<PAGE>
As filed with the Securities and Exchange Commission on May 15, 2000
Registration No. 333-33992
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
eFUNDS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 7374 39-1506286
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code)
organization)
400 West Deluxe Parkway
P.O. Box 12536
Milwaukee, Wisconsin 53212
(414) 341-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
John A. Blanchard III
Chairman and Chief Executive Officer
eFunds Corporation
400 West Deluxe Parkway
P.O. Box 12536
Milwaukee, Wisconsin 53212
(414) 341-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Jonathan B. Abram, Esq. Raymond W. Wagner, Esq.
Dorsey & Whitney LLP Simpson Thacher & Bartlett
Pillsbury Center South 425 Lexington Avenue
220 South Sixth Street New York, NY 10017
Minneapolis, MN 55402 (212) 455-2000
(612) 340-2600 Facsimile: (212) 455-2502
Facsimile: (612) 340-8738
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is declared effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated May 15, 2000
PROSPECTUS
6,250,000 Shares
[LOGO]
Common Stock
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This is our initial public offering of shares of common stock. We are offering
6,250,000 shares.No public market currently exists for our shares. We are
presently a wholly-owned subsidiary of Deluxe Corporation. Following this
offering, Deluxe will be our controlling shareholder and continue to own
approximately 86.5% of our outstanding shares.
We anticipate that the initial public offering price will be between $14.00 and
$16.00 per share.
We have applied to list the shares on the Nasdaq National Market under the
symbol "EFDS."
Investing in our shares involves risks. Risk Factors begin on page 6.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discount........................................... $ $
Proceeds to eFunds.............................................. $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 937,500
additional shares of common stock on the same terms and conditions as set forth
above to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares
on or about , 2000.
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Lehman Brothers Bear, Stearns & Co. Inc.
FAC/Equities
John G. Kinnard and Company,
Incorporated
Fidelity Capital Markets
a division of National Financial Services Corporation
, 2000
<PAGE>
[Photo of building]
eFunds Data Center
New Berline, Wis.
[Photo of data center]
[Photo of debit card usage]
eFunds Products and Services
[Diagram describing products and services]
Transaction processing Professional services
Decision support/risk management
[Photo of computer screen] [Photo of service personnel]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Forward-Looking Statements.......... 16
Use of Proceeds..................... 16
Dividend Policy..................... 16
Capitalization...................... 17
Dilution............................ 18
Selected Financial Data............. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
Business............................ 35
Management.......................... 54
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Agreements Between eFunds and
Deluxe............................. 66
Principal Stockholder............... 71
Description of Capital Stock........ 71
Shares Eligible for Future Sale..... 76
Certain United States Federal Tax
Consequences to Non-United States
Holders............................ 77
Underwriting........................ 80
Legal Matters....................... 83
Experts............................. 83
Where You Can Find More
Information........................ 83
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized anyone to provide you with
different information. We are offering to sell, and seeking offers to buy,
shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
AccountChex PlusSM, ConnexTM, ChexSystems logo, DebitBureauSM, eFunds,
FraudFinderSM, Integreat!SM, New AccountChexSM, SCANSM, QualiFileSM and
DataNavigatorTM are our trademarks and service marks. Other trademarks and
trade names referred to in this prospectus are the property of their respective
owners.
Until , 2000, all dealers selling shares of our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary with the more detailed information and
financial statements and related notes appearing elsewhere in this prospectus.
eFunds Corporation
Our Business
We are a leading provider of transaction processing and risk management
services to financial institutions, retailers, electronic funds networks, e-
commerce providers and government agencies. Our products and services enable
our clients to manage the complete electronic debit payment cycle, from account
opening to transaction authorization, to electronic funds transfer and
settlement. Our services enable our clients to reduce their transaction costs,
detect potential fraud and enhance their relationships with their customers. We
also offer information technology professional services to complement our
electronic payment services business and on a stand-alone basis. We operate
three principal businesses:
. electronic payment solutions;
. professional services; and
. government services.
Electronic Payment Solutions. Our electronic payment solutions segment
provides a comprehensive suite of transaction processing services and decision
support and risk management products for debit transactions. A debit
transaction involves the withdrawal or deposit of funds from or into a person's
checking or savings account. Our transaction processing services capture
instructions for a debit transaction from a debit card or check and we then
electronically authorize or deny the transaction, transfer funds between
appropriate accounts and settle the accounts. We process virtually all types of
debit transactions, including cash withdrawals, cash deposits, balance
inquiries and retail purchases. Our decision support and risk management
products enable our clients to combat identity fraud and account abuse in debit
transactions. We also provide financial institutions with customer relationship
tools for opening accounts, minimizing fraud and identifying cross-selling
opportunities. We are adapting our core capabilities in transaction processing,
fraud prevention and client account management for Internet applications. Our
electronic payment solutions segment had net sales of $241.4 million in 1999,
which represented approximately 80% of our total net sales.
We are one of the largest third-party processors for regional networks of
automated teller machines, or ATMs, in the United States, operating more than
9,000 ATMs. We also provide transaction processing for more than 98,000 retail
point-of-sale terminals. In 1999, we processed approximately five billion debit
transactions. We also operate Shared Check Authorization Network, or SCAN, the
most widely accessed check verification database in the United States. SCAN
serves 17 of the largest 20 retailers by revenues in the United States at more
than 82,000 locations. Our ChexSystems business is the largest new account
applicant verification service in the United States. More than 86,000 financial
institution locations use and contribute to the ChexSystems database.
We combine data from SCAN, ChexSystems and other sources in our DebitBureau
database, making it a unique source of checking and savings account opening and
closing information, checking account collections data, overdraft histories and
check order histories. DebitBureau contains more than 2.7 billion records,
which we believe makes it the most comprehensive source of data regarding debit
transactions available. Using this data, we create products that can validate a
consumer's identification, assess and rank the risk of a fraudulent transaction
and match a customer with targeted product offerings.
1
<PAGE>
Our clients for electronic payment services include:
. 16 of the 20 largest United States financial institutions, including
Bank of America, Wells Fargo and Bank One;
. 17 of the 20 largest United States retailers, including Wal-Mart, Kroger
and Home Depot;
. large electronic funds transfer networks, including STAR Systems, CU
Cooperative Systems and Citishare;
. e-commerce providers, including X.com; and
. international financial institutions, including The Royal Bank of
Scotland, Bank of Montreal and ING.
Professional Services. Our professional services segment provides
information technology consulting and business process management services. Our
information technology professionals develop, customize and implement our
electronic payment products and services for our clients. We also develop
custom software applications, including e-commerce and Internet-related
applications, for our clients. We team onsite consultants in the United States
who analyze and manage projects with software developers in India who write the
client-specific software. Our employees in India also provide business
processing services which allow our customers to outsource business functions,
such as accounting operations, payable and receivables management and call
center operations. Financial institutions and retailers are increasing their
use of external professional services to implement new technologies and e-
commerce applications, control costs and address shortages of information
technology resources. Deluxe Corporation, our corporate parent, is the
principal customer of our professional services segment. Our professional
services segment had net sales of $12.7 million in 1999, which represented
approximately 4% of our total net sales.
Government Services. Our government services segment provides online
electronic transfer of benefits under entitlement programs on behalf of state
and local governments and Medicaid eligibility verification services. The
electronic benefits transfer business has a history of losses that have
resulted in special charges for loss contracts and asset impairments. Our
government services business contributed operating losses of $6.6 million in
1999 and $47.7 million in 1998, including these charges. We also will record an
additional charge of $12.2 million in the second quarter of 2000. We have
decided to exit this business as soon as we complete our current contractual
obligations in 2006. Deluxe has agreed to indemnify us against future losses on
our existing unprofitable government services contracts to the extent the
losses on these contracts exceed the amount of the reserves created by our
special charges. Deluxe has also agreed to indemnify us against future losses
related to any litigation based on any facts or circumstances arising prior to
the completion of this offering. The indemnification obligations of Deluxe are
subject to a $14.6 million limit. Our government services segment had net sales
of $48.3 million in 1999, which represented 16% of our total net sales.
Our Separation From Deluxe
Prior to this offering, we were a wholly owned subsidiary of Deluxe
Corporation. In addition to our businesses, Deluxe is the largest check printer
in the world. The shares of Deluxe are publicly traded on the New York Stock
Exchange under the symbol "DLX."
We believe that our complete separation from Deluxe will enable us to
realize the following benefits:
. direct access to the capital markets that will allow us to raise capital
on a more cost effective basis to fund our growth initiatives;
. greater strategic focus on our core business and growth opportunities
and elimination of any competition for available capital; and
2
<PAGE>
. increased ability to attract, retain and motivate employees through
incentive compensation tied to the market performance of our common
stock.
After this offering, Deluxe will own about 86.5% of the outstanding shares
of our common stock, or about 84.8% if the underwriters exercise their over-
allotment option in full. As long as Deluxe continues to hold a majority of our
outstanding stock, Deluxe will be able to elect all our directors and determine
the outcome of all our corporate actions requiring stockholder approval. In
addition, we will continue to derive a substantial portion of our revenue from
Deluxe in future periods. In 1999, net sales to Deluxe represented 3% of our
total net sales and Deluxe has established minimum spending targets of $43
million per year for software development and maintenance services from our
professional services business for the next several years. Deluxe also has
agreed to purchase accounting and data entry services from our professional
services business. In the course of these on-going business relationships we
may have disagreements with Deluxe.
Deluxe has announced that it plans to distribute all of its shares of our
common stock to its shareholders through an exchange offer. As part of this
transaction, Deluxe shareholders would exchange their Deluxe shares for shares
of our common stock that Deluxe owns. In this prospectus we generally refer to
this exchange offer as a split-off. Deluxe's plans for the split-off are
subject to receiving a private letter ruling from the Internal Revenue Service
on its request that the split-off will be tax-free to Deluxe and its
shareholders for U.S. federal income tax purposes. Deluxe has the sole
discretion to determine whether to proceed with the split-off and to decide the
timing, structure and terms of the split-off. Subject to these conditions,
Deluxe plans to complete the split-off within one year following the completion
of this offering. If Deluxe does not complete the split-off, Deluxe will
continue to control us and we may not realize the benefits from our separation
from Deluxe that we anticipate.
Investors may review the public documents of Deluxe by following the
procedures described later in this prospectus under the heading "Where You Can
Find More Information."
3
<PAGE>
Information About Us
We were incorporated in Delaware in December 1984. Our principal executive
offices are currently located at 400 W. Deluxe Parkway, P.O. Box 12536,
Milwaukee, Wisconsin 53212 and our telephone number is 414-341-5000. We expect
to relocate our headquarters to Phoenix, Arizona following this offering. Our
Internet address is www.efunds.com. The information contained on our website is
not a part of this prospectus.
The Offering
Common stock offered................
Common stock to be outstanding 6,250,000 shares
after the offering.................
Use of proceeds..................... 46,250,000 shares
General corporate purposes, including
acquisitions and strategic alliances,
capital expenditures, product
development, infrastructure upgrades and
Proposed Nasdaq National Market working capital.
symbol............................. EFDS
Unless we specifically state otherwise, all information in this prospectus
reflects a 16,000 for 1 stock split on May 12, 2000 and assumes that the
underwriters do not exercise their over-allotment option. If the underwriters
exercise their over-allotment option in full, 47,187,500 shares of common stock
will be outstanding after this offering.
