10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

Commission file number 000-26621

NIC INC.

(Exact name of registrant as specified in its charter)

Colorado (State or other jurisdiction of incorporation or organization) 52-2077581 (I.R.S. Employer Identification No.)

25501 West Valley Parkway, Suite 300, Olathe, Kansas 66061

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (877) 234-3468

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 o

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

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No x

The number of shares outstanding of the registrant’s common stock as of April 30, 2008 was 62,318,139.

PART I - - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

NIC INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

thousands

	March 31,			December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	38,429		$	38,236
Short-term investments	—			17,600
Trade accounts receivable	32,513			28,149
Unbilled revenues	323			720
Deferred income taxes, net	7,328			6,746
Prepaid expenses & other current assets	1,654			2,143
Total current assets	80,247			93,594
Long-term investments	6,654			—
Property and equipment, net	6,582			6,110
Deferred income taxes, net	8,465			10,809
Other assets	985			863
Total assets	$	102,933		$	111,376
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	40,678		$	36,498
Accrued expenses	5,746			6,848
Application development contracts	316			353
Other current liabilities	85			99
Total current liabilities	46,825			43,798
Other long-term liabilities	714			714
Total liabilities	47,539			44,512
Commitments and contingencies (Notes 1, 4 and 5)	—			—
Shareholders’ equity:
Common stock, no par, 200,000 shares authorized 62,318 and 62,031 shares issued and outstanding	—			—
Additional paid-in capital	151,772			165,934
Accumulated deficit	(95,914		)	(98,902		)
Accumulated other comprehensive loss	(296		)	—
	55,562			67,032
Less treasury stock	(168		)	(168		)
Total shareholders’ equity	55,394			66,864
Total liabilities and shareholders’ equity	$	102,933		$	111,376

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.

2

NIC INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

thousands except for per share amounts

	Three-months ended
	March 31,
	2008			2007
Revenues:
Portal revenues	$	23,796		$	19,868
Software & services revenues	883			766
Total revenues	24,679			20,634
Operating expenses:
Cost of portal revenues, exclusive of depreciation & amortization	12,704			10,454
Cost of software & services revenues, exclusive of depreciation & amortization	433			470
Selling & administrative	5,963			5,120
Depreciation & amortization	847			536
Total operating expenses	19,947			16,580
Operating income	4,732			4,054
Other income (expense):
Interest income	333			580
Other expense, net	(19		)	—
Total other income (expense)	314			580
Income before income taxes	5,046			4,634
Income tax provision	2,058			1,888
Net income	$	2,988		$	2,746
Basic net income per share	$	0.05		$	0.04
Diluted net income per share	$	0.05		$	0.04
Weighted average shares outstanding:
Basic	62,119			61,652
Diluted	62,631			61,969

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.

3

NIC INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

thousands

											Accumulated
					Additional						Other
	Common Stock				Paid-in			Accumulated			Comprehensive			Treasury
	Shares		Amount		Capital			Deficit			Loss			Stock			Total
Balance, January 1, 2008	62,031		$	—	$	165,934		$	(98,902	)	$	—		$	(168	)	$	66,864
Net income	—		—		—			2,988			—			—			2,988
Unrealized holding loss on investments (Note 1)	—		—		—			—			(296		)	—			(296		)
Cash dividends on common stock (Note 3)	—		—		(15,709		)	—			—			—			(15,709		)
Shares surrendered upon vesting of restricted stock to satisfy tax withholdings	(2	)	—		(15		)	—			—			—			(15		)
Stock options exercises and restricted stock vestings	227		—		761			—			—			—			761
Stock-based compensation	—		—		521			—			—			—			521
Issuance of common stock under employee stock purchase plan	62		—		280			—			—			—			280
Balance, March 31, 2008	62,318		$	—	$	151,772		$	(95,914	)	$	(296	)	$	(168	)	$	55,394

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.

4

NIC INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

thousands

	Three-months ended
	March 31,
	2008			2007
Cash flows from operating activities:
Net income	$	2,988		$	2,746
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation & amortization	847			536
Stock-based compensation expense	521			411
Application development contracts	(37		)	(39		)
Deferred income taxes	1,762			1,656
Loss on disposal of property and equipment	19			—
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable	(4,364		)	(8,708		)
Decrease in unbilled revenues	397			864
Decrease in prepaid expenses & other current assets	489			449
Increase in accounts payable	4,180			495
Increase (decrease) in accrued expenses	(1,117		)	59
Increase (decrease) in other current liabilities	(14		)	3
Net cash provided by (used in) operating activities	5,671			(1,528		)
Cash flows from investing activities:
Purchases of property and equipment	(1,277		)	(1,046		)
Capitalized internal use software development costs	(183		)	(59		)
Purchases of investments	(1,000		)	—
Sales and maturities of investments	11,650			45,008
Net cash provided by investing activities	9,190			43,903
Cash flows from financing activities:
Cash dividends on common stock	(15,709		)	(46,730		)
Proceeds from employee common stock purchases	280			239
Proceeds from exercise of employee stock options	761			454
Net cash used in financing activities	(14,668		)	(46,037		)
Net increase (decrease) in cash and cash equivalents	193			(3,662		)
Cash and cash equivalents, beginning of period	38,236			36,745
Cash and cash equivalents, end of period	$	38,429		$	33,083
Other cash flow information:
Income taxes paid	$	367		$	263

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.

5

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The consolidated interim financial statements of NIC Inc. and its subsidiaries (“NIC” or the “Company”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.  In management’s opinion, the unaudited consolidated interim financial statements reflect all adjustments (which include only normal recurring adjustments, except as disclosed) necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company and its subsidiaries as of the dates and for the interim periods presented.  These unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on March 17, 2008, and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q.  The consolidated balance sheet data included herein as of December 31, 2007 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for the three-month period ended March 31, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008.

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

NIC Inc. is a provider of eGovernment services that helps governments use the Internet to increase internal efficiencies and provide a higher level of service to businesses and citizens.  The Company accomplishes this currently through two divisions: its primary portal outsourcing businesses and its software & services businesses.

In its primary portal outsourcing business, the Company designs, builds and operates Internet-based portals on behalf of state and local governments desiring to provide access to government information and to complete government-based transactions online.  These portals consist of Web sites and applications the Company has built that allow businesses and citizens to access government information online and complete transactions, including applying for a permit, retrieving driver’s license records or filing a government-mandated form or report.  Operating under multiple-year contracts (see Note 2), NIC markets the services and solicits users to complete government-based transactions and to enter into subscriber contracts permitting users to access the portal and the government information contained therein in exchange for transactional and/or subscription user fees. The Company manages operations for each contractual relationship through separate local subsidiaries that operate as decentralized businesses with a high degree of autonomy.  NIC’s self-funding business model allows the Company to reduce its government partners’ financial and technology risks and generate revenues by sharing in the fees the Company collects from eGovernment transactions.  The Company’s government partners benefit through gaining a centralized, customer-focused presence on the Internet, while businesses and citizens receive a faster, more convenient and more cost-effective means to interact with governments.  The Company is typically responsible for funding up front investment and ongoing operational costs of the government portals.

The Company’s software & services businesses primarily include its Uniform Commercial Code (“UCC”) and corporate filings software development business and its ethics & elections business.  The Company’s UCC and corporate filings software development business, NIC Conquest, is a provider of software applications and services for electronic filings and document management solutions for governments.  This business focuses on Secretaries of State, whose offices are state governments’ principal agencies for UCC and corporate filings.  Currently, NIC Conquest is primarily engaged in servicing its contract with the California Secretary of State and is not actively marketing its applications and services in respect of new engagements.  The Company’s ethics & elections business, NIC Technologies, designs and develops online campaign

6

expenditure and ethics compliance systems for federal and state government agencies. Currently, NIC Technologies is primarily engaged in servicing its contracts with the Federal Election Commission and the State of Michigan.

Basis of presentation

The Company classifies its revenues and cost of revenues into two categories: (1) portal and (2) software & services.  The portal category includes revenues from the Company’s subsidiaries operating government portals under long-term contracts on an outsourced basis.  The software & services category includes revenues primarily from the Company’s software & services businesses.  The primary categories of operating expenses include: cost of portal revenues, cost of software & services revenues, selling & administrative, and depreciation & amortization.  Cost of portal revenues consist of all direct costs associated with operating government portals on an outsourced basis including employee compensation (including stock-based compensation), telecommunications, credit card merchant fees, and all other costs associated with the provision of dedicated client service such as dedicated facilities.  Cost of software & services revenues consist of all direct project costs to provide software development and services such as employee compensation (including stock-based compensation), subcontractor labor costs, and all other direct project costs including hardware, software, materials, travel and other out-of-pocket expenses.  Selling & administrative costs consist primarily of corporate-level expenses relating to human resource management, administration, information technology, legal and finance, and all costs of non-customer service personnel from the Company’s software & services businesses, including information systems and office rent.  Selling & administrative costs also consist of stock-based compensation and corporate-level expenses for market development and public relations.

Investments

The Company accounts for investments in debt securities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”  The Company’s investments at March 31, 2008 and December 31, 2007, consisting entirely of student loan auction-rate securities (“SLARS”), were classified as available-for-sale at the time of purchase.  The Company re-evaluates such designation at each reporting date.  Investments are reported at fair value with any unrealized holding gains or losses included in accumulated other comprehensive income or loss, a component of shareholders’ equity, net of tax, until realized.  Realized gains or losses on the sale of investments are determined using the specific-identification method and have not historically been material.

The par and fair values of the Company’s investments are as follows (in thousands):

March 31, 2008							December 31, 2007
Par Value		Unrealized Loss			Fair Value		Par Value		Unrealized Gain (Loss)		Fair Value
$	6,950	$	(296	)	$	6,654	$	17,600	$	—	$	17,600

The Company assesses other-than-temporary impairment of its investments in accordance with Financial Accounting Standards Board Staff Position No. FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.”  The Company evaluates its investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery of market value.  The Company records an impairment charge to the extent that the carrying value of available-for-sale securities exceeds the estimated fair market value of the securities and the decline in value is determined to be other-than-temporary.  For the three-month periods ended March 31, 2008 and 2007, the Company did not recognize any other-than-temporary impairment charges on its investments.

The Company’s SLARS are structured with short-term interest rates that are reset through an auction process at 28–day intervals, but with contractual debt maturities that can be well in excess of 22 years.  Historically, the Company has had the option to liquidate its SLARS whenever the interest rates on these securities were reset.  Accordingly, such securities were classified as short-term at December 31, 2007.  During January 2008, the Company began to liquidate its SLARS at each interest rate reset date in anticipation of paying a special cash dividend of $0.25 per share on February 28, 2008, totaling approximately $15.7 million (see Note 3).  The

7

Company had successful auctions on these securities with scheduled 28-day reset dates through mid-February 2008, at which time the Company had liquidated approximately $11.6 million of its portfolio.  Furthermore, there were successful auctions during January 2008 for each security the Company currently holds.  Accordingly, the Company determined that there was no impairment of these investments at December 31, 2007.  The Company encountered its first failed auction in mid-February 2008, as the amount of securities submitted for sale in those auctions exceeded the amount of bids. Subsequently, the Company has not had a successful auction related to the remaining SLARS it currently holds.  Given the continued auction failures associated with these securities and the uncertainty as to when liquidity will return to the SLARS market, the Company classified these securities as long-term at March 31, 2008.

The Company’s SLARS consist of the following taxable issues (in thousands) at March 31, 2008:

Security (Maturity)	Current Interest Rate		Next Interest Rate Reset Date	Par Value		Fair Value
SLM Student Loan Trust 2003-5 A-9 (6/17/2030)	4.40	%	5/19/2008	$	1,150	$	1,105
Missouri Higher Ed Loan Auth 2001 B (6/1/2031)	1.92	%	5/20/2008	1,000		959
Missouri Higher Ed Loan Auth 2002D (7/1/2032)	1.64	%	5/19/2008	2,800		2,685
NELNET Education Loan Funding 2003-1 A-6 (7/1/2043)	2.40	%	5/13/2008	1,000		944
Panhandle Plains Higher Ed Auth 2007 A-4 (8/1/2057)	3.86	%	5/14/2008	1,000		961
Total				$	6,950	$	6,654

The Company’s SLARS are currently AAA-rated by one or more rating agencies and are secured by pools of student loans guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program.  This guarantee is based upon a sliding scale of 97% to 98% of the unpaid principal balance of eligible student loans, plus accrued interest, when the guarantor’s claims experience is less than 5% of the original principal amount of the loans, and decreases to 75% if the guarantor’s claims experience is greater than 9% of the original principal amount of the loans.

At December 31, 2007, the fair values of the Company’s SLARS were based on market prices and broker-dealer quotes at the reporting date.  Given the absence of quotes from the Company’s broker-dealer and the lack of readily observable market quotes, the Company used valuation models for the determination of fair value at March 31, 2008.  Based on management’s assessment, the Company estimated the fair value of its SLARS to be approximately $6.65 million at March 31, 2008.  As a result, the Company recorded an unrealized holding loss of approximately $0.3 million in accumulated other comprehensive loss, a component of shareholders’ equity, related to the temporary impairment of its SLARS for the three-month period ended March 31, 2008.  The Company believes this temporary impairment is primarily attributable to the illiquidity of these securities and not to the underlying credit quality of the issuers of its SLARS, which is further discussed above.  To date the Company has collected all interest payable on all of its SLARS when due.  For each unsuccessful auction, the interest rate moves to a maximum rate defined for each security.  However, in certain situations, the maximum rate may be lower if historical average auction rates exceeded defined short-term interest benchmarks. The principal associated with failed auctions will not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the issuers redeem the securities, the issuers establish a different form of financing to replace these securities, or final payments come due according to contractual maturities ranging from 22 to 50 years.  The Company currently expects that it will receive the principal associated with its SLARS through one of the means described above.

