit “B” and (ii) patents, trademarks and copyrights held by Borrower and described in Part C of Exhibit “B”.

Section 3.9.  No Financing Statements.  No financing statement describing all or any portion of the Collateral which has not lapsed or been terminated naming Borrower as debtor has been filed in any jurisdiction except (i) financing statements naming Lender as the secured party, (ii) as described in Exhibit “D” or (iii) as permitted by Section 4.1.6.

Section 3.10.  Federal Employer Identification Number.  Borrower’s Federal employer identification number is 75-2303920.

PLEDGE AND SECURITY AGREEMENT (Tyler Technologies, Inc.)

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Section 3.11.  Pledged Securities and Other Investment Property.  Exhibit “E” sets forth a complete and accurate list of the Instruments, Securities and other Investment Property delivered to Lender.  Borrower is the direct and beneficial owner of each Instrument, Security and other type of Investment Property listed on Exhibit “E” as being owned by it, free and clear of any Liens, except for the security interest granted to Lender hereunder.  Borrower further represents and warrants that (i) all such Instruments, Securities or other types of Investment Property which are shares of stock in a corporation or ownership interests in a partnership or limited liability company have been (to the extent such concepts are relevant with respect to such Instrument, Security or other type of Investment Property) duly and validly issued, are fully paid and non-assessable and (ii) with respect to any certificates delivered to Lender representing an ownership interest in a partnership or limited liability company, either such certificates are Securities as defined in Article 8 of the Business and Commerce Code of the applicable jurisdiction as a result of actions by the issuer or otherwise, or, if such certificates are not Securities, Borrower has so informed Lender so that Lender may take steps to perfect its security interest therein as a General Intangible.

ARTICLE IV

COVENANTS

From the date of this Security Agreement, and thereafter until this Security Agreement is terminated:

Section 4.1.  General.

4.1.1  Inspection.  Borrower will permit Lender, by its representatives and agents (i) to inspect the Collateral, (ii) to examine and make copies of the records of Borrower relating to the Collateral and (iii) to discuss the Collateral and the related records of Borrower with, and to be advised as to the same by, Borrower’s officers and employees (and, in the case of any Receivable, with any person or entity which is or may be obligated thereon), all at such reasonable times and intervals as Lender may determine (but, except during the continuance of a Default, not more than once in any fiscal quarter of Borrower), and all at Borrower’s expense.

4.1.2  Taxes.  Borrower will pay when due all taxes, assessments and governmental charges and levies upon the Collateral, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP without resulting in the occurrence of a Material Adverse Effect.

4.1.3  Records and Reports.  Borrower will maintain complete and accurate books and records with respect to the Collateral, and furnish to Lender such reports relating to the Collateral as Lender shall from time to time request.

4.1.4  Financing Statements and Other Actions; Defense of Title.  Borrower will execute and deliver to Lender all financing statements and other documents and take such other actions as may from time to time be requested by Lender in order to maintain a first perfected security interest in and, in the case of Investment Property, Control of, the Collateral, subject, however, to any Liens permitted under Section 4.1.6.  Borrower will take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of Lender in the Collateral and the priority thereof against any Lien not expressly permitted hereunder.

PLEDGE AND SECURITY AGREEMENT (Tyler Technologies, Inc.)

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4.1.5  Disposition of Collateral.  Borrower will not sell, lease or otherwise dispose of the Collateral except (i) occasional sales or dispositions of immaterial assets in the ordinary course of business and consistent with past practices for a consideration equal to or exceeding book value, (ii) sales or other dispositions, without necessity of consideration, of assets that are obsolete or have negligible fair market value, (iii) sales or other dispositions of equipment and trade fixtures for a fair and adequate consideration in connection with the replacement thereof by the Person effecting such sale or other disposition, (iv) other sales of assets, other than in the ordinary course of business, for an aggregate sales price totaling not more than $250,000 in any fiscal year, (v) collection of Accounts in the ordinary course of business consistent with past practices, (vi) the discount of delinquent accounts receivable in the ordinary course of business consistent with past practices for purposes of facilitating collection, (vii) until such time following the occurrence of a Default as Borrower receives a notice from Lender instructing Borrower to cease such transactions, sales or leases of Inventory in the ordinary course of business, and (viii) until such time as Borrower receives a notice from Lender pursuant to Article VII, proceeds of Inventory and Accounts collected in the ordinary course of business.  In connection with any sale or other disposition of Collateral permitted under this Security Agreement, provided that no Default exists or would be caused thereby, upon reasonable advance written notice from Borrower of the intent to so dispose of such Collateral, Lender at Borrower’s expense shall release the Collateral to be sold or disposed of from the Liens and security interests created by this Security Agreement and the other Loan Documents and shall execute and deliver any releases reasonably requested by Borrower to evidence such release.

