BOTTOMLINE TECHNOLOGIES INC /DE/ (Form: 10-Q, Received: 02/12/2003 17:22:26)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2002

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-25259

Bottomline Technologies (de), Inc.

(Exact name of registrant as specified in its charter)

Delaware

02-0433294

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

325 Corporate Drive, Portsmouth, New Hampshire		03801-6808
(Address of principal executive offices)		(Zip Code)

(603) 436-0700

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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock as of January 31, 2003 was 15,582,456.

INDEX

		Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Condensed Consolidated Balance Sheets as of December 31, 2002 and June 30, 2002		1

Unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2002 and 2001		2

Unaudited Condensed Consolidated Statements of Operations for the six months ended December 31, 2002 and 2001		3

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2002 and 2001		4

Notes to Unaudited Condensed Consolidated Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3. Quantitative and Qualitative Disclosures about Market Risk		22

Item 4. Controls and Procedures		22

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		23

Item 4. Submission of Matters to a Vote of Security Holders		23

Item 6. Exhibits and Reports on Form 8-K		23

SIGNATURE		24

CERTIFICATIONS		25

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Bottomline Technologies (de), Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands)

	December 31, 2002			June 30, 2002
Assets
Current assets:
Cash and cash equivalents	$	24,222		$	25,931
Accounts receivable, net of allowance for doubtful accounts and returns of $1,718 at December 31, 2002 and $1,681 at June 30, 2002		12,965			15,242
Other current assets		3,639			3,960

Total current assets		40,826			45,133
Property, plant and equipment, net		6,233			6,955
Intangible assets, net		26,248			43,540
Other assets		1,758			1,689

Total assets	$	75,065		$	97,317

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,154		$	5,154
Accrued expenses		6,304			5,574
Deferred revenue and deposits		14,656			13,452
Current portion of long-term debt		253			253

Total current liabilities		25,367			24,433
Long-term debt		253			253

Total liabilities		25,620			24,686
Stockholders’ equity:
Common stock		16			16
Additional paid-in-capital		163,543			164,022
Deferred compensation		(235	)		(474	)
Accumulated other comprehensive income		1,210			182
Treasury stock		(4,681	)		(4,538	)
Retained deficit		(110,408	)		(86,577	)

Total stockholders’ equity		49,445			72,631

Total liabilities and stockholders’ equity	$	75,065		$	97,317

See accompanying notes to unaudited condensed consolidated financial statements.

Bottomline Technologies (de), Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

	Three Months Ended December 31,
	2002			2001
Revenues:
Software licenses	$	3,359		$	4,461
Service and maintenance		9,969			10,183
Equipment and supplies		4,396			5,681

Total revenues		17,724			20,325
Cost of revenues:
Software licenses		449			268
Service and maintenance		5,627			5,314
Equipment and supplies		3,329			4,178

Total cost of revenues		9,405			9,760

Gross profit		8,319			10,565
Operating expenses:
Sales and marketing		4,414			4,916
Product development and engineering:
Product development and engineering		3,029			3,666
Stock compensation expense		26			104
General and administrative		2,908			2,667
Amortization of intangible assets		2,243			8,366

Total operating expenses		12,620			19,719

Loss from operations		(4,301	)		(9,154	)
Other income, net		111			78

Loss before provision for income taxes		(4,190	)		(9,076	)
Provision for income taxes		15			30

Net loss	$	(4,205	)	$	(9,106	)

Net loss per share:
Basic and diluted	$	(0.27	)	$	(0.66	)

Shares used in computing net loss per share:
Basic and diluted		15,567			13,822

See accompanying notes to unaudited condensed consolidated financial statements.

Bottomline Technologies (de), Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

	Six Months Ended December 31,
	2002			2001
Revenues:
Software licenses	$	6,099		$	8,267
Service and maintenance		19,255			19,640
Equipment and supplies		8,650			10,619

Total revenues		34,004			38,526
Cost of revenues:
Software licenses		854			664
Service and maintenance		10,654			9,862
Equipment and supplies		6,492			7,667

Total cost of revenues		18,000			18,193

Gross profit		16,004			20,333
Operating expenses:
Sales and marketing		9,390			9,488
Product development and engineering:
Product development and engineering		6,602			7,116
Stock compensation expense		63			204
General and administrative		5,844			5,851
Amortization of intangible assets		4,425			16,719

Total operating expenses		26,324			39,378

Loss from operations		(10,320	)		(19,045	)
Other income (expense), net		283			(254	)

Loss before cumulative effect of accounting change and provision for income taxes		(10,037	)		(19,299	)
Provision for income taxes		30			90

Loss before cumulative effect of accounting change		(10,067	)		(19,389	)
Cumulative effect of accounting change		(13,764	)		—

Net loss	$	(23,831	)	$	(19,389	)

Net loss per basic and diluted share:
Loss per share before cumulative effect of accounting change	$	(0.65	)	$	(1.41	)
Cumulative effect of accounting change		(0.88	)		—

Net loss per basic and diluted share:	$	(1.53	)	$	(1.41	)

Shares used in computing net loss per share:
Basic and diluted		15,556			13,799

See accompanying notes to unaudited condensed consolidated financial statements.

Bottomline Technologies (de), Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Six Months Ended December 31,
	2002			2001
Operating activities:
Net loss	$	(23,831	)	$	(19,389	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Cumulative effect of accounting change		13,764			—
Amortization of intangible assets		4,425			16,719
Depreciation and amortization of property and equipment		1,426			1,627
Provision for allowances on accounts receivable		44			313
Stock compensation expense		63			204
Deferred income tax expense		—			40
Provision for allowances for obsolescence of inventory		—			21
Gain on foreign exchange		(140	)		—
Changes in operating assets and liabilities:
Accounts receivable		2,631			2,577
Inventory, prepaid expenses, refundable taxes, and other current assets		364			1,680
Accounts payable, accrued expenses, income taxes payable and deferred revenue and deposits		460			1,089

Net cash (used in) provided by operating activities		(794	)		4,881
Investing activities:
Purchases of short-term investments, net		—			(2,000	)
Purchases of property, plant and equipment, net		(589	)		(670	)

Net cash used in investing activities		(589	)		(2,670	)
Financing activities:
Repurchase of common stock		(932	)		(1,292	)
Proceeds from employee stock purchase plan and exercise of stock options		486			198
Payment of bank financing fees		—			(25	)

Net cash used in financing activities		(446	)		(1,119	)
Effect of exchange rate changes on cash		120			6

Increase (decrease) in cash and cash equivalents		(1,709	)		1,098
Cash and cash equivalents at beginning of period		25,931			13,247

Cash and cash equivalents at end of period	$	24,222		$	14,345

Schedule of non-cash investing and financing activities:
Issuance of common stock and common stock warrants	$	—		$	750

See accompanying notes to unaudited condensed consolidated financial statements.

Bottomline Technologies (de), Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2002

Note 1—Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three and six months ended December 31, 2002 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending June 30, 2003. For further information, refer to the financial statements and footnotes included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) on September 30, 2002.

Certain prior period amounts have been reclassified to comply with recent accounting pronouncements as more fully disclosed in Note 8.

Note 2—Business Combinations

In May 2002, the Company acquired substantially all of the assets and assumed certain liabilities of eVelocity Corporation (eVelocity). The consideration for the acquisition was approximately $3,100,000, consisting of $1,355,000 in cash, $1,573,000 in liabilities assumed and acquisition related costs. As a result of the acquisition, the Company recorded intangible assets of approximately $2,785,000, consisting of $1,142,000 of core technology, $1,007,000 of customer contracts and $636,000 of goodwill. The finite lived intangible assets, core technology and customer contracts, are being amortized over their estimated useful lives of five and ten years, respectively. Since eVelocity had only limited operations prior to the acquisition, pro-forma information has not been included.

Note 3—Financing Arrangements

In December 2002, the Company extended, through December 27, 2003, its Loan and Security Agreement (Credit Facility) which provides for borrowings of up to $5.0 million and which requires the Company to maintain certain financial covenants. Eligible borrowings are based on a borrowing base calculation of the Company’s qualifying accounts receivable, as defined in the Credit Facility. Borrowings bear interest at the bank’s prime rate (4.25% at December 31, 2002) plus one-half of one percent, are secured by substantially all U.S. owned assets of the Company and are due on the expiration date of the Credit Facility. The Credit Facility also provides for the issuance of up to $2.0 million in letters of credit for, and on behalf of, the Company. At December 31, 2002, a $2.0 million letter of credit had been issued to the Company’s landlord as part of a lease arrangement for its corporate headquarters. The borrowing capacity under the Credit Facility is reduced by any outstanding letters of credit. There were no outstanding borrowings at December 31, 2002.

In February 2003, Bottomline Europe renewed, through December 31, 2003, its Committed Overdraft Facility (Overdraft Facility), which provides for borrowings of up to 2.0 million British Pound Sterling. Borrowings under this Overdraft Facility bear interest at the bank’s base rate (4% at December 31, 2002) plus 2% and are due on December 31, 2003. Borrowings are secured by substantially all assets of Bottomline Europe. There were no outstanding borrowings at December 31, 2002.

Note 4—Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share:

	Three Months Ended December 31,						Six Months Ended December 31,
	2002			2001			2002			2001
	(in thousands, except per share amounts)
Numerator:
Loss before cumulative effect of accounting change	$	(4,205	)	$	(9,106	)	$	(10,067	)	$	(19,389	)
Cumulative effect of accounting change		—			—			(13,764	)		—

Net loss	$	(4,205	)	$	(9,106	)	$	(23,831	)	$	(19,389	)

Denominator:
Denominator for basic and diluted loss per share-weighted average shares outstanding		15,567			13,822			15,556			13,799

Net loss per share:
Loss before cumulative effect of accounting change	$	(0.27	)	$	(0.66	)	$	(0.65	)	$	(1.41	)
Cumulative effect of accounting change		—			—			(0.88	)		—

Basic and diluted net loss per share	$	(0.27	)	$	(0.66	)	$	(1.53	)	$	(1.41	)

The effect of outstanding stock options and warrants are excluded from the calculation of diluted net loss per share for the three and six months ended December 31, 2002 and 2001, as their effect would be anti-dilutive.

Note 5—Comprehensive Loss

Comprehensive loss represents the Company’s net loss plus the results of certain stockholders’ equity changes not reflected in the unaudited condensed consolidated statements of operations. The components of comprehensive loss, net of tax, are as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
	2002			2001			2002			2001
	(in thousands)
Net loss	$	(4,205	)	$	(9,106	)	$	(23,831	)	$	(19,389	)
Other comprehensive income (loss):
Foreign currency translation adjustments		22			(632	)		1,028			1,755
Unrealized gain (loss) on investments		—			—			—			(6	)

Comprehensive loss	$	(4,183	)	$	(9,738	)	$	(22,803	)	$	(17,640	)

Note 6—Operations by Industry Segments and Geographic Area

The Company is a global technology provider of financial software solutions and services that are sold to businesses and financial institutions. As permitted by the provisions of Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosure About Segments of an Enterprise and Related Information,” the Company has one reportable segment for financial statement purposes.

Net sales, based on the point of sales, not the location of the customer, were as follows:

	Three Months Ended December 31,				Six Months Ended December 31,
	2002		2001		2002		2001
	(in thousands)
Sales to unaffiliated customers:
United States	$	10,407	$	13,257	$	19,240	$	23,898
United Kingdom		7,317		7,068		14,764		14,628

Total sales to unaffiliated customers:	$	17,724	$	20,325	$	34,004	$	38,526

At December 31, 2002, long-lived assets of approximately $17,000,000 and $17,200,000 were located in the United States and United Kingdom, respectively. At June 30, 2002, long-lived assets of approximately $18,500,000 and $33,700,000 were located in the United States and United Kingdom, respectively.

Note 7—Income Taxes

In the three and six month periods ended December 31, 2002, the Company incurred a substantial operating loss due in part to the amortization of intangible assets. Since substantial amortization expense associated with intangible assets will continue to be incurred for tax purposes, and since the Company has utilized its income tax loss carryback, the Company has maintained a full valuation allowance for its deferred tax assets since, based on the available evidence, it has been deemed more likely than not that the deferred tax assets will not be realized.

Note 8—Recent Accounting Pronouncements

Effective July 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Under the provisions of SFAS No. 142, intangible assets with finite useful lives are amortized over their estimated useful lives in proportion to the economic benefits consumed. Such intangible assets are subject to the impairment provisions of SFAS No. 144 (discussed below). Goodwill and intangible assets with indefinite useful lives are no longer amortized, but are instead tested for impairment annually, or more frequently when events or circumstances occur indicating that an asset might be impaired. Upon adoption of SFAS 142, the Company was required to perform a transitional impairment test on all indefinite lived intangible assets, including goodwill. As more fully discussed in Note 9, the Company recorded a transitional impairment charge of $13.8 million associated with goodwill in the Bottomline Europe reporting unit, as a cumulative effect of a change in accounting principle.

Effective July 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and provides a single accounting model for the disposal of long-lived assets. The adoption of SFAS 144 did not have a material impact on our financial statements.

In November 2001, the Emerging Issues Task Force issued its consensus on EITF 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred,” which requires that all out-of-pocket expenses billed to a customer be classified as revenue with the offsetting cost recorded as a cost of revenue. The Company’s out of pocket expenses generally include, but are not limited to, employee travel related expenses. The Company had previously treated customer reimbursement for such expenses as a reduction to cost of revenues, and has reclassified such amounts to revenue upon adoption. The adoption of EITF 01-14 did not have a material impact on our financial statements, and prior period amounts have been reclassified to conform with this pronouncement.

In April 2001, the Emerging Issues Task Force issued its consensus on EITF 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products,” whereby consideration from a vendor to a reseller of the vendor’s products is presumed to be a reduction of the vendor’s selling prices and, therefore, should be characterized as a reduction of revenue by the vendor. As a result of our adoption of EITF 00-25, we reclassified certain amounts paid to customers of our NetTransact software from cost of revenues and sales and marketing expense to a reduction of revenue. The adoption of EITF 00-25 did not have a material impact on our fiscal year 2001 or 2002 financial statements, and prior period amounts have been reclassified to conform with this pronouncement.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which is effective for the Company for exit or disposal activities initiated after December 31, 2002. SFAS 146 addresses the financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS 146 requires that costs associated with an exit or disposal activity be recognized when a liability is incurred, rather than at the date of an entity’s commitment to an exit plan. We do not believe that the adoption of SFAS 146 will have a material impact on our financial statements.

In November 2002, the Emerging Issues Task Force reached consensus on EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”, which addresses how to account for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The guidance of EITF 00-21 will be applicable to agreements entered into in fiscal periods beginning after June 15, 2003 (fiscal 2004 for the Company) and companies will be permitted to apply the consensus guidance to all existing arrangements as the cumulative effect of a change in accounting principle. The Company is still in the process of determining the impact that EITF 00-21 will have on its financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” SFAS 148 provides for alternative methods of voluntary transition to the fair value based method of accounting for stock-based employee compensation, and it requires more prominent disclosures, in both interim and annual financial statements, about the method of accounting for stock-based employee compensation and the effect of the method used on reported financial results. SFAS 148 is effective for interim periods beginning after December 15, 2002, and for annual periods ending after December 15, 2002. We do not believe that the adoption of SFAS 148 will have a material impact on our financial statements.