The valuation models used to estimate the fair value of the Company’s SLARS at March 31, 2008

8

include numerous assumptions such as assessments of the underlying structure and collateral of each security, default risk, liquidity risk, expected cash flows, discount rates, issuer credit ratings, workout periods and overall capital market liquidity.  These assumptions and assessments are subject to uncertainties, are difficult to predict and require significant judgment.  The use of different assumptions, applying different judgment to inherently subjective matters and changes in future market conditions could result in significantly different estimates of fair value.  Although the Company currently believes that the decline in the fair value of these securities is temporary, there is a risk that the decline in value may ultimately be deemed to be other-than-temporary.  Should the Company determine that the decline in value of these securities is other-than-temporary, it would result in a loss being recognized in its consolidated statements of income, which could be material.

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.  Except for the portion of SFAS No. 157 that addresses nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, which has been deferred for one year, the Company adopted the provisions of SFAS No. 157 on January 1, 2008.

SFAS No. 157 establishes a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value of financial instruments.  The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.  The three levels are defined as follows:

Level 1	Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2	Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3	Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The Company’s assets or liabilities required to be measured at fair value on a recurring basis within the valuation hierarchy of SFAS No. 157 consist of its student loan auction-rate securities, or SLARS.  The Company’s SLARS are classified within Level 3 of the fair value hierarchy because there is currently limited, or no, trading activity due to continued failed auctions and therefore such securities have little, or no, price transparency.  A variety of factors are reviewed and monitored to assess fair value of the Company’s SLARS, as further discussed above under Investments.

9

The following table presents a reconciliation for all financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month period ended March 31, 2008 (in thousands):

	Long-term
	Investments
Balance, December 31, 2007	$	17,600
Impact of adoption of SFAS No. 157	—
Balance, January 1, 2008		17,600
Total losses (realized/unrealized):
Included in earnings	—
Included in accumulated other comprehensive loss	(296		)
Purchases, issuances and settlements	1,000
Sales and maturities	(11,650		)
Transfers in and/or out of Level 3	—
Balance, March 31, 2008	$	6,654

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.”  SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.  SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value.  The Company did not elect to choose the fair value option and record unrealized gains and losses in earnings for any of its financial instruments.  Accordingly, the adoption of SFAS No. 159 on January 1, 2008 did not have any impact on the unaudited consolidated financial statements of the Company.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, investments in student loan auction-rate securities, or SLARS, and accounts receivable.  The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions.  The Company performs ongoing credit evaluations of its customers and generally requires no collateral to secure accounts receivable.

The Company is subject to concentration of credit risk and interest rate risk related to its long-term investments, which consisted entirely of SLARS at March 31, 2008. These securities are structured with short-term interest rates that reset through an auction process at 28-day intervals, but with contractual debt maturities that can be well in excess of 22 years.  Liquidity for these securities was historically provided by an auction process that resets the applicable interest rate every 28 days.  However, if auctions for these securities fail, the Company will not be able to access the principal until a successful auction occurs, a buyer is found outside of the auction process, the issuers redeem the securities, the issuers establish a different form of financing to replace these securities or final payments come due according to contractual maturities ranging from 22 to 50 years.  The Company attempts to manage its credit risk by limiting the amount of investments placed with any one issuer, and previously invested primarily in AAA-rated securities that are secured by pools of student loans guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. This guarantee is based upon a sliding scale of 97% to 98% of the unpaid principal balance of eligible student loans, plus accrued interest, when the guarantor’s claims experience is less than 5% of the original principal amount of the loans, and decreases to 75% if the guarantor’s claims experience is greater than 9% of the original principal amount of the loans. See discussion above under Investments.

10

Earnings per share

Basic earnings per share are calculated on the basis of the weighted average number of common shares outstanding during the period.  Diluted earnings per share are calculated on the basis of the weighted average number of common shares outstanding during the period and common stock equivalents that would arise from the exercise of stock options or the issuance of restricted stock awards to employees and nonemployee directors using the treasury stock method.  The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

	Three months ended March 31,
	2008		2007
Numerator:
Net income	$	2,988	$	2,746
Denominator:
Weighted average shares – basic	62,119		61,652
Stock options and restricted stock awards	512		317
Weighted average shares – diluted	62,631		61,969
Basic earnings per share:
Net Income	$	0.05	$	0.04
Diluted net income per share:
Net Income	$	0.05	$	0.04

Outstanding stock options totaling approximately 20,000 and 359,000 shares for each of the three-month periods ended March 31, 2008 and 2007 were not included in the computation of diluted weighted average shares outstanding because their exercise prices were in excess of the average stock price of the Company during the periods, and would result in the options being anti-dilutive.

2. OUTSOURCED GOVERNMENT PORTAL CONTRACTS

The Company’s outsourced government portal contracts generally have an initial term of three to five years with provisions for renewals for various periods at the option of the government.  The Company’s primary business obligation under these contracts is to design, build and operate Internet-based portals on behalf of governments desiring to provide access to government information and to complete government-based transactions online. NIC typically markets the services and solicits users to complete government-based transactions and to enter into subscriber contracts permitting the user to access the portal and the government information contained therein in exchange for transactional and/or subscription user fees.  The Company enters into separate agreements with various agencies and divisions of the government to provide specific services and to conduct specific transactions. These agreements preliminarily establish the pricing of the electronic transactions and data access services the Company provides and the division of revenues between the Company and the government agency. The government must approve prices and revenue sharing agreements.

The Company is typically responsible for funding up front investment and ongoing operational costs of the government portals and generally owns all the applications developed under these contracts. After completion of a defined contract term, the government agency typically receives a perpetual, royalty-free license to the applications for use only. If the Company’s contract were not renewed after a defined term, the government agency would be entitled to take over the portal in place with no future obligation of the Company.

At March 31, 2008, the Company was bound by performance bond commitments totaling approximately $3.3 million on certain portal outsourcing contracts.  Under a typical portal contract, the Company is required to fully indemnify its government clients against claims that the Company’s services infringe upon the intellectual property rights of others and against claims arising from the Company’s performance or the performance of the Company’s subcontractors under the contract.

11

The following is a summary of the Company’s twenty-one outsourced state government portal contracts at March 31, 2008:

NIC Subsidiary	Portal Web Site (State)	Year Services Commenced	Contract Expiration Date (Renewal Options Through)
NICUSA	www.WV.gov (West Virginia)	2007	6/30/2008 (6/30/2010)
NICUSA	www.AZ.gov (Arizona)	2007	6/26/2010 (6/26/2013 )
Vermont Information Consortium	www.Vermont.gov (Vermont)	2006	10/15/2009 (10/14/2012)
Colorado Interactive	www.Colorado.gov (Colorado)	2005	5/19/2010 (5/19/2014)
South Carolina Interactive	www.SC.gov (South Carolina)	2005	7/15/2008 (7/15/2009)
Kentucky Interactive	www.Kentucky.gov (Kentucky)	2003	1/31/2009 (1/31/2013)
Alabama Interactive	www.Alabama.gov (Alabama)	2002	2/28/09 (2/28/2012)
Rhode Island Interactive	www.RI.gov (Rhode Island)	2001	8/7/2010 (8/7/2012)
Oklahoma Interactive	www.OK.gov (Oklahoma)	2001	6/30/2008 (6/30/2009)
Montana Interactive	www.MT.gov (Montana)	2001	12/31/2010
NICUSA	www.Tennessee.gov (Tennessee)	2000	8/27/2010
Hawaii Information Consortium	www.Hawaii.gov (Hawaii)	2000	1/3/2013 (unlimited 3-year renewal options)
Idaho Information Consortium	www.Idaho.gov (Idaho)	2000	3/31/2008 (Contract has been temporarily extended to allow the state time to finalize contract terms and conditions)
Utah Interactive	www.Utah.gov (Utah)	1999	5/6/2009
Maine Information Network	www.Maine.gov (Maine)	1999	3/14/2012 (3/14/18)
Arkansas Information Consortium	www.Arkansas.gov (Arkansas)	1997	6/30/2008
Iowa Interactive	www.Iowa.gov (Iowa)	1997	3/31/2011 (3/31/2012)
Virginia Interactive	www.Virginia.gov (Virginia)	1997	8/31/2012
Indiana Interactive	www.IN.gov (Indiana)	1995	6/30/2010 (6/30/2014)
Nebraska Interactive	www.Nebraska.gov (Nebraska)	1995	1/31/2010
Kansas Information Consortium	www.Kansas.gov (Kansas)	1992	12/31/2009

During the first quarter of 2008, the Company received a new five-year contract from the state of Hawaii.  This contract includes unlimited renewal options under which the state can extend the contract for additional three-year periods.  The Company also received a new four-year contract with the state of Maine, which includes an option for the state to extend the contract for three additional two-year renewal terms.  In addition, the Company received a one-year contract extension with the state of Alabama, which extended the contract expiration date to February 28, 2009.

3. SPECIAL CASH DIVIDEND

On February 4, 2008, the Company’s Board of Directors declared a special cash dividend of $0.25 per share, payable to shareholders of record as of February 18, 2008.  The dividend, totaling approximately $15.7 million, was paid on February 28, 2008 on 62,039,256 outstanding shares of common stock.  A dividend equivalent of $0.25 per share was also paid simultaneously on 790,032 unvested shares of restricted stock granted under the Company’s 2006 Stock Option and Incentive Plan.  The dividend was paid out of the Company’s available cash and short-term investments.

The dividend may result in a partial return of capital to shareholders, with the balance being taxable to shareholders as a qualified dividend.  The exact amount of the return of capital, if any, is dependent on the earnings of the Company, computed on a tax basis, through the end of its 2008 fiscal year.

4.  STOCK BASED COMPENSATION

During the first quarter of 2008, the Board of Directors of the Company granted certain management-level employees, executive officers and non-employee directors service-based restricted stock awards totaling 417,669 shares with a grant-date fair value totaling approximately $2.9 million.  Such restricted stock awards vest beginning one year from the date of grant in cumulative annual installments of 25%.  Restricted stock is valued at the date of grant, based on the closing market price of the Company’s common stock, and expensed using the straight-line method over the requisite service period.

12

During the first quarter of 2008, the Board of Directors of the Company also granted certain executive officers performance-based restricted stock awards pursuant to the terms of the Company’s new executive compensation program totaling 141,125 shares, with a grant date fair value of $5.86 per share, totaling approximately $0.8 million, which represents the maximum number of shares able to be earned by the executive officers at the end of a three-year performance period ending December 31, 2010.  The actual number of shares earned will be based on the Company’s performance related to the following performance criteria over the performance period:

·Operating income growth (three-year compound annual growth rate) – 25% weighting

·Total revenue growth (three-year compound annual growth rate) – 25% weighting

·Cash flow return on invested capital (three-year average) – 50% weighting

At the end of the three-year period, the executive officers will receive a number of shares per the following schedule of threshold, target or superior Company performance for the performance criteria:

	Performance Levels
Performance Threshold	Threshold		Target		Superior
Operating income growth (three-year compound annual growth rate)	15	%	20	%	25	%
Total revenue growth (three-year compound annual growth rate)	15	%	20	%	25	%
Cash flow return on invested capital (three-year average)	15	%	20	%	25	%

For each performance criteria, no shares will be awarded if threshold performance is not achieved, and no additional shares will be awarded for performance in excess of the superior level.  For amounts between the threshold and target levels or between the target and superior levels, straight line interpolation, rounded up to the next whole share, will be used to determine the portion of the award that becomes vested.  Performance-based restricted stock is valued at the date of grant, based on the closing market price of the Company’s common stock, and expensed over the requisite service period, beginning on the date of grant, based upon the probable number of shares expected to vest.

13

5.  COMMITMENTS AND CONTINGENCIES

Informal SEC Inquiry

As further discussed in Note 8 in the Notes to the Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2007, filed with the SEC on March 17, 2008, the Company is currently the subject of an informal SEC inquiry of expense reporting by certain officers of the Company and certain potentially related matters. In connection with that inquiry, a review was undertaken by the Audit Committee of the Company’s Board of Directors, with the assistance of outside, independent counsel, which focused on such expense reporting. The review revealed that expense reimbursement deficiencies occurred during the period from January 2004 through October 2006 related to Jeffery S. Fraser, who was then the Company’s Chief Executive Officer, that these expense reimbursement deficiencies were isolated to Mr. Fraser and that the amount of such deficiencies was not material to the Company’s financial condition or results of operations.

Litigation

The Company is involved from time to time in legal proceedings and litigation arising in the ordinary course of business. However, the Company is not currently involved with any legal proceedings.

6.  REPORTABLE SEGMENTS AND RELATED INFORMATION

The Company’s two reportable segments consist of its Outsourced Portal businesses and Software & Services businesses.  The Outsourced Portals segment includes the Company’s subsidiaries operating outsourced government portals and the corporate divisions that directly support portal operations.  The Software & Services segment primarily includes the Company’s UCC and corporate filings software development business (NIC Conquest) and ethics & elections filings business (NIC Technologies).  Each of the Company’s Software & Services businesses is an operating segment and has been aggregated to form the Software & Services reportable segment. Unallocated corporate-level expenses are reported in the reconciliation of the segment totals to the related consolidated totals as “Other Reconciling Items.”  There have been no significant intersegment transactions for the periods reported.

The measure of profitability by which management evaluates the performance of its segments and allocates resources to them is operating income (loss).   Segment asset or other segment balance sheet information is not presented to the Company’s chief operating decision maker.  Accordingly, the Company has not presented information relating to segment assets.