4.1.6  Liens.  Borrower will not create, incur, or suffer to exist any Lien on the Collateral except (i) the security interest created by this Security Agreement, (ii) existing Liens described in Exhibit “D”, and (iii) other Liens permitted pursuant to Section 9.2 of the Credit Agreement.

4.1.7  Change in Location or Name.  Borrower will not (i) have any of its Inventory, Equipment or Fixtures (other than Collateral disposed of as permitted by Section 4.1.5) at a location other than a location specified in Exhibit “A”, (ii) maintain records relating to its Receivables at a location other than at the location specified on Exhibit “A”, (iii) change its name or taxpayer identification number or (iv) change its state of incorporation, unless Borrower shall have given Lender not less than 30 days’ prior written notice thereof, and Lender shall have determined that such change will not adversely affect the validity, perfection or priority of Lender’s security interest in the Collateral.

4.1.8  Other Financing Statements.  Borrower will not file or authorize the filing of any financing statement naming it as debtor covering all or any portion of the Collateral, except as permitted by Section 4.1.6.

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Section 4.2.  Receivables.

4.2.1  Certain Agreements on Receivables.  Borrower will not make or agree to make any discount, credit, rebate or other reduction in the original amount owing on a Receivable or accept in satisfaction of a Receivable less than the original amount thereof, except that, prior to the occurrence of a Default, Borrower may offer discounts, credits and rebates, and may reduce the amount of Accounts, in accordance with its present policies and in the ordinary course of business.

4.2.2  Collection of Receivables.  Except as otherwise provided in this Security Agreement, Borrower will attempt to collect and enforce, at Borrower’s sole expense, all amounts due or hereafter due to Borrower under the Receivables in a manner consistent with its present collection, write-down and write-off policies.

4.2.3  Delivery of Invoices.  Borrower will deliver to Lender promptly  upon its request after the occurrence of a Default duplicate invoices with respect to each Account bearing such language of assignment as Lender shall specify.

4.2.4  Disclosure of Counterclaims on Receivables.  If (i) any discount, credit or agreement to make a rebate or to otherwise reduce the amount owing on a Receivable exists or (ii) if, to the knowledge of Borrower, any dispute, setoff, claim, counterclaim or defense exists or has been asserted or threatened with respect to a Receivable, Borrower will disclose such fact to Lender in writing in connection with Lender’s field examinations relating to such Receivable.

Section 4.3.  Inventory and Equipment.

4.3.1  Maintenance of Goods.  Borrower will do all things necessary to maintain, preserve, protect and keep the Inventory and the Equipment in good repair and working and saleable condition.

4.3.2  Insurance.  Borrower will maintain insurance in accordance with Section 8.11 of the Credit Agreement.

4.3.3  Titled Vehicles.  Borrower will give Lender notice of its acquisition of any vehicle covered by a certificate of title and deliver to Lender, upon request, the original of any vehicle title certificate for any such vehicle that is not subject to a Lien permitted under Section 4.1.6. and do all things necessary to have the Lien of Lender noted on any such certificate.