Note 9—Goodwill and Other Intangible Assets

As indicated in Note 8, the Company adopted the provisions of SFAS 142 on July 1, 2002, which required that a transitional impairment test be completed within the first year of adoption. The first phase of this test, which was completed by the Company in September 2002, required a comparison of the carrying value of each of the Company’s reporting units to the reporting unit’s fair value. To the extent that the carrying value of any reporting unit exceeded its respective fair value, an indication of potential impairment was deemed to exist and a second phase of the transitional impairment test was required to determine the actual amount of impairment.

The Company has two reporting units, represented by its two geographic operating segments – Bottomline US and Bottomline Europe. Based on the results of the first phase of the transitional impairment test, the Company was required to perform the second phase of the test for the Bottomline Europe reporting unit, which was completed in the quarter ended December 31, 2002. Based on the results of the phase two assessment, the Company recorded an impairment charge of $13.8 million resulting from the impairment of goodwill in Bottomline Europe. In accordance with the transition provisions of SFAS 142, this amount has been reported as a cumulative effect of a change in accounting principle and has been recorded retroactively to the quarter ended September 30, 2002, the first quarter of the fiscal year.

At December 31, 2002, the carrying value of the Company’s goodwill in the Bottomline US and Bottomline Europe reporting units was approximately $7,156,000 and $10,396,000, respectively. At June 30, 2002, the carrying value of the Company’s goodwill in the Bottomline US and Bottomline Europe reporting units was approximately $7,140,000 and $23,611,000, respectively.

The following tables set forth the information for intangible assets subject to amortization and for intangible assets not subject to amortization under SFAS 142:

	As of December 31, 2002
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
	(in thousands)
Amortized intangible assets:
Customer lists	$	17,354	$	(13,497	)	$	3,857
Core technology		12,462		(8,548	)		3,914
Customer contracts		1,007		(82	)		925

Total	$	30,823	$	(22,127	)	$	8,696

Unamortized intangible assets:
Goodwill							17,552

Total intangible assets						$	26,248

	As of June 30, 2002
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
	(in thousands)
Amortized intangible assets:
Customer lists	$	16,436	$	(10,044	)	$	6,392
Core technology		12,245		(6,811	)		5,434
Customer contracts		1,007		(44	)		963

Total	$	29,688	$	(16,899	)	$	12,789

Unamortized intangible assets:
Goodwill							30,751

Total intangible assets						$	43,540

The change in the carrying value of goodwill since June 30, 2002 was due to the impairment charge recorded in the Bottomline Europe reporting unit as previously described and the effect of foreign currency translation adjustments.

Estimated amortization expense for the current fiscal year, and each of the five succeeding fiscal years, is as follows:

		In thousands
2003		$8,671
2004		2,634
2005		561
2006		339
2007		328
2008		103

Upon adoption of SFAS 142, $2,502,000 that had previously been capitalized and reported as the separate intangible asset “assembled workforce” was reclassified to goodwill, since such amounts no longer meet the requirements of an intangible asset that can be separately stated.

Upon adoption of SFAS 142, the Company ceased amortization of goodwill and the amounts that were reclassified to goodwill. The following table summarizes and reconciles the Company’s reported loss, before the cumulative effect of a change in accounting principle, for the three and six months ended December 31, 2002 and 2001. The comparable prior period amounts have been adjusted to exclude amortization expense relating to goodwill and other intangible assets that, upon adoption of SFAS 142, are no longer amortized:

	Three Months Ended December 31,						Six Months Ended December 31,
	2002			2001			2002			2001
	(in thousands, except per share amounts)
Loss before cumulative effect of a change in accounting principle, as originally reported	$	(4,205	)	$	(9,106	)	$	(10,067	)	$	(19,389	)
Add back: goodwill amortization		—			6,353			—			12,696

Adjusted loss, before cumulative effect of a change in accounting principle	$	(4,205	)	$	(2,753	)	$	(10,067	)	$	(6,693	)

Basic and diluted loss per share, before cumulative effect of a change in accounting principle, as originally reported	$	(0.27	)	$	(0.66	)	$	(0.65	)	$	(1.41	)
Add back: goodwill amortization		—			0.46			—			0.92

Adjusted basic and diluted loss per share before cumulative effect of a change in accounting principle	$	(0.27	)	$	(0.20	)	$	(0.65	)	$	(0.49	)

Note 10—Severance and Exit Costs

During the six months ended December 31, 2002, the Company implemented several initiatives to align its cost structure with existing market conditions. As part of this plan, the Company consolidated its workforce, in both the US and Europe, and closed a facility in the US. In connection with these initiatives, the Company recorded charges of approximately $574,000 in the quarter ended September 30, 2002 and of approximately $468,000 in the quarter ended December 31, 2002. At December 31, 2002, approximately $360,000 of severance and facility exit costs remained accrued for payment in future periods.

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

This quarterly report contains forward-looking statements that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Without limiting the foregoing, the words “may,” will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this quarterly report are based on information available to us up to, and including, the date of this document, and we assume no obligation to update any such forward-looking statements, even if our estimates change. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Factors That May Affect Future Results” and elsewhere in this quarterly report. You should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the SEC.

Overview

We provide a comprehensive set of solutions for financial resource management (FRM). Our software products and services enable organizations to more effectively make and collect payments, send and receive invoices and conduct electronic banking activities. We offer both software designed to run on-site at the customer’s location and hosted solutions. Our products allow our customers to leverage the Internet in automating existing operations while increasing security and fraud avoidance. They complement our customers’ existing information systems, accounting applications and banking functions. As a result, our solutions can be deployed quickly and efficiently. To help our customers receive the maximum value and meet their own particular needs, we also provide professional services for installation, training, consulting and product enhancement, as well as related equipment and supplies. We market our products globally with a particular focus on the United States and, through Bottomline Europe, the United Kingdom. We have over 5,500 customers, including over 50 of the Fortune 100 and over 90 of the FTSE (Financial Times) 100 companies.

We have one reportable segment for financial statement purposes, as permitted by the provisions of SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information.” Since our acquisition of Bottomline Europe on August 28, 2000, we have had operations in the United Kingdom in addition to the United States.

Critical Accounting Policies and Significant Judgments and Estimates

We believe that several accounting policies are important to understanding our historical and future performance. We refer to such policies as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used. The critical accounting policies we identified in our most recent Annual Report on Form 10-K related to revenue recognition, intangible assets and our equity investments. It is important that the historical discussion below be read in conjunction with our critical accounting policies as discussed in our Annual Report on Form 10-K for the year ended June 30, 2002, and the critical accounting policy that follows relating to goodwill impairment.

Goodwill Impairment

Effective July 1, 2002, we adopted the provisions of SFAS 142 relating to goodwill and intangible assets. We were required to perform a transitional impairment test upon adoption to determine the amount of goodwill impairment, if any. The impairment test is a two-step process. The first step requires a calculation of fair value of each of our reporting units. Any reporting unit whose calculated fair value is less than its respective carrying value is deemed “impaired” and the second step of the impairment test is required. The second step of the impairment test requires fair value estimates of identifiable assets and liabilities of each “impaired” reporting unit, after which the implied fair value of goodwill is determined. Any excess of goodwill carrying value over its implied fair value is deemed to represent the amount of impairment. In connection with our adoption of SFAS 142, we recorded an impairment charge of $13.8 million. This amount has been recorded as a cumulative effect of a change in accounting principle, retroactive to the quarter ended September 30, 2002, the first quarter of the fiscal year.

We utilized an outside valuation firm to assist us in calculating the required fair value amounts in connection with our impairment review. The principal component of each fair value calculation is the determination of discounted future cash flows. There are a number of variables that we considered for purposes of projecting these future cash flows. There is inherent uncertainty involved with this estimation process, and—while our estimates are consistent with our internal planning assumptions—the ultimate accuracy of these estimates is only verifiable over time. The particularly sensitive components of these estimates include, but are not limited to:

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the selection of an appropriate discount rate

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our overall revenue growth and mix of revenue

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our gross margin estimates (which are highly dependent on our mix of revenue)

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the level of Bottomline US products that will be sold by Bottomline Europe

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our software product life cycles

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the attrition rate of our customers, particularly those who contribute to our recurring revenue streams (such as software maintenance)

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our planned level of operating expenses

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our effective tax rate, and

The use of different assumptions or projections, in some or all of the areas noted above, would likely have resulted in different fair value results thus affecting our measure of overall goodwill impairment.

Results of Operations

Three Months Ended December 31, 2002 Compared to the Three Months Ended December 31, 2001

Revenues

Total revenues decreased by $2.6 million to $17.7 million in the three months ended December 31, 2002 from $20.3 million in the three months ended December 31, 2001, a decrease of 13%. This decrease occurred in Bottomline US revenues and was due primarily to reductions in technology spending by our US customers and potential customers. Revenues, based on the point of sales, rather than the location of the customer, were $10.4 million and $7.3 million in the United States and United Kingdom, respectively, for the three months ended December 31, 2002. Revenues for the three months ended December 31, 2001 were $13.2 million and $7.1 million in the United States and United Kingdom, respectively.

Software Licenses. Software license revenues decreased by $1.1 million to $3.4 million in the three months ended December 31, 2002 from $4.5 million in the three months ended December 31, 2001, a decrease of 24%. Software license revenues represented 19% of total revenues in the three months ended December 31, 2002 compared to 22% of total revenues in the three months ended December 31, 2001. The decrease in software license revenues was due primarily to a reduction in software license revenues generated by Bottomline US as a result of a decrease in technology spending by our customers and potential customers. Based on current product plans, we anticipate that software license revenues, as a percentage of total revenues, will increase during the remainder of the fiscal year.

Service and Maintenance. Service and maintenance revenues decreased by $200,000 to $10.0 million in the three months ended December 31, 2002 from $10.2 million in the three months ended December 31, 2001, a decrease of 2%. The decrease in service and maintenance revenues was primarily due to a decrease in revenue contribution from professional services associated with our NetTransact product offering in the US. This decrease was offset by the revenue contribution from our WebSeries Legal e-billing offering which we introduced in May 2002 following our acquisition of substantially all of the assets of eVelocity Corporation and an increase in services and maintenance revenues generated by Bottomline Europe. Service and maintenance revenues represented 56% of total revenues in the three months ended December 31, 2002 compared to 50% of total revenues in the three months ended December 31, 2001. The higher service and maintenance revenues as a percentage of total revenues was due to the overall decline in total revenues. Based on current product plans, we anticipate that service and maintenance revenues will increase in dollars but will decrease slightly as a percentage of total revenues during the remainder of the fiscal year.

Equipment and Supplies. Equipment and supplies revenues decreased by approximately $1.3 million to $4.4 million in the three months ended December 31, 2002 from $5.7 million in the three months ended December 31, 2001, a decrease of 23%. The decrease in equipment and supplies revenues was attributable to the absence of several large equipment orders, which were fulfilled in the quarter ended December 31, 2001 in the US, as well as a decrease, in the quarter ended December 31, 2002, in supplies revenues generated by Bottomline Europe as a result of a higher level of supplies orders fulfilled in the prior year. Equipment and supplies revenues represented 25% of total revenues in the three months ended December 31, 2002 compared to 28% of total revenues in the three months ended December 31, 2001. Based on current product plans, we anticipate that equipment and supplies revenue levels will not change significantly during the remainder of the fiscal year.

Cost of Revenues

Software Licenses. Software license costs increased by $181,000 to $449,000 in the three months ended December 31, 2002 from $268,000 in the three months ended December 31, 2001. Software license costs were 13% of software license revenues in the three months ended December 31, 2002 compared to 6% of software license revenues in the three months ended December 31, 2001. The current quarter increase in software license costs as a percentage of software license revenues was primarily due to the inclusion of certain third party software used with our US products, on which we pay a royalty, and an increased share of software license revenues generated by Bottomline Europe. Software license revenues generated by Bottomline Europe have

historically carried a lower gross margin than Bottomline US software license revenues due in part to the cost of third party software, which is incorporated into and sold with the Bottomline Europe software products. We anticipate that software license costs, as a percentage of software license revenues, will not change significantly during the remainder of the fiscal year.

Service and Maintenance. Service and maintenance costs increased by approximately $300,000 to $5.6 million in the three months ended December 31, 2002 from $5.3 million in the three months ended December 31, 2001, an increase of 6%. Service and maintenance costs were 56% of service and maintenance revenues in the three months ended December 31, 2002 compared to 52% of service and maintenance revenues in the three months ended December 31, 2001. The increase in service and maintenance costs is attributable to increases in service and maintenance revenues generated by Bottomline Europe. Service and maintenance costs for the quarter ended December 31, 2002 also included employee severance and separation related costs as a result of cost reduction initiatives implemented in the quarter in Bottomline US. We anticipate that service and maintenance costs, as a percentage of service and maintenance revenues, will decrease slightly during the remainder of the fiscal year.

Equipment and Supplies. Equipment and supplies costs decreased by approximately $900,000 to $3.3 million in the three months ended December 31, 2002 from $4.2 million in the three months ended December 31, 2001, a decrease of 21%. Equipment and supplies costs were 76% of equipment and supplies revenues in the three months ended December 31, 2002 compared to 74% of equipment and supplies revenues in the three months ended December 31, 2001. The decrease in equipment and supplies costs was attributable to the associated decrease in equipment and supplies revenues. The increase in equipment and supplies costs as a percentage of equipment and supplies revenue was attributable to reduced profit margins realized by Bottomline Europe, principally resulting from higher third party costs associated with products that we resell. Bottomline Europe began experiencing higher purchase costs during the current fiscal year and our expectation is that this higher cost structure will continue. We anticipate that equipment and supplies costs, as a percentage of equipment and supplies revenues, will not change significantly during the remainder of the fiscal year.

Operating Expenses

Sales and Marketing:

Sales and Marketing. Sales and marketing expenses consist primarily of salaries and other related costs for sales and marketing personnel, sales commissions, travel, public relations, marketing materials and trade shows. Sales and marketing expenses decreased by approximately $500,000 to $4.4 million in the three months ended December 31, 2002 from $4.9 million in the three months ended December 31, 2001, a decrease of 10%. Sales and marketing expenses were 25% of total revenues in the three months ended December 31, 2002 compared to 24% of total revenues in the three months ended December 31, 2001. The majority of the decrease in sales and marketing expenses was the result of decreased personnel costs, including salaries and commissions, as a result of reduced headcount and reduced revenues, respectively, in Bottomline US. These reductions were partially offset by costs associated with employee severance and separation related costs incurred as a result of further cost reduction initiatives implemented in the quarter ended December 31, 2002. We anticipate that sales and marketing expenses, as a percentage of revenues, will decrease during the remainder of the fiscal year.

