Exhibit 10.40

James L. Bildner
10780 Parkridge Blvd., Suite 400
Reston, VA  20191

December 13, 2004

Tier Technologies, Inc.
10780 Parkridge Blvd, Suite 400
Reston, Virginia  20191
Attn:  Deanne Tully, General Counsel

                    Re:  Cross-Collateralization Agreement

Ladies and Gentlemen:

          Reference is made to the following six promissory notes made by me
payable to Tier Technologies, Inc. (“Tier”):  (1) Amended and Restated Full
Recourse Secured Promissory Note dated April 1,1998 in the principal amount of
$1,218,800 (“Note One”); (2) Amended and Restated Full Recourse Secured
Promissory Note dated April 1,1998 in the principal amount of $283,600 (“Note
Two”); (3) Full Recourse Promissory Note dated July 26, 2000 in the principal
amount of $300,000 (“Note Three”); (4) unsecured promissory note dated January
2, 1997 in the principal amount of $161,652 (“Note Four”); (5) unsecured
promissory note dated May 31, 1997 in the principal amount of $25,000 (“Note
Five”); and (6) unsecured promissory note dated July 15, 1997 in the principal
amount of $35,000 (“Note Six”).  These six notes together are referred to herein
as the “Notes.”

          Reference is also made to the following three pledge agreements
between Tier and me pursuant to which I have pledged stock of Tier to secure
certain of the Notes:  (1) Third Amended and Restated Pledge Agreement dated as
of June 30, 1999, securing obligations under Note One (“Pledge One”); (2) Second
Amended and Restated Pledge Agreement dated as of June 30, 1999, securing
obligations under Note Two (“Pledge Two”); and (3) Pledge Agreement dated as of
April 1, 2004, securing obligations under Note Three (“Pledge Three”).  These
three pledge agreements together are referred to herein as the “Pledge
Agreements.”

          In exchange for valuable consideration, which is hereby acknowledged
and received,  Tier has requested, and I have agreed, that the collateral
pledged under each of the Pledge Agreements shall serve as security for my
obligations under each of the Notes.  Accordingly, I agree as follows:

          1.          Each of the Pledge Agreements secures the payment of all
of my present and future obligations, duties, and liabilities under each of the
Notes and under each of the Pledge Agreements (collectively, the
“Obligations”).  All references to the “Obligations” contained in each of the
Pledge Agreements shall hereafter be deemed to refer to the Obligations as
defined in this letter agreement. 

Tier Technologies, Inc.
December 13, 2004
Page 2

          2.          The Pledged Collateral under each of the Pledge Agreements
shall hereafter secure all of the Obligations.

          3.          All references to (1) the “April 1998 Note” or “Section 2
of the April 1998 Note” in Pledge One; (2) the “April 1998 Note” or “Section 2
of the April 1998 Note” in Pledge Two; and (3) the “Note” or “Section 2 of the
Note” in Pledge Three shall hereafter be deemed to be references to the Notes as
defined in this letter agreement.  These include, without limitation, the
references in Sections 3(a), 6(a), 6(b), 8(a)(i), 8(a)(iv), 8(c), 10 and 12 of
each of the Pledge Agreements.

          4.          All references to (1) the “Second Amended and Restated
Pledge Agreement” in Note One and (2) the “Amended and Restated Pledge
Agreement” in Note Two shall hereafter be deemed to be references to the Pledge
Agreements as defined in this letter agreement. 

          5.          Each Pledge Agreement is amended hereby to provide that
the address for notice to Tier set forth in Section 13 thereof shall hereafter
be the address set forth above, attention Chief Financial Officer.

          6.          Except as set forth in this letter agreement, all other
terms and provisions of each of the Notes and, as amended hereby, each of the
Pledge Agreements is confirmed to be in full force and effect.

          7.          I understand that Tier may, in consultation with its
outside corporate counsel, request that I execute a more formal agreement
amending each of the Pledge Agreements and/or each of the Notes to effectuate
the intent of this letter, and I agree to work with Tier in good faith to enter
into such an agreement and amendments if reasonably requested by Tier.

 

Very truly yours,

 

 

 

 

 

/s/ JAMES L. BILDNER

 

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James L. Bildner

Acknowledged and Accepted:

TIER TECHNOLOGIES, INC.

By: 

/s/ JAMES R. WEAVER

 

 

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Name:

James R. Weaver

 

Title: 

Chairman & CEO