The table below reflects summarized financial information concerning the Company’s reportable segments for the three months ended March 31 (in thousands):

	Outsourced Portals		Software & Services		Other Reconciling Items			Consolidated Total
2008
Revenues	$	23,796	$	883	$	—		$	24,679
Costs & expenses	13,619		541		4,940			19,100
Depreciation & amortization	744		9		94			847
Operating income (loss)	$	9,433	$	333	$	(5,034	)	$	4,732
2007
Revenues	$	19,868	$	766	$	—		$	20,634
Costs & expenses	11,345		549		4,150			16,044
Depreciation & amortization	498		6		32			536
Operating income (loss)	$	8,025	$	211	$	(4,182	)	$	4,054

The following is a reconciliation of total segment operating income to total consolidated income before

14

income taxes for the three months ended March 31 (in thousands):

	2008			2007
Total operating income for reportable segments	$	4,732		$	4,054
Interest income	333			580
Other expense, net	(19		)	—
Consolidated income before income taxes	$	5,046		$	4,634

15

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: Statements in this Quarterly Report on Form 10-Q regarding NIC and its business, which are not current or historical facts, are “forward-looking statements” that involve risks and uncertainties.   Certain matters discussed in this report may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties. Forward-looking statements include, but are not limited to, statements of plans and objectives, statements of future economic performance or financial projections, statements of assumptions underlying such statements, and statements of the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future. For example, statements like we “expect,” we “believe,” we “plan,” we “intend” or we “anticipate” are forward-looking statements. Investors should be aware that our actual operating results and financial performance may differ materially from our expressed expectations because of risks and uncertainties about the future including those risks discussed in our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008.  In addition, we will not necessarily update the information in this Quarterly Report on Form 10-Q if any forward-looking statement later turns out to be inaccurate.  Management continuously updates and revises these estimates and assumptions based on actual conditions experienced.  However, it is not practicable to publish all revisions and, as a result, no one should assume that results projected in or contemplated by the forward-looking statements will continue to be accurate in the future.  Investors are cautioned not to put undue reliance on any forward-looking statement.

There are a number of important factors that could cause actual results to differ materially from those suggested or indicated by such forward-looking statements.  These include, among others, the success of the Company in signing contracts with new states and government agencies, including continued favorable government legislation; NIC’s ability to develop new services; existing states and agencies adopting those new services; acceptance of eGovernment services by businesses and citizens; competition; and general economic conditions and the other factors discussed under “CAUTIONS ABOUT FORWARD LOOKING STATEMENTS” in Part I and “RISK FACTORS” in Part I, Item 1A of NIC’s 2007 Annual Report on Form 10-K filed on March 17, 2008 with the Securities and Exchange Commission (“SEC”).  Investors should read all of these discussions of risks carefully.

WHAT WE DO – AN EXECUTIVE SUMMARY

We are a leading provider of eGovernment services that help governments use the Internet to reduce costs and provide a higher level of service to businesses and citizens. We accomplish this currently through two divisions: our core portal outsourcing businesses and our software & services businesses.

In our core business, portal outsourcing, we enter into contracts primarily with state governments and design, build and operate Web-based portals on their behalf. We enter into long-term contracts, typically three to five years, and manage operations for each government partner through separate subsidiaries that operate as decentralized businesses with a high degree of autonomy. Our portals consist of Web sites and applications that we build, which allow businesses and citizens to access government information online and complete transactions, including applying for a permit, retrieving driver’s license records or filing a form or report. We help increase our government partners’ revenues by expanding the distribution of their information assets and increasing the number of financial transactions conducted with governments.  We do this by marketing portal services and soliciting users to complete government-based transactions and to enter into subscriber contracts that permit users to access the portal and the government information contained therein in exchange for transactional and/or subscription user fees. We are typically responsible for funding up-front investment and ongoing operational costs of the government portals.  Our unique self-funding business model allows us to reduce our government partners’ financial and technology risks and obtain revenues by sharing in the fees generated from eGovernment services. Our partners benefit because they gain a centralized, customer-focused

16

presence on the Internet. Businesses and citizens gain a faster, more convenient and more cost-effective means to interact with governments.

On behalf of our government partners, we enter into separate agreements with various agencies and divisions of the government to provide specific services and to conduct specific transactions. These agreements preliminarily establish the pricing of the transaction and data access services we provide and the division of revenues between the Company and the government agency. The government must approve prices and revenue sharing agreements. We generally own all the applications developed under these contracts. After completion of a defined contract term, the government agency typically receives a perpetual, royalty-free license to the applications for use only. If our contract were not renewed after a defined term, the government agency would be entitled to take over the portal in place with no future obligation of the Company. In some cases, we enter into contracts to provide consulting, development and portal management services to governments in exchange for an agreed-upon fee.

Currently, we have contracts to provide portal outsourcing services for 21 states.  Our closest competitor operates one state portal.

REVENUE RECOGNITION

We classify our revenues and cost of revenues into two categories: (1) portal and (2) software & services.  The portal category includes revenues and cost of revenues primarily from our subsidiaries operating government portals on an outsourced basis.  The software & services category includes revenues and cost of revenues primarily from our UCC and corporate filings and ethics & elections businesses.  We currently derive revenue from two main sources: transaction-based fees and fees for application development.  Each of these revenue types and the corresponding business models are further described below.

Our portal outsourcing businesses

We categorize our portal revenues according to the underlying source of revenue.  A brief description of each category follows:

·DMV transaction-based: these are transaction fees from the sale of electronic access to driver history records, referred to as DMV records, from our state portals to data resellers, insurance companies and other pre-authorized customers on behalf of our state partners, and are generally recurring.

·Non-DMV transaction-based: these are transaction fees from sources other than the sale of DMV records, for transactions conducted by business users and consumer users through our portals, and are generally recurring.  For a representative listing of non-DMV services we currently offer through our portals, refer to Part I, Item 1 in our Form 10-K for the year ended December 31, 2007, filed with the SEC on March 17, 2008.

·Software development & portal management: these are fees from the performance of software development projects and other time and materials or fixed fee services for our government partners.  While we actively market portal software development services, they do not have the same degree of predictability as our transaction-based or portal management revenues.

Our software & services businesses

UCC and corporate filings

Our UCC and corporate filings software development business derives the majority of its revenues from fixed-price application development contracts and recognizes revenues on the percentage of completion method.  At March 31, 2008, this business was primarily engaged in servicing its contract with the

17

California Secretary of State and no longer markets its applications and services in respect of new engagements.

Ethics & elections

Our ethics & elections business derives the majority of its revenues from time and materials application development and maintenance outsourcing contracts and recognizes revenues as services are provided.  At March 31, 2008, our ethics & elections business was primarily engaged in servicing its contracts with the Federal Election Commission and the state of Michigan.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Form 10-K for the year ended December 31, 2007, filed with the SEC on March 17, 2008, except as follows:

Valuation of Investments

At March 31, 2008, our long-term investments consist entirely of student loan auction-rate securities, or SLARS.  As further discussed in Note 1 in the Notes to the Unaudited Consolidated Financial Statements included in this Form 10-Q, due to the absence of quotes from the Company’s broker-dealer and the lack of readily observable market quotes, the Company used valuation models to estimate the fair value of the Company’s SLARS at March 31, 2008.  These valuation models include numerous assumptions such as assessments of the underlying structure and collateral of each security, default risk, liquidity risk, expected cash flows, discount rates, issuer credit ratings, workout periods and overall capital market liquidity.  These assumptions and assessments are subject to uncertainties, are difficult to predict and require significant judgment.  The use of different assumptions, applying different judgment to inherently subjective matters and changes in future market conditions could result in significantly different estimates of fair value.

We assess other-than-temporary impairment of long-term investments in accordance with FASB Staff Position No. FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” This assessment requires significant judgment.  In making this determination, we employ a systematic methodology that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments.  If the cost of an investment exceeds its fair value, we evaluate general market conditions, earnings performance, credit rating, asset quality, and other key measures for our investments.  We also consider the duration and extent to which the fair value has been less than cost, and our ability and intent to hold the investment.  Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded, a loss is recognized in our consolidated statements of income and a new cost basis in the investment is established.  We have not recorded any other-than-temporary impairments on our investments.  However, if market, industry and/or investee conditions deteriorate, we may record impairments in the future, which could be material.

RESULTS OF OPERATIONS

The following discussion summarizes the significant factors affecting operating results for the three-month periods ended March 31, 2008 and 2007.  This discussion and analysis should be read in conjunction with our unaudited consolidated interim financial statements and the related notes included in this Form 10-Q.

18

	Three Months Ended March 31,
Key Financial Metrics	2008		2007
Revenue growth – outsourced portals	20	%	17	%
Same state revenue growth – outsourced portals	12	%	16	%
Recurring portal revenue %	91	%	93	%
Gross profit % - outsourced portals	47	%	47	%
Selling & administrative expenses as % of portal revenues	25	%	26	%
Operating income margin % (operating income as a % of portal revenues)	20	%	20	%

PORTAL REVENUES. In the analysis below, we have categorized our portal revenues according to the underlying source of revenue (in thousands) with the corresponding percentage change from the prior year period.

	Three Months Ended March 31,
	2008		% Change		2007
DMV transaction-based	$	11,910	4	%	$	11,460
Non-DMV transaction-based	7,577		26	%	6,015
Software development & portal management	4,309		80	%	2,393
Total	$	23,796	20	%	$	19,868

Portal revenues in the current quarter increased 20%, or approximately $3.9 million, over the prior year quarter.  This increase was mainly attributable to a 12% increase, or approximately $2.4 million, in same state portal revenues (outsourced portals in operation and generating recurring revenues for two full periods), and an 8% increase, or approximately $1.5 million, in revenues from our newer portals, including Vermont ($0.2 million, which began to generate DMV revenues in March 2007), Arizona ($1.0 million, which began to generate revenues in October 2007) and West Virginia ($0.3 million, which began to generate DMV revenues in February 2008).

Our Indiana portal subsidiary signed a new long-term contract with the state of Indiana that commenced on July 1, 2006.  The contract is based on a funding model that includes recurring fixed monthly fees for baseline services and primarily project-based pricing for variable services.  Historically, the majority of revenues under this contract were DMV and non-DMV transaction-based.  Under the new contract, the majority of revenues are classified as software development & portal management.  Prior to July 1, 2006, we defined same state revenues as those from states in operation and generating DMV revenues for two full periods.  Because the baseline revenues from the new Indiana contract are recurring, we have continued to include Indiana portal revenues in the calculation of same state revenue growth even though we no longer earn DMV transaction-based revenues under the contract.  Same state portal revenues in the current quarter increased 12% over the prior year quarter due to increased transaction revenues from our Arkansas, Tennessee, Montana, Hawaii and Oklahoma portals, among others.

Excluding Indiana, same state portal revenues in the current quarter increased 14% over the prior year quarter, with same state DMV transaction-based revenues remaining flat and same state non-DMV transaction-based revenues increasing 26% (primarily due to the addition of several new revenue generating applications in existing portals).  Our same state revenue growth in the current quarter was lower than the growth we achieved in the prior year quarter primarily due to decreases in same state DMV and non-DMV transaction-based revenue growth.  Same state DMV revenue growth in the current quarter was 0% compared to 10% in the prior year quarter. The higher growth in the prior year quarter was primarily due to the effect of DMV price increases in three of our portal states that went into effect in late 2006.  Absent DMV price increases, same state DMV revenues have historically grown at a rate of 1% to 3% per year.  Same state non-DMV transaction based revenue growth was 38% in the prior year quarter.

19

COST OF PORTAL REVENUES.  Cost of portal revenues for the current quarter increased 22%, or approximately $2.3 million, over the prior year quarter.  This increase was attributable to a 12% increase, or approximately $1.2 million, in same state cost of portal revenues, and a 10% increase, or approximately $1.1 million, in cost of portal revenues from our newer state portal businesses in Vermont, Arizona and West Virginia.

The increase in same state cost of portal revenues in the current quarter was partially attributable to additional personnel in several of our portals due to our continued growth and reinvestment in our core business.  Also contributing to this increase was an increase in bank fees.  A growing percentage of our non-DMV transaction-based revenues are generated from online applications whereby users pay for information or transactions via credit cards.  We typically earn a percentage of the credit card transaction amount, but also must pay an associated fee to the bank that processes the credit card transaction.  We earn a lower gross profit percentage on these transactions as compared to our other non-DMV applications.  However, we plan to continue to implement these services as they contribute favorably to our operating income growth.

Our portal gross profit rate was 47% in both the current and prior year quarters. We carefully monitor our portal gross profit percentage to strike the balance between generating a solid financial return for our shareholders and delivering value to our government partners through reinvestment in our portals (which we believe also benefits our shareholders).  We currently expect our portal gross profit percentage to range from 45% to 47% in 2008.

SOFTWARE & SERVICES REVENUES. In the analysis below, we have categorized our software & services revenues by type of business (in thousands), with the corresponding percentage change from the prior year period.

	Three Months Ended March 31,
	2008		% Change		2007
UCC & corporate filings software development	$	150	(13	)%	$	172
Ethics & elections	686		30	%	528
Other	47		(29	)%	66
Total	$	883	15	%	$	766

Software & services revenues in the current year quarter increased 15%, or approximately $0.1 million, over the prior year quarter.  This increase was primarily attributable to a contract renewal with the state of Michigan in our ethics & elections business that enhanced the revenues we earn.

SELLING & ADMINISTRATIVE.  Selling & administrative expenses in the current quarter increased 16%, or approximately $0.8 million, over the prior year quarter.  As discussed in Note 5 in the Notes to the Unaudited Consolidated Financial Statements in this Form 10-Q and in Item 1A, Item 3 and Note 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on March 17, 2008, we are currently the subject of an informal SEC inquiry of expense reporting by certain officers of our Company and certain potentially related matters.  In connection with that inquiry, a review was undertaken by the Audit Committee of our Board of Directors, with the assistance of outside, independent counsel, which focused on such expense reporting.  The increase in selling & administrative expenses in the current quarter was primarily attributable to legal fees and other expenses totaling approximately $0.5 million incurred in connection with the ongoing informal SEC inquiry and the Audit Committee review.  We could incur significant legal fees and other expenses in connection with the ongoing, informal SEC inquiry.