Product Development and Engineering:

Product Development and Engineering. Product development and engineering expenses consist primarily of personnel costs to support core product development, which continues to be focused on enhancements and revisions to existing Bottomline products based on customer feedback and marketplace demands. Product development and engineering expenses decreased by approximately $700,000 to $3.0 million in the three months ended December 31, 2002 from $3.7 million in the three months ended December 31, 2001, a decrease of 19%. The decrease in product development and engineering expenses was primarily the result of decreased personnel costs attributable to a reduction in headcount in the US, partially offset by employee severance and separation related costs incurred as a result of further cost reduction initiatives implemented in the US during the quarter ended December 31, 2002. Product development and engineering expenses were 17% of total revenues in the three months ended December 31, 2002 compared to 18% of total revenues in the three months ended December 31, 2001. We anticipate that product development and engineering expenses, as a percentage of revenues, will decrease during the remainder of the fiscal year.

Stock Compensation Expense. In connection with our acquisition of Flashpoint, Inc. in August 2000, we assumed all of the outstanding common stock options of Flashpoint, which were exchanged for our common stock options, and recorded deferred compensation of $1.3 million at the date of acquisition relating to the intrinsic value of the unvested options. The deferred compensation is being amortized to expense over the remaining vesting period of the options. Stock compensation expense decreased by $78,000 to approximately $26,000 in the three months ended December 31, 2002 from $104,000 in the three months ended December 31, 2001, a decrease of 75%. The decrease in stock compensation expense was due principally to the forfeiture of non-vested stock options as a result of employee separations and the completion of the vesting period for certain of the stock options. We anticipate that stock compensation expense will not change significantly during the remainder of the fiscal year.

General and Administrative:

General and Administrative. General and administrative expenses consist primarily of salaries and other related costs for operations and finance employees and legal and accounting services. General and administrative expenses increased by approximately $200,000 to $2.9 million in the three months ended December 31, 2002 from $2.7 million in the three months ended December 31, 2001, an increase of 7%. The increase in general and administrative expenses was due primarily to salaries and personnel related costs in Bottomline US. General and administrative expenses were 16% of total revenues in the three months ended December 31, 2002 compared to 13% of total revenues in the three months ended December 31, 2001. We anticipate that general and administrative costs, as a percentage of revenues, will decrease during the remainder of the fiscal year.

Amortization of Intangible Assets:

Amortization of Intangible Assets. Amortization of intangible assets related to our acquisitions decreased by $6.2 million to $2.2 million in the three months ended December 31, 2002 from $8.4 million in the three months ended December 31, 2001. The decrease in amortization expense is due to the adoption of SFAS 142, effective July 1, 2002. Under SFAS 142, goodwill is no longer subject to recurring amortization but instead is reviewed periodically for impairment. We expect to incur a consistent amount of amortization expense each quarter for the remainder of the fiscal year.

Other Income, Net:

Other income, net consists of interest income, interest expense and foreign currency transaction gains and losses. Other income, net increased by $33,000 to other income, net of $111,000 in the three months ended December 31, 2002 from other income, net of $78,000 in the three months ended December 31, 2001.

Provision for Income Taxes:

The provision for income taxes was $15,000 in the three months ended December 31, 2002 compared with a provision for income taxes of $30,000 in the three months ended December 31, 2001. At December 31, 2002, the provision for income taxes consisted of a small amount of U.S. state tax expense, which will be incurred irrespective of our net operating loss position. At December 31, 2002, we had utilized our income tax loss carryback and, accordingly, maintained a full valuation allowance for our deferred tax assets since, based on the available evidence, it was deemed more likely than not that the deferred tax assets will not be realized.

Results of Operations

Six Months Ended December 31, 2002 Compared to the Six Months Ended December 31, 2001

Revenues

Total revenues decreased by $4.5 million to $34.0 million in the six months ended December 31, 2002 from $38.5 million in the six months ended December 31, 2001, a decrease of 12%. This decrease occurred in Bottomline US revenues and was due primarily to reduced technology spending by our US customers and potential customers. Revenues, based on the point of sales, rather than the location of the customer, were $19.2 million and $14.8 million in the United States and United Kingdom, respectively, for the six months ended December 31, 2002. Revenues for the six months ended December 31, 2001 were $23.9 million and $14.6 million in the United States and United Kingdom, respectively.

Software Licenses. Software license revenues decreased by $2.2 million to $6.1 million in the six months ended December 31, 2002 from $8.3 million in the six months ended December 31, 2001, a decrease of 27%. Software license revenues represented 18% of total revenues in the six months ended December 31, 2002 compared to 21% of total revenues in the six months ended December 31, 2001. The decrease in software license revenues was due primarily to a reduction in software license revenues by Bottomline US.

Service and Maintenance. Service and maintenance revenues decreased slightly to $19.3 million in the six months ended December 31, 2002 from $19.6 million in the six months ended December 31, 2001, a decrease of 2%. The decrease in service and maintenance revenues was primarily due to a decrease in revenue contribution from professional services associated with our NetTransact product offering in the US. This decrease was offset by the revenue contribution from our WebSeries Legal e-billing offering which we introduced in May 2002 following our acquisition of substantially all of the assets of eVelocity Corporation and an increase in Bottomline Europe service and maintenance revenues. Service and maintenance revenues represented 57% of total revenues in the six months ended December 31, 2002 compared to 51% of total revenues in the six months ended December 31, 2001. The higher service and maintenance revenues as a percentage of total revenues was due to the overall decline in total revenues.

Equipment and Supplies. Equipment and supplies revenues decreased by approximately $1.9 million to $8.7 million in the six months ended December 31, 2002 from $10.6 million in the six months ended December 31, 2001, a decrease of 18%. The decrease in equipment and supplies revenues was attributable to the absence of several large equipment orders, which were fulfilled in the quarter ended December 31, 2001 in the US, and an overall reduction in equipment and supplies revenues of Bottomline Europe in the quarter ended December 31, 2002. The reduction in equipment and supplies revenues of Bottomline Europe was due to a higher level of supplies orders which were fulfilled in December 2001. Equipment and supplies sales represented 25% of total revenues in the six months ended December 31, 2002 compared to 28% of total revenues in the six months ended December 31, 2001.

Cost of Revenues

Software Licenses. Software license costs increased by $190,000 to $854,000 in the six months ended December 31, 2002 from $664,000 in the six months ended December 31, 2001. Software license costs were 14% of software license revenues in the six months ended December 31, 2002 compared to 8% of software license revenues in the six months ended December 31, 2001. The increase in software license costs as a percentage of software revenues for the six months ended December 31, 2002 was primarily due to the inclusion of certain third party software used with our Bottomline US products and an increased share of software revenues generated by Bottomline Europe. Software revenues generated by Bottomline Europe have historically carried a lower gross margin than Bottomline US software revenues due in part to the cost of third party software, which is incorporated into and sold with the Bottomline Europe software products.

Service and Maintenance. Service and maintenance costs increased by approximately $800,000 to $10.7 million in the six months ended December 31, 2002 from $9.9 million in the six months ended December 31, 2001, an increase of 8%. Service and maintenance costs were 55% of service and maintenance revenues in the six months ended December 31, 2002 compared to 50% of service and maintenance revenues in the six months ended December 31, 2001. The increase in service and maintenance costs is attributable to increases in service and maintenance revenues generated by Bottomline Europe. Service and maintenance costs for the six months ended December 31, 2002 also included employee severance and separation related costs as a result of cost reduction initiatives implemented by both Bottomline US and Bottomline Europe during the six months ended December 31, 2002.

Equipment and Supplies. Equipment and supplies costs decreased by approximately $1.2 million to $6.5 million in the six months ended December 31, 2002 from $7.7 million in the six months ended December 31, 2001, a decrease of 16%. Equipment and supplies costs were 75% of equipment and supplies revenues in the six months ended December 31, 2002 compared to 72% of equipment and supplies revenues in the six months ended December 31, 2001. The decrease in equipment and supplies costs was attributable to the associated decrease in equipment and supplies revenues. The increase in equipment and supplies costs as a percentage of equipment and supplies revenues was attributable to reduced profit margins realized by Bottomline Europe, principally resulting from higher third party costs associated with supplies that we resell. Bottomline Europe began experiencing higher purchase costs in the current fiscal year and our expectation is that this higher cost structure will continue.

Operating Expenses

Sales and Marketing:

Sales and Marketing. Sales and marketing expenses consist primarily of salaries and other related costs for sales and marketing personnel, sales commissions, travel, public relations, marketing materials and trade shows. Sales and marketing expenses decreased by approximately $100,000 to $9.4 million in the six months ended December 31, 2002 from $9.5 million in the six months ended December 31, 2001. Sales and marketing expenses were 28% of total revenues in the six months ended December 31, 2002 compared to 25% of total revenues in the six months ended December 31, 2001. Sales and marketing expenses decreased in the US as a result of a reduction in salaries and commissions, resulting from reduced headcount and lower revenues, respectively. These reductions were partially offset with employee severance and separation related costs as a result of further cost reduction initiatives implemented during the six months ended December 31, 2002 and increases in personnel related costs of Bottomline Europe as a result of employees hired into the group subsequent to December 31, 2001.

Product Development and Engineering:

Product Development and Engineering. Product development and engineering expenses consist primarily of personnel costs to support core product development, which continues to be focused on enhancements and revisions to existing Bottomline products based on customer feedback and marketplace demands. Product development and engineering expenses decreased by approximately $500,000 to $6.6 million in the three months ended December 31, 2002 from $7.1 million in the six months ended December 31, 2001, a decrease of 7%. The decrease in product development and engineering expenses was due to a reduction in salaries and employee related costs as a result of reduced US headcount and a slight shift in focus for certain personnel from core development work to billable work, the cost of which is classified as a component of cost of revenues. The reductions in cost were partially offset by employee severance and separation related costs as a result of further cost reduction initiatives implemented in the six months ended December 31, 2002. Product development and engineering expenses were 19% of total

revenues in the six months ended December 31, 2002 compared to 18% of total revenues in the six months ended December 31, 2001.

Stock Compensation Expense. In connection with our acquisition of Flashpoint, Inc. in August 2000, we assumed all of the outstanding common stock options of Flashpoint, which were exchanged for our common stock options, and recorded deferred compensation of $1.3 million at the date of acquisition relating to the intrinsic value of the unvested options. The deferred compensation is being amortized to expense over the remaining vesting period of the options. Stock compensation expense decreased by $141,000 to approximately $63,000 in the six months ended December 31, 2002 from $204,000 in the six months ended December 31, 2001, a decrease of 69%. The decrease in stock compensation expense was due principally to the forfeiture of non-vested stock options as a result of employee separations and the completion of the vesting period for certain of the stock options.

General and Administrative:

General and Administrative. General and administrative expenses consist primarily of salaries and other related costs for operations and finance employees and legal and accounting services. General and administrative expenses decreased by approximately $100,000 to $5.8 million in the six months ended December 31, 2002 from $5.9 million in the six months ended December 31, 2001, a decrease of 2%. The decrease in general and administrative expenses was primarily attributable to a reduction in salaries and related costs as a result of cost reduction initiatives implemented in the US, offset by a slight increase in personnel costs of Bottomline Europe. General and administrative expenses were 17% of total revenues in the six months ended December 31, 2002 compared to 15% of total revenues in the six months ended December 31, 2001.

Amortization of Intangible Assets:

Amortization of Intangible Assets. Amortization of intangible assets related to our acquisitions decreased by $12.3 million to $4.4 million in the six months ended December 31, 2002 from $16.7 million in the six months ended December 31, 2001. The decrease in amortization expense is due to the adoption of SFAS 142, effective July 1, 2002. Under SFAS 142, goodwill is no longer subject to recurring amortization but instead is reviewed periodically for impairment.

Other Income (Expense), Net:

Other income (expense), net consists of interest income, interest expense and foreign currency transaction gains and losses. Other income (expense), net increased by $537,000 to other income, net of $283,000 in the six months ended December 31, 2002 from other expense, net of $254,000 in the six months ended December 31, 2001. The other expense in the six months ended December 31, 2001 was primarily the result of a $450,000 write-down of an equity investment. The investment was in a non-public entity, accounted for under the cost method, in which indicators of impairment which we judged to be other than temporary became present during the period. The remaining carrying value of this investment is $450,000 at December 31, 2002.

Provision for Income Taxes:

The provision for income taxes was approximately $30,000 in the six months ended December 31, 2002 compared with a provision for income taxes of approximately $90,000 in the six months ended December 31, 2001. At December 31, 2002, the provision for income taxes consisted of a small amount of U.S. state tax expense, which will be incurred irrespective of our net operating loss position. At December 31, 2002, we had utilized our income tax loss carryback and, accordingly, maintained a full valuation allowance for our deferred tax assets since, based on the available evidence, it was deemed more likely than not that the deferred tax assets will not be realized.

Liquidity and Capital Resources

We have financed our operations primarily from cash provided by the sale of our common stock and operating activities. We had net working capital of $15.5 million at December 31, 2002, which included cash and cash equivalents totaling $24.2 million.

In December 2002, the Company extended, through December 27, 2003, its Loan and Security Agreement (Credit Facility) which provides for borrowings of up to $5.0 million and which requires the Company to maintain certain financial covenants. Eligible borrowings are based on a borrowing base calculation of the Company’s qualifying accounts receivable, as defined in the Credit Facility. Borrowings bear interest at the bank’s prime rate (4.25% at December 31, 2002) plus one-half of one percent, are secured by substantially all U.S. owned assets of the Company and are due on the expiration date of the Credit Facility. The Credit Facility also provides for the issuance of up to $2.0 million in letters of credit for, and on behalf of, the Company. At December 31, 2002, a $2.0 million letter of credit had been issued to the Company’s landlord as part of a lease arrangement for its corporate headquarters. The borrowing capacity under the Credit Facility is reduced by any outstanding letters of credit. As of December 31, 2002, there were no outstanding borrowings and we were in compliance with all financial covenants.

Cash used in operating activities was $800,000 in the six months ended December 31, 2002 and cash provided by operating activities was $4.9 million in the six months ended December 31, 2001. Net cash used in operating activities for the six months ended December 31, 2002 was primarily the result of the net loss, offset by the cumulative effect of an accounting change, amortization of intangible assets and a decrease in accounts receivable.

Net cash used in investing activities was $600,000 in the six months ended December 31, 2002 and $2.7 million in the six months ended December 31, 2001. Cash was used in the six months ended December 31, 2002 to acquire property and equipment.

Net cash used in financing activities was $400,000 in the six months ended December 31, 2002 and $1.1 million in the six months ended December 31, 2001. Cash used in financing activities was the result of the repurchase of our common stock under our stock repurchase program, offset in part by proceeds received from the exercise of stock options and the issuance of common stock pursuant to our employee stock purchase plan.

