**Exhibit10.42**

 

**PLEDGEAGREEMENT**

 

This PLEDGE AGREEMENT,dated as of April 1, 2004, is between TIER TECHNOLOGIES, INC. (the“Company”) and JAMES L. BILDNER (“Bildner”).

 

WHEREAS, on July 26,2000, Bildner entered a Full Recourse Promissory Note payable to the Company inthe amount of $300,000.00 due July 26, 2005 (the “Note”); and

 

WHEREAS, Bildner’semployment with Company terminated on April 1, 2004; and

 

WHEREAS, under the termsof the Note, Bildner is obligated to repay the principal sum and all accrued butunpaid interest within three days of termination of employment, or secure theNote by pledging marketable securities in an amount that exceeds all amountsdue under the Note; and

 

WHEREAS, Bildner haselected to pledge securities in lieu of acceleration of the Note;

 

NOW, THEREFORE, for goodand valuable consideration and to secure the payment of Bildner’s indebtednessto the Company, the parties agree as follows:

 

1.               Bildner’sIndebtedness.

 

(a)       Inconnection herewith Bildner is indebted to the Company in an aggregateprincipal amount of three hundred thousand dollars ($300,000.00), plus allaccrued but unpaid interest through the term of the Note.

 

(b)      Thenumber of shares of Class A Common Stock of the Company set forth onSchedule A hereto, which are currently beneficially owned by Bildner,shall serve as the security for the Note (the “Shares”).

 

2.               Pledge.  Bildner hereby pledges to the Company, andgrants to the Company a security interest in, the following (the “PledgedCollateral”):  (i) the Shares and thecertificates representing the Shares; and (ii) securities of the Companyassociated with the Shares issued in connection with any stock dividend orstock split, or securities of the Company issued in connection with arecapitalization, merger, reorganization or similar transaction.

 

3.               Security forObligations.

 

(a)  This Agreement secures the payment of all ofBildner’s present and future obligations, duties, and liabilities under theNote and under this Agreement (all referred to as the “Obligations”).

 

(b)  This Agreement shall create a continuingsecurity interest in the Pledged Collateral and shall (i) remain in full forceand effect until payment in full of the Obligations; (ii) be binding uponBildner and his successors and assigns; and (iii) inure to the benefit of theCompany and its successors, transferees, and assigns.

 

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4.               Delivery ofPledged Shares.  All certificates orinstruments representing or evidencing the Shares shall be held by or on behalfof the Company under this Agreement and shall be in suitable form for transferby delivery, or shall be accompanied by duly executed instruments of transferor assignment in blank, all in form and substance satisfactory to the Company.  If Bildner fails to perform any Obligationcontained in this Agreement, the Company may itself perform, or causeperformance of, that Obligation, and the expenses of the Company incurred inconnection with that performance shall be payable by Bildner under Section 9hereto.

 

5.               Representationsand Warranties.  Bildner representsand warrants as follows:

 

(a)  Bildner is the beneficial owner of thePledged Collateral free and clear of any lien on the Pledged Collateral exceptfor the security interest created by this Agreement and the other terms andconditions set forth in the Stock Option Agreements.  The Pledged Collateral is held by the law firm of Cooley Godward.

 

(b)  The pledge of the Pledged Collateral underthis Agreement creates a valid and perfected first priority interest in thePledged Collateral, securing the payment of the Obligations.

 

(c)  No authorization, approval, or other actionby, and no notice to or filing with, any governmental authority or regulatorybody is required either (i) for the pledge by Bildner of the Pledged Collateralunder this Agreement or for the execution, delivery, or performance of thisAgreement by Bildner; or (ii) for the exercise by the Company of the voting orother rights provided for in this Agreement or the remedies in respect of thePledged Collateral under this Agreement (other than restrictions under anyfederal or state securities law applicable to the offer or sale of unregisteredsecurities).

 

6.               Rights inAbsence of Default.

 

(a)  So long as there has been and is no Event ofDefault: (i) involving failure to make the payment described in Section 2of the Note, or (ii) involving the voluntary placement by Bildner of a lienupon all or a significant portion of the Pledged Collateral:

 

(i)  Bildner shall be entitled to exercise anyand all voting and other consensual rights pertaining to any or all of theShares.

 

(ii)  Securities of the Company associated withthe Shares issued in connection with any stock dividend or stock split, orsecurities of the Company issued in connection with a recapitalization, merger,reorganization or similar transaction shall be immediately delivered to theCompany as Pledged Collateral in the same form as so received (with anynecessary endorsement).  Any otherdividends, distributions, or interest paid or payable in respect of, orinstruments and other property received, receivable, or otherwise distributedin respect of, or in exchange for, any Pledged Collateral shall be paid toBildner.