Section 4.4.  Instruments, Securities, Chattel Paper, Documents and Pledged Deposits. Borrower will (i) deliver to Lender immediately upon execution of this Security Agreement the originals of all Chattel Paper, certificated Securities and Instruments (if any then exist) constituting Collateral, (ii) hold in trust for Lender upon receipt and immediately thereafter deliver to Lender any Chattel Paper, certificated Securities and Instruments constituting Collateral, (iii) upon the designation of any Pledged Deposits (as set forth in the definition thereof), deliver to Lender such Pledged Deposits which are evidenced by certificates included in the Collateral endorsed in blank, marked with such legends and assigned as Lender shall specify, and (iv) upon Lender’s request, after the occurrence and during the continuance of a Default,  deliver to Lender (and thereafter hold in trust for Lender upon receipt and immediately deliver to Lender) any Document evidencing or constituting Collateral.  As to any limited partnership interests in any limited partnership constituting a Subsidiary or ownership interests in a limited liability company constituting a Subsidiary which are included within the Collateral and which at any time constitute a Security as to the issuer of any such interests, Borrower shall either (i) deliver all certificates or other documents constituting such Security to Lender or (ii) cause the issuer of such Security or a securities intermediary relating to such Security to enter into a control agreement with respect to such Security and such Security is defined as such under Article 8 of the Uniform Commercial Code of the applicable jurisdiction, whether as a result of actions by the issuer thereof or otherwise.

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Section 4.5.  Uncertificated Securities and Certain Other Investment Property. Borrower will permit Lender from time to time to cause the appropriate issuers (and, if held with a securities intermediary, such securities intermediary) of uncertificated securities or other types of Investment Property not represented by certificates which are Collateral to mark their books and records with the numbers and face amounts of all such uncertificated securities or other types of Investment Property not represented by certificates and all rollovers and replacements therefor to reflect the Lien of Lender granted pursuant to this Security Agreement.  Borrower will take any actions necessary to cause (i) the issuers of uncertificated securities which are Collateral and which are Securities and (ii) any financial intermediary which is the holder of any Investment Property which is Collateral, to cause Lender to have and retain Control over such Securities or other Investment Property.  Without limiting the foregoing, Borrower will, with respect to Investment Property which is Collateral and held with a financial intermediary, cause such financial intermediary to enter into a control agreement with Lender in form and substance satisfactory to Lender.

Section 4.6.  Stock and Other Ownership Interests.

4.6.1  Changes in Capital Structure of Issuers. Except in connection with a transaction permitted under Section 9.7 of the Credit Agreement, Borrower will not vote any of the Instruments, Securities or other Investment Property constituting Collateral in favor of any action of, or transaction by, the issuer thereof to dissolve, liquidate, retire any of its capital stock or other Instruments or Securities evidencing ownership, reduce its capital or merge or consolidate with any other entity.

4.6.2  Issuance of Additional Securities.  Borrower will not vote any of the Instruments, Securities or other Investment Property constituting Collateral in favor of any action of, or transaction by, the issuer thereof to issue any such securities or other ownership interests, any right to receive the same or any right to receive earnings, except to Borrower or to a Guarantor.

4.6.3  Registration of Pledged Securities and other Investment Property.  Borrower will permit any registerable Collateral to be registered in the name of Lender or its nominee at any time after the occurrence of a Default at the option of Lender.

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4.6.4  Exercise of Rights in Pledged Securities and other Investment Property.  Borrower will permit Lender or its nominee at any time after the occurrence of a Default, without notice, to exercise all voting and corporate rights relating to the Collateral, including, without limitation, exchange, subscription or any other rights, privileges, or options pertaining to any corporate securities or other ownership interests or Investment Property in or of a corporation, partnership, joint venture or limited liability company constituting Collateral and the Stock Rights as if it were the absolute owner thereof.

Section 4.7.  Pledged Deposits.  Borrower will not withdraw all or any portion of any Pledged Deposit or fail to rollover said Pledged Deposit without the prior written consent of Lender.

Section 4.8.  Deposit Accounts.  Borrower will (i) upon Lender’s request, notify each bank or other financial institution (other than Lender) in which it maintains a deposit account or other deposit (general or special, time or demand, provisional or final) of the security interest granted to Lender hereunder and either cause each such bank or other financial institution to acknowledge such notification in writing within thirty (30) days after Lender’s request or, within such thirty (30) day period, cause such accounts to be terminated, and (ii) upon Lender’s request after the occurrence and during the continuance of a Default, deliver to each such bank or other financial institution a letter, in form and substance acceptable to Lender, transferring dominion and control over each such account to Lender until such time as no Default exists.