We have no capital lease obligations. We lease our principal office facility in Portsmouth, New Hampshire under a non-cancelable operating lease. In addition to the base term, we have the option to extend the term by two five-year periods. Rent payments are fixed for the term of the lease, subject to increases each year, based on fluctuations in the consumer price index. We are additionally obligated to pay certain incremental operating expenses over the base rent. We also lease facilities in San Francisco, California; New York, New York; Great Neck, New York; and Boston, Massachusetts. We own office space in Reading, England and lease facilities in Reading, London, and Manchester, England; Belfast, Ireland; and Glasgow, Scotland. All of our facility related leases expire by fiscal year 2010, with the exception of the lease of our principal office facility in Portsmouth, New Hampshire, which expires in fiscal year 2012. We sublease office space in several of our offices.

In addition, we have various operating leases for office equipment and vehicles. Our estimated lease obligations for facilities, office equipment and vehicles for this year, years 2 through 3, years 4 through 5, and greater than 5 years are $2.6 million, $4.1 million, $3.5 million and $7.6 million, respectively.

During the six months ended December 31, 2002, we did not engage in:

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material off-balance sheet activities, including the use of structured finance or special purpose entities;

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material trading activities in non-exchange traded commodity contracts; or

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transactions with persons or entities that benefit from their non-independent relationship with us.

We believe that our cash and cash equivalents on hand will be sufficient to meet our working capital requirements for at least the next twelve months. We also may receive additional investments from, and make investments in, other companies.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before making an investment decision involving our common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could fall, and you may lose all or part of the money you paid to buy our common stock.

The slowdown in the economy has affected the market for information technology solutions, including our products and services, and if this slowdown continues our future financial results could be materially adversely affected

As a result of continuing unfavorable economic conditions and reduced capital spending by our customers and potential customers, demand for our products and services has been adversely affected. This has resulted in decreased revenues, primarily software license revenues, and a decline in our growth rate. To date, the US marketplace has been specifically affected but there can be no assurance that this trend will not extend to the UK marketplace. Our future results will be materially and adversely affected if this slowdown continues or worsens and our revenues continue to be adversely impacted. In connection with the economic slowdown, we have implemented several cost reduction initiatives in an attempt to improve our profitability. If current economic conditions continue or worsen, these cost reductions may prove to be inadequate and we may experience a material adverse impact on our business, operating results, and financial condition.

Our common stock has experienced and may continue to undergo extreme market price and volume fluctuations

Stock markets in general, and The NASDAQ Stock Market in particular, have experienced extreme price and volume fluctuations, particularly in recent years. Broad market fluctuations of this type may adversely affect the market price of our common stock. The stock prices for many companies in the technology sector have experienced wide fluctuations that often have been unrelated to their operating performance. The market price of our common stock has experienced and may continue to undergo extreme fluctuations due to a variety of factors, including:

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general and industry-specific business, economic and market conditions;

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actual or anticipated fluctuations in operating results, including those arising as a result of any impairment of goodwill or other intangible assets related to our past acquisitions;

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changes in or our failure to meet analysts’ or investors’ estimates or expectations;

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public announcements concerning us, including announcements of litigation, our competitors or our industry;

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introductions of new products or services or announcements of significant contracts by us or our competitors;

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acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors;

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adverse developments in patent or other proprietary rights; and

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announcements of technological innovations by our competitors.

Our fixed costs may lead to operating results below analyst or investor expectations if our revenues are below anticipated levels, which could adversely affect the market price of our common stock

A significant percentage of our expenses, particularly personnel and facilities costs, are relatively fixed and based in part on anticipated revenue levels. We have undergone, and are currently experiencing, slowing growth rates due to the current economic climate. A decline in the growth rate of revenues without a corresponding and timely slowdown in expense growth could negatively affect our business. Significant revenue shortfalls in any quarter may cause significant declines in operating results since we may be unable to reduce spending in a timely manner.

Quarterly operating results that are below the expectations of public market analysts could adversely affect the market price of our common stock. Factors that could cause fluctuations in our operating results include the following:

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economic conditions which may affect our customers’ and potential customers’ budgets for information technology expenditures;

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the timing of orders and longer sales cycles, particularly due to the increased average sales price of our software solutions;

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the timing of product implementations, which are highly dependent on customers’ resources and discretion;

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the incurrence of costs relating to the integration of software products and operations in connection with acquisitions of technologies or businesses; and

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the timing and market acceptance of new products or product enhancements by either us or our competitors.

Because of these factors, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful.

Our mix of products and services could have a significant effect on our financial condition, results of operations and the market price of our common stock

Our products and services have considerably varied gross margins. Software revenues in general yield significantly higher gross margins than do our service, maintenance, equipment and supplies revenue streams. In the past year we have experienced a decrease in software license fees. If software license fees continue to decline or if the mix of our products and services in any given period does not match our expectations, our results of operations and the market price of our common stock could be significantly affected.

As a result of our acquisitions, we could be subject to significant future write-offs with respect to intangible assets, which may adversely affect our future operating results

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets , which required that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested annually for impairment, or more frequently when events or circumstances occur indicating that goodwill might be impaired. Effective July 1, 2002, we adopted SFAS No. 142, which required us to perform a transitional impairment test on all indefinite lived intangible assets. In connection with our transition to SFAS 142, we recorded an impairment charge of $13.8 million in relation to the goodwill of our Bottomline Europe reporting unit. In accordance with SFAS 142, this amount has been recorded retroactively to the first quarter of the fiscal year, and has been reported as a cumulative effect of a change in accounting principle. At December 31, 2002, the carrying value of our goodwill and our other intangible assets was $17.6 million and $8.7 million, respectively. We could be subject to impairment charges with respect to these intangible assets in future periods and such charges could have a material adverse effect on future operating results.

We face risks associated with our international operations that could harm our financial condition and results of operations

In recent periods, a significant percentage of our revenues has been generated by our international operations, and our future growth rates and success are in part dependent on our continued growth and success in international markets. As is the case with most international operations, the success and profitability of our international operations are subject to numerous risks and uncertainties that include, in addition to the risks our business as a whole faces, the following:

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difficulties and costs of staffing and managing foreign operations;

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differing regulatory and industry standards and certification requirements;

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the complexities of foreign tax jurisdictions;

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reduced protection for intellectual property rights in some countries;

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currency exchange rate fluctuations; and

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import or export licensing requirements.

A significant percentage of our revenues to date have come from our payment management offerings and our performance will depend on continued market acceptance of these solutions

A significant percentage of our revenues to date have come from the license and maintenance of our payment management offerings and sales of associated products and services. Any significant reduction in demand for our payment management offerings could have a material adverse effect on our business, operating results and financial condition. Our future performance could depend on the following factors:

•

continued market acceptance of our payment management offerings as a payment management solution;

•

prospective customers’ dependence upon enterprises seeking to enhance their payment functions to integrate electronic payment capabilities;

•

our ability to introduce enhancements to meet the market’s evolving needs for secure payments and cash management solutions; and

•

continued acceptance of desktop and enterprise software, and laser check printing solutions.

Our future financial results will depend upon the acceptance of electronic invoice presentment product offerings in an emerging market

Our electronic invoice presentment business model is in the early stages of market adoption, even though the product has been generally available from us and our competitors for some time. Customers and potential customers may not be ready to adopt our electronic invoice presentment business model, or may be slower to adopt the model than we, or the public market analysts, anticipate. If this emerging market does not adopt our business model or the market does not respond as quickly as we expect, our future results could be materially and adversely affected.

We face significant competition in our targeted markets, including competition from companies with significantly greater resources

In recent years we have encountered increasing competition in our targeted markets. We compete with a wide range of companies, ranging from small start-up enterprises with limited resources, which compete principally on the basis of technology features or specific customer relationships, to large companies, which can leverage significant customer bases and financial

resources. Given the size and nature of our targeted markets, the implementation of our growth strategy and our success in competing for market share generally may be dependent on our ability to grow our sales and marketing capabilities and maintain a critical level of financial resources. We have undergone, and are currently experiencing, slowing growth rates due to current economic conditions. If this slower growth rate continues or accelerates, we could lose market share to competitors.

Integration of acquisitions or strategic investments could interrupt our business and our financial condition could be harmed

We have made several acquisitions of companies and assets in the past, including the acquisition of substantially all of the assets and certain of the liabilities of eVelocity Corporation in May 2002, and may, in the future, acquire or make investments in other businesses, products or technologies. Any acquisition or strategic investment we have made in the past or may make in the future may entail numerous risks that include the following:

•

difficulties integrating acquired operations, personnel, technologies or products;

•

diversion of management’s focus from our core business concerns;

•

write-offs related to impairment of goodwill and other intangible assets;

•

entering markets in which we have no or limited prior experience or knowledge;

•

exposure to litigation from stockholders or creditors of, or other parties affiliated with, the target company or companies;

•

dilution to existing stockholders and earnings per share;

•

incurrence of substantial debt;

•

exposure to litigation from third parties, including claims related to intellectual property or other assets acquired or liabilities assumed; and

•

inadequacy of existing operating, financial and management information systems to support the combined organization or new operations.

Any such difficulties encountered as a result of any merger, acquisition or strategic investment could adversely affect our business, operating results and financial condition.

Our success depends on the widespread adoption of the Internet as a medium for electronic business

Our future success will in large part depend upon the willingness of businesses and financial institutions to adopt the Internet as a medium of e-business. These entities will probably accept this medium only if the Internet provides substantially greater efficiency and enhances their competitiveness. In addition, critical issues involved in the commercial use of the Internet are not yet fully resolved, including concerns regarding the Internet’s security, reliability, ease of access and quality of service.

To the extent that any of these or other issues inhibit or limit the adoption of the Internet as a medium of e-commerce, our business prospects could be adversely affected. If electronic business does not continue to grow or grows more slowly than expected, demand for our products and services may be reduced.

We depend on key employees who are skilled in e-commerce, payment, cash management and invoice presentment methodology and Internet and other technologies

Our success depends upon the efforts and abilities of our executive officers and key technical employees who are skilled in e-commerce, payment methodology and regulation, and Internet, database and network technologies. The loss of one or more of these individuals could have a material adverse effect on our business. We currently do not maintain “key man” life insurance policies on any of our employees. While some of our executive officers have employment agreements with us, the loss of the services of any of our executive officers or other key employees could have a material adverse effect on our business, operating results and financial condition.

We must attract and retain highly skilled personnel with knowledge in e-commerce, payment, cash management and invoice presentment methodology and Internet and other technologies

We believe that our success is in part dependent upon our ability to attract, hire, train and retain highly skilled technical, sales and marketing, and support personnel, particularly with expertise in e-commerce, payment, cash management and invoice methodology and Internet and other technologies. Competition for qualified personnel is intense. As a result, we may experience

increased compensation costs that may not be offset through either improved productivity or higher sales prices. There can be no assurances that we will be successful in attracting, recruiting or in retaining existing personnel. Based on our experience, it takes an average of nine months for a salesperson to become fully productive. We cannot assure you that we will be successful in increasing the productivity of our sales personnel, and the failure to do so could have a material adverse effect on our business, operating results and financial condition.

An increasing number of large and more complex customer contracts may impact the timing of our revenue recognition and affect our operating results, financial condition and the market price of our stock

Due to an increasing number of large and more complex customer contracts in the US, we have experienced, and will likely continue to experience, delays in the timing of our revenue recognition. These large and complex customer contracts generally require significant implementation work, product customization and modification resulting in the recognition of revenue on a percentage of completion basis. Delays in revenue recognition on these contracts could affect our operating results, financial condition and the market price of our common stock.

Increased competition may result in price reductions and decreased demand for our product solutions

The payments and electronic invoice presentment software markets in which we compete are intensely competitive and characterized by rapid technological change. Some competitors in our targeted markets have longer operating histories, significantly greater financial, technical, and marketing resources, greater brand recognition and a larger installed customer base than we do. We expect to face additional competition as other established and emerging companies enter the markets for payment and electronic invoice presentment software solutions. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships to expand their product offerings and to offer more comprehensive solutions. This growing competition may result in price reductions of our products and services, reduced revenues and gross margins and loss of market share, any one of which could have a material adverse effect on our business, operating results and financial condition.

Our success depends on our ability to develop new and enhanced software, services and related products

The payments and electronic invoice presentment software markets in which we compete are subject to rapid technological change and our success is dependent on our ability to develop new and enhanced software, services and related products that meet evolving market needs. Trends that could have a critical impact on us include:

•

rapidly changing technology, which could cause our software to become suddenly outdated or could require us to make our products compatible with new database or network systems;

•

evolving industry standards, mandates and laws, such as those mandated by the National Automated Clearing House Association and the Association for Payment Clearing Services; and

•

developments and changes relating to the Internet that we must address as we maintain existing products and introduce any new products.

There can be no assurance that technological advances will not cause our technology to become obsolete or uneconomical. If we are unable to develop and introduce new products, or enhancements to existing products, in a timely and successful manner, our business, operating results and financial condition could be materially adversely affected.

Any unanticipated performance problems or bugs in our product offerings could have a material adverse effect on our future financial results

If the products that we offer do not continue to achieve market acceptance, our future financial results will be adversely affected. Since certain of our software solutions are still in early stages of adoption, any unanticipated performance problems or bugs that we have not been able to detect could result in additional development costs, diversion of technical and other resources from our other development efforts, negative publicity regarding us and our products, harm to our customer relationships and exposure to potential liability claims. In addition, if these products do not enjoy wide commercial success, our long-term business strategy will be adversely affected, which could have a material adverse effect on our business, operating results and financial condition.

We could incur substantial costs resulting from warranty claims or product liability claims

Our license agreements typically contain provisions that afford customers a degree of warranty protection in the event that our software fails to conform to its written specifications. Our license agreements typically contain provisions intended to limit the nature and extent of our risk of warranty and product liability claims, however there is a risk that a court might interpret these terms in a limited way or could hold part or all of these terms to be unenforceable. Furthermore, some of our licenses with our

customers are governed by non-U.S. law, and there is a risk that foreign law might provide us less or different protection. While we maintain general liability insurance, including coverage for errors and omissions, we cannot be sure that our existing coverage will continue to be available on reasonable terms or will be available in amounts sufficient to cover one or more large claims. Although we have not experienced any material warranty or product liability claims to date, a warranty or product liability claim, whether or not meritorious, could result in substantial costs and a diversion of management’s attention and our resources, which could have an adverse effect on our business, operating results and financial condition.

We could be adversely affected if we are unable to protect our proprietary technology and could be subject to litigation regarding our intellectual property rights, causing serious harm to our business

We rely upon a combination of patent, copyright and trademark laws and non-disclosure and other intellectual property contractual arrangements to protect our proprietary rights. However, we cannot assure you that our patents, pending applications for patents that may be issued in the future, or other intellectual property will be of sufficient scope and strength to provide meaningful protection of our technology or any commercial advantage to us, or that the patents will not be challenged, invalidated or circumvented. We enter into agreements with our employees and customers that seek to limit and protect the distribution of proprietary information. Despite our efforts to safeguard and maintain our proprietary rights, there can be no assurance that such rights will remain protected or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. We may be a party to litigation in the future to protect our intellectual property rights or as a result of an alleged infringement of the intellectual property rights of others. These claims, whether or not meritorious, could require us to spend significant sums in litigation, pay damages, delay product installments, develop non-infringing intellectual property or acquire licenses to intellectual property that is the subject of the infringement claim. These claims could have a material adverse effect on our business, operating results and financial condition.