As a percentage of portal revenues, selling & administrative expenses were 25% in the current quarter compared to 26% in the prior year quarter.  We currently expect selling & administrative costs as a percentage of portal revenue to range from 24% to 25% in 2008.

DEPRECIATION & AMORTIZATION.  Depreciation & amortization expense in the first quarter of 2008 increased 58%, or $0.3 million, over the prior year quarter.  The increase was primarily attributable to capital

20

expenditures in the current and prior periods for normal fixed asset additions in our outsourced portal business, including Web servers, purchased software and office furniture and equipment to support and enhance corporate-wide information technology security and portal operations, in addition to capital expenditures for furniture, fixtures and leasehold improvements made in the second half of 2007 for our new corporate headquarters.

As a percentage of portal revenues, depreciation & amortization was 4% in the current quarter compared to 3% in the prior year quarter.  We currently expect depreciation & amortization expense as a percentage of portal revenues to range from 3% to 4% in 2008, as we will continue to make key information technology infrastructure and security investments to support the long-term expansion of our portal business.

INTEREST INCOME.  Interest income reflects interest earned on our investable cash and investment portfolio. As further discussed in Note 3 in the Notes to Unaudited Consolidated Financial Statements included in this Form 10-Q, on February 4, 2008, our Board of Directors declared a special cash dividend of $0.25 per share, payable to shareholders of record as of February 18, 2008.  The dividend, totaling approximately $15.7 million, was paid on February 28, 2008 out of our available cash and short-term investments.  We currently expect interest income in 2008 to be lower than in 2007, partially as a result of paying this special dividend, but primarily because of the declining short-term interest rate environment we are currently experiencing in addition to the lower average investment balance.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash provided by operating activities was $5.7 million in the current quarter as compared to negative operating cash flow of $1.5 million in the prior year quarter.  Our negative cash flow in the prior year quarter was primarily due to a substantial build in accounts receivable and the timing of payments to certain of our government partners, which affected accounts payable.  We typically see an increase in both accounts receivable and accounts payable in the first quarter of every year due to increases in revenues across our portal businesses as compared to the fourth quarter of the previous year, which is our seasonally lowest quarter due to the smaller number of business days and a lower volume of business-to-government and citizen-to-government transactions during the holiday periods.  While a general increase in revenues in the prior year quarter contributed to an increase in our accounts receivable, a substantial portion of the increase (approximately $3.0 million) was attributable to a build in accounts receivable relating to our Indiana portal contract.  As discussed above, we signed a new contract with the state of Indiana that commenced on July 1, 2006.  The new contract is based on a funding model that includes recurring fixed monthly fees for baseline services and primarily project-based pricing for variable services.  As part of the transition process from the old contract to the new contract, we had not yet been paid at the end of the prior year quarter for baseline and variable services performed since July 2006.

In addition, accounts payable in the prior year quarter experienced a smaller increase in comparison to the increase in trade accounts receivable (excluding the impact of Indiana portal receivables discussed above), as accounts payable at the end of fiscal 2006 were temporarily high due in part to an increase in fourth quarter 2006 tax payment processing from tax filing applications across our portal businesses.  Such tax payments are frequently made via ACH or credit cards at the end of the year, whereby we do not receive payment or remit collected cash until after year end.  The majority of these year-end tax receipts were remitted to our government partners in early January 2007.

The decrease in accrued expenses in the current quarter was primarily attributable to decreases in accrued payroll and benefit costs relating to bonus payments to management-level employees pursuant to a 2007 incentive plan and Company 401(k) matching contributions.

We had a history of unprofitable operations prior to 2003 primarily due to operating losses incurred in our software & services businesses.  These losses generated significant federal and state tax net operating losses, or NOLs.  As a result of our NOL carryforwards, we are not currently paying federal income taxes, with the exception of amounts relating to alternative minimum tax, and are paying income taxes in only certain states.  This positively impacts our operating cash flow and will continue to positively impact our operating cash flow during the NOL

21

carryforward periods.  Based on our current projections, we currently expect to fully utilize our federal NOL carryforwards by the end of 2009.  For the three-month periods ended March 31, 2008 and 2007, combined federal and state income tax payments totaled approximately $0.4 million and $0.3 million, respectively.

Investing Activities

Investing activities in the current quarter primarily reflect the partial liquidation of our investment portfolio to pay the $15.7 million special cash dividend in February 2008, and $1.2 million of capital expenditures, which were for normal fixed asset additions in our outsourced portal business, including Web servers, purchased software and office equipment.  Cash provided by investing activities in the prior year quarter primarily reflects the liquidation of our investment portfolio to pay the $46.7 million special cash dividend in February 2007, and $1.0 million of capital expenditures, which were primarily for normal fixed asset additions in our outsourced portal business.

Financing Activities

Financing activities in the current quarter primarily reflect payment of the $15.7 million special cash dividend in February 2008, partially offset by receipt of $0.8 million in proceeds from the exercise of employee stock options and $0.3 million in proceeds from our employee stock purchase program.  Financing activities in the prior year quarter primarily reflect payment of the $46.7 million special cash dividend in February 2007, partially offset by receipt of $0.5 million in proceeds from the exercise of employee stock options and $0.2 million in proceeds from our employee stock purchase program.

Liquidity

We recognize revenue primarily from providing outsourced government portal services net of the transaction fees due to the government when the services are provided. The fees that we must remit to the government are accrued as accounts payable and accounts receivable at the time services are provided. As a result, trade accounts payable and accounts receivable reflect the gross amounts outstanding at the balance sheet dates.  Gross billings for the three months ended March 31, 2008 and December 31, 2007 were approximately $292.8 million and $303.8 million, respectively.  The Company calculates days sales outstanding by dividing trade accounts receivable at the balance sheet date by gross billings for the period and multiplying the resulting quotient by the number of days in that period.  Days sales outstanding for the three-month periods ended March 31, 2008 and December 31, 2007 was 10 and 9, respectively.

We believe that working capital is an important measure of our short-term liquidity.  Working capital, defined as current assets minus current liabilities, decreased to $33.4 million at March 31, 2008 from $49.8 million at December 31, 2007.  Our current ratio, defined as current assets divided by current liabilities, at March 31, 2008 was 1.7 compared to 2.1 at December 31, 2007.  The decrease in our working capital and current ratio was primarily attributable to the $15.7 million special dividend paid out of the Company’s available cash and short-term investments in the current quarter as further discussed below and in Note 3 in the Notes to Unaudited Consolidated Financial Statements included in this Form 10-Q.  Furthermore, we classified our investments in student loan auction rate securities, or SLARS, as long-term investments at March 31, 2008, which decreased our working capital by approximately $6.7 million, as further discussed in Note 1 in the Notes to the Unaudited Consolidated Financial Statements included in this Form 10-Q.

At March 31, 2008, our total cash and short-term investment balance was $38.4 million compared to $55.8 million at December 31, 2007.  As further discussed in Note 1 in the Notes to the Unaudited Consolidated Financial Statements included in this Form 10-Q, during January 2008, we began to liquidate our short-term investments portfolio in anticipation of paying a $15.7 million special cash dividend on February 28, 2008.  These securities consist entirely of SLARS, which are currently AAA-rated by one or more credit rating agencies and are secured by pools of student loans partially guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. The auction process is designed to provide a means by which these securities can be sold, and historically has provided a highly liquid market for these securities.  We had successful auctions on our SLARS through mid-February 2008, at which time we had liquidated approximately $11.6 million of our portfolio.  We encountered our first failed auction in

22

mid-February 2008, as the amount of securities submitted for sale in those auctions exceeded the amount of bids, and we have not subsequently had a successful auction related to the remaining $7.0 million par value of these securities we currently hold.    To date we have collected all interest payable on all of our SLARS when due.  The principal associated with failed auctions will not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the issuers redeem the securities, the issuers establish a different form of financing to replace these securities, or final payments come due according to contractual maturities ranging from 22 to 50 years.  We currently expect that we will receive the principal associated with these SLARS through one of the means described above.

On February 28, 2008, we paid a special cash dividend totalling approximately $15.7 million out of available cash and short-term investments.  We do not believe that this dividend will have a significant effect on our future liquidity.  While the recent auction failures could limit our ability to liquidate our SLARS for some period of time, we believe that our currently available liquid resources, coupled with the unused portion of our line of credit of approximately $8.7 million and cash generated from operations, will be sufficient to meet our operating requirements, capital expenditure requirements and current growth initiatives for at least the next twelve months without the need of additional capital.  However, we may need to raise additional capital within the next twelve months to further:

·fund operations if unforeseen costs arise;

·support our expansion into other states and government agencies beyond what is contemplated if unforeseen opportunities arise;

·expand our product and service offerings beyond what is contemplated if unforeseen opportunities arise;

·respond to unforeseen competitive pressures; and

·acquire technologies beyond what is contemplated.

Any projections of future earnings and cash flows are subject to substantial uncertainty. If our cash, investments and cash generated from operations are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity securities or issue debt securities.  The sale of additional equity securities could result in dilution to the Company’s shareholders.  There can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all.  Further, we may draw on the remaining unused portion of our $10 million line of credit.

We issue letters of credit as collateral for performance on certain of our outsourced government portal contracts, as collateral for certain performance bonds and as collateral for certain office leases.  These irrevocable letters of credit are generally in force for one year, for which we currently pay bank fees of 1% of face value per annum.  We had unused outstanding letters of credit totaling approximately $1.3 million at March 31, 2008.  We are not currently required to cash collateralize these letters of credit.  However, even though we currently expect to be profitable in fiscal 2008 and beyond, we may not be able to sustain or increase profitability on a quarterly or annual basis.  We will need to generate sufficient revenues while containing costs and operating expenses if we are to achieve sustained profitability.  If we are not able to sustain profitability, our cash collateral requirements may increase.  Had we been required to post 100% cash collateral at March 31, 2008 for the face value of all performance bonds (which are partially supported by letters of credit) and our line of credit in conjunction with a corporate credit card agreement, unrestricted cash would have decreased by approximately $4.3 million and would have been classified as restricted cash.

At March 31, 2008, we were bound by performance bond commitments totaling approximately $3.3 million on certain government portal outsourcing contracts.  These performance bonds are collateralized by a $1 million letter of credit.  We have never had any defaults resulting in draws on performance bonds or letters of credit.

Off-Balance Sheet Arrangements, Contractual Obligations and Income Tax Uncertainties

We do not have off-balance sheet arrangements or significant exposures to liabilities that are not recorded

23

or disclosed in our financial statements.  While we have significant operating lease commitments for office space, those commitments are generally tied to the period of performance under related contracts.  We have income tax uncertainties of approximately $0.7 million at March 31, 2008.  These obligations are classified as other long-term liabilities in our consolidated balance sheet, as resolution is expected to take more than a year.  We estimate that these matters could be resolved in one to three years.  However, the ultimate timing of resolution is uncertain.

RECENT ACCOUNTING PRONOUNCEMENTS

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.  Except for the portion of SFAS No. 157 that addresses nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, which has been deferred for one year, we adopted this standard effective January 1, 2008.  The adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.”  SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.  SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. We did not elect to choose the fair value option and record unrealized gains and losses in earnings for any of our financial instruments.  Accordingly, the adoption of SFAS No. 159 on January 1, 2008 did not have any impact on our consolidated financial statements.

24

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK.  As further discussed above in the Liquidity section of Item 2, our long-term investments consist entirely of student loan auction-rate securities, or SLARS, at March 31, 2008.  Our SLARS are structured with short-term interest rates that are reset through an auction process at 28-day intervals, but with contractual debt maturities that can be well in excess of 22 years.  These securities are currently AAA-rated by one or more credit rating agencies and are secured by pools of student loans partially guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. In mid-February 2008, liquidity issues in the global credit markets resulted in the failure of auctions representing all of the remaining SLARS we currently hold (totaling approximately $7.0 million at par value), as the amount of securities submitted for sale in those auctions exceeded the amount of bids. For each unsuccessful auction, the interest rate moves to a maximum rate defined for each security.  However, in certain situations, the maximum rate may be lower if historical average auction rates exceeded defined short-term interest benchmarks.  To date we have collected all interest payable on all of our SLARS.  The principal associated with failed auctions will not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, or final payments come due according to contractual maturities ranging from 22 to 50 years.

Our cash equivalents and long-term investments portfolio are subject to market risk due to changes in interest rates.  Floating rate securities may produce less income than expected if interest rates fall.  Furthermore, the market value of SLARS may be adversely impacted due to a maximum interest rate cap if the spread between short-term rates and long-term rates increases.  Due in part to these factors, our future interest income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to either changes in interest rates or discounts offered by prospective buyers of our SLARS.  However, because we classify our debt securities as “available for sale,” no gains or losses are recognized in our consolidated statements of income due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary. Should the Company determine that the decline in value of these securities is other-than-temporary, it would result in a loss being recognized in its consolidated statements of income, which could be material.

Borrowings under our line of credit bear interest at a floating rate. Interest on amounts borrowed is payable at a base rate equal to the higher of the Federal Funds Rate plus 0.5% or the bank’s prime rate.  We currently have no principal amounts of indebtedness outstanding under our line of credit.

We do not use derivative financial instruments.  A 10% change in interest rates would not have a material effect on our financial condition, results of operations or cash flows.

ITEM 4.  CONTROLS AND PROCEDURES

a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that material information required to be disclosed in its filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.  Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.

25

b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting that occurred during our first fiscal quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)           During the first quarter of 2008, the Company acquired shares of common stock surrendered by employees to pay income taxes due upon the vesting of restricted stock as follows:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 29, 2008	2,012	$	7.24	N/A	N/A

ITEM 5.  OTHER INFORMATION

On May 6, 2008, the Board of Directors of the Company approved an amendment to the Amended and Restated Bylaws of NIC Inc. to change “President” to “principal executive officer” and clarify that the Board has discretion to determine the title of such principal executive officer.