The number of shares of our common stock to be outstanding immediately after
this offering does not take into account 13,412,500 shares of our common stock
reserved for issuance under our stock incentive plan and option conversion
plan. We expect to grant options to purchase an aggregate of 2,639,524 shares
of our common stock under our stock incentive plan upon completion of this
offering with an exercise price equal to the initial public offering price,
unless a lower price is required by foreign law or government regulation.
At the time of the split-off, all outstanding options to purchase Deluxe
common stock will be converted into new options to purchase Deluxe common stock
and options to purchase our common stock. The actual number of options will be
determined at the time of the split-off based on the market price of our common
stock and Deluxe's common stock. Based upon an assumed price of $15.00 per
share for our common stock and assuming the market price of Deluxe's common
stock at the time of the split-off is the same as its closing market price on
May 11, 2000, the number of our shares for which options would be granted under
this conversion plan would be approximately 3.1 million and the weighted
average exercise price would be $18.74 per share.
4
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, March 31,
---------------------------- -----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- --------
(in thousands, except per share and
operating data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales..................... $229,065 $267,520 $302,340 $67,856 $100,255
-------- -------- -------- ------- --------
Cost of sales, excluding
loss contract and asset
impairment charges......... 143,966 171,359 185,590 43,060 58,757
Loss contract and asset
impairment charges......... -- 40,949 8,700 60 --
-------- -------- -------- ------- --------
Total cost of sales....... 143,966 212,308 194,290 43,120 58,757
-------- -------- -------- ------- --------
Gross margin.................. 85,099 55,212 108,050 24,736 41,498
-------- -------- -------- ------- --------
Selling, general and
administrative............. 70,542 81,198 105,382 17,887 38,178
Research and development.... 1,398 625 3,756 536 579
Asset impairment charges.... 11,831 -- -- -- --
-------- -------- -------- ------- --------
Total operating expenses.. 83,771 81,823 109,138 18,423 38,757
-------- -------- -------- ------- --------
Income (loss) from
operations................... 1,328 (26,611) (1,088) 6,313 2,741
Other income (expense)
Legal proceedings........... (40,050) 4,157 2,094 2,094 --
Other income (expense)...... (918) (3,495) (4,609) (866) 13
Interest income (expense)... (825) 2,789 963 803 (801)
-------- -------- -------- ------- --------
Income (loss) before income
taxes........................ (40,465) (23,160) (2,640) 8,344 1,953
Benefit (provision) for income
taxes........................ 6,397 8,569 (5,586) (4,530) (737)
-------- -------- -------- ------- --------
Net income (loss)............. $(34,068) $(14,591) $ (8,226) $ 3,814 $ 1,216
======== ======== ======== ======= ========
Net income (loss) per share--
basic and diluted............ $ (.85) $ (.36) $ (.21) $ .10 $ .03
Shares used in computing basic
and diluted net loss per
share........................ 40,000 40,000 40,000 40,000 40,000
Operating Data:
Account verifications
inquiries (millions)......... 28.6 30.3 32.1 8.0 9.7
Transactions processed
(millions)................... 3,313 3,944 5,019 1,106 1,360
ATMs driven at period end..... 5,766 5,623 8,626 8,465 9,027
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
-----------------------
Actual As Adjusted(1)
-------- --------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents (2)........................... $ 26,876 $109,563
Working capital......................................... 16,052 98,738
Total assets............................................ 315,750 398,438
Long-term debt, excluding current portion............... 3,284 3,284
Total stockholder's equity.............................. 220,106 302,794
</TABLE>
- --------
(1) As adjusted to reflect the sale of 6,250,000 shares of common stock in
this offering, assuming a public offering price of $15.00 per share, and
the receipt of the net proceeds after deducting the underwriting discount
and estimated offering expenses.
(2) Excludes restricted cash which represents cash that we have supplied for a
client's ATMs and cash that we temporarily hold in custodial accounts on
behalf of clients.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and other
information in this prospectus before making a decision to buy our common
stock.
Risks Relating to Our Business and Industry
We have had net losses over the past several years, and we may not achieve
or sustain profitability.
We had net losses of $8.2 million in 1999, $14.6 million in 1998 and $34.1
million in 1997, and we may not achieve or maintain profitability. Our ability
to maintain profitability will depend on growth in electronic debit payments,
our ability to attract new clients, the market acceptance of our new products
and services and our ability to control further losses on government services
contracts. In addition, our professional services business is new and
developing and contributed operating losses of $10.7 million in 1999 and $3.4
million in 1998. As a consequence, the prospects for our professional services
business must be considered in light of the risks and uncertainties
encountered by businesses in the early stage of development in new and rapidly
evolving markets.
Our government services business has not been profitable and Deluxe's
indemnification may not be adequate.
Our government services business contributed operating losses of
approximately $6.6 million in 1999 and $47.7 million in 1998. These amounts
include losses we recognized in 1999 and 1998 that represent probable future
losses from unprofitable long-term service contracts of this business and the
write-off of assets associated with this business. The losses on the long-term
service contracts result from the revenues from the contracts being lower than
expected and the expenses to service the contract being higher than
anticipated. The assets associated with the governmental services business
were written off because this business has a negative overall cash flow and
its assets have no resale value. We will record an additional loss contract
charge of $12.2 million in the second quarter of 2000 due to the execution of
a definitive long-term agreement with Citibank relating to a coalition of
states for whom we have been providing electronic benefit transfer services.
Citibank is the prime contractor for this coalition and we have been providing
services to Citibank without a binding contract for approximately three years.
We intend to exit the government services business after we complete our
obligations under our long-term contracts in 2006.
Although Deluxe has agreed to indemnify us for any losses arising from any
litigation based on the conduct of the business prior to this offering and
from losses on identified loss contracts in excess of the existing loss
contract reserves, the maximum amount of losses for which Deluxe will
indemnify us is $14.6 million. Our loss contract reserves are based on
estimates of future performance of identified contracts, and the estimated
results may not be realized. As a result, we may incur losses beyond our
current reserves and Deluxe's indemnification. These excess losses would be
recognized in future periods and decrease our earnings for those future
periods. In addition, we may be unable to effectively manage our exit from the
government services business if we are unable to retain key employees and
reduce our costs as currently projected, which could result in further losses.
We have only a limited history with our current business plan.
Our business model is still new and developing. In April 1999, we began the
process of combining five of Deluxe's former operating units into an
integrated electronic debit payment business. The businesses we combined were
Deluxe Electronic Payment Systems, Inc., DebitBureau, ChexSystems, Inc.,
Deluxe Payment Protection Systems, Inc. and an electronic check conversion
company that was acquired in February 1999. Deluxe Electronic Payment Systems,
Inc. and the electronic check conversion company primarily process debit
transactions. The other companies maintain databases that assist financial
institutions and retailers to determine whether to open a new checking or
savings account for or accept a check from a consumer. We combined these
businesses in order to couple our risk management products with our
transaction processing capabilities in an effort to create more products and
services than the businesses would have created as independent operating
6
<PAGE>
units. In January 2000, we decided to combine our professional services
business with our electronic payments business because the addition of the
information technology expertise of this business would enhance our ability to
develop, customize, install and maintain our products. We may not be able to
realize the anticipated strategic and other benefits of these combinations in a
timely manner, or at all. Our management has been and will continue to be
required to devote substantial attention to the process of integrating our
operations, technologies and personnel and consolidating our infrastructure.
The diversion of management's attention and any difficulties encountered during
the transition could have an adverse impact on our on-going business activities
and limit our growth.
If we fail to develop and introduce new and enhanced products and services,
we will not be able to compete effectively and our ability to generate revenues
will suffer.
Our success will depend in part on our ability to continue to develop and
introduce new and enhanced electronic debit payment products and services that
keep pace with competitive introductions, technological changes and changing
customer preferences. If we fail to anticipate or respond adequately to new
developments, we may lose opportunities for business with both current and
potential customers.
Legislation relating to consumer privacy protection could harm our ability
to collect and use data, increase our operating costs or otherwise harm our
business.
Existing and new laws and regulations relating to consumer privacy
protection could harm our ability to collect and use consumer data, increase
our operating costs or otherwise harm our business. We collect personal data
about consumers for use in our decision support and risk management products.
The information we collect includes names and addresses, social security
numbers, drivers license numbers, checking and savings account numbers and
payment history records such as account closures and returned checks. Due to
the increasing public concern over consumer privacy rights, Congress and state
legislatures have adopted and are considering adopting laws and regulations
restricting the purchase, sale and sharing of personal information about
consumers. For example, some states have restricted the sale of motor vehicle
records, including drivers license lists, and some states refuse to disclose
this information at all.
The new federal financial modernization law, known as the Gramm-Leach-Bliley
Act, imposes significant new consumer information privacy requirements on any
entity engaged in the business of providing financial services, including
entities that provide services to financial institutions. The Act provides that
federal agencies, such as the Comptroller of the Currency and the Federal Trade
Commission, issue regulations to implement these requirements. The Act requires
covered companies to develop and implement policies to protect the security and
confidentiality of consumers' nonpublic personal information and to disclose
those policies to consumers before a customer relationship is established and
annually thereafter. In addition, the Act requires covered companies to give an
opt-out notice to consumers before sharing consumer information with third
parties. The opt-out notice requirement in the Act is subject to several
exceptions for credit reporting and fraud prevention purposes. Although we
believe these exceptions apply to our business, government agencies could
interpret their regulations in a manner that could expand the scope of the Act
in ways which could adversely affect our business. In addition, even if the
regulations do not affect us directly, uncertainty over the scope of the
regulations could make financial institutions unwilling to share consumer-
related information with us.
The Act does not prohibit state legislation or regulations that are more
restrictive on our collection and use of data. More restrictive legislation or
regulations have been introduced in the past and could be introduced in the
future in Congress and the states. For example, in the past legislation has
been proposed which would require consumers to opt in to any plan which would
allow their nonpublic personal information to be disclosed. We are unable to
predict whether more restrictive legislation or regulations will be adopted in
the future. Any future legislation or regulations could have a negative impact
on our business.
7
<PAGE>
We face intense competition in all areas of our business, and if we do not
compete effectively, our business will be harmed.
We face intense competition from a number of companies. Further, we expect
that competition will intensify as the e-commerce and Internet markets continue
to develop and expand. Many of our competitors have significantly greater
financial, technical and marketing resources, greater name recognition and a
larger installed customer base than we do.
In the electronic payment management market, our principal competitors
include:
. third party network and credit card processors, including First Data,
Equifax, Total System Services, Electronic Data Systems, Concord EFS and
Alliance Data Systems;
. financial institutions that have developed internal processing
capabilities or services similar to ours, including Bank of America,
Marshall and Illsley and Fifth Third National Bank;
. electronic data interchange and cash management providers, including
Fiserv, CheckFree, M&I Data, EDS and Fundtech;
. electronic bill payment providers, including CheckFree, EDS, MasterCard,
Spectrum and Visa;
. electronic funds transfer software solution providers, including ACI,
Transaction Systems Architects, SLMsoft, Oasis, Mosaic and PaySys; and
. national information database companies and other content providers,
including Equifax, Experian and Trans Union.
In the market for electronic transaction processing, the principal factors
on which we compete are price and service levels. The future growth of our
revenues in this market is dependent upon securing an increasing volume of
transactions. If we cannot control our transaction processing expenses, we may
not remain price competitive and our revenues will be adversely affected.
Competition for our decision support and risk management products is based
primarily on the quantity and quality of the data available to us for this
purpose and, to a somewhat lesser degree, price. Our competitive position in
these markets could be harmed if our competitors were able to compile different
data sources and analytical capabilities that proved to be more effective than
our products.