We may incur significant costs from class action litigation as a result of expected volatility in our common stock

In the past, companies that have experienced market price volatility of their stock have been the targets of securities class action litigation. In August 2001, we were named as a party in one of the so-called “laddering” securities class action suits relating to the underwriting of our initial public offering. We could incur substantial costs and experience a diversion of our management’s attention and resources in connection with such litigation, which could have a material adverse effect on our business, financial condition and results of operations.

Our future financial results will depend on our ability to manage growth effectively

In the past, rapid growth has strained our managerial and other resources. Recently, we have undergone, and are currently experiencing, slowing growth rates due to economic conditions. If our historical growth rate resumes, our ability to manage such growth will depend in part on our ability to continue to enhance our operating, financial and management information systems. We cannot assure you that our personnel, systems and controls will be adequate to support future growth, if any. If we are unable to manage growth effectively, should it occur, the quality of our services, our ability to retain key personnel and our business, operating results and financial condition could be materially adversely affected.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the Company’s exposure to market risk from that which was disclosed in the Company’s Annual Report on Form 10-K as filed with the SEC on September 30, 2002.

Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15-d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and are operating in an effective manner.

(b)

Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On or about December 12, 2002, an amended complaint was filed with the United States District Court for the Southern District of Ohio in the action Protel, Inc. vs. eVelocity Corporation, et. al., seeking to add Bottomline as a defendant in a claim by Protel, Inc. for an injunction, damages and attorneys fees, court costs and expenses in connection with alleged infringement of certain Protel patents by software we acquired from eVelocity. Bottomline intends to vigorously defend the claim. We do not believe that this claim will have a material impact on our financial position or operating results.

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

We held our 2002 Annual Meeting of Shareholders on November 21, 2002. The following matters were voted upon at the Annual Meeting.

Holders of 14,032,493 shares of our common stock voted to elect Joseph L. Barry, Jr. to serve for a term of three years as a Class I Director. Holders of 123,976 shares of our common stock withheld votes from such director. Holders of 14,077,124 shares of our common stock voted to elect Robert A. Eberle to serve for a term of three years as a Class I Director. Holders of 79,345 shares of our common stock withheld votes from such director. Holders of 13,684,428 shares of our common stock voted to elect Dianne Gregg to serve for a term of three years as a Class I Director. Holders of 472,041 shares of our common stock withheld votes from such director. Daniel M. McGurl, James L. Loomis, Joseph L. Mullen, James W. Zilinski and William O. Grabe also continue as directors.

Holders of 14,140,541 shares of our common stock voted to ratify the selection of Ernst & Young LLP as our independent auditors for the current fiscal year. Holders of 12,403 shares of our common stock voted against ratifying such selection and 3,525 shares abstained from voting.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

See the Exhibit Index on page 27 for a list of exhibits filed as part of this Quarterly Report on Form 10-Q, which Exhibit Index is incorporated herein by reference.

(b) Reports on Form 8-K:

None.

SIGNATURE

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.

		Bottomline Technologies (de), Inc.

Date: February 12, 2003		By: /s/ R OBERT A. E BERLE
		Robert A. Eberle Executive Vice President, Chief Operating Officer, Chief Financial Officer, and Secretary (Principal Financial and Accounting Officer)

CERTIFICATIONS

I, Joseph L. Mullen, certify that:

I have reviewed this quarterly report on Form 10-Q of Bottomline Technologies (de), Inc.;

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;

Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 12, 2003

By: /s/ J OSEPH L. M ULLEN

Joseph L. Mullen

President and Chief Executive Officer

CERTIFICATIONS

I, Robert A. Eberle, certify that:

I have reviewed this quarterly report on Form 10-Q of Bottomline Technologies (de), Inc.;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: February 12, 2003

By: /s/ R OBERT A. E BERLE

Robert A. Eberle

Executive Vice President, Chief Operating Officer,

Chief Financial Officer, and Secretary

(Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit		Number Description

10.1 #		Amended and Restated Employment Agreement dated as of November 21, 2002 between the Registrant and Mr. Mullen.

10.2 #		Amended and Restated Employment Agreement dated as of November 21, 2002 between the Registrant and Mr. Eberle.

10.3		First Loan Modification Agreement dated as of December 31, 2002 between the Registrant and Silicon Valley Bank.

10.4		Confirmation of Committed Business Overdraft Facility as of January 31, 2003 between Bottomline Technologies Europe Limited and National Westminster Bank Plc

99.1		Certification of Chief Executive Officer pursuant to U.S.C. Section 1350

99.2		Certification of Chief Financial Officer pursuant to U.S.C. Section 1350

Management contract or compensatory plan or arrangement

EXHIBIT 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), made as of the 21st day of November, 2002, is entered into by Bottomline Technologies (de), Inc., a Delaware corporation with its principal place of business at 325 Corporate Drive, Portsmouth, NH 03801 (the "Company"), and Mr. Joseph L. Mullen, residing at 60 Tidewater Farm Road, Greenland, NH 03840 (the "Employee").

WHEREAS, the Company desires to continue to employ the Employee, and the Employee desires to continue to be employed by the Company.

WHEREAS, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows:

1. Term of Employment. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the three year period commencing on November 21, 2002 (the "Commencement Date") and ending on November 21, 2005 (the "Initial Period"), such period to be automatically renewed for successive three year periods (each, a "Renewal Period" and, together with the Initial Period, the "Employment Period"). The Initial Period or the Renewal Period, as the case may be, shall not renew for a successive period if at least one year prior to the end of the Initial Period or the Renewal Period, as the case may be, written notice is provided by the Employee or the Company, as the case may be, referencing this Section 1 and the non-renewal of this Agreement; provided, that, if a Change in Control of the Company (as defined in Section 4 of this Agreement) shall have occurred during the Employment Period, the Employment Period and this Agreement shall continue in effect for a period of not less than three years from the date on which such Change in Control occurred and any notice of non-renewal pursuant to this Section 1 shall be deemed null and void.

For purposes of clarification and not limitation, any notice of non-renewal provided by the Employee or the Company, as the case may be, referencing this
Section 1 shall not be deemed to be a notice of termination under Section 5.5 or
Section 5.6 of this Agreement. Notwithstanding anything to the contrary in this
Section 1, the Employment Period may be terminated sooner by the Employee or the Company in accordance with the provisions of Section 5 of this Agreement.

2. Title; Capacity. During the Employment Period, the Employee shall serve as Chief Executive Officer and President of the Company. During the Employment Period, the Employee shall be subject to the supervision of, and shall have such authority as is delegated to him by, the Board of Directors of the Company (the "Board"). The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities normally inherent in such position and such other duties and responsibilities as the Board shall from time to time reasonably assign to him. During the Employment Period, the Employee shall, subject to the direction and supervision of the Board, devote his full business time, best efforts, business judgment, skill and knowledge to the advancement of the Company's business and interests and

to the discharge of his duties and responsibilities hereunder. The Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company.

3. Compensation and Benefits.

3.1 Salary and Bonus. The Company shall pay the Employee, in arrears in installments consistent with the Company's usual payroll practices, an annual base salary of $270,000. The Company agrees to review the Employee's annual base salary on each anniversary of the Commencement Date and may consider a merit increase in such annual base salary for the ensuing calendar year based upon the performance of the Employee during the prior year and in accordance with the terms of this Agreement and such other factors as the Board or the compensation committee of the Board may consider from time to time. In the event that the Employee is, or is to be, employed for less than a full payroll installment period, such installment of the annual base salary shall be appropriately adjusted. The Employee shall be eligible to receive an annual bonus based upon his performance and such other factors as the Board or the compensation committee of the Board may consider from time to time.

3.2 Fringe Benefits. Subject to Section 6 of this Agreement, the Employee shall be entitled to participate in all employee benefit programs that the Company establishes and makes available to its executive officers from time to time (such as life insurance, health insurance, dental insurance, long-term disability insurance and retirement programs whether such programs are qualified, nonqualified and/or pretax contribution programs). The Employee shall be entitled to four weeks paid vacation per year, to be taken at reasonable times.

3.3 Reimbursement of Expenses. The Company shall reimburse the Employee for all reasonable business travel, entertainment and other business expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, in accordance with expense reimbursement policies of the Company, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may reasonably request.

3.4 Stock Incentives. The Company and the Employee have executed and delivered one or more stock option agreements, pursuant to which the Employee has been granted options to purchase shares of the Company's Common Stock (collectively, with any future grants of stock options, the "Stock Options"), such Stock Options being subject to the terms and conditions of the respective Stock Option agreements and Section 6 of this Agreement. In addition, the Employee shall be eligible to receive grants of stock options and other awards and benefits pursuant to such employee stock option and other stock-based employee benefit plans as the Company may maintain from time to time during the Employment Period with respect to its key employees of similar stature and compensation, and such amounts as may be determined by the Board of Directors in its discretion.

4. Change in Control of the Company; Potential Change in Control. The Company recognizes that a Potential Change in Control of the Company (as defined below) and/or a

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Change in Control of the Company (as defined below) and the uncertainties which may arise among its senior executives in connection therewith could result in the departure or distraction of its senior executives to the detriment of the Company and its stockholders. Accordingly, in order to induce the Employee to remain in the employ of the Company and to secure for the Company and its stockholders the benefits of the Employee's continued attention and dedication during the tenancy of any Potential Change in Control of the Company or Change in Control of the Company, including the Employee's assessment of, and advice to the Company's Board regarding, among other things, whether any Potential Change in Control and/or Change in Control proposal would be in the best interest of the Company and its stockholders, the Company has determined that it is in the best interest of the Company and its stockholder to provide to the Employee the extended severance benefits contained in this Agreement.

4.1 Change in Control of the Company. A "Change in Control of the Company" shall occur or be deemed to have occurred only if any one or more of the following events occur:

(i) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities;

(ii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 50% of the combined voting power of the Company's then outstanding securities; or

(iii) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets.

4.2 Potential Change in Control of the Company. A "Potential Change in Control of the Company" shall be deemed to have occurred if:

(i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Company;

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(ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control of the Company; or

(iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control of the Company has occurred.

5. Employment Termination. The employment of the Employee by the Company shall terminate upon the occurrence of any of the following:

5.1 Expiration of the Employment Period in accordance with Section 1.

5.2 At the election of the Company, for cause, immediately upon written notice by the Company to the Employee. For the purposes of this Agreement, prior to a Change in Control of the Company, "for cause" shall mean the discharge resulting from a determination by a vote of the Board that the Employee:

(i) has been convicted of a felony involving dishonesty, fraud, theft or embezzlement or any other felony;

(ii) has willfully and persistently failed to attend to material duties or obligations reasonably imposed on him under this Agreement, which failure continues for 21 days following written notice thereof from the Board to the Employee referencing this Section 5.2(ii) and describing in reasonable detail the nature of the Employee's failure under this Section 5.2(ii);

(iii) has breached any of his material obligations under any agreement between the Employee and the Company which imposes confidentiality, proprietary information, assignment of invention(s), non-competition or similar obligations on the Employee, as may be in effect from time to time, which breach is described in reasonable detail in a written notice referencing this Section 5.2(iii) from the Board to the Employee and which breach of a material obligation would have an adverse effect on the Company (collectively "Company Agreements"); or

(iv) has performed or failed to act, which if he were prosecuted and convicted for such performance or failure would constitute a crime or offense involving money or property of the Company (in either case in an amount or at a value in excess of $5,000), or which would constitute a felony in the jurisdiction involved.

For purposes of this Agreement, after a Change in Control of the Company, "for cause" shall mean the discharge resulting from a determination by a vote of the Board only under clause (i) or (iv) of this Section 5.2.

5.3 Thirty days after the death or disability of the Employee. As used in this Agreement, the term "disability" shall mean the Employee shall have been unable to perform the

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services contemplated under this Agreement for a period of 90 days, whether or not consecutive, during any 360-day period, due to a physical or mental disability. A determination of disability shall be made by a physician satisfactory to both the Employee and the Company; provided, that if the Employee and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties.

5.4 At the election of the Employee, as a result of an Involuntary Termination (as defined below), immediately upon written notice by the Employee to the Company. For the purposes of this Agreement, "Involuntary Termination" shall mean:

(i) the continued assignment to the Employee of any duties or the continued change in the Employee's duties inconsistent in any material respect with the Employee's position (including title or reporting relationships), duties or responsibilities, as set forth in Section 2 of this Agreement, which results in a significant diminution in such position, duties or responsibilities for a period of thirty (30) days following written notice thereof from the Employee to the Board setting forth in reasonable detail the respects in which the Employee believes such assignments or duties are significantly inconsistent with the Employee's prior position, duties or responsibilities;

(ii) a reduction in the Employee's base compensation (as increased from time to time), other than in connection with a Company wide reduction in salaries;

(iii) the imposition of a requirement by the Company, any person in control of the Company or any successor to the Company, that the location at which the Employee performs his principal duties for the Company or any successor to the Company be changed to a new location outside a radius of 50 miles from the then current location; or

(iv) any breach by the Company of any material provision of this Agreement that continues uncured for thirty (30) days following written notice thereof from the Employee to the Board;

provided that (A) none of the foregoing shall constitute an Involuntary Termination to the extent the Employee has agreed in writing thereto; and (B) after a Change in Control of the Company, the 30-day cure periods described in clauses (i) and (iv) shall not apply.

The right of the Employee to terminate his employment as a result of an Involuntary Termination shall not be affected by the Employee's disability, or the fact that the Employee at such time may have an offer of employment from another employer or any other reason for terminating his employment with the Company.

5.5 At the election of the Company, without cause, upon 60 days' prior written notice to the Employee.

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5.6 At the election of the Employee, other than as a result of an Involuntary Termination, upon 90 days' prior written notice to the Board.

6. Effect of Termination.

6.1 Termination by the Company for Cause or by the Employee other than as a result of an Involuntary Termination. In the event the Employee's employment is terminated by the Company pursuant to Section 5.2 or by the Employee pursuant to Section 5.6, the Company shall pay to the Employee the base salary and benefits (excluding any bonuses the Employee would have been eligible for) through the last day of his actual employment by the Company and, in the case of termination by the Employee pursuant to Section 5.6, the provisions of
Section 6.5 shall apply with respect to the Stock Options.

6.2 Termination for Death or Disability. If the Employee's employment is terminated by death or because of disability pursuant to Section 5.3, the Company shall pay to the estate of the Employee or to the Employee, as the case may be, the base salary and benefits to which the Employee would otherwise be entitled under Section 3 through the last day of his actual employment (including the maximum bonus that the Employee would have been eligible for under the Company's executive bonus program for the fiscal year, as if the Employee had been employed for the entire fiscal year) and the provisions of
Section 6.5 shall apply with respect to the Stock Options.