On May 6, 2008, the Compensation Committee of the Board of Directors of the Company approved the form of the Performance-Based Restricted Stock Agreement to be entered into with executive officers who receive performance-based restricted stock awards under the NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan.

Jeffery S. Fraser stepped down as Chairman of the Board of Directors of the Company on May 6, 2008, effective on the same date.  On May 6, 2008, Mr. Fraser was voted the honorary title Chairman Emeritus by the Board.  He will continue to serve on the Company’s Board of Directors.

On May 6, 2008, the Board of Directors of the Company elected Harry H. Herington, who is currently the Chief Executive Officer of the Company, as Chairman of the Board of Directors, and appointed Art N. Burtscher to serve as Lead Director during 2008.

On May 6, 2008, Governor Daniel J. Evans was appointed to serve as Chairman of the Compensation Committee and Alexander C. Kemper was appointed to serve as Chairman of the Corporate Governance and Nominating Committee. The Audit Committee elected Mr. Burtscher to serve as its Chair.

ITEM 6.  EXHIBITS

3.1 - Amended and Restated Bylaws of NIC Inc. (a Colorado corporation), As Amended and Restated Effective May 6, 2008

10.1 - NIC Inc. Management Annual Cash Incentive Plan, dated March 4, 2008

26

10.2 - Performance-Based Restricted Stock Agreement under the NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan

31.1 - Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 - Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 - Section 906 Certifications of Chief Executive Officer and Chief Financial Officer

27

SIGNATURES

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

	NIC INC.
Dated: May 12, 2008	/s/Stephen M. Kovzan
	Stephen M. Kovzan
	Chief Financial Officer

28

NIC Inc.

EXHIBIT INDEX

Exhibit
Number	Description of Exhibit
3.1	Amended and Restated Bylaws of NIC Inc. (a Colorado corporation), As Amended and Restated Effective May 6, 2008
10.1	NIC Inc. Management Annual Cash Incentive Plan, dated March 4, 2008
10.2	Performance-Based Restricted Stock Agreement under the NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Section 906 Certifications of Chief Executive Officer and Chief Financial Officer

29

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

BYLAWS

OF

NIC INC.
(a Colorado corporation)

(As Restated Effective November 5, 2007)

1. With amendment of 5-6-08

TABLE OF CONTENTS

ARTICLE I OFFICES		1
Section 1.1.	Registered Office and Agent	1
Section 1.2.	Offices	1
ARTICLE II MEETINGS OF STOCKHOLDERS		1
Section 2.1.	Annual Meetings	1
Section 2.2.	Special Meetings	1
Section 2.3.	Notice of Meetings	1
Section 2.4.	Quorum	1
Section 2.5.	Adjournments	2
Section 2.6.	Voting; Proxies	2
Section 2.7.	Action by Consent of Stockholders	2
Section 2.8.	List of Stockholders Entitled to Vote	2
Section 2.9.	Fixing Record Date	3
Section 2.10.	Business to be Brought Before the Annual Meeting	3
ARTICLE III BOARD OF DIRECTORS		4
Section 3.1.	Number; Qualifications	4
Section 3.2.	Vacancies	4
Section 3.3.	Powers	4
Section 3.4.	Resignations	4
Section 3.5.	Regular Meetings	4
Section 3.6.	Special Meetings	4
Section 3.7.	Notice of Meetings	4
Section 3.8.	Quorum; Vote Required for Action	5
Section 3.9.	Action by Consent of Directors	5
Section 3.10.	Telephonic Meetings Permitted	5
Section 3.11.	Compensation	5
Section 3.12.	Removal	5
Section 3.13.	Committees	5
Section 3.14.	Nomination of Directors	6
ARTICLE IV NOTICES		7
Section 4.1.	Notices	7
Section 4.2.	Waiver of Notice	7
ARTICLE V OFFICERS		7
Section 5.1.	Election; Qualifications; Term of Office; Resignation; Removal; Vacancies	7
Section 5.2.	Powers and Duties	8

i

ARTICLE VI STOCK		8
Section 6.1.	Stock	8
Section 6.2.	Certificates Issued for Partly Paid Shares	8
Section 6.3.	Facsimile Signatures	8
Section 6.4.	Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates	8
Section 6.5.	Transfer of Stock	9
ARTICLE VII GENERAL PROVISIONS		9
Section 7.1.	Dividends	9
Section 7.2.	Fiscal Year	9
Section 7.3.	Seal	9
Section 7.4.	Amendments	9
ARTICLE VIII INDEMNIFICATION		10
Section 8.1.	Indemnification	10
Section 8.2.	Insurance	10
Section 8.3.	Advancement of Expenses	10
Section 8.4.	Nonexclusive	11

ii

AMENDED AND RESTATED

BYLAWS

OF

NIC INC.

*  *  *  *  *

ARTICLE I
OFFICES

Section 1.1.            Registered Office and Agent.  The initial registered office shall be CT Corporation System, 1675 Broadway, Suite 1200, Denver, CO 80202, and the name of the initial registered agent of the corporation at such address shall be CT Corporation System.

Section 1.2.            Offices.  The corporation may also have offices at such other places both within and without the State of Colorado as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II
MEETINGS OF STOCKHOLDERS

Section 2.1.            Annual Meetings.  Annual meetings of stockholders shall be held the first Tuesday in May, either within or without the State of Colorado, or at such other time and place as may be designated from time to time by the Board of Directors and stated in the notice of the meeting, for the purpose of electing a Board of Directors, and transacting such other business as may properly be brought before the meeting.

Section 2.2.            Special Meetings.  Special meetings of the stockholders, for any purpose or purposes, unless otherwise provided by statute or by the Articles of Incorporation, may be called at any time by the Principal executive officer and shall be called by the Principal executive officer or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote.  Such request shall state the purpose or purposes of the proposed meeting.  Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

Section 2.3.            Notice of Meetings.  Whenever stockholders are required or permitted to take action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.  Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting.

Section 2.4.            Quorum.  Except as otherwise provided by law or by the Articles of Incorporation or these Bylaws, the presence in person or by proxy of the holders of a majority of

1

the outstanding shares of stock of the corporation entitled to vote thereat shall constitute a quorum at each meeting of the stockholders and all questions shall be decided by a majority of the shares so represented in person or by proxy at the meeting and entitled to vote thereat.  The stockholders present at any duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

Section 2.5.            Adjournments.  Notwithstanding any other provisions of the Articles of Incorporation or these Bylaws, the holders of a majority of the shares of stock of the corporation entitled to vote at any meeting, present in person or represented by proxy, whether or not a quorum is present, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented.  At any such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting originally called; provided, however, that if the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting.

Section 2.6.            Voting; Proxies.  Unless otherwise provided in the Articles of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period.  Each proxy shall be revocable unless expressly provided therein to be irrevocable or unless otherwise made irrevocable by law.  The notice of every meeting of the stockholders may be accompanied by a form of proxy approved by the Board of Directors in favor of such person or persons as the Board of Directors may select.

Section 2.7.            Action by Consent of Stockholders.  Unless otherwise provided in the Articles of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all of the holders of outstanding stock entitled to vote thereon.

Section 2.8.            List of Stockholders Entitled to Vote.  The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held.  The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

2

Section 2.9.            Fixing Record Date.  In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action.  The Board of Directors shall not close the books of the corporation against transfer of shares during the whole or any part of such period.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

Section 2.10.          Business to be Brought Before the Annual Meeting.  To be properly brought before the annual meeting of stockholders, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this Section 2.10 of Article II, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 2.10 of Article II.  In addition to any other applicable requirements, for business to be brought before an annual meeting by a stockholder of the corporation, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation.  To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the corporation in the case of each subsequent annual meeting of stockholders.  A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business, (iii) the acquisition date, the class and the number of shares of voting stock of the corporation which are owned beneficially by the stockholder, (iv) any material interest of the stockholder in such business, and (v) a representation that the stockholder intends to appear in person or by proxy at the meeting to bring the proposed business before the meeting.

Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.10.

The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.10 of Article II, and if the chairman should so determine, the chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

Notwithstanding the foregoing provisions of this Section 2.10 of Article II, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as

3

amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 2.10.

ARTICLE III
BOARD OF DIRECTORS

Section 3.1.            Number; Qualifications.  The number of directors shall be at least three and not more than ten, subject to the provisions contained in the Articles of Incorporation.  Within that range, the number of directors shall be as stated by resolution adopted by the Board of Directors from time to time, but no decrease in the number of directors shall have the effect of shortening the term of any incumbent director.  The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.2, and each director elected shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal.  A director need not be a stockholder of the corporation.  A majority of the directors may elect from its members a chairman, who shall also serve as chairman of any annual or special meeting of the stockholders.  The chairman, if any, shall hold this office until his successor shall have been elected and qualified.

Section 3.2.            Vacancies.  Any vacancy in the Board of Directors, including vacancies resulting from any increase in the authorized number of directors may be filled by a majority of the remaining directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual meeting of stockholders and their successors are duly elected and qualified, or until their earlier death, resignation or removal.

Section 3.3.            Powers.  The business affairs and property of the corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

Section 3.4.            Resignations.  Any director may resign at any time by written notice to the corporation.  Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 3.5.            Regular Meetings.  Regular meetings of the Board of Directors shall be held at such place or places within or without the State of Colorado, at such hour and on such day as may be fixed by resolution of the Board of Directors, without further notice of such meetings.

Section 3.6.            Special Meetings.  Special meetings of the Board of Directors may be held whenever called by (i) the Chairman of the Board; (ii) the Principal executive officer; (iii) the Principal executive officer or Secretary on the written request of a majority of the Board of Directors; or (iv) resolution adopted by the Board of Directors.  Special meetings may be held within or without the State of Colorado as may be stated in the notice of the meeting.

Section 3.7.            Notice of Meetings.  Written notice of the time, place and general nature of the business to be transacted at all special meetings of the Board of Directors must be given to

4

each director at least three days prior to the day of the meeting; provided, however, that notice of any meeting need not be given to any director if waived by him in writing, or if he shall be present at such meeting, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened.

Section 3.8.            Quorum; Vote Required for Action.  At all meetings of the Board of Directors, a majority of directors then in office shall constitute a quorum for the transaction of business and, except as otherwise provided by law or these Bylaws, the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors; but a lesser number may adjourn the meeting from day to day, without notice other than announcement at the meeting, until a quorum shall be present.  Directors may participate in any meeting of the directors, and members of any committee of directors may participate in any meeting of such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and such participation shall constitute presence in person at such meeting.

Section 3.9.            Action by Consent of Directors.  Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if all members of the board or the committee of the board, as the case may be, consent thereto in writing, which may be in counterparts, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or the committee thereof.  Such writing(s) shall be manually executed if practicable, but if circumstances so require, effect shall be given to written consent transmitted by telegraph, telex, telecopy or similar means of visual data transmission.

Section 3.10.          Telephonic Meetings Permitted.  Members of the Board of Directors, or any committee designated by the board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Bylaw shall constitute presence in person at such meeting.

Section 3.11.          Compensation.  Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved by resolution of the Board of Directors, a fixed sum and expenses of attendance at each regular or special meeting or any committee thereof.  No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

Section 3.12.          Removal.  Except as provided in the Articles of Incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors.  The notice calling such meeting shall state the intention to act upon such matter, and, if the notice so provides, the vacancy or vacancies caused by such removal may be filled at such meeting by a vote of the majority of the shares entitled to vote at an election of directors.

Section 3.13.          Committees.  The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of

5

one or more of the directors of the corporation.  The Board may designate one or more directors as alternate members of any committee.  The alternate members of any committee may replace any absent or disqualified member at any meeting of the committee.  Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have such power or authority in reference to amending the Articles of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the Bylaws of the corporation; and, unless the resolution or the Articles of Incorporation expressly so provide, no committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a Certificate of Ownership and Merger.  Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.  Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.  Members of special or standing committees shall be entitled to receive such compensation for serving on such committees as the Board of Directors shall determine.

Section 3.14.          Nomination of Directors.  Only persons who are nominated in accordance with-the following procedures shall be eligible for election as directors.  Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this Section 3.14 of Article III, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 3.14 of Article III.  Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation.  To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the corporation (i) with respect to an election to be held at the annual meeting of the stockholders of the corporation, not later than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the corporation, and (ii) with respect to an election to be held at a special meeting of stockholders of the corporation for the election of directors, not later than the closing of business on the 10th day following the day on which such notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever first occurs.  Such stockholder’s notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to the person that is required to be disclosed in solicitations for proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation’s books, of such stockholder, and (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder.  At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee.

6

In the event that a person is validly designated as nominee to the Board and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee.

No person shall be eligible to serve as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 3.14 of Article III.  The chairman of the meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if the chairman should so determine, the chairman shall so declare to the meeting and the defective nomination shall be disregarded.

Notwithstanding the foregoing provisions of this Section 3.14 of Article III, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 3.14 of Article III.

ARTICLE IV
NOTICES

Section 4.1.            Notices.  Whenever any notice is required to be given under the provisions of these Bylaws or of the Articles of Incorporation to any director or stockholder, such notice must be in writing and may be given in person, in writing or by mail, telegram, telecopy or other similar means of visual communication, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage or other transmittal charges thereon prepaid.  Such notice shall be deemed to be given (i) if by mail, at the time when the same shall be deposited in the United States mail and (ii) otherwise, when such notice is transmitted.