 

(iii)  Company shall execute and deliver (or causeto be executed and delivered) to Bildner all such proxies and other instrumentsas Bildner may reasonably request for the purpose of enabling him 

 

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to exercise the votingand other rights that he is entitled to exercise pursuant to paragraph (i) ofthis Section 6(a).

 

(b)  When and so long as there is an Event ofDefault (i) involving failure to make the payment described in Section 2of the Note, or (ii) involving the voluntary placement by Bildner of a lienupon all or a significant portion of the Pledged Collateral, all rights ofBildner to exercise the voting and other rights that he would otherwise beentitled to exercise pursuant to Section 6(a)(i) shall cease, and allthose rights shall become vested in the Company, which shall then have the soleright to exercise those voting and other rights.

 

7.               Transfers andLiens.  Bildner agrees that he willnot (i) sell or otherwise dispose of, or grant any option with respect to, anyof the Pledged Collateral without the prior written consent of the Company; or(ii) voluntarily create any lien upon or with respect to any of the PledgedCollateral, except for the security interest under this Agreement.

 

8.               Events ofDefault; Remedies upon Default.

 

(a)  The following shall constitute Events ofDefault (“Events of Default”) under this Agreement:

 

(i)  If Bildner fails to perform or observe anyterm, covenant, or Obligation under this Agreement or the Note, or if anyrepresentation or warranty made by Bildner in this Agreement or the Note isuntrue or misleading in any material respect as of the date with respect towhich that representation or warranty was made;

 

(ii)  If a notice of lien, levy, or assessment isfiled or recorded with respect to all or a substantial part of the PledgedCollateral, except for a lien that relates to current taxes not yet due andpayable, and if the applicable claim is not discharged or satisfied withinninety (90) days of Bildner’s actual knowledge of that filing or recordation(such effected Pledged Collateral shall hereinafter be referred to as the“Effected Collateral”);

 

(iii)  If all or a substantial part of the PledgedCollateral is attached, seized, or subjected to a writ or distress warrant, oris levied upon, or comes within the possession of any receiver, trustee,custodian, or assignee for the benefit of creditors, and that PledgedCollateral is not returned to Bildner or the writ, distress warrant, or levy isnot dismissed, stayed, or lifted within ninety (90) days (such effected PledgedCollateral shall hereinafter be referred to as the “Effected Collateral”).

 

(iv)  Provided; however, with respect tosubparagraphs 8(a)(ii) and (iii) hereto, if prior to the end of such ninety(90) day period, Bildner provides the Company with additional collateral tosecure the Note with a fair market value equal to or exceeding the fair marketvalue of the Effected Collateral, which collateral may be Shares or cash (orsuch other collateral, subject to the consent of the Company, which consentshall not be unreasonably withheld) at the discretion of Bildner and whichcollateral Bildner hereby agrees shall be subject to the terms of thisAgreement, no Event of Default shall be deemed to have occurred.

 

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(b)  When and so long as there is any Event ofDefault, the Company may exercise in respect of the Pledged Collateral, inaddition to other rights and remedies provided for in this Agreement orotherwise available to it, all the rights and remedies of a secured party upona default under the Uniform Commercial Code in effect in the State ofCalifornia at that time.

 

(c)  Notwithstanding anything else containedherein to the contrary, so long as there has been and is no Event of Default: (i)involving failure to make the payment described in Section 2 of the Note,or (ii) involving the voluntary placement by Bildner of a lien upon all or asignificant portion of the Pledged Collateral, Bildner shall be entitled toexercise any and all voting and other consensual rights pertaining to any orall of the Shares.

 

9.               Expenses.  On demand, Bildner will pay the Company allreasonable expenses, including attorneys’ fees and costs, which the Company mayincur in connection with (i) the exercise or enforcement of any of the rightsof the Company under this Agreement; or (ii) Bildner’s failure to perform orobserve any of the provisions of this Agreement.

 

10.         Security InterestAbsolute.  All rights and securityinterests of the Company, and all Obligations of Bildner, under this Agreementshall be absolute and unconditional irrespective of:  (i) any lack of validity or enforceability of the Note or anyother agreement or instrument relating to it; (ii) any change in the time,manner, or place of payment of, or in any other term of, any of theObligations, or any other amendment or waiver of or consent to any departurefrom the Note; (iii) any exchange, release, or non-perfection of any othercollateral, or any release, amendment, or waiver of any of the Obligations; or(iv) any other circumstance that might otherwise constitute a defense availableto, or a discharge of, Bildner in respect of the Obligations or of thisAgreement.