6.3 Involuntary Termination.

6.3.1 Prior to a Potential Change in Control of the Company. In the event that the Employee's employment is terminated by the Employee as a result of an Involuntary Termination prior to a Potential Change in Control of the Company or after the termination of a Potential Change in Control of the Company transaction that is not consummated:

(i) the Company shall pay to the Employee, within ten (10) business days after the termination of the Employee's employment, an amount equal to two times his then annual base salary (including the maximum bonus that the Employee would have been eligible for under the Company's executive bonus program for the then fiscal year, as if the Employee had been employed for the entire fiscal year);

(ii) the Company shall continue to provide benefits as then in effect for a period of 24 months (other than benefits associated with any Company bonus plan), commencing with the first day following the effective date of termination; and

(iii) the provisions of Section 6.5 shall apply with respect to the Stock Options.

6.3.2 Upon or After a Potential Change in Control of the Company. In the event that the Employee's employment is terminated by the Employee as a result of an

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Involuntary Termination upon or after the occurrence of a Potential Change in Control of the Company, for so long as such Potential Change in Control of the Company transaction is not terminated prior to the Employee's termination, or after the Change in Control of the Company:

(i) the Company shall pay to the Employee, within ten (10) business days after the termination of the Employee's employment, an amount equal to three times his then annual base salary (including the maximum bonus that the Employee would have been eligible for under the Company's executive bonus program for the then fiscal year, as if the Employee had been employed for the entire fiscal year);

(iii) the provisions of Section 6.5 shall apply with respect to the Stock Options.

6.4 Termination Without Cause.

6.4.1 Prior to a Potential Change in Control of the Company. In the event that (i) the Employee's employment is terminated by the Company pursuant to Section 5.5 prior to a Potential Change in Control of the Company or after the termination of a Potential Change in Control of the Company transaction that is not consummated, or (ii) in the event that this Agreement is not renewed pursuant to Section 1 of this Agreement prior to a Change in Control of the Company:

(i) the Company shall pay to the Employee, within ten (10) business days after the termination of the Employee's employment, an amount equal to two times his then annual base salary (including the maximum bonus that the Employee would have been entitled to under the Company's executive bonus program for the then fiscal year, as if the Employee had been employed for the entire fiscal year);

(iii) the provisions of Section 6.5 shall apply with respect to the Stock Options.

6.4.2 Upon or After a Potential Change in Control of the Company. In the event that the Employee's employment is terminated by the Company pursuant to Section 5.5 upon or after a Potential Change in Control of the Company, for so long as such Potential

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Change in Control of the Company transaction is not terminated prior to the Employee's termination, or after the Change in Control of the Company:

(i) the Company shall pay to the Employee, within ten (10) business days after the termination of the Employee's employment, an amount equal to three times his then annual base salary (including any bonuses that were earned and had vested prior to such termination, but that were not paid to the Employee by the Company prior to such termination);

(iii) the provisions of Section 6.5 shall apply with respect to the Stock Options.

6.5 In the event that the Employee's employment with the Company is terminated by (a) the Employee for any reason (or no reason) or (b) the Company for any reason other than "for cause," as set forth in Section 5.2 of this Agreement (or no reason):

(i) the Employee's right to exercise the Stock Options shall become immediately exercisable in full upon the date of such termination; and

(ii) the Employee shall have a period of two years (or the remainder of the applicable option term if less than two years) after the date of such termination to exercise any Stock Options; provided, however, that such two year period of exercisability shall not apply to any grant of stock options granted prior to June 1, 2001 with an exercise price of less than $6.76 per share.

For purposes of clarification and not limitation, this Section 6.5 is in addition to any other rights the Employee may also have or be entitled to on the date of this Agreement or in the future from time to time under this Agreement with respect to benefits and compensation.

6.6 No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment provided for in this Section 6 nor shall the amount of any payment provided for in this Section 6 be reduced by any compensation earned by the Employee as a result of employment by another employer or by retirement; provided, that the Company shall not provide any non-cash benefit otherwise receivable by the Employee if an equivalent benefit (on a dollar-for-dollar basis) is actually received by the Employee. The Employee agrees to report promptly receipt of any non-cash benefit received by the Employee to the Board.

6.7 Violation of Company Agreements. Notwithstanding any other provision of this Agreement, prior to a Change in Control of the Company, the Company shall not be required to make any payments or provide any benefits to the Employee under this Section 6 if the Employee shall have breached any of his material obligations under any Company Agreement prior to a Change in Control of the Company, which breach of a material obligation

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would have an adverse effect on the Company and which is described in reasonable detail in a written notice from the Board to the Employee referencing this
Section or Section 5.2(iii).

6.8 Survival. The provisions of Section 6 shall survive the termination of this Agreement.

6.9 No offset. Upon or after the occurrence of a Potential Change in Control of the Company, for so long as such Potential Change in Control of the Company transaction is not terminated prior to the Employee's termination, or after a Change in Control of the Company, the Company shall have no right to offset any amounts owed by the Employee to the Company against any amounts owed by the Company to the Employee under this Agreement other than any amounts owed by the Employee pursuant to Section 16 of this Agreement.

7. Indemnification.

7.1 As set forth in the Letter Agreement dated as of September 21, 2000, by and between the Employee and the Company, notwithstanding any provision to the contrary in Paragraph 6 of Article Ninth of the Certificate of Incorporation, as amended and restated from time to time, of the Company (the "Certificate of Incorporation"), the (i) Employee shall not be required to submit any documentation in connection with a request for indemnification under Paragraph 6 of the Certificate of Incorporation, and (ii) the Company shall, promptly after receipt of any written notice for indemnification from the Employee, make advancements as requested in writing in accordance with the other terms and provisions of Article Ninth of the Certificate of Incorporation; subject, however, to the right of the Company to decline to make advancements where, under the provisions of the Certificate of Incorporation and the relevant provisions of Delaware law, the Company determines that such advancements are not justified or permitted.

7.2 The foregoing arrangement is contemplated by the provisions of Article Ninth of the Certificate of Incorporation, which explicitly provide that the Company has the right to extend additional assurances regarding indemnification to its officers and directors.

8. Successors. Binding Agreement. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement. Failure of the Company to obtain an assumption of this Agreement upon the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee, upon the effectiveness of any such succession, to compensation from the Company in the same amount as the Employee would be entitled hereunder if the Employee had terminated his employment as a result of an Involuntary Termination upon or after the occurrence of a Potential Change in Control of the Company. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

9. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or three days after deposit in the

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United States Post Office, by registered or certified mail, postage prepaid, return receipt requested, addressed to the other party at the address shown above (and, in the case of any notice to the Company, with a copy to John A. Burgess, Esq., Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109), or at such other address or addresses as either party shall designate to the other in accordance with this Section 9.

10. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.

11. Entire Agreement. This Agreement along with Stock Options constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of such agreements; provided, however, that the provisions contained herein relating to Stock Options are in addition to and intended to supplement the terms and conditions of such Stock Options; provided, further that in the case of any conflict between the terms provided herein and the terms of any Stock Option or any document issued or entered into in connection with any such Stock Option or the terms of any plan governing any such Stock Option, the terms provided herein shall govern.

12. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee.

13. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of New Hampshire, without giving effect to conflict of laws provisions.

14. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business and the Employee's heirs, estate administrator, executor and personal representative, provided, however, that the obligations of the Employee are personal and shall not be assigned by him.

15. Legal Fees. The Company shall pay all legal fees and related expenses incurred by the Employee protecting, obtaining or enforcing any right or benefit accruing to the Employee hereunder after a Potential Change in Control of the Company which has not been terminated or after a Change in Control of the Company.

16. Taxes.

16.1 All payments to be made to the Employee under this Agreement will be subject to required withholding of federal, state and local income and employment taxes.

16.2 In the event that the Company undergoes a "Change in Ownership or Control" (as defined below), the Company shall determine after receipt of each "Contingent

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Compensation Payment" (as defined below) by the Employee, the amount, if any, of the excise tax (the "Excise Tax") payable pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), by the Employee with respect to each such payment. Within 7 days of the receipt of each Contingent Compensation Payment by the Employee, the Company shall make a cash payment (the "Gross-Up Payment") to the Employee in an amount equal to the sum of:

(i) the amount of the Excise Tax payable with respect to the Contingent Compensation Payment; and

(ii) the amount necessary to pay all additional taxes imposed on (or economically borne by) the Employee (including the Excise Taxes, state and federal income taxes and all applicable withholding taxes) attributable to the receipt of the Gross-Up Payment.

For purposes of the second sentence of this Subsection 16.2, all taxes attributable to the receipt of the Gross-Up Payment shall be computed assuming the application of the maximum tax rates provided by law.

16.3 For purposes of this Section 16, the final determination of (a) which amounts are properly characterized as Contingent Compensation Payments,
(b) the Excise Tax payable with respect to the Contingent Compensation Payments, and (c) the amount of any taxes attributable to the receipt of the Gross-Up Payment shall be made by the Employee. For purposes of this Section 16, the following terms shall have the meaning given them in this Subsection 16.3:

(i) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code.

(ii) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or supplied to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company.

17. Miscellaneous.

17.1 No delay or omission by either party in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by either party on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

17.2 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

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17.3 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

17.4 This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

17.5 The Employee acknowledges that he (a) has read this Agreement;
(b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Employee's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Employee.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.

BOTTOMLINE TECHNOLOGIES (de), INC.

By: /s/ Joseph L. Barry, Jr.
    --------------------------------------
    Joseph L. Barry, Jr.

Title: Chairman of Compensation Committee

EMPLOYEE:

/s/ Joseph L. Mullen
------------------------------------------
Joseph L. Mullen

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EXHIBIT 10.2

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), made as of the 21st day of November, 2002, is entered into by Bottomline Technologies (de), Inc., a Delaware corporation with its principal place of business at 325 Corporate Drive, Portsmouth, NH 03801 (the "Company"), and Mr. Robert A. Eberle, residing at 7 Rockrimmon Road, North Hampton, NH 03862 (the "Employee").

WHEREAS, the Company desires to continue to employ the Employee, and the Employee desires to continue to be employed by the Company.

2. Title; Capacity. During the Employment Period, the Employee shall serve as Chief Financial Officer, Chief Operating Officer, Executive Vice President and Secretary of the Company. During the Employment Period, the Employee shall be subject to the supervision of, and shall have such authority as is delegated to him by, the Chief Executive Officer of the Company ("CEO") and/or the Board of Directors of the Company (the "Board"). The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities normally inherent in such position and such other duties and responsibilities as the CEO and/or the Board shall from time to time reasonably assign to him. During the Employment Period, the Employee shall, subject to the direction and supervision of the CEO and/or the Board, devote his full

business time, best efforts, business judgment, skill and knowledge to the advancement of the Company's business and interests and to the discharge of his duties and responsibilities hereunder. The Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company.

3. Compensation and Benefits.

3.1 Salary and Bonus. The Company shall pay the Employee, in arrears in installments consistent with the Company's usual payroll practices, an annual base salary of $250,000. The Company agrees to review the Employee's annual base salary on each anniversary of the Commencement Date and may consider a merit increase in such annual base salary for the ensuing calendar year based upon the performance of the Employee during the prior year and in accordance with the terms of this Agreement and such other factors as the Board or the compensation committee of the Board may consider from time to time. In the event that the Employee is, or is to be, employed for less than a full payroll installment period, such installment of the annual base salary shall be appropriately adjusted. The Employee shall be eligible to receive an annual bonus based upon his performance and such other factors as the Board or the compensation committee of the Board may consider from time to time.

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4. Change in Control of the Company; Potential Change in Control. The Company recognizes that a Potential Change in Control of the Company (as defined below) and/or a Change in Control of the Company (as defined below) and the uncertainties which may arise among its senior executives in connection therewith could result in the departure or distraction of its senior executives to the detriment of the Company and its stockholders. Accordingly, in order to induce the Employee to remain in the employ of the Company and to secure for the Company and its stockholders the benefits of the Employee's continued attention and dedication during the tenancy of any Potential Change in Control of the Company or Change in Control of the Company, including the Employee's assessment of, and advice to the Company's Board regarding, among other things, whether any Potential Change in Control and/or Change in Control proposal would be in the best interest of the Company and its stockholders, the Company has determined that it is in the best interest of the Company and its stockholder to provide to the Employee the extended severance benefits contained in this Agreement.

4.1 Change in Control of the Company. A "Change in Control of the Company" shall occur or be deemed to have occurred only if any one or more of the following events occur:

4.2 Potential Change in Control of the Company. A "Potential Change in Control of the Company" shall be deemed to have occurred if:

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(i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Company;

(ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control of the Company; or

(iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control of the Company has occurred.

5. Employment Termination. The employment of the Employee by the Company shall terminate upon the occurrence of any of the following:

5.1 Expiration of the Employment Period in accordance with Section 1.

(i) has been convicted of a felony involving dishonesty, fraud, theft or embezzlement or any other felony;

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5.3 Thirty days after the death or disability of the Employee. As used in this Agreement, the term "disability" shall mean the Employee shall have been unable to perform the services contemplated under this Agreement for a period of 90 days, whether or not consecutive, during any 360-day period, due to a physical or mental disability. A determination of disability shall be made by a physician satisfactory to both the Employee and the Company; provided, that if the Employee and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties.

(ii) a reduction in the Employee's base compensation (as increased from time to time), other than in connection with a Company wide reduction in salaries;

(iv) any breach by the Company of any material provision of this Agreement that continues uncured for thirty (30) days following written notice thereof from the Employee to the Board;

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5.5 At the election of the Company, without cause, upon 60 days' prior written notice to the Employee.

5.6 At the election of the Employee, other than as a result of an Involuntary Termination, upon 90 days' prior written notice to the Board.

6. Effect of Termination.

6.3 Involuntary Termination.

(i) the Company shall pay to the Employee, within ten (10) business days after the termination of the Employee's employment, an amount equal to his then annual base salary (including the maximum bonus that the Employee would have been eligible for under the Company's executive bonus program for the then fiscal year, as if the Employee had been employed for the entire fiscal year);

(ii) the Company shall continue to provide benefits as then in effect for a period of 12 months (other than benefits associated with any Company bonus plan), commencing with the first day following the effective date of termination; and

(iii) the provisions of Section 6.5 shall apply with respect to the Stock Options.

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6.3.2 Upon or After a Potential Change in Control of the Company. In the event that the Employee's employment is terminated by the Employee as a result of an Involuntary Termination upon or after the occurrence of a Potential Change in Control of the Company, for so long as such Potential Change in Control of the Company transaction is not terminated prior to the Employee's termination, or after the Change in Control of the Company:

(iii) the provisions of Section 6.5 shall apply with respect to the Stock Options.

6.4 Termination Without Cause.

(i) the Company shall pay to the Employee, within ten (10) business days after the termination of the Employee's employment, an amount equal to his then annual base salary (including the maximum bonus that the Employee would have been entitled to under the Company's executive bonus program for the then fiscal year, as if the Employee had been employed for the entire fiscal year);

(iii) the provisions of Section 6.5 shall apply with respect to the Stock Options.