Section 4.2.            Waiver of Notice.  Whenever any notice is required to be given under the provisions of the Bylaws or of the Articles of Incorporation to any director or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

ARTICLE V
OFFICERS

Section 5.1.            Election; Qualifications; Term of Office; Resignation; Removal; Vacancies.  The officers of the corporation shall be elected or appointed by the Board of Directors and may include, at the discretion of the Board, a Chairman of the Board, a Principal executive officer whose title shall be decided by the Board, a Secretary, a Treasurer and such Executive, Senior or other Vice Principal executive officers and other officers as may be determined by the Board of Directors.  Any number of offices may be held by the same person.  The officers of the corporation shall hold office until their successors are chosen and qualified, except that any officer may resign at any time by written notice to the corporation and the Board of Directors may remove any officer at any time at its discretion with or without cause.  Any vacancies occurring in any office of the corporation by death, resignation, removal or otherwise

7

may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.

Section 5.2.            Powers and Duties.  The officers of the corporation shall have such powers and duties as generally pertain to their offices, except as modified herein or by the Board of Directors, as well as such powers and duties as shall be determined from time to time by the Board of Directors.  The Chairman of the Board, if one is elected, and otherwise the Principal executive officer, shall preside at all meetings of the Board.  The Principal executive officer shall preside at all meetings of the Stockholders.

ARTICLE VI
STOCK

Section 6.1.            Stock.  The shares of the corporation shall be represented by certificates or shall be uncertificated.  Each registered holder of stock represented by a certificate, upon written request to the corporation, shall be provided with a certificate of stock representing the number of shares owned by such holder.  Certificates representing the corporation’s capital stock, if any, shall be in such form as required by law and as approved by the Board.  Each such certificate shall be signed (either manually or by facsimile) in the name of the corporation by the Chair or Vice Chair of the Board, Principal executive officer or any Vice-Principal executive officer, and by the Treasurer or an assistant treasurer, or the Secretary or an assistant secretary of the corporation.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

Section 6.2.            Certificates Issued for Partly Paid Shares.  Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified.

Section 6.3.            Facsimile Signatures.  Any of or all the signatures on certificated shares may be facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

Section 6.4.            Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates.  With respect to any stock represented by a certificate, the Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed.  When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct

8

as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

Section 6.5.            Transfer of Stock.  Subject to any restrictions on transfer, and unless otherwise provided by the Board of Directors, transfers of stock shall be made upon the books of the corporation: (i) upon presentation of the certificates by the registered holder in person or by duly authorized attorney, or upon presentation of proper evidence of succession, assignment or authority to transfer the stock, and upon surrender of the appropriate certificate(s), or (ii) in the case of uncertificated shares, upon receipt of proper transfer instructions from the registered owner of such uncertificated shares, or from a duly authorized attorney or from an individual presenting proper evidence of succession, assignment or authority to transfer the stock.

ARTICLE VII
GENERAL PROVISIONS

Section 7.1.            Dividends.  Dividends upon the capital stock of the corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law.  Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Articles of Incorporation.  Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

A member of the Board of Directors, or a member of any committee designated by the Board of Directors, shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors, or by any other person as to matters the director reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid, or with which the Corporation’s stock might properly be purchased or redeemed.

Section 7.2.            Fiscal Year.  The fiscal year of the corporation shall be the calendar year.

Section 7.3.            Seal.  The seal of the corporation shall be in such form as the Board of Directors shall prescribe.

Section 7.4.            Amendments.  These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the stockholders or, unless expressly prohibited by a particular Bylaw, by the Board of Directors (i) at any regular meeting of the stockholders or of the Board of Directors (ii) or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new Bylaws shall be contained in the

9

notice of such special meeting.  The power to adopt, amend or repeal Bylaws conferred upon the Board of Directors shall not divest or limit the power of the stockholders to adopt, amend or repeal Bylaws.

ARTICLE VIII
INDEMNIFICATION

Section 8.1.            Indemnification.  The corporation agrees and hereby does undertake to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that that person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by that person in connection with such action, all as set forth in Section 7-109-101 et seq. (as such provision shall be amended from time to time) of the Colorado Business Corporation Act (“CBCA”).

Section 8.2.            Insurance.  The corporation may purchase and maintain insurance on behalf of a person who is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary or agent of another corporation or of any other person or employee benefit plan against any liability asserted against or incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VIII and the provisions of the CBCA.  Any such insurance may be procured from any insurance company designated by the Board of Directors of the corporation, whether such insurance company is formed under the laws of this state or any other jurisdiction of the United States or elsewhere, including any insurance company in which the corporation has equity or any other interest, through stock ownership or otherwise.

Section 8.3.            Advancement of Expenses.  Without limiting the generality of this Article VIII, the corporation shall advance the expenses incurred by any person entitled to indemnification hereunder in connection with any action, suit or proceeding within ten (10) days after the receipt by the corporation of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any such action, suit or proceeding.  Provided that the person seeking advances has furnished the undertaking, if any, required by CBCA Section 7-109-104(1), advances shall be unsecured and interest free, and shall be made without regard to such person’s financial ability to make repayment of the expenses, and without regard to such person’s ultimate entitlement to indemnification, other than as required by CBCA 7-109-104(1)(c).  Advances shall include any and all expenses incurred pursuing an action to enforce this right of advancement, including expenses incurred preparing and forwarding statements to the corporation to support the advances claimed.  The person entitled to indemnification shall qualify for advances solely upon the compliance with the requirements of CBCA 7-109-104, and the Company shall promptly make the determinations required thereunder with respect to any request for advances.

10

Section 8.4.            Nonexclusive.  The provisions provided herein with regard to indemnification shall not be construed as a limitation on indemnification.  Indemnification shall at all times be allowed to the fullest extent as is now, or in the future, provided for under the CBCA.

11

EX-10.1

Exhibit 10.1

NIC Inc.

Management Annual Incentive Plan

(as approved March 2008)

Objective – The Management Annual Incentive Plan (“MAIP” or “the Plan”) is intended (i) to attract, retain, and reward key executives of NIC Inc. (“NIC” or “the Company”) and (ii) to promote execution against annual performance goals.  The Plan is designed to:

·Reinforce strategically important operational and financial objectives;

·Contribute to competitive compensation opportunities; and

·Align the interests of Participants with those of NIC’s shareholders.

Definitions – Certain terms are defined in Attachment A for the purposes of the Plan.

Administration – The Plan shall be administered by the Compensation Committee of the Board of Directors (the “Committee”); provided, however, that the Committee, in its discretion, may delegate to certain officers or employees of the Company the responsibility for handling certain day-to-day operational aspects of the Plan.  Any reference to the Plan Administrator hereinafter which relates to administration of the Plan will refer to the Committee and/or any officer(s) or employee(s) to whom the Committee has delegated responsibilities or powers.

The Committee has discretion to (i) interpret the Plan; (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan; and (iii) make such other determinations and take such other action as it deems necessary or advisable.  Without limiting the generality of the foregoing sentence, the Committee may, in its sole discretion (but in a uniform and consistent manner), treat all or any portion of any period during which a Participant is on military leave or on an approved leave of absence (as defined by the Committee) from the Company as a period of employment of such Participant by the Company for the purpose of this Plan.  Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties.

Term of the Plan – The Plan will be considered in effect from the effective date established when the Plan is approved by the Board of Directors of the Company (the “Board”).  The Plan will terminate by action of the Board or Committee.  Awards granted hereunder prior to the Plan’s termination will continue to be effective in accordance with the terms and conditions of the Plan.

Eligibility – The Plan will cover key employees of the Company as determined by the Committee.  Eligibility under the Plan or participation in the Plan is not a guarantee of employment.  To be eligible for a full year’s Award under the Plan for a given Plan Year, a Participant must remain in the Company’s employ for the entire Plan Year and through the date of payout.  For individuals that are not eligible under the Plan at the onset of a given Plan Year, the following guidelines apply:

1.Newly-hired Employee

At the sole discretion of the Committee, a newly-hired employee shall be eligible to an Award if the individual commences employment with the Company at or prior to the first day of the third quarter of the Plan Year (i.e., minimum six months of employment for the Plan Year).  No Award under the Plan shall be granted if employment commences more than six months after commencement of the Plan Year.

2.Mid-period Promotion

At the sole discretion of the Committee, an employee who is promoted into eligibility during the Plan Year shall be eligible if the promotion becomes effective at or prior to the first day of the third quarter of the Plan Year (i.e., promotion becomes effective a minimum of six months prior to the end of the Plan Year).  No Award shall be granted if the promotion becomes effective less than six months prior to the end of a Plan Year.

Termination of Service – In the event a Participant separates from service to the Company, Awards made to the Participant will be treated as follows:

1.Death or Disability

If the applicable performance goals are ultimately satisfied, a Participant who dies or experiences a Disability during the Plan Year will receive (or the Participant’s estate will receive) a pro rata Award based on actual days worked during the Plan Year.  Awards will be paid as soon as practicable following attainment of the applicable performance goals.  The Committee may, in its sole discretion, elect to pay a Participant’s estate earlier than the end of a Plan Year if such payment amount is based on both the Participant’s actual days worked during the Plan year and the estimated performance toward the performance goals as of the date of the Participant’s death.  In all cases, the payment will be made prior to March 15^th of the calendar year following the year for which the Committee determines that the applicable performance goals were satisfied.

2.Retirement

If the applicable performance goals are ultimately satisfied, a Participant who retires during a given Plan Year will receive a pro rata Award based on actual performance as measured at the end of the Plan Year, subject to any required severance agreement.  Accordingly, for the avoidance of doubt, such award will be made on account of a Participant’s retirement only if the Performance Goals are obtained.  In all cases, the payment will be made prior to March 15^th of the calendar year following the year for which the Committee determines that the applicable performance goals were satisfied.

3.Other Termination

In the case of a Participant who separates from the Company under voluntary Termination of Service, Termination of Service for Cause, or resignation where such resignation is determined by the Committee to be in anticipation of or related to a possible Termination of Service for Cause, all Awards not yet paid under the Plan will be canceled.  The employee will have no further right or interest under this Plan with respect to any Awards or payments, and the Company will have no further obligation with respect thereto.  In the event terminations are deemed “mutual” between the Company and the Participant, the Committee, in its sole discretion, may consider payment of a pro rata Award; however, the Committee has no obligation to do so.

Incentive Opportunity – Annually and in advance of the Plan Year, the Committee will establish incentive opportunities under the Plan for each Participant.  Generally, incentive opportunities will be established as a percentage of a Participant’s base salary, and the Award percentage earned will be applied

2

to a Participant’s base salary as of May 1^st of the Plan Year to which the incentive opportunity pertains.  At the end of the Plan Year, a Participant may earn an Award equal to, greater than, or lesser than (including zero) the target opportunity, subject to established threshold, target, and superior levels of performance as established in advance by the Committee in its sole discretion.  No payments will be awarded if threshold performance is not achieved, and no additional payments above the maximum incentive amount will be awarded for performance in excess of the superior level.

Performance Measurement Periods – The measurement period under the Plan will be one year, coinciding with the Company’s fiscal year beginning on January 1 and ending on December 31.  Each year, a new Plan Year will commence.

Performance Measures and Goals – The Committee will establish the performance measures and associated weightings for incentive calculations under the Plan.  The Committee may modify the definition of performance measures under the Plan and/ or substitute new measures for new Plan Years.

These performance measures can be one or more of the following consolidated (company-wide) or subsidiary, division or operating unit financial measures:  (1) pre-tax or after-tax income (before or after allocation of corporate overhead and bonus), (2) net income (before or after taxes), (3) reduction in expenses, (4) pre-tax or after-tax operating income, (5) earnings (including earnings before taxes, earnings before interest and taxes, or earnings before interest, taxes, depreciation and amortization,  (6) gross revenue, (7) working capital, (8) profit margin or gross profits, (9) share price, (10) cash flow or cash flow per share (before or after dividends), (11) cash flow return on investment or cash flow return on invested capital,  (12) return on capital (including return on total capital or return on invested capital), (13) return on assets or net assets, (14) market share, (15) pre-tax or after-tax earnings per share, (16) pre-tax or after-tax operating earnings per share,  (17) total stockholder return, (18) growth measures, such as revenue growth or operating income growth, as compared with a peer group or other benchmark, (19) economic value-added models or equivalent metrics, (20) comparisons with various stock market indices, (21) improvement in or attainment of expense levels or working capital levels, (22) operating margins, gross margins or cash margins, (23) year-end cash, (24) debt reductions, (25) stockholder equity, (26) regulatory achievements, (27) implementation, completion or attainment of measurable objective with respect to research, development, products or projects, production volume levels, acquisitions and divestitures and recruiting and maintaining personnel,  (28) customer satisfaction, (29) operating efficiency, productivity ratios, (30) strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market penetration, geographic business expansion goals (including accomplishing regulatory approval for projects), cost or cost savings targets, accomplishing critical milestones for projects, and goals relating to acquisitions or divestitures, or any combination thereof (in each case before or after such objective income and expense allocations or adjustments as the Committee may specify within the applicable period).

Performance goals may be expressed on an absolute and/ or relative basis, may be based on or otherwise employ comparisons based on current internal targets, the past performance of the Company or the performance of one or more subsidiaries, divisions or operating units of the Company or the past or current performance of other companies, or any combination thereof and in the case of earnings-based measures, may use or employ comparisons relating to capital (including, but not limited to, the cost of capital), stockholders’ equity and/ or shares outstanding, or to assets or net assets.  In all cases, the performance goals shall be such that they satisfy any applicable requirements under Treas. Reg. Sec. 1.162-27(e)(2) (as amended from time to time), that the achievement of such goals be “substantially uncertain” at the time that they are established, and that the award opportunity be defined in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goal has been met, and, subject to the Committee’s right to apply negative discretion (within the meaning of Treas. Reg. Sec. 1.162-27(d)(iii)), the amount of the Award payable as a result of such performance.

3

For these purposes, the “applicable period” with respect to any Plan Year is the period commencing on or before the first day of the Plan Year and ending no later than the ninetieth (90^th) day of the Plan Year.   For each Plan Year, the Committee will, in its sole discretion and within the applicable period, establish the goals (i.e., Threshold, Target, and Superior) associated with each performance measure and determine the weighting of each measure for the purposes of incentive calculations under the Plan.  Such performance measures and goals will remain unchanged for the Plan Year, subject to the statement immediately below.