In the fragmented information technology professional services market, we
compete with numerous firms. We believe that our principal competition to date
has been the internal information technology departments of current and
potential clients. In addition, we compete with systems consulting and
integration firms, application software firms, Internet professional service
companies, services divisions of computer hardware and software vendors,
facilities management and outsourcing companies, "Big 5" accounting firms and
strategic consulting firms. Competition in this area is primarily based on the
continued availability of qualified technical personnel in an extremely
competitive U.S. labor market. Our professional services business will suffer
if we are unable to attract and retain personnel with the advanced technology
skills we require.
In addition to our current competitors, we expect substantial competition
from established and new companies as the e-commerce and Internet markets
continue to develop and expand. We cannot assure you that we will be able to
compete effectively against current and future competitors. Increased
competition could result in price reductions, reduced gross margins or loss of
market share.
We are dependent on Deluxe for both business support and a significant
portion of our revenue.
As of the completion of this offering, Deluxe will agree to continue
providing various services to us. If Deluxe fails to perform these services
adequately or effectively, our business could be adversely affected. In
addition, we will continue to derive a substantial portion of our revenues from
Deluxe in future periods. In 1999, net sales to Deluxe represented 3% of our
total net sales. Deluxe has established minimum spending
8
<PAGE>
targets of $43 million per year for software development, maintainence and
support services from our professional services business for the next several
years. We will also provide Deluxe with business process outsourcing services
during this period. The loss of Deluxe as a customer or a material reduction in
the amount of services it orders from us would materially adversely affect our
future results of operations and financial condition.
Our future profitability is dependent upon the continued growth in the
market for electronic debit payment services.
If the electronic debit payments market does not grow or grows more slowly
than expected, our business will suffer. Several factors could inhibit the
acceptance and growth of electronic debit payments, including:
. these types of payments are relatively new alternatives to the more
familiar cash, check and credit card payment options. Consumers and
businesses may be unwilling to change their established payment
preferences and adopt these new forms of payment as quickly as we
expect; and
. consumers may be concerned that these newer payment options are not as
safe or reliable as more traditional payment methods. Consumers may also
believe that these payment technologies offer a lower level of privacy.
The success of our strategy to expand our Internet delivery channels depends
on increased adoption by businesses and consumers of the Internet as a means
for commerce.
We believe that the Internet will become an increasingly important means by
which consumers and businesses buy and sell products and services. Developing
efficient ways for participants in Internet-based transactions to send and
receive debit payments with a minimum level of risk or inconvenience is an
important part of our strategy to expand the sale of our products and services.
This strategy depends heavily on the acceptance and use of the Internet as a
means of commerce. If commerce over the Internet does not become more accepted
and widespread, our business and results of operations could suffer.
Factors that may affect Internet commerce adoption include:
. inadequate network infrastructure;
. security, privacy and authentication concerns;
. changes in, or insufficient availability of, telecommunication services
to support the Internet; and
. increased government regulations or taxation.
We may be required to expend significant sums to protect our trademarks.
In May 1999, we filed a trademark infringement lawsuit seeking to prevent
Citizens Advisers, Inc. from using the "E FUND" mark and efund.com Internet
domain. This action and any future litigation could be costly and time
consuming. If we are unsuccessful in preventing Citizens from using our name,
our business could be harmed because customers and potential customers are
confused about the origin of goods and services offered by Citizens and
ourselves and wrongfully attribute any dissatisfaction with Citizens' services
to us. Further, if we are not successful in this lawsuit, we may not be able to
obtain a registered federal trademark for the eFunds mark, which could restrict
our ability to protect our name and reputation from infringement by others.
If the security of our databases is compromised, our reputation could suffer
and customers may not be willing to use our products and services.
If the security of our databases is compromised, our business could be
materially adversely affected. In our electronic payment solutions business, we
collect personal consumer data, such as names and addresses, social security
numbers, drivers license numbers, checking and savings account numbers and
payment history records. Unauthorized access to our database could result in
the theft or publication of personal confidential
9
<PAGE>
information and the deletion or modification of personal records or otherwise
cause interruptions in our operations. These concerns about security are
increased when we transmit information over the Internet. A security or privacy
breach may:
. deter customers from using our products and services;
. harm our reputation;
. expose us to liability;
. increase our operating expenses to remediate problems caused by the
breach; and
. decrease market acceptance of electronic commerce transactions in
general.
If we experience system failures, the products and services we provide to
our customers could be delayed or interrupted, which would harm our business
and reputation and result in the loss of customers.
Our ability to provide reliable service largely depends on the efficient and
uninterrupted operations of our computer network systems and data centers. Any
significant interruptions could severely harm our business and reputation and
result in a loss of customers. Our systems and operations could be exposed to
damage or interruption from fire, natural disaster, power loss,
telecommunications failure, unauthorized entry and computer viruses. Although
we have taken steps to prevent a system failure, we cannot be certain that our
measures will be successful and that we will not experience system failures.
Further, our property and business interruption insurance may not be adequate
to compensate us for all losses or failures that may occur.
We may experience software defects, development delays and installation
difficulties, which would harm our business and reputation and expose us to
potential liability.
Our services and products are based on sophisticated software and computing
systems and we often encounter delays when developing new products and
services. Further, the software underlying our products and services has
occasionally contained and may in the future contain undetected errors or
defects when first introduced or when new versions are released. In addition,
we may experience difficulties in installing or integrating our products and
technologies on platforms used by our customers or in new environments, such as
the Internet. Defects in our software products, errors or delays in the
processing of electronic transactions or other difficulties could result in:
. delay in market acceptance;
. additional development costs;
. diversion of technical and other resources;
. loss of customers;
. negative publicity; or
. exposure to liability claims.
Although we attempt to limit our potential liability for warranty claims
through disclaimers and limitation-of-liability provisions in our license and
client agreements, we cannot be certain that these measures will be successful
in limiting our liability.
Consolidation in the banking industry may adversely affect our ability to
sell our products and services.
Mergers, acquisitions and personnel changes at financial institutions may
adversely affect our business, financial condition and results of operations.
In 1999, the banking industry accounted for approximately 37% of
10
<PAGE>
our net sales. Currently, the banking industry is undergoing large-scale
consolidation, causing the number of financial institutions to decline. This
consolidation could cause us to lose:
. current and potential customers;
. market share if the combined financial institution determines that it is
more efficient to develop in-house products and services similar to ours
or use our competitors' product and services; and
. revenue if the combined financial institution is able to negotiate a
greater volume discount for, or discontinue the use of, our products and
services.
We depend on the continued services of our key officers.
Our future success depends upon the continued services of a number of key
officers, including John Blanchard, our Chairman and Chief Executive Officer,
Debra Janssen, our President and Chief Operating Officer, and Dr. Nikhil Sinha,
our Executive Vice President for Global Corporate Development. The loss of the
technical knowledge and industry expertise of any of these officers could
seriously harm our business.
Our attempts to expand by means of acquisitions and strategic alliances may
not be successful.
Tax requirements related to the split-off will restrict our ability to
complete significant acquisitions through the issuance of our common stock.
Further, our ability to expand in this manner involves many risks, including:
. the operations, technology and personnel of any acquired companies may
be difficult to integrate;
. the allocation of resources to consummate these transactions may disrupt
our business;
. acquired businesses may not achieve anticipated revenues, earnings or
cash flow;
. strategic alliances may not be successful or we may not realize
anticipated benefits in a timely manner, or at all; and
. our relationships with existing customers and business partners may be
weakened or terminated as a result of these transactions.
There are a number of risks associated with our international sales and
operations that could harm our business.
Because we currently sell some of our products and services in Europe,
Australia and Latin America, our business is subject to risks associated with
doing business internationally. Also, we may not be successful in selling our
services outside of the United States. In 1999, we generated approximately 6.7%
of our net sales outside of the United States. Our future results could be
harmed by a variety of factors, including:
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political and economic
conditions, particularly in emerging markets;
. potentially unfavorable tax rules;
. tariffs, duties and other trade barriers;
. reduced protection for intellectual property rights;
. challenges in managing widespread operations;
. changes in foreign laws and regulatory requirements or in foreign
policy; and
. varying business practices in foreign countries.
11
<PAGE>
Conditions in India could adversely affect our operations.
We maintain software development and business process management facilities
in India with over 450 employees. Political and economic conditions in India
could adversely affect our operations. In the past, India has experienced
significant increases in inflation, shortages of foreign exchange, civil unrest
and conflicts with other countries in South Asia.
We currently enjoy a tax holiday on export revenues from India. We cannot
assure you that these tax benefits will be continued in the future at their
current levels or at all. If these tax benefits were reduced or eliminated, our
taxes in future periods would likely increase.
We face collection risks on some payments.
A debt collection service we commenced in 2000 exposes us to collection
risks. For three clients of our check authorization service, we purchase
returned checks at a discounted price to the stated check amount and assume the
collection risk on the checks. We base our discounted purchase price on the
collection history of each client. If we are unable to collect on returned
checks at the historical rate of our clients or the payment quality of the
portfolio of returned checks deteriorates, we may incur a loss on the portfolio
of purchased checks. We may expand this service to additional customers.
We face termination and compliance risks with respect to our government
contracts.
All of our government contracts can be terminated at any time, without
cause, by the contracting governmental entity. We realized 16% of our net sales
in 1999 pursuant to contracts of this type. If a government contract is so
terminated, the contractor generally is entitled to receive compensation only
for the services provided or costs incurred at the time of termination and a
reasonable profit on the contract work performed prior to the date of
termination. In addition, all of our government contracts require us to comply
with various contract provisions and procurement regulations, and in some
cases, accounting requirements. Violations of some of these provisions could,
if not cured, result in termination of the contract and fines.
Our government services business could be harmed by cost overruns on fixed-
price contracts.
In 1999, approximately 16% of our net sales were derived from fixed-price,
variable volume contracts of our government services business. Under these
contracts, we agree to perform services for an agreed unit price and we bear
the entire risk of cost overruns and changing volumes. If we do not
successfully manage these project and contract risks or if our original
contract estimates turn out to be inaccurate, we could suffer cost overruns and
penalties and our reputation and results of operations could be harmed. We
recorded charges of $40.9 million and $8.7 million in 1998 and 1999 and we will
incur an additional $12.2 million charge in the second quarter of 2000 as a
result of these risks. We cannot assure you that we will not incur additional
charges of this type or that the indemnification Deluxe has agreed to provide
us with respect to our existing contracts will be sufficient.
We may be unable to protect our intellectual property rights.
Despite our efforts to protect our proprietary rights, third parties may
infringe or misappropriate our proprietary rights, or otherwise independently
develop substantially equivalent products and services. The loss of
intellectual property protection or the inability to secure or enforce
intellectual property protection could harm our business and ability to
compete. We rely on a combination of trademark and copyright laws, trade secret
protection and confidentiality and license agreements to protect our
trademarks, software and know-how. We have also applied for patent protection
on some of the features of our newer products. We may be required to spend
significant resources to protect our trade secrets and monitor and police our
intellectual property rights.
Third parties may assert infringement claims against us in the future. In
particular, there has been a substantial increase in the issuance of business
process patents for Internet-related business processes, which may have broad
implications for all participants in Internet commerce. Claims for infringement
of these patents
12
<PAGE>
are becoming an increasing source of litigation. If we become subject to an
infringement claim, we may be required to modify our products, services and
technologies or obtain a license to permit our continued use of those rights.
We may not be able to do either of these things in a timely manner or upon
reasonable terms and conditions. Failure to do so could seriously harm our
business and operating results. In addition, future litigation relating to
infringement claims could result in substantial costs to us and a diversion of
management resources. Adverse determinations in any litigation or proceeding
could also subject us to significant liabilities and could prevent us from
using some of our products, services or technologies.