Section 4.9.  Federal Claims.  Borrower will notify Lender of any Collateral which constitutes a claim against the United States government or any instrumentality or agency thereof, the assignment of which claim is expressly restricted by federal law in a manner that would not permit Lender to obtain a Security Interest therein under the Texas Business and Commerce Code or the Uniform Commercial Code of any other applicable jurisdictions.

ARTICLE V

DEFAULT

Section 5.1.  Default.  The occurrence of any one or more of the following events shall constitute a Default:

5.1.1  The breach by Borrower of any of the terms or provisions of Sections 4.1.1, 4.1.4 through 4.1.8, 4.2.1, 4.2.3, 4.2.4, and 4.4 through 4.9 or Article VII.

5.1.2  The occurrence of any “Event of Default” under, and as defined in, the Credit Agreement.

Section 5.2.  Acceleration and Remedies.  Upon the acceleration of the Obligations under the Credit Agreement, the Obligations shall immediately become due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and Lender shall at the request of, or may, with the consent of, the Lender, exercise any or all of the following rights and remedies:

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5.2.1  Those rights and remedies provided in this Security Agreement, the Credit Agreement, or any other Loan Document, provided that this Section 5.2.1 shall not be understood to limit any rights or remedies available to Lender prior to a Default.

5.2.2  Those rights and remedies available to a secured party under the Texas Business and Commerce Code (whether or not the Texas Business and Commerce Code applies to the affected Collateral) or under any other applicable law (including, without limitation, any law governing the exercise of a bank’s right of setoff or bankers’ lien) when a debtor is in default under a security agreement.

5.2.3  Without notice except as specifically provided in Section 8.1 or elsewhere herein, sell, lease, assign, grant an option or options to purchase or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, for cash, on credit or for future delivery, and upon such other terms as Lender may deem commercially reasonable.

Section 5.3.  Borrower’s Obligations Upon Default.  Upon the request of Lender after the occurrence of a Default, Borrower will:

5.3.1  Assembly of Collateral.  Assemble and make available to Lender the Collateral and all records relating thereto at any place or places specified by Lender.

5.3.2  Secured Party Access.  Permit Lender, or Lender’s representatives and agents, to enter any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral and to remove all or any part of the Collateral.

Section 5.4.  License.  Lender is hereby granted a license or other right to use, following the occurrence and during the continuance of a Default, without charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, customer lists and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral, and, following the occurrence and during the continuance of a Default, Borrower’s rights under all licenses and all franchise agreements shall inure to Lender’s benefit.  In addition, Borrower hereby irrevocably agrees that Lender may, following the occurrence and during the continuance of a Default, sell any of Borrower’s Inventory directly to any Person, including without limitation Persons who have previously purchased Borrower’s Inventory from Borrower and in connection with any such sale or other enforcement of Lender’s rights under this Agreement, may sell Inventory which bears any trademark owned by or licensed to Borrower and any Inventory that is covered by any copyright owned by or licensed to Borrower and Lender may finish any work in process and affix any trademark owned by or licensed to Borrower and sell such Inventory as provided herein.

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ARTICLE VI

WAIVERS, AMENDMENTS AND REMEDIES

No delay or omission of Lender to exercise any right or remedy granted under this Security Agreement shall impair such right or remedy or be construed to be a waiver of any Default or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude any other or further exercise thereof or the exercise of any other right or remedy.  No waiver, amendment or other variation of the terms, conditions or provisions of this Security Agreement whatsoever shall be valid unless in writing signed by Lender, and then only to the extent in such writing specifically set forth.  All rights and remedies contained in this Security Agreement or by law afforded shall be cumulative and all shall be available to Lender until the Secured Obligations have been paid in full.

ARTICLE VII

PROCEEDS; COLLECTION OF RECEIVABLES

Section 7.1.  Lockboxes.  Upon request of Lender after the occurrence and during the continuance of a Default, Borrower shall execute and deliver to Lender irrevocable lockbox agreements in the form provided by or otherwise acceptable to Lender, which agreements shall be accompanied by an acknowledgment by the bank where the lockbox is located of the Lien of Lender granted hereunder and of irrevocable instructions to wire all amounts collected therein to a special collateral account at Lender.