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Change in Control of the Company transaction is not terminated prior to the Employee's termination, or after the Change in Control of the Company:

(i) the Company shall pay to the Employee, within ten (10) business days after the termination of the Employee's employment, an amount equal to two times his then annual base salary (including any bonuses that were earned and had vested prior to such termination, but that were not paid to the Employee by the Company prior to such termination);

(iii) the provisions of Section 6.5 shall apply with respect to the Stock Options.

(i) the Employee's right to exercise the Stock Options shall become immediately exercisable in full upon the date of such termination; and

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would have an adverse effect on the Company and which is described in reasonable detail in a written notice from the Board to the Employee referencing this
Section or Section 5.2(iii).

6.8 Survival. The provisions of Section 6 shall survive the termination of this Agreement.

7. Indemnification.

8. Successors; Binding Agreement. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement. Failure of the Company to obtain an assumption of this Agreement upon the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee, upon the effectiveness of any such succession, to compensation from the Company in the same amount as the Employee would be entitled hereunder if the Employee had terminated his employment as a result of an Involuntary Termination upon or after the occurrence of a Potential Change in Control of the Company. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

9. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or three days after deposit in the

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12. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee.

13. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of New Hampshire, without giving effect to conflict of laws provisions.

16. Taxes.

16.1 All payments to be made to the Employee under this Agreement will be subject to required withholding of federal, state and local income and employment taxes.

16.2 In the event that the Company undergoes a "Change in Ownership or Control" (as defined below), the Company shall determine after receipt of each "Contingent

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(i) the amount of the Excise Tax payable with respect to the Contingent Compensation Payment; and

17. Miscellaneous.

17.2 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

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17.4 This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.

BOTTOMLINE TECHNOLOGIES (de), INC.

By: /s/ Joseph L. Barry, Jr.
   ------------------------------
   Joseph L. Barry, Jr.
Title: Chairman of Compensation Committee

EMPLOYEE:

/s/ Robert A. Eberle
--------------------------------
Robert A. Eberle

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EXHIBIT 10.3

FIRST LOAN MODIFICATION AGREEMENT

This First Loan Modification Agreement (this "Loan Modification Agreement') is entered into as of December 31,2002, by and between SILICON VALLEY BANK, a California-chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462, doing business under the name "Silicon Valley East" ("Bank") and BOTTOMLINE TECHNOLOGIES (de), Inc., a Delaware corporation with its chief executive office located at 325 Corporate Drive, Portsmouth, New Hampshire 03801("Borrower").

1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of December 28, 2001, evidenced by, among other documents, a certain Loan and Security Agreement dated as of December 28,2001, between Borrower and Bank, (as amended, the "Loan Agreement"). The Loan Agreement established a working capital line of credit in favor of Borrower in the maximum principal amount of Five Million Dollars ($5,000,000.00) (the "Committed Revolving Line"). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

Hereinafter, all indebtedness and obligations owing by Borrower to Bank shall be referred to as the "Obligations".

2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Bank, the "Security Documents").

Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the "Existing Loan Documents".

3. DESCRIPTION OF CHANGE IN TERMS.

A. Modifications to Loan Agreement.

1. The Loan Agreement shall be amended by deleting the following definition appearing in Section 13.1 thereof:

""Revolving Maturity Date" means the date which is one (1) year from the Closing Date."

and inserting in lieu thereof the following:

""Revolving Maturity Date" means December 27, 2003.

2. The Loan Agreement shall be amended by deleting the following, appearing as Section 6.2(a)(i) thereof, in its entirety:

(a) Borrower shall deliver to Bank: (i) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrower's consolidated operations during the period certified by a Responsible Officer and in a form acceptable to Bank

and inserting in lieu thereof the following:

(a) Borrower shall deliver to Bank: (i) as soon as available, but no later than thirty (30) days after the last day of each month in which Advances were outstanding, and within thirty (30) days of the last day of each quarter, a company prepared consolidated and consolidating balance sheet and income statement covering Borrower's consolidated operations during the period certified by a Responsible Officer and in a form acceptable to Bank. Notwithstanding the foregoing, the Borrower shall deliver to Bank the most recent monthly company prepared consolidated and consolidating balance sheet and income statement before any Advances are advanced.

3. The Loan Agreement shall be amended by deleting the following, appearing as Section 6.2(b) thereof, in its entirety:

(b) Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form of Exhibit C, with aged listings of accounts receivable (by invoice date).

and inserting in lieu thereof the following:

(b) Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Office in the form of Exhibit C. with aged listing of accounts receivable (by invoice date): (i) within thirty (30) days of the last day of each month in which Advances were outstanding, and (ii) within thirty (30) days of the last day of each quarter.

4. The Loan Agreement shall be amended by deleting the following, appearing as Section 6.7 thereof, in its entirety:

FINANCIAL COVENANTS.

6.7 FINANCIAL COVENANTS.

Borrower shall maintain at all times, to be tested as of the last day of each month, unless otherwise noted:

(a) Adjusted Quick Ratio. Borrower shall maintain a ratio of Quick Assets to Current Liabilities minus Deferred Revenue of at least 2.0 to 1.0. For the purposes hereof, Quick Assets, Current Liabilities and Deferred Revenue shall relate only to Borrower's operations (i.e., exclude foreign operations of subsidiaries).

(b) Maximum Net Loss/Minimum Net Profit. For any month Borrower fails to maintain at least $7,000,000.00 in cash on deposit with the Bank, Borrower (together with its subsidiaries on a consolidated basis) shall have (i) Net Loss (based on the prior rolling three month period) not to exceed (A) $2,250,000 for the month ending October 31, 2001,
(B) $2,000,000 for the month ending November 30, 2001, (C) $1,700,000 for the month ending December 31, 2001, (D) $1,600,000 for the month ending January 31, 2002, (E) $1,250,000 for the month ending February 28,2002, (F) $800,000 for the month ending March 31,2002, (G) $625,000 for the months ending April 30, 2002, May 31, 2002 and June 30, 2002; and (ii) net profit

(based on the prior rolling three month period) of One Dollar ($ 1.00), for each month thereafter.

and inserting in lieu thereof the following: 6.7 Financial Covenants.

6.7 FINANCIAL COVENANTS.

Borrower shall maintain at all times, to be tested as of the last day of each quarter, unless otherwise noted:

(b) Maximum Net Loss/Minimum Net Profit. For any quarter Borrower fails to maintain at least $7,000,000.00 in cash on deposit with the Bank, Borrower (together with its subsidiaries on a consolidated basis) shall have a net profit (based on the prior rolling three month period) of One Dollar ($ 1.00), for the quarter ending December 31, 2002, and for each three month period thereafter.

5. The Compliance Certificate appearing as Exhibit D to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Exhibit A hereto.

4. FEES. The Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

5. RATIFICATION OF NEGATIVE PLEDGE AGREEMENT. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Negative Pledge/Intellectual Property Security Agreement dated as of December 28, 2001, between Borrower and Bank, and acknowledges, confirms and agrees that said Negative Pledge Agreement shall remain in full force and effect.

6. ADDITIONAL COVENANTS: Borrower shall not, without providing the Bank with thirty (30) days prior written notice: (i) relocate its principal executive office or add any new offices or business locations or keep any Collateral in any additional locations (unless such new offices or locations contain less than Fifty Thousand Dollars ($50,000.00) of Borrower's assets or property), or (ii) change its jurisdiction of organization, or (iii) change its organizational structure or type, (iv) change its legal name, or (v) change any organizational number (if any) assigned by its jurisdiction of organization. In addition, the Borrower hereby certifies that no Collateral is in the possession of any third party bailee (such as at a warehouse) except as set forth on the Perfection Certificate dated on or about the date hereof delivered by Borrower to Bank in connection with this Loan Modification Agreement (the "Perfection Certificate"). In the event that Borrower, after the date hereof, intends to store or otherwise deliver the Collateral to such a bailee (other than (i) as listed in the Perfection Certificate or (ii) Inventory stored at Borrower's vendor's locations in the ordinary course of business in amounts consistent with past practices), then Borrower shall first receive, the prior written consent of Bank and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Bank. Borrower acknowledges, confirms and agrees that the disclosures and information about Borrower provided to Bank in the Perfection Certificate is accurate in all material respects, as of the date thereof.

7. AUTHORIZATION TO FILE. Borrower hereby authorizes Bank to file financing statements without notice to Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in order to further perfect or protect Bank's interest in the Collateral.

8. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

9. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

10. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under the Obligations.

11. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower's representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank's agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker will be released by virtue of this Loan Modification Agreement.

12. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank (provided, however, in no event shall this Loan Modification Agreement become effective until signed by an officer of Bank in California).

[The remainder of this page is intentionally left blank]

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

 BORROWER:                                      BANK:

 BOTTOMLINE TECHNOLOGIES (de), Inc.             SILICON VALLEY BANK, doing
                                                business as SILICON VALLEY EAST

By: /s/ Robert A. Eberle                        By: /s/ Timothy M. Ryan
    --------------------------------------         -----------------------------

Name: Robert A. Eberle                          Name: /s/ Timothy M. Ryan
      ------------------------------------           ---------------------------

Title: EVP, COO & CFO                           Title: /s/ Vice President
       -----------------------------------            --------------------------

                                                SILICON VALLEY BANK

                                                By: /s/ Michelle Giannini
                                                    ----------------------------

                                                Name: /s/ Michelle Giannini
                                                     ---------------------------

                                                Title: /s/ AVP
                                                      --------------------------
                                                (signed in Santa Clara County,
                                                California)

EXHIBIT A
COMPLIANCE CERTIFICATE

TO: SILICON VALLEY BANK

FROM: BOTTOMLINE TECHNOLOGIES (de), INC.

The undersigned authorized officer of BOTTOMLINE TECHNOLOGIES (de), INC. certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending _________________ with all required covenants except as noted below and (ii) all representations and warranties in the Agreement are true and correct in all material respects on this date. Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.

Please indicate compliance status by circling Yes/No under "Complies" column.

REPORTING COVENANT                         REQUIRED                     COMPLIES

Monthly financial statements with CC       Quarterly within 30 days      Yes   No
                                           Monthly within 30 days        Yes   No
                                           (when Advances outstanding)

Annual (CPA Audited)                       FYE within 90 days            Yes   No
10-Q, 10-K and 8-K                         Within 10 days after filing
                                           with SEC                      Yes   No
BBC A/R Agings                             Quarterly within 30 days      Yes   No
                                           Monthly within 30 days
                                           (when Advances outstanding)   Yes   No

FINANCIAL COVENANT                         REQUIRED                ACTUAL      COMPLIES

Maintain on a Monthly Basis:
  Minimum Adjusted Quick Ratio             2.0:1.0                 ___:1.0     Yes  No

Profitability (net loss/min profit)        $_*____                 $______     Yes  No

*See Loan and Security Agreement

Comments Regarding Exceptions: See Attached.

BANK USE ONLY

Sincerely,                                      Received by:
                                                            --------------------
                                                              AUTHORIZED SIGNER

----------------------------
SIGNATURE                                       Date:
                                                     ---------------------------

---------------------------                     Verified:
TITLE                                                    -----------------------
                                                              AUTHORIZED SIGNER

--------------------------- Date:
DATE ---------------------------

BOTTOMLINE TECHNOLOGIES (de), INC.

SECRETARY'S CERTIFICATE

I, Robert A. Eberle, in my capacity as Secretary of Bottomline Technologies
(de), Inc., a Delaware corporation (the "Company"), acting in connection with the First Loan Modification Agreement dated as of December 31, 2002 between the Company and Silicon Valley Bank (the "Loan Agreement"), hereby certify that I am the duly elected and acting Secretary of the Company, and further certify as follows:

1. The following persons are the duly elected officers of the Company occupying the offices set forth opposite their respective names, each such officer is authorized to execute on behalf of the Company the Loan Agreement and all agreements and documents contemplated thereby, and the signature set forth opposite each such officer's respective name is his true signature.

     Name               Office                              Signature

Robert A. Eberle        Executive Vice President,           /s/ Robert E. Eberle
                        Chief Operating Officer,            --------------------
                        Chief Financial Officer
                        and Secretary

Dated as of December 31, 2002.                              /s/ Robert E. Eberle
                                                            --------------------
                                                            Robert A. Eberle,
                                                            Secretary

PERFECTION CERTIFICATE OF BOTTOMLINE TECHNOLOGIES (de), INC.

The undersigned, Robert A. Eberle of Bottomline Technologies (de), Inc., a Delaware corporation with offices at 325 Corporate Drive, Portsmouth, New Hampshire 03801 (the "Company"), hereby certifies with reference to the First Loan Modification Agreement between the Company and SILICON VALLEY BANK (the "Bank") dated December 31, 2002, as modifying that certain Loan and Security Agreement dated as of December 28, 2001 between the Company and the Bank (terms defined therein being used herein as therein defined), to the Bank as follows (for purposes of this Perfection Certificate, those questions for which no response is completed shall be deemed to read "None"):

1. Names.

(a) The exact legal name of the Company as it appears in its certificate of incorporation, as amended to date, is as follows:

Bottomline Technologies (de), Inc.