Risks Relating to Our Separation From Deluxe
We currently obtain check printing data through Deluxe's agreements with
financial institutions. Following the split-off, we must secure our own
agreements to obtain this data. If we are not successful, our business will
suffer.
Historically, we have obtained all of our check printing data through Deluxe
under its agreements with banks and other financial institutions and through
its direct check printing subsidiary. We link the check printing data with our
SCAN and ChexSystems data to develop decision support and risk management tools
for our electronic payment solutions business. As a result of the split-off
from Deluxe, we must secure our own separate agreements to obtain check
printing data or similar consumer account information. We cannot be certain
that we will be successful in securing these agreements or otherwise continuing
to obtain sufficient amounts of data on reasonable terms and conditions, if at
all. Any failure by us to obtain the data we require directly from financial
institutions would have an adverse effect on our ability to update information
in DebitBureau, the performance of our products and services based on
DebitBureau and new product development. It could also result in a delay of the
split-off.
We may not realize the benefits of our separation from Deluxe and our stock
price may decline if Deluxe does not complete the split-off.
If Deluxe does not complete the split-off, Deluxe will continue to control
us and we may not fully realize the benefits we expect as a result of the
split-off. Deluxe has the sole discretion to determine the timing and terms of
any split-off and is not obligated to effect the split-off. In particular,
Deluxe will not complete the split-off unless it receives a favorable tax
ruling from the Internal Revenue Service to the effect that the split-off would
be tax-free to Deluxe and its stockholders for federal income tax purposes. We
cannot assure you whether or when Deluxe will receive a favorable tax ruling
from the IRS, or that the split-off will occur. In addition, if the split-off
is not completed, the liquidity of our shares in the market will be limited
unless and until Deluxe elects to sell some of its significant ownership.
We will be controlled by Deluxe as long as it owns a majority of our common
stock, and our other stockholders will be unable to affect the outcome of
stockholder voting during this time.
As long as Deluxe continues to hold a majority of our outstanding stock,
Deluxe will be able to elect all of our directors and determine the outcome of
all corporate actions requiring stockholder approval. Because it controls us,
Deluxe has the power to act without taking the best interests of our company
into consideration. After the completion of this offering, Deluxe will own
approximately 86.5% of our outstanding common stock. For purposes of meeting
the tax requirements associated with the split-off, Deluxe also holds an option
to purchase additional shares of our capital stock so that it can maintain its
ownership of at least 80.1% of our outstanding voting power at all times prior
to the split-off.
While it controls us, Deluxe will control decisions with respect to:
. the business direction and policies of our company, including the
election and removal of directors;
. mergers or other business combinations involving us;
13
<PAGE>
. the acquisition or disposition of assets by us;
. our financing; and
. amendments to our certificate of incorporation and bylaws.
There are potential conflicts with Deluxe and four of our directors may have
conflicts of interest because they are also directors and officers of Deluxe.
Conflicts may arise between Deluxe and us as a result of our on-going
agreements. We may not be able to resolve any potential conflicts with Deluxe,
and even if we do, the resolution may be less favorable to us than if we were
dealing with an unaffiliated third party. In addition, during the period that
Deluxe controls us, John Blanchard, Larry Mosner, John LeFevre and Lois Martin,
all of whom will become members of our board of directors, will continue to be
directors and officers of Deluxe. These directors will have obligations to us
as well as Deluxe and may have conflicts of interest with respect to matters
potentially or actually involving or affecting us. Matters that could give rise
to conflicts include among other things:
. our past and ongoing relationships with Deluxe, including tax matters,
employee benefits, indemnification, data sharing, and other matters
arising from our separation from Deluxe;
. the nature, quality and pricing of transitional services Deluxe has
agreed to provide us;
. the quality and pricing of services we have agreed to provide to Deluxe;
and
. sales or distributions by Deluxe of all or part of its ownership
interest in us.
For example, by virtue of its controlling beneficial ownership and the terms
of the tax-sharing agreement to be entered into between us and Deluxe, Deluxe
will effectively control all of our tax decisions until the split-off is
completed. Under the tax-sharing agreement, Deluxe will generally have sole
authority to respond to and conduct all tax proceedings and tax audits relating
to our operations during this period and to file all related returns on our
behalf. The tax sharing agreement also determines the amount of our liability
to, or entitlement to payment from, Deluxe with regard to taxes and tax
refunds. This arrangement may result in conflicts between us and Deluxe. Under
the tax-sharing agreement, Deluxe may choose to contest, compromise or settle
any adjustment or deficiency proposed by the relevant taxing authority in a
manner that may be beneficial to Deluxe and detrimental to us.
Our historical financial information may not necessarily reflect our results
as a separate company.
We have no operating history as an independent company. The historical
financial information we have included in this prospectus has been carved out
from Deluxe's consolidated financial statements and may not necessarily reflect
what our results of operations, financial condition and cash flows would have
been had we been a separate, stand-alone entity during the periods presented.
Following this offering, we will be required to provide our own financial,
administrative and other resources to operate as an independent public company
and to replace other services provided by Deluxe to us. As a result, the
historical financial information is not necessarily indicative of what our
results of operations, financial condition and cash flows will be in the
future.
Risks Relating to the Securities Markets and Ownership of Our Common Stock
We cannot predict the impact of the split-off on the price of our common
stock.
We cannot predict the effect that the split-off will have on the market
price of our common stock. The split-off will involve the distribution of about
40,000,000 shares of our common stock, or 86.5% of our common stock, by Deluxe
to its stockholders. Substantially all of these shares would be eligible for
immediate
14
<PAGE>
resale in the public markets. Sales of substantial amounts of our common stock
in the public market, or the perception that substantial sales might occur,
whether as a result of this distribution or otherwise, could cause the market
price of our stock to decrease significantly.
Our securities have no prior market and there may be limited liquidity in
our shares.
Our common stock has not been publicly traded, and an active trading market
may not develop or be sustained after this offering. Prior to the split-off,
Deluxe will hold 86.5% of our outstanding shares and if an active trading
market does not develop for our remaining shares, your ability to sell your
shares may be limited. If the split-off is delayed or not completed at all,
this illiquidity could continue for an indefinite period and could lead to
increased volatility in our share price.
Provisions in our charter documents and Delaware law and tax considerations
related to the split-off may delay or prevent a change in control.
Provisions of our certificate of incorporation and bylaws and Delaware law
may delay or prevent a change in control of our company that you may consider
favorable. These provisions include the following:
. no cumulative voting by stockholders for directors;
. a classified board of directors with three-year staggered terms;
. the ability of our board to set the size of the board of directors, to
create new directorships and to fill vacancies;
. the ability of our board to issue preferred stock, without stockholder
approval, with rights and preferences that may be superior to our common
stock;
. the ability of our board to amend the bylaws;
. a prohibition of stockholder action by written consent;
. advance notice requirements for shareholder proposals and for nominating
candidates to our board;
. a stockholder rights plan which discourages the unauthorized acquisition
of 15% or more of our common stock or an unauthorized exchange or tender
offer;
. restrictions under Delaware law on mergers and other business
combinations between us and any holder of 15% or more of our outstanding
common stock; and
. a requirement that 66-2/3% of our stockholders and 66-2/3% of our
directors approve certain corporate transactions, including mergers and
consolidations, sales of assets or amendments to our certificate of
incorporation.
In addition, our tax sharing agreement with Deluxe will provide that we will
indemnify Deluxe for any taxes due if the split-off or some of the related
transactions fail to qualify as tax-free because of our actions or inactions.
An acquisition of us by a third party could have such an effect. As a result,
these tax considerations may delay or prevent a third party from acquiring us
in a transaction you may otherwise have considered favorable or reduce the
amount you receive as part of the transaction. We also have agreed to indemnify
Deluxe for a portion of any taxes due from Deluxe if the split-off on some of
the related transactions fail to qualify as tax-free as a result of a
retroactive change of law or other reason unrelated to the action or inaction
of either us or Deluxe.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. When we use the words
"believe," "anticipate," "plan," "expect," "estimate," "will" and similar
expressions, we are identifying forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. We do not, however, represent forward-looking statements as
guarantees of future performance or results. Our actual results may vary
materially from those indicated in the forward-looking statements as a result
of a number of risks and uncertainties, including the risks described under
"Risk Factors" or elsewhere in this prospectus.
USE OF PROCEEDS
We estimate the net proceeds from the sale of our common stock in this
offering, based on an assumed public offering price of $15.00 per share and
after deducting the underwriting discount and estimated offering expenses
payable by us, will be approximately $82.7 million, or $95.8 million if the
underwriters exercise their over-allotment option in full.
We expect to use approximately $10 million of these proceeds to fund the
creation of the additional infrastructure, such as management information
systems, needed to allow us to operate as an independent stand-alone company,
approximately $25 million to fund a portion of our $62.5 million capital
expenditure budget for 2000, with the balance of this amount being funded from
our ongoing operations, and $10 million for product development activities. We
intend to use the remaining proceeds for working capital and other general
corporate purposes. In addition, we may use some of the net proceeds for
acquisitions of businesses, products and technologies that are complementary to
ours. We do not have any agreements with respect to any material acquisitions
as of the date of this prospectus. Pending our use of the net proceeds from
this offering, we intend to invest these proceeds in short-term, interest-
bearing, investment-grade securities.
DIVIDEND POLICY
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings to fund the
development and growth of our business.
16
<PAGE>
CAPITALIZATION
The following table sets forth our actual and as adjusted capitalization at
March 31, 2000, as described below. The as adjusted column gives effect to the
sale of 6,250,000 shares of our common stock in this offering, assuming an
initial public offering price of $15.00 per share and after deducting the
underwriting discount and estimated offering expenses payable by us. This table
should be read in conjunction with our audited consolidated financial
statements and related notes, which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 2000
---------------------
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Long-term debt, excluding current portion............ $ 3,284 $ 3,284
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 100,000,000 shares
authorized; no shares issued and outstanding....... -- --
Common stock, $.01 par value; 250,000,000 shares
authorized; 40,000,000 shares issued and
outstanding actual; and 46,250,000 shares issued
and outstanding as adjusted........................ 400 462
Additional paid-in capital.......................... 327,290 409,916
Accumulated deficit................................. (106,655) (106,655)
Accumulated other comprehensive loss................ (929) (929)
-------- --------
Total stockholders' equity......................... 220,106 302,794
-------- --------
Total capitalization................................. $223,390 $306,078
======== ========
</TABLE>
This table does not reflect 13,412,500 shares of common stock reserved for
issuance under our stock incentive plan and the plan for Deluxe conversion
options discussed below. We expect to grant options to purchase an aggregate of
2,639,524 shares of our common stock under our stock incentive plan upon
completion of this offering with an exercise price equal to the initial public
offering price, unless a lower price is required by law or government
regulation.
At the time of the split-off, all outstanding options to purchase Deluxe
common stock will be converted into new options to purchase Deluxe common stock
and options to purchase our common stock. The actual number of options will be
determined at the time of the split-off based on the market price of our common
stock and Deluxe common stock. Based upon an assumed price of $15.00 per share
for our shares and assuming the market price of Deluxe's common stock at the
time of the split-off is the same as the closing market price of Deluxe's stock
on May 11, 2000, then the number of our shares for which options would be
granted under this conversion plan would be approximately 3.1 million and the
weighted average exercise price would be $18.74 per share.