Section 7.2.  Collection of Receivables.  Lender may at any time in its sole discretion after the occurrence and during the continuance of a Default, by giving Borrower written notice, elect to require that the Receivables be paid directly to Lender.  In such event, Borrower shall, and shall permit Lender to, promptly notify the account debtors or obligors under the Receivables of the Lender’s interest therein and direct such account debtors or obligors to make payment of all amounts then or thereafter due under the Receivables directly to Lender.  Upon receipt of any such notice from Lender, Borrower shall thereafter hold in trust for Lender all amounts and proceeds received by it with respect to the Receivables and Other Collateral and immediately and at all times thereafter deliver to Lender all such amounts and proceeds in the same form as so received, whether by cash, check, draft or otherwise, with any necessary endorsements.  Lender shall hold and apply funds so received as provided by the terms of Sections 7.3 and 7.4.

Section 7.3.  Special Collateral Account.  After the occurrence and during the continuance of a Default, Lender may require all cash proceeds of the Collateral to be deposited in a special non-interest bearing cash collateral account with Lender and held there as security for the Secured Obligations.  Borrower shall have no control whatsoever over said cash collateral account.  So long as such Default is continuing but prior to an acceleration of the Secured Obligations, Lender shall apply the collected balances in said cash collateral account on each business day first to the payment of the Secured Obligations outstanding under the Note whether or not such Secured Obligations shall then be due, next to the retention in the cash collateral account of an amount equal to 110% of the amount, if any, by which, after giving effect to the preceding application, (a) the sum of (i) the outstanding principal balance of the Note plus (ii) the Letter of Credit Exposure, exceeds (b) the Borrowing Base, and finally the balance, if any, remaining after giving effect to the two preceding applications into Borrower’s general operating account with Lender.  After an acceleration of the Secured Obligations, Lender shall be entitled to apply the balance in such collateral account against the Secured Obligations in any manner it shall determine in its sole discretion, and/or to retain any such balances as cash collateral for any Letter of Credit Exposure.

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Section 7.4.  Application of Proceeds.  The proceeds of the Collateral realized by Lender shall be applied by Lender to payment of the Secured Obligations in the following order unless a court of competent jurisdiction shall otherwise direct:

(a)  FIRST, to payment of all costs and expenses of Lender and Lenders incurred in connection with the collection and enforcement of the Secured Obligations or of the security interest granted to Lender pursuant to this Security Agreement;

(b)  SECOND, to payment of that portion of the Secured Obligations constituting accrued and unpaid interest and fees;

(c)  THIRD, to payment of the principal of the Secured Obligations;

(d)  FOURTH, to payment of any Secured Obligations (other than those listed above); and

(e)  FIFTH, the balance, if any, after all of the Secured Obligations have been satisfied, shall be deposited by Lender into Borrower’s general operating account with Bank of Texas.

ARTICLE VIII

GENERAL PROVISIONS

Section 8.1.  Notice of Disposition of Collateral.  Any notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made shall be deemed reasonable if sent to Borrower, in the maner and addressed as set forth in Article IX, at least ten days prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made.

Section 8.2.  Compromises and Collection of Collateral.  Borrower and Lender recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Receivables, that certain of the Receivables may be or become uncollectable in whole or in part and that the expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may be expected to be recovered with respect to a Receivable.  In view of the foregoing, Borrower agrees that Lender may at any time and from time to time, if a Default has occurred and is continuing, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as Lender in its sole discretion shall determine or abandon any Receivable, and any such action by Lender shall be commercially reasonable so long as Lender acts in good faith based on information known to it at the time it takes any such action.

Section 8.3.  Secured Party Performance of Borrower Obligations.  Without having any obligation to do so, Lender may perform or pay any obligation which Borrower has agreed to, and failed to, perform or pay in this Security Agreement and Borrower shall reimburse Lender for any amounts paid by Lender pursuant to this Section 8.3.  Borrower’s obligation to reimburse Lender pursuant to the preceding sentence shall be a Secured Obligation payable on the second Business Day after Lender’s demand for such payment.