The Committee, in its sole discretion, may exclude the following from performance calculations under the Plan:  effects of extraordinary, unusual, special, or one-time events; effects of legal, accounting, or regulatory changes; effects of events that are outside of management’s control; effects of events that are not reflective of a decision made (or area overseen) by management; effects of “preventive” measures taken by management; effects from the disposal of a business segment; or effects of tax adjustments.

Performance measures, their weightings, and associated goals for the current Plan Year are set forth in Attachment B.

Award Payout - Awards will be paid to Participants as soon as practicable following the end of the Plan Year and verification of results.  No amounts earned under the Plan will require additional criteria (e.g., the passage of time) to complete the earning process.  Awards will be calculated as a percentage of a Participant’s actual base salary as of May 1^st for the Year in which the performance goals are established and the Performance Award is payable.

Payment under the Plan is subject to compliance by the Participant with any written agreement between the Participant and the Company, including an employment agreement, non-compete agreement, or other agreement relating to confidential information.  If the Participant breaches any such agreement, he/ she shall immediately forfeit his/ her right to receive any unpaid amounts earned under the Plan.

The Company has the right to deduct from all net amounts paid under the Plan any federal, state, or local taxes required by law to be withheld with respect to such payments.

Miscellaneous Provisions

1.A Participant’s Award will immediately pay out upon the occurrence of a Change in Control as if target performance for the active Plan Year had been achieved.

2.The Plan may be amended or discontinued by the Committee at any time without prior notification to Participants.  However, no amendment may adversely affect an outstanding Award made under the Plan.

3.The Committee maintains sole discretion to adjust Awards under the Plan downward for legitimate and reasonable performance reasons.

4.The Committee will, to the extent permitted by law, have the sole and absolute authority to make retroactive adjustments to any Awards paid to Participants where the payment was predicated upon the achievement of erroneous financial or strategic business results, or where the Participant engaged in intentional misconduct that increased his/ her incentive income. Where applicable, the Company will seek to recover any amount determined to have been inappropriately received by a Participant under the Plan.

5.The Committee may obtain such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any law or regulation of any governmental authority.  The Plan and any Award made hereunder shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any government or regulatory agency as may be required.

4

6.No member of the Board or Committee, nor any officer or employee of the Company acting on behalf of the Board or Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan.  All members of the Board or Committee, and each and any officer or employee of the Company acting on their behalf will, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination, or interpretation.

7.The interests of Participants under the Plan are not subject to claims, indebtedness, attachment, execution, garnishment, or other legal or equitable process.  Participant interests under the Plan may not be transferred or assigned, other than by will or by the laws of descent and distribution.  If the Participant attempts to alienate, assign, pledge, hypothecate, or otherwise dispose of Awards or other rights under the Plan, except as provided for in this Plan, or in the event of any levy, attachment, execution, or similar process upon the right or interest conferred by this Plan, the Board may terminate the Participant’s Award by notice to him/ her, and it shall thereupon become null and void.

5

Attachment A – Definitions

1.“Award” means, a right granted to a Participant entitling him or her to a cash payment under the Plan if the applicable performance criteria are satisfied and the Participant complies with all other criteria under the Plan.

2.“Cause” means, unless otherwise defined in a Participant’s employment agreement in which case such definition will control, (i) serious, willful misconduct with respect to the Participant’s duties as an Employee of the Company; (ii) engaging in any competitive behavior defined below; (iii) the Participant’s indictment for a felony; (iv) the Participant’s commission of fraud, embezzlement, theft, or other act involving dishonesty, or a crime constituting moral turpitude, in any case, whether or not involving the Company, that, in the opinion of the Company, renders the Participant’s continued employment harmful to the Company; (v) abuse of illegal drugs or alcohol by the Participant on the employer’s premises or where the use of illegal drugs has an adverse effect on a Participant’s performance; or (vi) the Participant acting in bad faith relative to the Company’s business interests.

For purposes of this Plan, a Participant shall be deemed to engage in competitive behavior if he/ she (a) directly or indirectly, without the consent of the Company, solicits or provides any services such as those provided by the Company for anyone (i) who is a customer or client of the Company; or, (ii) who is a prospective customer or client of the Company with whom the Company has discussed possible business relationships; (b) requests, induces, or attempts to influence any distributor or supplier of goods or services to the Company to curtail or cancel any business they may transact with the Company; or (c) requests, induces, or attempts to influence, any client or customer of the Company whom he/ she has done business with, or potential client or customer whom he/she has been in contact with, to curtail or cancel any business they may transact with the Company.

3.“Change of Control” means any of the following events:

(a)           any “Person” (as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934 (the “Exchange Act”) or group (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than a subsidiary or any employee benefit plan (or any related trust) of the Company or a subsidiary, becomes the beneficial owner of 50% or more of the common stock or of securities of the Company that are entitled to vote generally in the election of directors of the Company;

(b)           within a 12 month period, a majority of the members of the Company’s Board of Directors is replaced by directors whose election or nomination was not endorsed by a majority of the members of the Board before the date of the appointment or election;

(c)           consummation of a merger, reorganization, consolidation or similar transaction (any of the foregoing, a “Merger”) as a result of which the Persons who were the respective beneficial owners of the outstanding common stock and voting securities of the Company immediately before such Merger are not expected to beneficially own, immediately after such Merger, directly or indirectly, more than 50% of the common stock and the combined voting power of the voting securities of the corporation resulting from such Merger, or

(d)           shareholder approval of a plan of liquidation of the Company or a plan or agreement for the sale or other disposition of all or substantially all of the assets of the Company.

4.“Code” means the Internal Revenue Code of 1986, as amended, and any Internal Revenue Code adopted in the future to replace the Internal Revenue Code of 1986.

5.“Disability” means except as otherwise provided by the Committee, that the Participant either (i) is unable, by reason of a medically determinable physical or mental impairment, to engage in any

6

substantial gainful activity, on behalf of the Company which condition, in the opinion of a physician approved by the Committee, is expected to have a duration of not less than one hundred and twenty (120) days or (ii) has become eligible to receive long-term disability benefits under a Company-sponsored long-term disability plan, if any.

6.“Employee” refers to any person who is employed by the Company, is on the Company’s payroll, and whose wages are subject to withholding under the Federal Insurance Contributions Act, codified in Code § 3121.

7.“Involuntary Termination” means, unless such term (or term of similar meaning (e.g., “good reason”)) is otherwise defined in a Participant’s employment agreement, in which case such definition will control:  (i) without the Participant’s express written consent, a comprehensive and substantial reduction in all or most of the Participant’s primary duties, authority, and responsibilities compared to the Participant’s duties, authority, and responsibilities immediately prior to such reduction; (ii) without the Participant’s express written consent, a significant reduction in the Participant’s base salary compared to the Participant’s base salary in effect immediately prior to such reduction; provided, however, that a reduction in the Participant’s base salary of less than twenty percent (20%) or a reduction in the Participant’s base salary that is part of an overall reduction in compensation also applied to other senior executives of the Company as a result of decreased business performance by the Company or one of its business units, shall not constitute an Involuntary Termination; or (iii) any purported termination of the Participant by the Company that is not effected for Disability or Cause.

8.“Participant” shall mean an Employee of the Company to whom an Award is granted under this Plan.

9.“Plan Administrator” means the individual or committee appointed or designated by the Committee to administer the Plan, if not the Committee itself.

10.“Plan Year” refers to the active twelve-month period of performance under the Plan.

11.“Retirement” means a Participant’s date of termination which is designated by the Committee as a “Retirement” for purposes of the Plan or, if applicable, a Participant’s date of termination after the normal retirement date specified in a plan maintained by the Company under which the Participant is covered, and which is qualified under section 401(a) of the Code.

12.“Termination of Service” occurs when a Participant ceases to serve as an Employee of the Company, for any reason.

13.“Voluntary Termination” shall mean any termination of the employment hereunder, otherwise than as a result of death or Disability, termination for Cause, or Involuntary Termination.

7

Attachment B – Performance Measures and Weightings

For 2008, all Participants will be evaluated based on the Company’s consolidated operating results.  The Committee has determined the following three measures will be used for Plan purposes, each with the assigned weightings as described:

·Operating Income

50% of a Participant’s opportunity under the Plan – The definition of Operating Income is consistent with that term defined in generally accepted accounting principles and will be derived directly from the face of the consolidated statements of income included in the Company’s Annual Reports on Form 10-K for the year ending December 31, 2008

·Total Revenue

25% of a Participant’s opportunity under the Plan – The definition of Total Revenue is consistent with that term defined in generally accepted accounting principles and will be derived directly from the face of the consolidated statements of income included in the Company’s Annual Reports on Form 10-K for the year ending December 31, 2008

·Cash Flow Return on Invested Capital

25% of a Participant’s opportunity under the Plan – Cash Flow Return on Invested Capital is defined as consolidated cash flow from operating activities minus capital expenditures, the difference of which is divided by the difference between total assets and non-interest bearing current liabilities.  Consolidated cash flow from operating activities and capital expenditures will be derived from the face of the consolidated statements of cash flows included in the Company’s Annual Report on Form 10-K for the year ending December 31, 2008.  Total assets and non-interest bearing liabilities will be derived from the face of the consolidated balance sheets included in the Company’s Annual Reports on Form 10-K for the year ending December 31, 2008.

For the 2008 Plan Year, the Committee determined a “target” performance level for the Company for each of the above three performance criteria.  Performance of the Company at the target level will result in an annual cash incentive that is 50% of the executive’s base salary.  The Committee also determined a range of possible cash incentives above and below target performance, ranging from 25% of base salary for achieving “threshold” performance to 75% of base salary for achieving “superior” performance.  No payments are awarded under the plan if threshold performance is not achieved, and no additional payments are awarded for performance in excess of the superior level.  The following table sets forth threshold, target and superior Company performance levels for the performance criteria included in the Plan for the 2008 Plan Year:

	Performance Levels
Performance Criteria	Threshold	Target	Superior
Operating income	90% of budget	Budget	110% of Budget
Total revenue	95% of budget	Budget	105% of Budget
Cash flow return on invested capital	20%	25%	30%

Target performance levels for operating income and total revenues are based upon the Company’s fiscal 2008 annual budget approved by the Board of Directors on February 4, 2008.  Target performance for cash flow return on invested capital is based on the Company’s expected five-year average return on invested capital from 2004 to 2008.  Threshold and maximum performance levels in the table above were recommended by management and approved by the Committee based on the Company’s past performance with respect to these metrics generally and relative to budget.

8

EX-10.2

Exhibit 10.2

NIC INC. 2006 AMENDED AND RESTATED
STOCK OPTION AND INCENTIVE PLAN

Performance-Based Restricted Stock Agreement

The Company seeks to provide a means by which the Company, through the grant of the Shares to Grantee, may retain Grantee’s services and motivate Grantee to exert his or her best efforts on behalf of the Company and any Affiliate;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree as follows:

1.             Grant of Performance-Based Restricted Stock.  NIC Inc., a Colorado corporation (the “Company”), hereby promises to grant to                                                      (“Grantee”), as of                           , 20     (the “Grant Date”)                            shares of the Company’s no par value Common Stock (the “Shares”), subject to the restrictions, terms, conditions and other provisions of this Performance-Based Restricted Stock Agreement (the “Agreement”) and of the NIC Inc. 2006 Amended and Restated Stock Option and Incentive Plan (the “Plan”), which restrictions, terms, conditions and other provisions are incorporated herein by this reference.  Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement.

The actual number of Shares, if any, (subject to any adjustment to the number of Shares as provided in Section 3 hereof, and as will be reflected by delivery of Share certificates or registered as book entry shares with the Company’s transfer agent) that will be delivered pursuant to this Agreement is dependent upon the level of achievement of the performance goals set forth in Exhibit A (the “Performance Goals”) during the period from January 1, 2008 through December 31, 2010 (the “Performance Period”) and the compliance with all terms and conditions set forth in this Agreement and the Plan.

2.             Restrictions and Forfeiture

If Grantee’s Continuous Status as an Employee, Director or Consultant terminates for any reason other than death or disability (as disability is defined in Internal Revenue Code Section 22(e)(3)) or following a Control Change as provided for in Section 4(b), Grantee shall forfeit all rights to receive any undelivered Shares under this Agreement.  Grantee’s right to receive an undelivered Shares will also be forfeited if the Committee determines that Grantee engaged in misconduct in connection with his or her employment with NIC.

From the date of this Agreement and until a Share is delivered to Grantee, Grantee shall have no rights to sell, assign, exchange, transfer, pledge, hypothecate or otherwise encumber any right he or she may have to receive such Share under this Agreement.

3.             Acceleration of Payment of Shares on Death or Disability.

If Grantee’s Continuous Status as an Employee, Director or Consultant terminates due to his or her death or disability, Grantee shall receive a pro rata portion of the Shares eligible to be

received under this Agreement.  The pro rata portion will be determined by calculating the product of (a) the total number of Shares Grantee would have received if his or her employment had not terminated and based on the ultimate level of achievement toward the Performance Goals at the end of the Performance Period multiplied by (b) a fraction, the numerator of which is the number of full and partial months of employment Grantee completed after the Grant Date and the denominator is thirty-six (36).  For the avoidance of doubt, unless otherwise determined by the Committee in its sole discretion, in no event will any Shares be paid on account of Grantee’s death or disability if the Performance Goals are achieved at a level less than Threshold.