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<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the offering price per share of our common
stock in this offering and the pro forma net tangible book value per share of
our common stock immediately after this offering. Pro forma net tangible book
value dilution per share represents the difference between the amount per share
paid by purchasers of shares of common stock in this offering and the pro forma
net tangible book value per share of common stock immediately after completion
of this offering.
Our pro forma net tangible book value as of March 31, 2000 was $133.2
million, or $3.33 per share of common stock. Pro forma net tangible book value
per share represents the amount of our stockholders' equity, less intangible
assets, divided by the total number of shares of common stock outstanding for
the period immediately prior to this offering. After giving effect to the sale
of the 6,250,000 shares of common stock offered in this prospectus at the
assumed public offering price of $15.00 per share and after deducting the
estimated underwriting discounts and offering expenses, our adjusted pro forma
net tangible book value as of March 31, 2000 would have been $215.9 million, or
$4.67 per share of common stock. This represents an immediate increase in net
tangible book value of $1.34 per share to Deluxe and an immediate dilution of
$10.33 per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution.
<TABLE>
<CAPTION>
Assumed public offering price per share....................... $15.00
<S> <C> <C>
Net tangible book value per share before the offering......... $3.33
Increase per share attributable to new investors.............. 1.34
-----
Pro forma net tangible book value per share after this
offering..................................................... 4.67
------
Dilution per share to new investors........................... $10.33
======
</TABLE>
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SELECTED FINANCIAL DATA
The following selected financial data should be read together with the
consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this prospectus. The selected statement of operations data shown
below for the years ended December 31, 1997, 1998 and 1999 and the balance
sheet data as of December 31, 1998 and 1999 are derived from our audited
consolidated financial statements included in this prospectus which have been
audited by Deloitte & Touche LLP, independent auditors.
The selected statement of operations data shown below for the years ended
December 31, 1995 and 1996 and the balance sheet data as of December 31, 1995,
1996 and 1997 are derived from our unaudited consolidated financial statements
not included in this prospectus. The selected statement of operations shown
below for first quarter ended March 31, 1999 and 2000 and the selected balance
sheet data as of March 31, 2000 are derived from our unaudited consolidated
financial statements included in this prospectus and, in our opinion, include
all adjustments, consisting only of normal recurring accruals, that are
necessary for a fair presentation of our financial position and results of
operations for these periods.
On February 19, 1999, we acquired all of the outstanding shares of an
electronic check conversion company. On April 13, 1999, we acquired the
remaining 50% ownership interest in a joint venture which comprises our
professional services business and which prior to the acquisition was recorded
in our financial statements under the equity method of accounting. The
acquisitions have been accounted for under the purchase method of accounting
and, as a result, our consolidated financial statements include the total
results of these businesses subsequent to their acquisition dates.
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, March 31,
------------------------------------------------ -----------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- ------- --------
(in thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $193,111 $201,681 $229,065 $267,520 $302,340 $67,856 $100,255
-------- -------- -------- -------- -------- ------- --------
Cost of sales,
excluding loss
contract and asset
impairment charges... 104,239 131,379 143,966 171,359 185,590 43,060 58,757
Loss contract and
asset impairment
charges.............. -- -- -- 40,949 8,700 60 --
-------- -------- -------- -------- -------- ------- --------
Total cost of
sales.............. 104,239 131,379 143,966 212,308 194,290 43,120 58,757
-------- -------- -------- -------- -------- ------- --------
Gross margin............ 88,872 70,302 85,099 55,212 108,050 24,736 41,498
-------- -------- -------- -------- -------- ------- --------
Selling, general and
administrative....... 64,330 69,544 70,542 81,198 105,382 17,887 38,178
Research and
development (1)...... -- -- 1,398 625 3,756 536 579
Asset impairment
charges.............. -- -- 11,831 -- -- -- --
-------- -------- -------- -------- -------- ------- --------
Total operating
expenses........... 64,330 69,544 83,771 81,823 109,138 18,423 38,757
-------- -------- -------- -------- -------- ------- --------
Income (loss) from
operations............. 24,542 758 1,328 (26,611) (1,088) 6,313 2,741
Other income (expense)
Legal proceedings..... -- -- (40,050) 4,157 2,094 2,094 --
Other income
(expense)............ (313) 7 (918) (3,495) (4,609) (866) 13
Interest income
(expense)............ (972) (1,463) (825) 2,789 963 803 (801)
-------- -------- -------- -------- -------- ------- --------
Income (loss) before
income taxes........... 23,257 (698) (40,465) (23,160) (2,640) 8,344 1,953
Benefit (provision) for
income taxes........... (9,733) (5,203) 6,397 8,569 (5,586) (4,530) (737)
-------- -------- -------- -------- -------- ------- --------
Net income (loss)....... $ 13,524 $ (5,901) $(34,068) $(14,591) $ (8,226) $ 3,814 $ 1,216
======== ======== ======== ======== ======== ======= ========
Net income (loss) per
share -- basic and
diluted................ $ .34 $ (.15) $ (.85) $ (.36) $ (.21) $ .10 $ .03
Shares used in computing
basic and diluted net
income (loss) per
share:................. 40,000 40,000 40,000 40,000 40,000 40,000 40,000
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------- March 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Account verification
inquiries (millions)... 23.7 26.3 28.6 30.3 32.1 9.7
Transactions processed
(millions)............. 1,356 2,526 3,313 3,944 5,019 1,360
ATMs driven at period
end.................... N/A N/A 5,766 5,623 8,626 9,027
Balance Sheet Data:
Cash and cash
equivalents(2)......... $ 3,967 $ 27,226 $ 23,843 $ 16,055 $ 35,849 $ 26,876
Working capital......... 8,735 38,666 39,686 1,869 25,607 16,052
Total assets............ 150,614 177,230 187,810 186,335 289,929 315,750
Long-term debt,
excluding current
portion................ 3,504 2,426 4,571 4,029 3,597 3,284
Total stockholder's
equity................. 101,201 131,897 87,690 89,803 199,105 220,106
</TABLE>
- --------
(1) Research and development expenses are included in, but were not separately
recorded from, cost of sales and selling, general and administrative
expenses for the years ended December 31, 1996 and 1995.
(2) Excludes restricted cash which represents cash that we have supplied for a
client's ATMs and cash that we temporarily hold in custodial accounts on
behalf of clients.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected Financial
Data" and our consolidated financial statements and the notes to those
financial statements included in this prospectus. In addition to historical and
pro forma information, this discussion contains forward-looking information
that involves risks and uncertainties. Our actual results could differ
materially from those anticipated by us due to competitive factors, risks
associated with our expansion plans and other factors discussed under "Risk
Factors" and elsewhere in this prospectus.
Overview
We are a leading provider of transaction processing and risk management
services to financial institutions, retailers, electronic funds transfer
networks, e-commerce providers and government agencies. Our electronic payment
solutions segment provides a comprehensive suite of transaction processing
services and decision support and risk management tools for debit transactions.
Our professional services segment provides information technology consulting
and business process management services. Our government services segment
provides online electronic transfer of benefits under entitlement programs on
behalf of state and local governments and Medicaid eligibility verification
services.
Our businesses have historically been operated as units of Deluxe. In April
1999, Deluxe announced that it was changing its business model to a holding
company structure with four independently operated business units: paper
payment systems, electronic payment solutions, professional services and
government services. In January 2000, Deluxe announced that its board of
directors approved a plan to combine the latter three businesses under our
company as a separate, independent publicly traded company.
We have entered into various agreements related to transition and ongoing
relationships with Deluxe. These agreements relate to, among others,
information technology development, business process management, employee
benefits, tax sharing, real estate, data sharing, indemnification and
transition services. For transition services, we will compensate Deluxe for
providing services and negotiate third-party rates after the transition
arrangements terminate. The transition period varies depending on the agreement
but many transition services will terminate upon completion of the split-off.
See "Business--Our Separation From Deluxe." Some of the transition agreements
may be extended beyond the initial transition period.
Our consolidated financial statements have been prepared using the
historical results of operations and historical bases of the assets and
liabilities of the Deluxe businesses that comprise our company. The
consolidated financial statements also include allocations to us of certain
liabilities and expenses, including profit sharing, post-retirement, non-
qualified deferred compensation and other employee benefits; information
technology services; facility costs; and other Deluxe administrative services
costs. The expense allocations have been determined on bases that both Deluxe
and we considered to be a reasonable reflection of the utilization of the
services provided to us or the benefit received by us. The expense allocation
methods are based on headcount, transaction processing costs, square footage
and relative sales.
The financial information presented in this prospectus may not necessarily
reflect what our financial position, results of operations or cash flows would
have been had we been a separate, stand-alone entity for the periods presented
nor is it indicative of our future financial position, results of operations or
cash flows. We anticipate that many changes will occur in our funding and
operations as a result of our operation as an independent entity and through
the split-off. In particular, our business was conducted as three business
segments by Deluxe. Accordingly, our financial statements reflect those
business segments: electronic payment solutions, professional services and
government services. It is our intention to integrate our operations more
fully, which may change our presentation of segment information in future
periods.
21
<PAGE>
Net Sales. Our net sales are generally comprised of transaction processing
and service fees, decision support fees, software licensing, maintenance and
support fees, government service fees and information technology consulting and
business process management services fees. Our revenue recognition policies for
these various fees are as follows:
. Transaction processing and service fees are recognized in the period
that the service is performed. These services consist of processing our
customers' electronic debit transactions through electronic funds
transfer networks and settling the funds with the financial institutions
involved in the transactions. Additionally, these services include
monitoring ATMs and point-of-sale devices to alert our customers when
potential problems occur. These fees are charged on a per transaction
basis, depending on the contractual arrangement with the customer.
Government services fees are recognized in the period services are
provided based on monthly fees per benefits recipient.
. Decision support fees are recognized as revenue in the period the
services are provided. Decision support services consist of new account
applicant and check verification screenings to manage the risk
associated with account openings and check acceptance. Decision support
fees are based on the number of inquiries against the databases used for
screening purposes or monthly fees based on the aggregate dollar value
of checks authorized by the retailer, depending on the product and
service.
. Software license fees for standard software products are recognized when
delivery has occurred, the license fee is fixed and determinable,
collectibility is probable and evidence of this arrangement exists.
License fees are charged based on modules purchased by the customer.
. Software maintenance and support revenues are recognized ratably over
the term of the contract, and/or as the services are provided. Support
services such as customization of standard software modules, are charged
on a time and materials basis and recognized as hours are completed.
. Revenues from professional services for information technology
consulting and business process management are generally recognized
under two methods, depending on contractual terms. Under the time and
materials method, revenue is based on a fee per hour basis, and is
recognized as hours are completed. Under the fixed contract method, a
pre-set fee is agreed upon for a project, and revenue is recognized
proportionately to the percentage completion of the project.
Cost of Sales. Cost of sales consists primarily of salaries and benefits,
depreciation and maintenance of equipment and facilities and amortization of
software used to operate our data centers. Expenses are recognized when
incurred, with the exception of installation costs. Installation costs are
capitalized and recognized ratably over the life of the contract, which
approximates the revenue recognition.
Expenses. Selling, general and administration expenses consist of salaries
and benefits, consulting fees, facilities and equipment costs, recruiting and
training, travel expenses, corporate administrative charges, depreciation and
amortization and all other corporate costs.
Research and development expenses, which are expensed as incurred, relate to
investigating new or improved processes and techniques and developing such
research findings into a potential new product or service. Research and
development expenses reflect the cost of salaries and benefits, travel costs
and testing- related costs incurred in the early stages of product development.
Interest expense represents the cost of funds for working capital and other
purposes and reflects Deluxe's internal cost of funds. Interest income consists
of interest credited to us for funds held in investment accounts.