(b) The following is a list of all other names (including trade names or similar appellations) used by the Company, or any of its divisions or other business units, or any other business or organization to which the Company became the successor by merger, consolidation, acquisition, change in form, nature or jurisdiction of organization or otherwise, now or at any time during the past five years together with the dates such names were used:

. Certisoft Solutions, Inc. (May 1996 - January 1997)
. Integrated Cash Management Services, Inc. (asset acquisition)
(October 1999)
. OLC Software, Inc. (February 2000)
. Checkpoint Holdings, Ltd. (August 2000 - May 2001)
. Checkpoint Security Services, Ltd. (August 2000 - May 2001)
. Checkpay, Ltd. (August 2000 - July 2002)
. Flashpoint, Inc. (August 2000)
. eVelocity Corporation (asset acquisition) (May 2002)

(c) The following is a list of all subsidiaries of the Company (whether wholly owned, or where the Company has a controlling or majority interest):

. Fleet Street Corp.
. Bottomline Technologies, Limited
. Bottomline Technologies Europe, Limited
. Checkpay, Limited
. J. Sloper & Company (dormant)
. Redwood Payment Systems, Inc. (dormant)
. Checkpoint USA, Inc. (dormant)

(d) The following is the type of organization of the Company:

Corporation

(e) The jurisdiction of organization of the Company is as follows:

Delaware

(f) The following is the Company's state issued organizational identification number [state "none" if the state does not issue such a number]:

2776500

(g) The Company's federal taxpayer identification number is:

02-0433294

(h) The Company currently maintains its bank and investment accounts at:

(1) Bank Accounts - FleetBoston and Silicon Valley Bank

(2) Investment Accounts - FleetBoston and Silicon Valley Bank

(3) Other depository/operating accounts - N/A

(i) The Company currently has the following commercial tort claims against other parties:

None

(j) Attached hereto as Schedule A is the information required above for any other business or organization to which the Company became the successor by merger, consolidation, acquisition, change in form, nature or jurisdiction of organization or otherwise, now or at any time during the past five years:

2. Current Locations.

(a) The following is the mailing address of the Company:

Mailing Address City State

325 Corporate Drive Portsmouth NH

(b) If different from its mailing address, the Company's place of business, or if more than one, its chief executive office is located at the following address:

Mailing Address City State

(same as above)

(c) The following are all other locations in which the Company maintains any books or records relating to any of the Collateral consisting of accounts, instruments, chattel paper, general intangibles or mobile goods:

                     Mailing
Name                 Address             City                    State

     N/A

(d) The following are all other places of business of the Company:

   Mailing
   Address                                City                     State
.   60 Cutter Mill Rd                    Great Neck                 NY
.   607 Market Street, Suite 400         San Francisco              CA
.   333 So. Wadsworth Blvd, Suite D312   Lakewood                   CO

(e) The following are all the locations where any of the Collateral consisting of equipment and/or inventory are located:

   Mailing
   Address                                City                     State

.   325 Corporate Drive                  Portsmouth                 NH
.   607 Market Street, Suite 400         San Francisco              CA
.   333 So. Wadsworth Blvd, Suite D312   Lakewood                   CO
.   60 Cutter Mill Rd                    Great Neck                 NY

(f) The following are the names and addresses of all persons or entities other than the Company, such as lessees, bailees, consignees, warehousemen or purchasers of chattel paper, which have possession or are intended to have possession of any of the Collateral consisting of instruments, chattel paper, inventory or equipment:

RWG & Logistics
179 Ward Hill Avenue
Haverhill, MA 01835

3. Prior Locations, (a) Set forth below is the information required by subparagraphs (c) and (d) of paragraph 2 with respect to each location or place of business previously maintained by the Company at any time during the past five years in a state in which the Company has previously maintained a location or place of business:

Address                                City                     State

55 Broad Street                        New York                   NY
146 Fleet Street                       Portsmouth                 NH
195 Hanover Street, Suite 22           Portsmouth                 NH
155 Fleet Street                       Portsmouth                 NH
325 State Street                       Portsmouth                 NH
One Thompson Square                    Charlestown                MA

(b) Set forth below is the information required by subparagraphs (e) and (f) of paragraph 2 with respect to each other location at which, or other person or entity with which, any of the Collateral consisting of inventory or equipment has been previously held at any time during the past twelve months:

Name                    Address                    City              State

Distribution Group      11 Rogers Road             Haverhill           MA
RWG & Logistics         468 Canal Street           Lawrence            MA

4. Attached hereto as Schedule B is the information required by U.C.C.
Section 9-502(b) or former U.C.C. Section 9-402(5) of each state in which any of the Collateral consisting of fixtures are or are to be located and the name and

-3-

address of each real estate recording office where a mortgage on the real estate on which such fixtures are or are to be located would be recorded.

5. No Unusual Transactions. Except for those purchases, acquisitions, and other transactions as set forth in Schedule A or Schedule C attached hereto, all of the Collateral has been originated by the Company in the ordinary course of the Company's business or consists of goods which have been acquired by the Company in the ordinary course from a person in the business of selling goods of that kind.

The undersigned hereby acknowledges and agrees that the Bank is relying on the representations and warranties made herein in connection with a loan transaction or transactions to be entered into between the undersigned and the Bank.

IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of January, 2003, and this document shall constitute a document under seal under the laws of the Commonwealth of Massachusetts.

BOTTOMLINE TECHNOLOGIES (de), INC.

By: /s/ Robert A. Eberle
    --------------------------------
      (duly authorized)

Name: Robert A. Eberle
      ------------------------------

-4-

SCHEDULE A

                                                                JURISDICTION OF
COMPANY NAME                         TYPE OF ORGANIZATION       ORGANIZATION        FEDERAL ID #
------------                         --------------------       ------------        ------------

Certisoft Solutions, Inc.            c-corporation                 Colorado         84-1274021

Integrated Cash Management           c-corporation                 New York         11-2575401
Services, Inc. (asset acquisition)

OLC Software, Inc.                   c-corporation              Massachusetts       04-3405335

Checkpoint Holdings Ltd. and         c-corporation              United Kingdom          N/A
subsidiaries

Flashpoint, Inc.                     c-corporation              Massachusetts       04-3O30079

eVelocity Corporation (asset         c-corporation              New Hampshire       03-0317830
acquisition)

-5-

EXHIBIT 10.4

THIS IS AN IMPORTANT DOCUMENT WHICH SETS OUT THE TERMS AND CONDITIONS OF YOUR COMMITTED OVERDRAFT FACILITY. WE RECOMMEND THAT YOU TAKE INDEPENDENT LEGAL ADVICE IF YOU HAVE ANY DOUBTS REGARDING THE TERMS AND CONDITIONS OF THE FACILITY.

Confirmation of Committed Business Overdraft Facility

[LOGO OF THE ROYAL BANK OF SCOTLAND]

Thames Valley Corporate
Abbey Gardens
4 Abbey Street
Reading
RG1 3BA

Private & Confidential
Bottomline Technologies Europe Limited Telephone: 0118 952 2117 Company Number 1911956
115 Chatham Street
Reading
Berks

RG1 7JX

Facility Account:            67486932 at Market Place, Reading (sorting code
                             60-17-21)
Overdraft Limit:             (pound) 2,000,000
Agreed Interest Rate:        2% per annum over the Bank's Base Rate
Bank's Base Rate:            currently 4% per annum (but may vary from time to
                             time)
Unarranged Overdraft Rate:   4% per annum over the Bank's Base Rate (but may
                             vary from time to time subject to one month's
                             notice)
Arrangement Fee:             (pound) 10,000
Facility Start Date:         31 January 2003
Expiry Date:                 31 December 2003

Principal Terms

1. We, The Royal Bank of Scotland plc acting as agent for National Westminster Bank plc, offer you a committed overdraft facility (the Facility) subject to the terms of this Confirmation and the Committed Overdraft General Terms (COGT) attached.

2. Provided that none of the Events of Default detailed in Clause 3 occur, the Facility will, subject to the terms of this Confirmation and the COGT attached, be available from the Facility Start Date until the Expiry Date.

3. If any of the following events (Events of Default) occurs, we may, by giving written notice, demand immediate repayment of the outstanding borrowing on the Facility Account, require that the amounts from time to time owing under the Facility become repayable upon demand or cancel the Facility and exercise our rights under any security:-
(a) the Overdraft Limit is exceeded;
(b) the commencement of any winding-up, bankruptcy or administration proceedings against you or the appointment of a receiver or administrative receiver in respect of any of your property or you make arrangements with creditors;
(c) if you are a sole trader, you die;
(d) your business ceases to trade or, if you are a partnership, the partnership is dissolved;
(e) any procedure is used against you to attach or take possession of any property for payment of a debt;
(f) you are in breach of any obligation (financial or otherwise) to us or any of the terms of this Confirmation, or the COGT or any other agreement with us are breached;
(g) you fail to provide any information regarding your financial condition or business operations detailed in Clause 5; or
(h) any information given to us is inaccurate or there is a material non-disclosure by you to us.

4. Interest will be charged:-
(a) up to the Overdraft Limit, at the Agreed Interest Rate; and
(b) in excess of the Overdraft Limit (or after we have demanded immediate repayment of the outstanding borrowing on the Facility Account in terms of Clause 3 of this Confirmation or Clause C of the COGT), at the Unarranged Borrowing Rate.

The Royal Bank of Scotland plc is registered in Scotland No 90312 Registered Office: 36 St Andrew Square, Edinburgh, EH2 2YB

5. To enable us to monitor the Facility you will provide:-
(a) as soon as they become available but in any event within 180 days after the end of your financial year and in a format acceptable to us, copies of your business accounts for that year (Audited Accounts for the financial year ended 30th June 2002 to be provided by 31st May 2003);
(b) as soon as they become available but in any event no later than 30 days after the end of the accounting period to which they relate and in a format acceptable to us, monthly management accounts incorporating balance sheet and profit and loss accounts, and aged list of debtors and creditors; and
(c) promptly, such further information regarding your financial condition and business operations as we may reasonably request (including audited business/management accounts where not already supplied).

6. The Arrangement Fee will be debited by us to the Facility Account on the date of this Confirmation or shortly thereafter.

7. If applicable, the Facility will be secured by the security held and/or required by us as set out in an attached Schedule. It is a term of the Facility that it is at all times effectively secured by such security and that the terms of such security are not breached. No additional security may be created over the assets charged under such security without our prior written consent. The continued availability of the Facility will be subject to such security continuing in full force and effect. The additional security detailed in section (2) of the attached Schedule is to be provided to the Bank's satisfaction prior to 10th March 2003.

8. Notwithstanding the Facility Start Date, we shall not be obliged to provide the Facility until we have received and are satisfied with such written evidence/documents as we may require confirming your capacity to:-
(a) enter into this Confirmation and COGT;
(b) utilise the Facility
(c) give any security specified

and confirming that the person or persons who will accept the terms of this Confirmation and COGT and execute/seal any security on your behalf is/are duly authorised by you.

9. Notwithstanding the Facility Start Date, we are not obliged to provide the Facility until you have accepted the Facility on the terms set out in this Confirmation and COGT by returning the duplicate of this Confirmation to us duly signed.

For The Royal Bank of Scotland plc acting as agent for National Westminster Bank Plc

/s/ Colin Robertson
-------------------
Colin Robertson
Senior Corporate Manager
Date 31 January 2003

Having decided that the Facility is appropriate and in our interests, it is hereby accepted on the terms set out in this Confirmation and the COGT overleaf.

Signature /s/ Stephen J. Cutler                Date February 4, 2003
         ----------------------                ---------------------

Signature /s/ [ILLEGIBLE]                      Date February 4, 2003
         --------------------                  ---------------------

COMMITTED OVERDRAFT GENERAL TERMS (COGT)

These COGT explain your and our rights and responsibilities in respect of the Facility and should be read in conjunction with the Confirmation attached specific to the Facility. Definitions and meanings used in the Confirmation attached also apply in these COGT (and vice versa) unless the context requires otherwise.

A. OVERDRAFT LIMIT
The Facility enables you to overdraw the Facility Account up to the Overdraft Limit. The Overdraft Limit should not be exceeded without our prior consent and we may refuse to allow any payment or withdrawal which could have that effect. If we allow a payment or withdrawal or a series of payments or withdrawals which results in the Overdraft Limit being exceeded, it will not mean that the Overdraft Limit has changed or that we are bound to allow any other payment or withdrawal which could result in the Overdraft Limit being exceeded at other times. We may debit the Facility Account under Clauses D and E of these COGT even if it results in the Overdraft Limit being exceeded.

B. UNCLEARED CREDITS
We may disregard any uncleared credits when calculating the amount outstanding under the Facility (and any interest payable). If however we pay a cheque or cheques (or allow any other payment or withdrawal or a series of payments or withdrawals) against uncleared credits at any time we are not bound to do so at other times.

C. RENEWAL OF FACILITY
At any time during the 30 days prior to the Expiry Date you may request (or we may offer) to renew the Facility for a further period of up to 365 days, subject to us undertaking a full credit assessment and further documentation. If the Facility is not renewed before the Expiry Date any borrowing outstanding under the Facility will become repayable on demand and the Facility may be unconditionally cancelled by us at any time.

D. INTEREST
Interest will be calculated both before and after demand, court decree or judgment on a daily basis on the cleared debit balance and will be debited by us to the Facility Account quarterly on the final business day of March, June, September and December (or on such other dates as the Bank may advise from time to time).

E. COSTS/CHARGES
You must pay any costs incurred by us in connection with the Facility whether as a result of you breaking the terms of the Facility or not. These costs will include (but not be limited to) costs of taking and discharging any security; taking steps, including court action, to obtain payment; enforcing and/or preserving the Bank's rights under any security held for the Facility; tracing you if you change address without notice and communicating with you if you break the terms of the Facility or an Event of Default occurs. We may debit such costs to the Facility Account.

F. CHANGE IN LAW, REGULATION OR DIRECTIVE
If as a result of a change of any applicable law, regulation or directive, the cost to us of providing the Facility (including the cost of any undrawn portion of the Facility) increases we may, upon one month's written notice, convert the Facility into an overdraft repayable on demand and/or otherwise vary the terms and conditions of the Facility, including effecting an increase in the interest charged to reflect the increased cost of providing the Facility.

G. SET OFF
We shall be entitled to set-off against any of your liabilities under this agreement (whether present, future, actual or contingent) any of your credit balances (whether subject to notice or not) on any of your accounts with us in your name. We do not have to give you any prior notice to do this.

H. JOINT AND SEVERAL LIABILITY

If you are more than one person then the word "you" shall refer to such persons both together and separately and the obligations of those persons under the Facility shall be joint and several, that is to say, each of you can be held liable both jointly and individually for all of the obligations under the facility.

I. MISCELLANEOUS These terms will not be affected by the Facility Account being allocated another account number by us or being transferred to another of our branches, offices or departments. In the event of a conflict between (i) the terms of the Confirmation attached and these COGT and (ii) any other terms which apply to the Facility Account then the terms of the Confirmation attached and these COGT will prevail.

[LOGO OF THE ROYAL BANK OF SCOTLAND]

This is the Schedule referred to in the Bank's Confirmation of Committed Business Overdraft Facility to the Customer dated: 31 January 2003

Customer: Bottomline Technologies Europe Limited

The Facility made available by the Bank to the Customer in terms of the Confirmation of Committed Business Overdraft Facility shall at all times be secured by the following :-

(1) the existing available security held by the Bank as follows :-
(a) Debenture by you dated 17/12/2001
(b) First Legal Charge/Mortgage by you over Freehold Land and Buildings situated at 115 Chatham Street, Reading, Berks, dated 17/12/2001, also incorporating subsequent Legal Charges over property known as 97-113 odd, and 117 Chatham Street, Reading dated 05/06/2002.
(c) Letter of Comfort, dated 12/09/2002, given by Bottomline Technologies Inc.

(2) new security required by the Bank for the facility as follows :-
(a) Unlimited Inter Company Composite Guarantee granted by you, Bottomline Technologies Limited and Bottomline Transactional Services Limited, supported by existing Debentures from you, and new Debentures from Bottomline Technologies Ltd and Bottomline Transactional Services Limited.

(3) any further security which the Bank may now or in future hold.

Exhibit 99.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Bottomline Technologies (de), Inc. (the “Company”) for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Joseph L. Mullen, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date: February 12, 2003

By:

/s/ J OSEPH L. M ULLEN

Joseph L. Mullen

President and Chief Executive Officer

Exhibit 99.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Bottomline Technologies (de), Inc. (the “Company”) for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Robert A. Eberle, Executive Vice President, Chief Operating Officer and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date: February 12, 2003

By:

/s/ R OBERT A. E BERLE

Robert A. Eberle

Executive Vice President, Chief Operating Officer and

Chief Financial Officer

(Principal Financial and Accounting Officer)

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