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Section 8.4.  Authorization for Secured Party to Take Certain Action.  Borrower irrevocably authorizes Lender at any time and from time to time in the sole discretion of Lender and appoints Lender as its attorney in fact (i) to file financing statements necessary or desirable in Lender’s sole discretion to perfect and to maintain the perfection and priority of Lender’s security interest in the Collateral, (ii) to indorse and collect any cash proceeds of the Collateral, (iii) to file a carbon, photographic or other reproduction of this Security Agreement or any financing statement with respect to the Collateral as a financing statement in such offices as Lender in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of Lender’s security interest in the Collateral, (iv) to contact and enter into one or more agreements with the issuers of uncertificated securities which are Collateral and which are Securities or with financial intermediaries holding other Investment Property as may be necessary or advisable to give Lender Control over such Securities or other Investment Property, (v) subject to the terms of Section 4.1.5, to enforce payment of the Receivables in the name of Lender or Borrower, (vi) to apply the proceeds of any Collateral received by Lender to the Secured Obligations as provided in Article VII and (vii) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for such Liens as are specifically permitted hereunder), and Borrower agrees to reimburse Lender on demand for any payment made or any expense incurred by Lender in connection therewith, provided that this authorization shall not relieve Borrower of any of its obligations under this Security Agreement or under the Credit Agreement.

Section 8.5.  Specific Performance of Certain Covenants.  Borrower acknowledges and agrees that a breach of any of the covenants contained in Sections 4.1.5, 4.1.6, 4.4, 5.3, or 8.7 or in Article VII will cause irreparable injury to Lenders, that Lenders have no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of Lender to seek and obtain specific performance of other obligations of Borrower contained in this Security Agreement, that the covenants of Borrower contained in the Sections referred to in this Section 8.5 shall be specifically enforceable against Borrower.

Section 8.6.  Use and Possession of Certain Premises.  Upon the occurrence of a Default, Lender shall be entitled to occupy and use any premises owned or leased by Borrower where any of the Collateral or any records relating to the Collateral are located until the Secured Obligations are paid or the Collateral is removed therefrom, whichever first occurs, without any obligation to pay Borrower for such use and occupancy.

Section 8.7.  Dispositions Not Authorized.  Borrower is not authorized to sell or otherwise dispose of the Collateral except as set forth in Section 4.1.5 and notwithstanding any course of dealing between Borrower and Lender or other conduct of Lender, no authorization to sell or otherwise dispose of the Collateral (except as set forth in Section 4.1.5) shall be binding upon Lender.

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Section 8.8.  Benefit of Agreement.  The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns, except that Borrower shall not have the right to assign its rights or delegate its obligations under this Security Agreement or any interest herein, without the prior written consent of the Lender.

Section 8.9.  Survival of Representations.  All representations and warranties of Borrower contained in this Security Agreement shall survive the execution and delivery of this Security Agreement.

Section 8.10.  Taxes and Expenses.  Any taxes, excluding taxes imposed on any Lender’s net income (including penalties and interest payable in respect thereof) and franchise taxes imposed on any Lender by any jurisdiction under the laws of which such Lender is organized or doing business (or any political subdivision thereof), payable or ruled payable by Federal or State authority in respect of this Security Agreement shall be paid by Borrower, together with interest and penalties, if any.  Borrower shall reimburse such Lender for any and all out-of-pocket expenses and internal charges (including reasonable attorneys’, auditors’ and accountants’ fees and reasonable time charges of attorneys, paralegals, auditors and accountants who may be employees of such Lender) paid or incurred by such Lender in connection with the preparation, execution, delivery, administration, collection and enforcement of this Security Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral).  Any and all costs and expenses incurred by Borrower in the performance of actions required pursuant to the terms hereof shall be borne solely by Borrower.

Section 8.11.  Headings.  The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.

Section 8.12.  Termination.  This Security Agreement shall continue in effect (notwithstanding the fact that from time to time there may be no Secured Obligations outstanding) until (i) the Credit Agreement has terminated pursuant to its express terms and (ii) all of the Secured Obligations have been indefeasibly paid and performed in full and no commitments of Lenders which would give rise to any Secured Obligations are outstanding.

Section 8.13.  Entire Agreement.  The Loan Documents collectively embody the entire agreement and understanding between Borrower and Lender relating to the Collateral and supersede all prior agreements and understandings between Borrower and Lender relating to the Collateral.