Government Services
Our government services business was started in response to federal mandates
that require state and local governmental agencies to convert to electronic
payment methods for the distribution of benefits under entitlement programs,
including food stamps and other welfare programs. In 1993, we rolled out our
first
22
<PAGE>
state-wide system to electronically deliver these benefits using our electronic
funds transfer capabilities. From 1994 through 1996 we bid on contracts that
secured business as a prime or subcontractor with over 30 states, including
three subcontracts with coalitions of states. We were providing services in
over 30 states at the end of 1999. All of our contracts relate to government
entitlement programs.
All of our contracts are for service periods of five to seven years and are
based on a fixed price, variable volume model. We recognize revenue on long-
term service contracts when the service is performed. For several of the
contracts, we serve as a subcontractor for Citibank. An integral part of these
arrangements was an exclusive switching services agreement with Citibank
pursuant to which we provided services that allowed benefit recipients to use
their benefit cards to purchase goods from merchants located in a state other
than their state of residence and from merchants who were not members of our
network.
In 1997, we recorded a $40.0 million charge to legal proceedings expense for
a judgment entered against us in an action brought by Mellon Bank in connection
with a potential bid to provide electronic benefit transfer services to a state
coalition. In 1998, $4.2 million of the reserve was reversed and credited to
legal proceedings expense due to the denial of Mellon's motion for prejudgment
interest. In 1999, after we paid the judgment of $32.2 million in the Mellon
litigation, we reversed the remaining reserve of $2.1 million through a credit
to legal proceedings expense.
In 1998, after a reorganization and management change in our government
services business and as many of the state systems were being fully
implemented, we concluded that net sales from our government services contracts
would be lower than anticipated because case volumes were lower due to welfare
reform and a strong economy. In addition, we underestimated the costs required
to support our services. The primary sources of additional costs were a need to
install a greater number of point-of-sale terminals, higher than expected
transaction volume per recipient and higher support costs. These higher costs
could not be recovered under our fixed-price variable volume contracts and when
combined with lower sales due to a decreased number of welfare recipients,
resulted in 1998 charges of $26.3 million and $14.7 million to write off assets
used in the government services business and to accrue for future losses on
these contracts. Subsequent to the 1998 charges, additional state systems began
operations while a continuing strong economy lead to further reductions in the
number of welfare cases. In addition, Citibank notified us that it would not
renew our exclusive switching contract. As a result, we recorded additional
charges in 1999 totaling $8.7 million, primarily for additional expected future
contract losses. We will increase our provision for expected future losses on
long-term contracts by approximately $12.2 million in the second quarter of
2000 to reflect the fact that we now have a definitive contract with Citibank
for a coalition of states for which Citibank serves as the prime contractor.
Prior to executing this agreement, we were providing services for this
coalition without a binding contract with Citibank.
We have decided to exit the government services business as soon as our
current contractual commitments expire in 2006. During the wind down period, we
intend to continue to take steps to improve the profitability of the current
business. Deluxe has agreed to indemnify us for any losses arising from any
litigation based on the conduct of the business prior to this offering and from
losses on identified loss contracts in excess of the existing loss contract
reserves. The maximum amount of litigation and contract losses for which Deluxe
will indemnify us is $14.6 million. We intend to record any indemnification
payments earned from Deluxe as a reduction of expense when the additional
contract losses, if any, are recognized. At March 31, 2000, we had loss
contract reserves of $19.5 million.
23
<PAGE>
Loss Contract and Other Charges
Over the past three years, we have had significant charges for legal
proceedings, asset impairments, contract losses and restructurings. These
charges have had a significant impact on our results of operations and
financial position over this period of time. The significant charges recorded
in 1997, 1998 and 1999 are as follows, on a pretax basis (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Legal proceedings charges (reversals)................ $40,050 $(4,157) $(2,094)
Asset impairment charges............................. 11,831 26,252 492
Loss contract charges................................ 14,697 8,208
Restructuring charges (reversals).................... 1,516 2,151 (2,399)
------- ------- -------
Total.............................................. $53,397 $38,943 $ 4,207
======= ======= =======
These charges are reflected in the statements of operations for 1997, 1998
and 1999 as follows (dollars in thousands):
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Cost of sales........................................ $40,949 $ 8,700
Operating expenses................................... $13,347 2,151 (2,399)
Other income (expense)............................... 40,050 (4,157) (2,094)
------- ------- -------
Total.............................................. $53,397 $38,943 $ 4,207
======= ======= =======
</TABLE>
For more information about these charges, we refer you to Notes 5, 6, 7 and
14 to our consolidated financial statements.
Recent Events
Acquisition of an Electronic Check Conversion Company. On February 19, 1999,
we acquired all of the outstanding shares of eFunds Corporation of Tustin,
California for $13 million. This company provides electronic check conversion
and electronic funds transfer solutions for financial services companies and
retailers and is included in our electronic payment solutions business. The
acquisition was accounted for under the purchase method of accounting. As a
result, our consolidated financial statements include the results of this
business subsequent to its acquisition date. Total cost in excess of net assets
acquired in the amount of $15.7 million is reflected as goodwill and is being
amortized over 10 years.
Acquisition of Remaining 50% Ownership Interest in HCL-Deluxe, N.V. On April
13, 1999, we acquired the remaining 50% ownership interest in HCL-Deluxe, N.V.
for $23.4 million. The joint venture between Deluxe and HCL Corporation of
India commenced operations in September 1997. The acquisition of HCL's interest
in this company was accounted for under the purchase method of accounting. This
company comprises our professional services business. Total cost in excess of
net assets acquired in the amount of $24.9 million is reflected as goodwill and
is being amortized over 15 years. Prior to the acquisition, we recorded our 50%
ownership of the joint venture's results of operations in other expense under
the equity method of accounting.
Transactions With Deluxe. Deluxe has been, and is expected to continue to
be, a significant client for our professional services business. In 1999, we
provided software development and business process management services on a
project-by-project basis to Deluxe. Revenue for these professional services was
$6.3 million on a pro forma full year basis. In 1999, sales to Deluxe
represented approximately 3% of our total net sales and approximately 43% of
the net sales of our professional services business. Sales to Deluxe for our
electronic payment solutions business were less than 1.5% of net sales.
24
<PAGE>
Beginning in 2000, our software services to Deluxe have been formalized into
a five year software development outsourcing agreement. During the term of the
agreement, we anticipate that Deluxe will spend approximately $43 million per
year for software development based on the actual number of hours of
information technology services that we provide to Deluxe. If Deluxe fails to
reach the $43 million spending target, it will be obligated to make payments
for a portion of our fees based on our estimates of lost profits. We also will
provide business process management services, including accounts receivable,
accounts payable and other general accounting services as well as data entry
services. Deluxe's annual minimum spending target for business process
management services will range from $8.1 million in 2000 to $4.2 million in
2004. The provision of services by us under the agreement is non-exclusive, and
Deluxe may contract with any third party for the provision of professional
services.
Results of Operations
The following table presents, for the periods indicated, the relative
composition of net sales and selected statements of operations data as a
percentage of net sales:
<TABLE>
<CAPTION>
Quarter
Year Ended Ended March
December 31, 31,
--------------------- ------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales:
Electronic payment solutions............. 88.2% 83.6% 79.8% 83.3% 69.1%
Professional services.................... -- -- 4.2 -- 19.1
Government services...................... 11.8 16.4 16.0 16.7 11.8
----- ----- ----- ----- -----
Total net sales........................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of sales:
Electronic payment solutions............. 50.1 47.5 45.6 48.9 38.9
Professional services.................... -- -- 3.0 -- 11.5
Government services:
Cost of sales, excluding loss contract
and asset impairment charges.......... 12.7 16.6 12.8 14.6 8.2
Loss contract and asset impairment
charges............................... -- 15.3 2.9 0.1 --
----- ----- ----- ----- -----
Total cost of sales.................. 62.8 79.4 64.3 63.6 58.6
----- ----- ----- ----- -----
Gross margin............................. 37.2 20.6 35.7 36.4 41.4
----- ----- ----- ----- -----
Operating expenses:
Selling, general and administrative...... 30.8 30.4 34.9 26.4 38.1
Research and development................. 0.6 0.2 1.2 0.8 0.6
Asset impairment charges................. 5.2 -- -- -- --
----- ----- ----- ----- -----
Total operating expenses............... 36.6 30.6 36.1 27.2 38.7
----- ----- ----- ----- -----
Income (loss) from operations............ 0.6 (10.0) (0.4) 9.2 2.7
Other income (expense):
Legal proceedings........................ (17.5) 1.6 0.7 3.1 --
Other income (expense)................... (0.4) (1.3) (1.5) (1.3) --
Interest income (expense)................ (0.4) 1.0 0.3 1.2 (0.8)
----- ----- ----- ----- -----
Income (loss) before income taxes........ (17.7) (8.7) (0.9) 12.2 1.9
Benefit (provision) for income taxes..... 2.8 3.2 (1.8) (6.6) (0.7)
----- ----- ----- ----- -----
Net income (loss)........................ (14.9)% (5.5)% (2.7)% 5.6% 1.2%
===== ===== ===== ===== =====
</TABLE>
25
<PAGE>
Quarter Ended March 31, 2000 Compared to the Quarter Ended March 31, 1999
Net sales. Net sales increased $32.4 million, or 47.7%, to $100.3 million
during first quarter 2000 from $67.9 million in the first quarter of 1999. On a
full year pro forma basis taking into account the acquisition of HCL's interest
in our professional services business, net sales increased $30.2 million, or
43%, to $100.3 in the first quarter of 2000 from $70.1 million in the first
quarter of 1999. All segments experienced increases in net sales during 2000.
Electronic payment solutions net sales increased $12.8 million, or 22.6%, to
$69.3 million in the first quarter of 2000 from $56.5 million during the first
quarter of 1999. This increase was due to higher transaction processing and
account verification inquiry volumes and collection services. Additionally,
revenue per inquiry for our account verification services increased due to a
price increase in mid-1999. Transaction volumes increased 23.0% in 2000 and
inquiry volumes increased 21.3%. Several new customers were added in first
quarter 2000 for newer decision support and risk management products such as
QualiFile and FraudFinder.
Professional services net sales were $19.1 million for the first quarter of
2000. We recorded no net sales for professional services in 1999 because of
equity accounting prior to the acquisition of HCL's interest in our
professional services business in April 1999. On a pro forma basis taking into
account this acquisition, professional services net sales increased $16.8
million to $19.1 million in the first quarter of 2000 from $2.3 million in the
first quarter of 1999. This growth was primarily due to the initiation of
business process management and software development outsourcing services to
Deluxe and also included sales to new clients and increased sales to existing
clients.
Deluxe has been, and is expected to continue to be, a significant customer
for our professional services business. In the first quarter of 2000, sales to
Deluxe represented approximately 15.6% of our total net sales and approximately
80.5% of the net sales of our professional services business.
Government services net sales increased by $0.5 million, or 4.2%, to $11.8
million in the first quarter of 2000 from $11.3 million in the first quarter of
1999. This increase was due to the roll-out of electronic benefit transfer
services in additional states during early 1999 and price increases on contract
extensions for online Medicaid eligibility verification services. Government
services net sales will likely decrease in future periods as existing contracts
expire.
Cost of sales. Cost of sales increased $15.7 million, or 36.3%, to $58.8
million in the first quarter of 2000 from $43.1 million in the first quarter of
1999. This increase was primarily due to increased sales and the acquisition of
HCL's interest in our professional services business. As a percentage of net
sales, cost of sales decreased to 58.6% during the first quarter of 2000 as
compared to 63.5% during the first quarter of 1999.