4.             Terms and Conditions.

(a)           Adjustments in Event of Change in Common Stock.  If any change is made in the Shares, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the number of Shares eligible to be paid pursuant to the terms and conditions of this Agreement (including any Dividend Shares credited to Grantee’s account in accordance with Section 4(c)) will be appropriately adjusted in the class(es) and number of shares and price per share of stock of those subject Shares in such manner as the Board may deem equitable to prevent substantial dilution or enlargement of the rights granted to Grantee; provided, however, that no such adjustment shall cause the Company to issue a fractional share.  Such adjustments shall be final, binding and conclusive.  (The conversion of any convertible securities of the Company shall not be treated as a transaction not involving the receipt of consideration by the Company.)

(b)           Sale of the Company.  In the event of a dissolution, liquidation or sale of all or substantially all of the assets of the Company, or a transaction following which the Company is not the surviving corporation in any merger, consolidation, or reorganization (a “Control Change”), then all or a portion of the number of the Shares eligible to be delivered pursuant to this Agreement shall be delivered in accordance with the following:

(i)            If the Control Change occurs on or prior to the first anniversary of the Grant Date and this Agreement is not assumed, converted, or replaced by the continuing entity, Grantee shall be paid immediately before the Control Change a number of Shares equal to that number of Shares Grantee would have been paid if each of the Performance Goals was achieved at the “Target” level.

(ii)           If the Control Change occurs after the first anniversary of the Grant Date and this Agreement is not assumed, converted, or replaced by the continuing entity, Grantee shall be paid immediately before the Control Change a number of Shares based on the actual performance of the Company as if the Performance Period ended on December 31 immediately preceding the date, on which the Control Change occurs, with appropriate adjustments, if necessary to reflect such shortened Performance Period.

2

(iii)          If the Control Change occurs on or before the first anniversary of the Grant Date and this Agreement is assumed by the continuing entity, Grantee shall be paid at the end of the Performance Period the same number of Shares Grantee would have been paid if each of the Performance Goals was achieved at the “Target” level, subject to Grantee’s Continuous Status as an Employee, Director or Consultant through the end of the Performance Period.

(iv)          If the Control Change occurs after the first anniversary of the Grant Date and this Agreement is assumed by the continuing entity, Grantee shall be paid at the end of the Performance Period the same number of Shares based on the actual performance of the Company as if the Performance Period ended on December 31 immediately preceding the date on which the Control Change occurs, subject to Grantee’s Continuous Status as an Employee, Director or Consultant through the end of the Performance Period with appropriate adjustments, if necessary, to reflect such shortened Performance Period.

Notwithstanding the provisions of clause (iii) and (iv) to the contrary, if, during the remaining portion of the applicable Performance Period for the applicable award and following the Control Change, (A) Grantee’s Continuous Status as an Employee, Director or Consultant is terminated by the Company other than for cause or, (B) if Grantee is a participant in an arrangement or covered by an employment agreement that provides for certain rights upon Grantee’s resignation with “good reason” and Grantee resigns for such a “good reason”, then, to the extent not then-vested, Grantee shall be paid upon his or her termination of employment the number of Shares that would have been paid under (iii) or (iv) as applicable.

                If this Agreement is assumed in connection with a Control Change transaction, then the Board shall equitably and proportionately adjust the number of Shares and the kind of Shares or securities covered by this Agreement immediately after such transaction solely as necessary to preserve (but not increase) the level of incentives intended by this Agreement.

                This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.

(c)           Dividend Shares.  Provided this Agreement has not otherwise been terminated or any of Grantee’s rights to receive Shares have not been forfeited, Grantee shall be entitled to receive dividend equivalent accruals on the Shares for any cash dividends declared before any Shares are paid under this Agreement.  At the end of the Performance Period or at any other time Grantee becomes entitled to receive the payment of Shares hereunder, Grantee shall receive an additional number of Shares (“Dividend Shares”) determined as follows: (1) as of each date (the “Dividend Payment Date”) that the Company would otherwise pay a declared cash dividend on the total number of Shares set forth in Section 1 if such Shares were outstanding, the Company will credit a number of Dividend Shares to a notional account established for the benefit of Grantee.  The number of Dividend Shares so credited will be calculated by dividing the amount of

3

such hypothetical cash dividend payment by the Fair Market Value of the Company’s common stock on the Dividend Payment Date (rounded down to the nearest whole Dividend Share); and (2) on the date some or all of the Shares are paid under this Agreement, the total number of Dividend Shares credited to Grantee’s notional account will be converted into an equivalent number of Shares and paid to Grantee.

(d)           No Rights as a Shareholder.  Each Share potentially eligible to be delivered pursuant to this Agreement is not considered issued or outstanding until an actual delivery of the Share has been made.  Accordingly, until such Share has been delivered to Grantee pursuant to the terms of this Agreement, Grantee shall have no rights and privileges as a shareholder of the Company with respect to such Share, including no right to vote or receive dividends paid on any Shares.  Notwithstanding the foregoing sentence, Grantee is entitled to receive Dividend Shares as provided above in Section 4(c).

(e)           No Rights to Continued Relationship.  Grantee’s right to receive any Shares under this Agreement shall not confer upon Grantee any right with respect to continuance of employment by the Company or by an Affiliate, nor shall it interfere in any way with the right of his or her employer to terminate his or her employment at any time.

Grantee’s right to receive any Shares hereunder shall not confer upon Grantee any right with respect to continuance of a directorship of the Company or of an Affiliate, nor shall it interfere in any way with the right of the shareholders to remove him or her as a director at any time.

Grantee’s right to receive any Shares hereunder shall not confer upon Grantee any right with respect to continuance of any consulting arrangement with the Company or any Affiliate, nor shall it interfere in any way with the right of the Company or an Affiliate, as the case may be, to terminate any such arrangement.

(f)            Compliance with Other Laws and Regulations.  This Agreement and the obligation of the Company to sell and deliver Shares hereunder, shall be subject to all applicable federal and state laws, rules, and regulations, and to such approvals by any government or regulatory agency as may be required.  The Company shall not be required to issue or deliver any certificates for Shares prior to the completion of any registration or qualification of such Shares under any federal or state law, or any rule or regulation of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable; provided, however, the Company shall use reasonable efforts to cause such issuance or delivery to comply with all such laws and rules as promptly as practicable.

To the extent applicable, it is intended that this Agreement and the Plan comply with the provisions of Section 409A of the Code.  This Agreement and the Plan shall be administered in a manner consistent with this intent, and any provision that would cause this Agreement or the Plan to fail to satisfy Section 409A of the Code shall have no force or effect until amended to comply with Section 409A of the Code (which amendment

4

may be retroactive to the extent permitted by Section 409A of the Code and may be made by the Company without the consent of Grantee).

(g)           Withholding Taxes. Grantee agrees to make appropriate arrangements with the Company or Affiliate, as the case may be, for the satisfaction of all federal, state and local income and employment tax withholding requirements applicable to the delivery of any Shares.  No certificates representing Shares will be delivered until Grantee has made acceptable arrangements for these withholding requirements.  Grantee may elect to pay all minimum required amounts of tax withholding, or any part thereof, by electing to transfer to the Company, or have withheld from any Shares otherwise eligible to be delivered under this Agreement, Shares having a value equal to the minimum amount required to be withheld under federal, state or local law or such lesser amount as may be elected by Grantee. The value of Shares to be transferred to the Company shall be the fair market value of the Shares on the date that the amount of tax to be withheld is to be determined (the “Tax Date”), as determined by the Company. Any such elections by Grantee to have Shares withheld for this purpose will be subject to the following restrictions:

(i)            All elections must be made prior to the Tax Date;

(ii)           All elections shall be irrevocable; and

(iii)          If Grantee is an officer or director of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934 (“Section 16”), Grantee must satisfy the requirements of such Section 16 and any applicable rules thereunder with respect to the use of Common Stock to satisfy such tax withholding obligation.

5.             Investment Representation.  The Company may require that Grantee furnish to the Company, as a condition of acquiring stock hereunder, (a) written assurances satisfactory to the Company, or counsel for the Company, as to Grantee's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company, or counsel for the Company, who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of acquiring the Shares; and (b) written assurances satisfactory to the Company, or counsel for the Company, stating that Grantee is acquiring the stock for Grantee's own account and not with any present intention of selling or otherwise distributing the stock.  The Company may (a) restrict the transferability of the stock and require a legend to be endorsed on the certificates representing such stock, as appropriate to reflect resale restrictions, if any, imposed by the Board or as appropriate to comply with any applicable state or federal securities laws, rules or regulations; and (b) condition the issuance and delivery of stock upon the listing, registration or qualification of such stock upon a securities exchange or quotation system or under applicable securities laws.  The Company will use reasonable efforts to cause such issuance and delivery to be in compliance with all applicable listing, registration or qualification requirements or applicable exception therefrom as promptly as practicable following Grantee's entitlement to the shares.  The foregoing requirements, and any assurances given pursuant to such requirements, shall be

5

inoperative if (a) the issuance of stock has been registered under a then currently effective registration statement under the Securities Act, or (b) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. 

6.             Grantee Bound by the Plan.  Grantee agrees to be bound by all the terms and provisions of the Plan.  To the extent that the terms of this Agreement are inconsistent with the terms of the Plan, the terms of the Plan shall govern.  The captions used in this Agreement, and the Plan are inserted for convenience and shall not be deemed a part of the Agreement for construction or interpretation.

7.             Governing Law.  This Agreement and the Plan shall be construed in accordance with the laws of the State of Colorado, without regard to the conflict of laws principles.

8.             Notices.  Any notice to the Company or the Board that is required to be made under the terms of the Agreement or under the terms of the Plan shall be addressed to the Company in care of its Compensation Committee Chairman at 25501 West Valley Parkway, Suite 300, Olathe, Kansas 66061 with a copy to its General Counsel at the same address.  Any notice that is required to be made to Grantee under the terms of the Agreement or under the terms of the Plan shall be addressed to him or her at the address indicated below:

unless Grantee notifies the Company of his or her address change in writing as provided in this Section 8 in which case the notice shall be addressed to Grantee at his or her new address.  A notice under this Section 8 shall be deemed to have been given or delivered upon personal delivery or upon deposit in the United States mail, by registered or certified mail, postage prepaid and properly addressed as provided in this Section 8.

This Agreement has been executed and delivered by the parties hereto effective date above written.

NIC, INC.

By:

Name:

Title:

GRANTEE

6

Exhibit A

Performance Goals

The total number of Shares granted under this Award that will ultimately be delivered to Grantee based on the achievement of the established performance goals will depend on the Company’s consolidated financial performance with respect to each of the following three measures for the Performance Period:

·Operating income growth (three-year compound annual growth rate) – 25% weighting

·Total revenue growth (three-year compound annual growth rate) – 25% weighting

·Cash flow return on invested capital (three-year average) – 50% weighting

Each of these metrics is defined as follows:

The definition of Operating Income is consistent with that term defined in generally accepted accounting principles and will be derived from the face of the consolidated statements of income included in the Company’s Annual Reports on Form 10-K for the respective fiscal years.

The definition of Total Revenue is consistent with that term defined in generally accepted accounting principles and will be derived directly from the face of the consolidated statements of income included in the Company’s Annual Reports on Form 10-K for the respective fiscal years.

Cash Flow Return on Invested Capital is defined as consolidated cash flow from operating activities minus capital expenditures, the difference of which is divided by the difference between total assets and non-interest bearing current liabilities.  Consolidated cash flow from operating activities and capital expenditures will be derived from the face of the consolidated statements of cash flows included in the Company’s Annual Report on Form 10-K for the respective fiscal years.  Total assets and non-interest bearing liabilities will be derived from the face of the consolidated balance sheets included in the Company’s Annual Reports on Form 10-K for the respective fiscal years.

Calculation of Deliverable Shares

At the end of the Performance Period, the Company will deliver a number of Shares based on a pre-defined schedule of Threshold, Target and Superior Company performance.  The Threshold, Target and Superior Performance Goals for each of the three measures above have been established by the Committee and are set forth in the table immediately below.

A-1

	Performance Goals
	Threshold		Target		Superior
Operating income growth	15	%	20	%	25	%
Total revenue growth	15	%	20	%	25	%
Cash flow return on invested capital	15	%	20	%	25	%

The total number of Shares granted in Section 1 of this Agreement was determined based on the quotient of [75%] [115%] of the Grantee’s base salary (on the Grant Date) divided by the market value of one Share on the Grant Date.  Accordingly, only if all Performance Goals are achieved at the Superior level will the total number of Shares be delivered.

If less than Superior performance is obtained for all three Performance Goals, then the number of Shares to be delivered at the end of the Performance Period will be the quotient obtained by dividing (a) the product of (1) the Grantee’s base salary as of the Grant Date times (2) the weighted percentages of 25%, 50% or 75% for Company performance at Threshold, Target or Superior levels, respectively by (b) the fair market value of one Share on the Grant Date.  For each performance measure, the weighted percentage will be 0% if Threshold performance is not achieved for that Performance Goal, and no additional shares will be awarded for performance in excess of the Superior level.  For amounts between the Threshold and Target levels or between the Target and Superior levels, straight line interpolation, rounded up to the next whole share, will be used to determine the number of Shares that is to be delivered.

A-2

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Harry H. Herington, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NIC Inc.;

2. Based on my knowledge, this 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 report;

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

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

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

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

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

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

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

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

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

Date: May 12, 2008

/s/ Harry H. Herington

Harry H. Herington

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Stephen M. Kovzan, certify that

1. I have reviewed this Quarterly Report on Form 10-Q of NIC Inc.;

2. Based on my knowledge, this 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 report;

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

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

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

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

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

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

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

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

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

Date: May 12, 2008

/s/ Stephen M. Kovzan

Stephen M. Kovzan

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C Section 1350,
As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

The undersigned Chief Executive Officer and Chief Financial Officer of NIC Inc. (the “Company) each hereby certifies, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2008 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

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

Dated: May 12, 2008

/s/ Harry H. Herington

Harry H. Herington

Chief Executive Officer

/s/ Stephen M. Kovzan

Stephen M. Kovzan

Chief Financial Officer