Section 8.14.  CHOICE OF LAW.  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

Section 8.15.  Amendment and Restatement.  This Security Agreement amends and restates in its entirety that certain Pledge and Security Agreement dated February 27, 2002 by and between Borrower and Bank of Texas, N.A. (the “Original Security Agreement”), but does not constitute a novation of the Original Security Agreement, and does not extinguish the liens and security interests created and evidenced by the Original Security Agreement, which liens and security interests are hereby ratified, confirmed and extended by this Original Security Agreement.  None of execution, delivery, and performance of any other documents executed in connection with this Agreement, including but not limited to execution of any amendment or modification to the Credit Agreement, shall constitute a novation of any indebtedness already existing.

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ARTICLE IX

NOTICES

Section 9.1.  Sending Notices.  Any notice required or permitted to be given under this Security Agreement shall be sent (and deemed received) in the manner and to the addresses set forth in Section 12.4 of the Credit Agreement.  Notices to Borrower shall be sent to the address as provided in Exhibit “A.”

Section 9.2.  Change in Address for Notices.  Each of Borrower and Lender may change the address for service of notice upon it by a notice in writing to the other parties.

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IN WITNESS WHEREOF, Borrower and Lender have executed this Security Agreement as of the date first above written.

BORROWER:
TYLER TECHNOLOGIES, INC., a Delaware corporation
By:
	Brian K. Miller,
	Executive Vice President and
	Chief Financial Officer

LENDER:
BANK OF TEXAS, N.A., a national banking association
By:
	Ryan Suchala, Vice President

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STATE OF TEXAS	§
	§
COUNTY OF DALLAS	§

The foregoing instrument was acknowledged before me this ___ day of October, 2008, by Brian K. Miller, an Executive Vice President and Chief Financial Officer of TYLER TECHNOLOGIES, INC., on behalf of said corporation.

	_______________________
	Notary Public
My commission expires:
_______________________

STATE OF TEXAS	§
	§
COUNTY OF DALLAS	§

The foregoing instrument was acknowledged before me this ___ day of October, 2008, by Ryan Suchala, Vice President of Bank of Texas, N.A. on behalf of such banking association.

	_______________________
	Notary Public
My commission expires:
_______________________

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EXHIBIT “A”

(See Sections 3.3, 3.4, 4.1.7, and 9.1 of the Amended and Restated Pledge and Security Agreement)

Principal Place of Business and Mailing Address:

Tyler Technologies, Inc.

5949 Sherry Lane, Suite 1400

Dallas, Texas 75225

Attention: Treasurer

Federal Taxpayer Identification Number: 75-2303920

Location of Receivable Records: Same as above

Location of Inventory and Equipment and Fixtures:

A.           Properties Owned by Borrower

· 3199 Klepinger Road, Dayton, Ohio 45406

· 700 Mount Hope Ave., Bangor, Maine 04401

· 1512 Colony Circle, Longview, Texas 75604

· One Cole Haan Drive, Yarmouth, Maine 04096

· SE Corner of 53rd & Chicago, Lubbock, Texas 79414

B.           Properties Leased by Borrower:

· 5949 Sherry Lane, Suite 1400, Dallas, Texas 75225

· 5808 4th Street, Lubbock, Texas 79416

· 6500 International Parkway, Suite 2000, Plano, Texas 75093

· 370 U.S. Route One, Falmouth, Maine 04105

· 120 East Third Street, Eagle, Colorado 81631

· 78 N. Main, Driggs, Idaho 83422

· 2730 Ford Street, Ames, Iowa 50010

· 525 Avis Drive, Suite 5, Ann Arbor, Michigan 48108

· 1100 Oakesdale Ave. SW, Renton, Washington 98055

· 14142 Denver West Parkway, Suite 155, Lakewood, Colorado 80401

· 4400 S. Technology Dr., Suite 100, Sioux Falls, South Dakota 57106

· 1601 East Valley Road, Renton, Washington 98057

· 800 West Cummings Park, Suite 4400, Woburn, Massachusetts 02801

· 1700 W. Park Drive, Suite 180, Westborough, Massachusetts 01581

· 2604 Dempster Street, Suite 406, Park Ridge, Illinois

· 3550 North Central Avenue, Suite 1208, Phoenix, Arizona 85012

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· 900 Ridgefield Drive, Suite 205, Raleigh, North Carolina 27609