Electronic payment solutions cost of sales increased $5.8 million, or 17.5%,
to $39.0 million in the first quarter of 2000 from $33.2 million in the first
quarter of 1999. As a percentage of electronic payment solutions net sales,
cost of sales decreased to 56.2% during the first quarter of 2000 compared to
58.7% during the first quarter of 1999. This decrease was due primarily to an
increase in online customer inquiries, which have lower costs than telephone
inquiries.
Professional services cost of sales was $11.6 million, or 60.5% in the first
quarter of 2000. We recorded no cost of sales for professional services in the
first quarter of 1999 because of equity accounting prior to the acquisition of
HCL's interest in our professional services business in April 1999. On a full
year pro forma basis taking into account this acquisition, professional
services cost of sales increased $10.1 million to $11.6 million in the first
quarter of 2000 from $1.5 million in the first quarter of 1999. As a percentage
of professional services net sales, cost of sales decreased to 60.5% in the
first quarter of 2000 compared to 66.6% in the first quarter of 1999. The
decrease was due to the execution of more profitable contracts, less reliance
on sub-contractors and an increasing portion of work being performed offshore
where margins are higher.
Government services cost of sales decreased $1.7 million, or 17.4%, to $8.2
million in the first quarter of 2000 from $9.9 million in the first quarter of
1999. The decrease during 2000 was due primarily to higher
26
<PAGE>
installation costs experienced in the first quarter of 1999 as new states were
rolled out during that timeframe. As a percentage of government services net
sales, cost of sales decreased to 69.6% during 2000 compared to 87.9% during
1999.
Gross margin. Gross margin increased $16.8 million, or 67.8%, to $41.5
million in the first quarter of 2000 from $24.7 million in the first quarter of
1999. As a percentage of net sales, gross margin increased to 41.4% during the
first quarter of 2000 compared to 36.5% during the first quarter of 1999.
Selling, general and administrative. Selling, general and administrative
expenses increased $20.3 million, or 113.4%, to $38.2 million during the first
quarter of 2000 from $17.9 million during the first quarter of 1999. As a
percentage of net sales, selling, general and administrative expenses increased
to 38.1% during the first quarter of 2000 compared to 26.4% during the first
quarter of 1999. This increase was primarily due to the acquisition of HCL's
interest in our professional services business. We recorded no selling, general
and administrative expenses for professional services in 1999 because of equity
accounting prior to this April 1999 acquisition. Other factors contributing to
the increase were additional promotional advertising geared toward creating
brand awareness of the eFunds name, increased retention accruals and recruiting
and relocation expense as a result of organizational changes and increased
consulting expense. Also, in 1999, we reversed $2.0 million of restructuring
accruals from prior periods because of our decision to retain the international
operations of our electronic payment solutions segment.
Research and development. Research and development expenses increased by
$0.1 million to $0.6 million in the first quarter of 2000 from $0.5 million in
the first quarter of 1999. All research and development expenses were within
the electronic payment solutions business and primarily reflect costs incurred
in conjunction with the development of DebitBureau. In addition to these
research and development costs, we also expended $5.9 million in the first
quarter of 2000 compared to $2.1 million in the first quarter of 1999 for
product development. These expenditures were capitalized and are reflected in
our consolidated balance sheets under the categories computer and other
equipment and internal use software. We intend to continue to invest in new
product development and product enhancements to respond to new technologies and
competitive pressures.
Other income (expense). Other income was $13,000 during the first quarter of
2000 compared to other expense of $866,000 during the first quarter of 1999.
The expense in 1999 was primarily due to losses recorded under the equity
method of accounting for the HCL-Deluxe joint venture. Prior to our April 1999
acquisition of HCL's interest in this venture, we recorded our 50% share of the
joint venture's losses in other expense.
Interest income (expense). Interest expense was $801,000 during the first
quarter of 2000 compared to interest income of $803,000 during the first
quarter of 1999. The change resulted from intercompany interest with Deluxe and
the addition of our credit facility in India. In 1999, we earned interest from
Deluxe on our intercompany receivable balance. This intercompany receivable was
declared a dividend at the end of 1999. In the first quarter of 2000 we were in
an intercompany payable position with Deluxe and were charged intercompany
interest.
Provision for income taxes. Our effective tax rate was 37.7% in the first
quarter of 2000 compared to 54.3% in the first quarter of 1999. The decrease in
our tax rate was primarily due to reduced foreign taxes due to the utilization
of foreign net operating loss carryforwards.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales. Net sales increased $34.8 million, or 13.0%, to $302.3 million in
1999 from $267.5 million in 1998. All segments experienced increases in net
sales during 1999. On a full year pro forma basis taking into account the HCL-
Deluxe acquisition, net sales increased $27.1 million, or 9.7%, to $306.7
million in 1999 from $279.6 million in 1998.
Electronic payment solutions net sales increased $17.9 million, or 8.0%, to
$241.4 million in 1999 from $223.5 million in 1998. Increased net sales due to
greater transaction processing and account verification
27
<PAGE>
inquiry volumes and price increases were partially offset by decreased software
sales due to customer reluctance to make significant software changes prior to
Year 2000. Transaction volumes increased 27.3%, and inquiry volumes increased
6.1% as the result of higher volumes from existing customers. Net sales in 1999
included minimal contributions from several new products, such as QualiFile,
FraudFinder and Integreat!, which were launched in late 1999.
Professional services net sales were $12.7 million in 1999. We recorded no
net sales for professional services in 1998 because of equity accounting prior
to the HCL-Deluxe joint venture acquisition in April 1999. On a full year pro
forma basis taking into account the HCL-Deluxe acquisition, professional
services net sales increased $4.9 million, or 40.6%, to $17.0 million in 1999
from $12.1 million in 1998. This growth was due to new clients, increased sales
to existing clients and the initiation of business process management services
for Deluxe.
Government services net sales increased by $4.3 million, or 9.8%, to $48.3
million in 1999 from $44.0 million in 1998. This increase was due to the roll-
out of additional states during the latter half of 1998 and early 1999 and
price increases on contract extensions for online Medicaid eligibility
verification services. Government services net sales will likely decrease in
future periods as existing contracts expire because we are exiting the
government services business.
Cost of sales. Cost of sales decreased $18.0 million, or 8.5%, to $194.3
million in 1999 from $212.3 million in 1998. This decrease in 1999 is the net
result of increased cost of sales primarily due to increased volumes and the
acquisition of HCL-Deluxe, offset by a $32.2 million reduction in loss contract
and asset impairment charges related to government services. As a percentage of
net sales, cost of sales decreased to 64.3% during 1999 compared to 79.4%
during 1998, mainly due to a reduction in loss contract and asset impairment
charges. Excluding these charges, cost of sales as a percentage of net sales
would have been 61.4% in 1999 and 64.1% in 1998.
Electronic payment solutions cost of sales increased $11.0 million, or 8.6%,
to $138.0 million in 1999 from $127.0 million in 1998. As a percentage of
electronic payment solutions net sales, cost of sales increased to 57.2% in
1999 compared to 56.8% in 1998. This increase was due primarily to the
introduction of new services, primarily electronic check conversion services,
and amortization of software related to new products, primarily QualiFile,
DataNavigator and online banking in the United Kingdom.
Professional services cost of sales were $9.0 million, or 71.1% of
professional services net sales in 1999. We recorded no cost of sales for
professional services in 1998 because of equity accounting prior to the HCL-
Deluxe joint venture acquisition in April 1999. On a full year pro forma basis
taking into account the HCL-Deluxe acquisition, professional services cost of
sales increased $2.7 million, or 29.1%, to $11.9 million in 1999 from $9.2
million in 1998. As a percentage of professional services net sales, cost of
sales decreased to 70.0% in 1999 compared to 76.2% in 1998. This decrease was
primarily due to increased sales, execution of more profitable contracts, less
reliance on subcontractors through building of our own capabilities and
increased proportion of work being done offshore where margins are higher
despite lower billing rates.
Government services cost of sales decreased $38.0 million, or 44.6%, to
$47.3 million in 1999 from $85.3 million in 1998. The decrease during 1999 was
due primarily to the $32.2 million reduction in loss contract and asset
impairment charges, as well as lower depreciation and amortization expense in
1999 due to asset impairment charges recorded in 1998. As a percentage of
government services net sales, cost of sales decreased to 97.9% in 1999
compared to 193.9% in 1998. Excluding the loss contract and asset impairment
charges, cost of sales as a percentage of government services net sales would
have decreased to 79.9% in 1999 compared to 100.8% in 1998.
Gross margin. Gross margin increased $52.8 million, or 95.7%, to $108.1
million in 1999 from $55.2 million in 1998. As a percentage of net sales, gross
margin increased to 35.7% in 1999 compared to 20.6% in 1998. Excluding the loss
contract and asset impairment charges, our gross margin would have been 38.6%
in 1999 and 35.9% in 1998.
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<PAGE>
Selling, general and administrative. Selling, general and administrative
expenses increased $24.2 million, or 29.8%, to $105.4 million in 1999 from
$81.2 million in 1998. As a percentage of net sales, selling, general and
administrative expenses increased to 34.9% in 1999 compared to 30.4% in 1998.
This increase was predominantly related to costs incurred in conjunction with
the development of DebitBureau, infrastructure investments and goodwill
amortization. These increases were partially offset by initiatives designed to
lower selling, general and administrative expenses, such as reductions in
hiring, travel cost and consulting fees, and lower restructuring charges. In
1999, we reversed $2.4 million of restructuring accruals from prior periods. In
1998, we recorded restructuring charges of $3.2 million for severance relating
to our initiative to reduce selling, general and administrative expenses.
During 1998, we also reversed $1.0 million of a 1996 restructuring charge.
Research and development. Research and development expenses increased by
$3.1 million to $3.8 million in 1999 from $0.6 million in 1998. As a percentage
of net sales, research and development expenses increased to 1.2% in 1999
compared to 0.2% in 1998. All research and development expenses were within the
electronic payment solutions business and primarily reflect costs incurred in
conjunction with the development of DebitBureau. In addition to these research
and development costs, we also expended $17.3 million in 1999 and $3.2 million
in 1998 for product development. These expenditures were capitalized and are
reflected in our consolidated balance sheets under the categories computer and
other equipment and internal use software. We intend to continue to invest in
new product development and product enhancements to respond to new technologies
and competitive pressures.
Other income (expense). Other expense increased $1.1 million, or 31.9%, to
$4.6 million in 1999 compared to $3.5 million in 1998. The increase in expense
in 1999 was primarily due to losses on the disposal of an in-house developed
system which was written off when the decision to take the assets out of
service was made and the assets were replaced with purchased software that has
greater functionality. This increase was partially offset by the reduced losses
recorded under the equity method of accounting for HCL-Deluxe. Prior to our
acquisition of the remaining ownership interest in April 1999, we recorded our
50% share of the joint venture's losses in other expense.
Provision for income taxes. We recognized a provision for income taxes of
$5.6 million in 1999 as compared to a benefit of $8.6 million in 1998. We did
not record a tax benefit on the operating loss of the professional services
business because of its lack of profitability through 1999. Increased non-
deductible goodwill amortization resulting from the acquisition of the
electronic check conversion company also contributed to the provision for
income taxes.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales. Net sales increased $38.5 million, or 16.8%, to $267.5 million in
1998 from $229.1 million in 1997. All segments experienced increases in net
sales during 1998. On a full year pro forma basis taking into account the HCL-
Deluxe acquisition, net sales increased $47.3 million, or 20.4%, to $279.6
million in 1998 from $232.3 million in 1997.