 

11.         Further Assurances.  Bildner agrees that at any time and fromtime to time, at his expense, Bildner will promptly execute and deliver allfurther instruments and documents, and take all further action, that may benecessary or desirable, or that the Company may request, in order to perfectand protect any security interest granted or purported to be granted by thisAgreement or to enable the Company to exercise and enforce its rights andremedies under this Agreement with respect to any Pledged Collateral.

 

12.         Entire Agreement;Amendment; Waiver.  This Agreementand the Note embody the entire agreement of the parties hereto with respect tothe subject matter of this Agreement and supersede all prior agreements withrespect to that subject matter.  ThisAgreement may not be amended or modified except in a writing signed by bothparties.  No waiver of any provision ofthis Agreement shall be deemed to, or shall, operate as a waiver of any otherprovision, whether or not similar, nor shall any waiver constitute a continuingwaiver.  Except as expressly provided inthis Agreement, no waiver shall be binding unless executed in writing by theparty making the waiver.

 

13.         Notices.  All notices and other communicationsprovided for under this Agreement shall be given as follows:

 

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If to the Company:

 

TIER TECHNOLOGIES,INC.

2001 North MainStreet, Suite 500

Walnut Creek, CA94596

Attn:  Chief Financial Officer

 

If to Bildner:

JAMES L. BILDNER

5 Boardman Avenue

Manchester, MA01944

 

14.         Captions.  Captions are used for reference purposesonly and should be ignored in the interpretation of the Agreement.  Unless the context requires otherwise, allreferences in this Agreement to Sections are to the sections of this Agreement.

 

15.         Governing Law; Terms.  This Agreement shall be governed by andconstrued in accordance with the laws of the State of California applicable tocontracts wholly made and performed in the State of California.  Unless otherwise defined above, termsdefined in Division 9 of the Uniform Commercial Code as adopted in the State ofCalifornia are used in this Agreement with their statutory meanings.

 

Notwithstanding anythingto the contrary and pursuant to the Terms of the Note, Bildner shall have theright to prepay this Note without penalty of any kind and the Company shallpromptly release the pledged security “Pledged Collateral” to Bildner uponreceipt of such payment.

 

The parties have dulyexecuted this Agreement as of the date first written above.

 
| TIER TECHNOLOGIES, INC.            |   |
|------------------------------------|--------|
|                               |   |
|                               |   |
| By:                           |   |   |
| Jeffrey  McCandless                |   |
| Its:  Chief Financial Officer |   |
|                               |   |
|                               |   |
| JAMES L. BILDNER                   |   |
|                               |   |
|                               |   |   |
| James L. Bildner                   |   |
|                                    |        |  |  |

 

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STOCK POWER ANDASSIGNMENT

SEPARATE FROMSTOCK CERTIFICATE

 

 

FOR VALUE RECEIVED andpursuant to that certain PLEDGE AGREEMENT dated as of April 1, 2004  (the “Agreement”), the undersigned herebysells, assigns, and transfers to TIER TECHNOLOGIES, INC. (the “Company”),                                     (      ) shares of Class A Common Stock of theCompany, standing in the undersigned’s name on the books of the Companyrepresented by Certificate No(s).          delivered herewith.  The undersigned does hereby irrevocablyconstitute and appoint the Secretary of the Company as the undersigned’sattorney-in-fact, with full power of substitution, to transfer this stock onthe books of the Company.  THISASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.

 

 
| JAMES L. BILDNER |
|------------------|
|             |
|             |
| James L. Bildner |   |

 

 

Instructions:  Please sign this Stock Power above, but donot fill in any blanks other than the signature lines.

 

The purpose of this StockPower and Assignment Separate from Stock Certificate is to enable the Companyto acquire the Shares in accordance with the terms of the Agreement.

 

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**SCHEDULE A**

 

**PLEDGED SHARES AND**

**OTHER COLLATERAL**

 
| **DATE**            |   | **SHARES  PLEDGED** |   | **FAIR  MARKET  VALUE OF SHARES  PLEDGED** |    | **OTHER  COLLATERAL  /VALUE** |   |
|---------------------|--------|---------------------|--------|--------------------------------------------|---------|-------------------------------|--------|
| April 1,  2004 |   | 49,284              |   | $                                          | 514,024 |                          |   |   |
|                     |        |                     |        |                                            |         |                               |        |  |

 

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