· 4 British American Blvd., Suite 2, Latham, New York 12110

· 7249 Capitol Blvd. South, Olympia, Washington 98501

· 116 Cliff Cave Road, Suite 1, St. Louis, Missouri 63129

· 22500 Illinois Rt. 9, Tremont, Illinois 61568

C. Public Warehouses of other locations pursuant to bailment or consignment arrangements:

· none

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EXHIBIT “B”

(See Sections 3.8 of the Amended and Restated Pledge and Security Agreement)

A.           Vehicles subject to certificate of title: none

Vehicle	VIN
1998 Pontiac Bonneville, #4454	1G2HX52K5WH224454
2003 Chevrolet Impala #3298	2G1WF52E239193298
1999 Ford Explorer, #4580	1FMZU34E2XZA24580
2008 Ford Taurus, #8035	1FAHF25W48G118035
2008 Ford Taurus, #1139	1FAHP24W78G121139
2005 Ford Taurus SD #9842	1FAFP53215A129842
2008 Ford Taurus #8893	1FAHP24W08G148893
2007 Chevrolet P/U Crew Cab #2663	3GCEK13M07G502663
1998 Mitsubishi Montero, S#7283	JA4LS41POWP027283
2007 Honda Civic 4DR AT #5174	1HGFA16587L095174
1995 Saab 900, S# 6942	YS3DD75B4S7016942
2006 Lexus IS 350 #5647	JTHBE262665005647

B.           Other Vehicles: none

C.           Patents, copyrights, trademarks protected under federal law:

Trademarks:

No. 933, 681	Scales design only, Class 35, Owned by Tyler Technologies, Inc., Registered 5/9/72
No. 1,402,565	SEACOR, Owned by Tyler Technologies, Inc., Registered 7/22/86
No. 1,616,006	Scales design only, Class 35 and 36, Owned by Tyler Technologies, Inc., Registered 10/2/90
No. 1,610,740	CLT, Owned by Tyler Technologies, Inc., Registered 8/21/90
No. 2,394,873	T (and design), Owned by Tyler Technologies, Inc., Registered 10/17/2000

PLEDGE AND SECURITY AGREEMENT (Tyler Technologies, Inc.)

Page 21

EXHIBIT “C”

(Intentionally Omitted)

Page 22

EXHIBIT “D”

(See Sections 3.9 and 4.1.6 of the Amended and Restated Pledge and Security Agreement)

Existing Liens on the Collateral:  see attached UCC searches

PLEDGE AND SECURITY AGREEMENT (Tyler Technologies, Inc.)

Page 23

EXHIBIT “E”

(See Sections 3.11 of the Amended and Restated Pledge and Security Agreement)

A.           Stocks: None

B.           Bonds:  None

C.           Government Securities:  see attached schedule

D.           Other Securities or Investment Property:  see attached schedule

PLEDGE AND SECURITY AGREEMENT (Tyler Technologies, Inc.)

Page 24

EX-31.1

Exhibit 31.1

CERTIFICATION

I, John S. Marr, Jr., President and Chief Executive Officer of Tyler Technologies, Inc., certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Tyler Technologies, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated divisions, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and

d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s third quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Dated: October 23, 2008	By:	/s/ John S. Marr, Jr.
		John S. Marr, Jr.
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brian K. Miller, Executive Vice President and Chief Financial Officer of Tyler Technologies, Inc., certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Tyler Technologies, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated divisions, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and

d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s third quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Dated: October 23, 2008	By:	/s/ Brian K. Miller
		Brian K. Miller
		Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

John S. Marr, Jr., President and Chief Executive Officer of  Tyler Technologies, Inc., (the “Company”) and Brian K. Miller, Executive Vice President and Chief Financial Officer of the Company, each certify pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1.   The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 23, 2008
	By:	/s/ John S. Marr, Jr.
		John S. Marr, Jr.
		President and Chief Executive Officer

By:	/s/ Brian K. Miller
	Brian K. Miller
	Executive Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Tyler Technologies, Inc. and will be retained by Tyler Technologies, Inc. and furnished to the Securities and Exchange Commission upon request.