Electronic payment solutions net sales increased $21.4 million, or 10.6%, to
$223.5 million in 1998 from $202.1 million in 1997. Increased transaction
processing volume, higher inquiry volumes, higher software licensing and
professional services contributed to this increase. Transaction volumes
increased 19.0% and inquiry volumes increased 5.9% as a result of higher
volumes from existing clients. Software licensing and related services
increased due to clients' demands for new software systems to address potential
Year 2000 impacts.
We recorded no net sales for professional services in 1998 and 1997 because
of equity accounting prior to the HCL-Deluxe joint venture acquisition in April
1999. On a full year pro-forma basis taking into account the HCL-Deluxe
acquisition, professional services net sales increased $8.9 million, or 277.5%,
to $12.1 million in 1998 from $3.2 million in 1997 when operations for this
business commenced late in the third quarter.
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<PAGE>
Government services net sales increased by $17.0 million, or 63.1%, to $44.0
million in 1998 from $27.0 million in 1997. This increase was due to additional
state contracts and the roll-out of existing contracts.
Cost of sales. Cost of sales increased $68.3 million, or 47.5%, to $212.3
million in 1998 from $144.0 million in 1997. As a percentage of net sales, cost
of sales increased to 79.4% in 1998 compared to 62.8% in 1997. This increase
was primarily due to the $26.3 million asset impairment charges and the
$14.7 million loss contract charges recorded in the government services
business. With these charges excluded, cost of sales as a percentage of net
sales would have been 64.1% in 1998 compared to 62.8% in 1997.
Electronic payment solutions cost of sales increased $12.3 million, or
10.7%, to $127.0 million in 1998 from $114.7 million in 1997. The increase in
1998 was primarily due to higher revenue volumes. As a percentage of electronic
payment solutions net sales, cost of sales was 56.8% in both 1998 and 1997.
We recorded no cost of sales for professional services in 1998 and 1997
because of equity accounting prior to the HCL-Deluxe joint venture acquisition
in April 1999. On a full year pro forma basis taking into account the HCL-
Deluxe acquisition, professional services cost of sales increased $6.7 million,
or 267.9%, to $9.2 million in 1998 from $2.5 million in 1997. The increase was
due to a full year of operations in 1998. As a percentage of professional
services net sales, cost of sales decreased to 76.2% in 1998 compared to 78.2%
in 1997.
Government services cost of sales increased $56.0 million, or 191.7%, to
$85.3 million in 1998 from $29.2 million in 1997. This increase was primarily
due to loss contract and asset impairment charges totaling $40.9 million. As a
percentage of government services net sales, cost of sales increased to 193.9%
in 1998 compared to 108.4% in 1997.
Gross margin. Gross margin decreased $29.9 million, or 35.1%, to $55.2
million in 1998 from $85.1 million in 1997. As a percentage of net sales, gross
margin decreased to 20.6% in 1998 compared to 37.2% in 1997, primarily due to
charges of $40.9 million for loss contracts and asset impairments in the
government services business. With these charges excluded, our consolidated
gross margin would have been 35.9% for 1998 and 37.2% for 1997.
Selling, general and administrative. Selling, general and administrative
expenses increased $10.7 million, or 15.1%, to $81.2 million in 1998 from $70.5
million in 1997. This increase was predominantly related to increased selling
and marketing expenses associated with the electronic payment solutions
business and $2.7 million of costs incurred in connection with the development
of DebitBureau. These increases were partially offset by decreases within the
government services business due to lower legal costs. During 1998, we recorded
restructuring charges of $3.2 million for severance relating to our initiative
to reduce selling, general and administrative expenses, while we also reversed
$1.0 million of a 1996 restructuring charge. During 1997, we recorded
restructuring charges of $1.5 million for severance within the electronic
payment solutions business. This reduction was completed in 1998, with
severance payments of $1.4 million paid through December 31, 1999. As a
percentage of net sales, selling, general and administrative expenses were
30.4% in 1998 and 30.8% in 1997.
Research and development. Research and development expenses decreased $0.8
million, or 55.3%, to $0.6 million in 1998 from $1.4 million in 1997. As a
percentage of net sales, research and development expenses decreased to 0.2% in
1998 compared to 0.6% in 1997. All research and development was within the
electronic payment solutions business and primarily reflects the costs incurred
in conjunction with our development of neural network and other fraud
prevention technologies. In addition to these research and development costs,
we also expended $3.2 million in 1998 and $5.0 million in 1997 for product
development. These expenditures were capitalized and are reflected in our
consolidated balance sheets under the categories of computer and other
equipment and internal use software.
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<PAGE>
Asset impairment charges. In 1998, there was no asset impairment charges in
operating expenses compared to $11.8 million of charges recorded in 1997. In
1997, we formulated a plan to divest the international unit of our electronic
payment solutions business. Based on fair market value estimates, we recorded a
charge of $11.8 million to write down the carrying value of these operations to
their estimated fair value less costs to sell.
Other income (expense). Other expense increased $2.6 million to $3.5 million
in 1998 from $0.9 million in 1997. This increase is primarily due to the
increased losses recorded for our 50% ownership interest in the joint venture
HCL-Deluxe. In 1997, other expense does not include a full year of operations
because the joint venture began operations in September of that year.
Quarterly Results of Operations
The following tables present our unaudited quarterly data for each of our
nine most recently ended quarters. The data has been prepared on a basis
consistent with our audited consolidated financial statements included in this
prospectus and include all necessary adjustments, consisting only of normal
recurring adjustments, that our management considers necessary for a fair
presentation of such information. This data should be read in conjunction with
our annual audited consolidated financial statements and the notes to those
statements included in this prospectus. The operating results for any quarter
are not necessarily indicative of results for any future quarter or year.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Electronic payment
solutions.............. $54,086 $55,697 $ 56,775 $56,992 $56,546 $58,768 $61,510 $64,561 $ 69,324
Professional services... -- -- -- -- -- 1,916 5,218 5,544 19,141
Government services..... 9,230 10,758 10,951 13,031 11,310 11,883 13,167 11,917 11,790
------- ------- -------- ------- ------- ------- ------- ------- --------
Total net sales........ 63,316 66,455 67,726 70,023 67,856 72,567 79,895 82,022 100,255
------- ------- -------- ------- ------- ------- ------- ------- --------
Cost of sales:
Electronic payment
solutions.............. 30,204 32,642 31,365 32,823 33,180 33,019 34,629 37,169 38,974
Professional services... -- -- -- -- -- 1,465 3,666 3,888 11,577
Government services:
Cost of sales,
excluding loss
contract and asset
impairment charges.... 11,065 10,478 11,915 10,867 9,880 10,579 10,361 7,754 8,206
Loss contract and asset
impairment charges.... -- -- 40,949 -- 60 57 150 8,433
------- ------- -------- ------- ------- ------- ------- ------- --------
Total cost of sales.... 41,269 43,120 84,229 43,690 43,120 45,120 48,806 57,244 58,757
------- ------- -------- ------- ------- ------- ------- ------- --------
Gross margin............ 22,047 23,335 (16,503) 26,333 24,736 27,447 31,089 24,778 41,498
Operating expenses:
Selling, general and
administrative......... 21,861 21,345 21,375 16,617 17,887 24,844 28,378 34,273 38,178
Research and
development............ 187 172 133 133 536 1,518 1,380 322 579
------- ------- -------- ------- ------- ------- ------- ------- --------
Total operating
expenses.............. 22,048 21,517 21,508 16,750 18,423 26,362 29,758 34,595 38,757
------- ------- -------- ------- ------- ------- ------- ------- --------
Income (loss) from
operations............. (1) 1,818 (38,011) 9,583 6,313 1,085 1,331 (9,817) 2,741
Other income (expense):
Legal proceedings....... -- -- 4,157 -- 2,094 -- -- --
Other income (expense).. (271) (225) (1,542) (1,457) (866) (420) (2,870) (453) 13
Interest income
(expense).............. 877 793 369 750 803 275 (3) (112) (801)
------- ------- -------- ------- ------- ------- ------- ------- --------
Income (loss) before
income taxes........... 605 2,386 (35,027) 8,876 8,344 940 (1,542) (10,382) 1,953
(Provision) benefit for
income taxes........... (224) (883) 12,960 (3,284) (4,530) (3,419) (7,692) 10,055 (737)
------- ------- -------- ------- ------- ------- ------- ------- --------
Net income (loss)....... $ 381 $ 1,503 $(22,067) $ 5,592 $ 3,814 $(2,479) $(9,234) $ (327) $ 1,216
======= ======= ======== ======= ======= ======= ======= ======= ========
</TABLE>
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<PAGE>
Liquidity, Capital Resources and Financial Condition
As of March 31, 2000, cash and cash equivalents were $26.9 million. We also
had $4.2 million of restricted cash that we temporarily hold in custodial
accounts on behalf of clients and $24.5 million in restricted cash that we have
supplied to ATMs managed by a client who is a provider of ATM management and
outsourcing services. We have agreed to make up to $35 million of cash
available for this purpose. The client pays us a fee based on the amount of
restricted cash supplied to the ATMs.
At March 31, 2000, we also had a $10.0 million line of credit, which is
denominated in Indian rupees and guaranteed by Deluxe, available for use by our
international operations at an interest rate of 15.81%. The average amount
drawn on this line during the first quarter of 2000 was $4.1 million. The
average amount drawn on this line was $2.7 million in 1999. As of March 31,
2000, $4.5 million was outstanding. This line of credit remains guaranteed by
Deluxe until October 1, 2000.
The following table sets forth a summary of cash flow activity and should be
read in conjunction with our consolidated statements of cash flows:
<TABLE>
<CAPTION>
Summary of Cash Flows
--------------------------
Year ended Quarter ended
December 31, March 31,
1999 2000
------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating
activities......................... $(12,150) $ 13,626
Cash used in investing activities... (73,209) (28,846)
Cash provided by financing
activities......................... 105,153 10,374
Net cash used by certain
international operations during
December, 1999..................... -- (4,127)
-------- --------
Net increase (decrease) in cash and
cash equivalents................... $ 19,794 $ (8,973)
</TABLE>
Cash provided by operating activities during first quarter 2000 was $13.6
million, primarily due to a reduction of $3.7 million in cash supplied to ATMs
operated by a client of our electronic payment solutions business and the
timing of income tax payments. Cash used in operating activities was $12.2
million in 1999, primarily due to $32.2 million to pay a judgment in a legal
proceeding related to our government services business and the use of $25.0
million to supply cash to ATMs operated by a client of our electronic payment
solutions business.
Cash used in investing activities was $28.8 million during the first quarter
of 2000, due in part to purchases of capital assets of $8.8 million, including
$5.9 million for product development related expenditures. We also invested
$20.0 million to purchase a 24% interest in a provider of ATM management and
outsourcing services to retailers and financial institutions. Cash used in
investing activities was $73.2 million in 1999, primarily due to purchases of
capital assets of $38.2 million, including $17.3 million for product
development related expenditures. We also invested $13.0 million to purchase
eFunds Corporation of Tustin, California and $23.4 million to purchase HCL's
50% ownership interest in our professional services business.
Cash provided from financing activities was $10.4 million during the first
quarter of 2000. Cash provided by Deluxe was $23.9 million and dividends paid
to Deluxe were $13.8 million. We obtained $0.7 million from borrowings on our
line of credit and used cash to repay debt of $0.5 million. Cash provided from
financing activities was $105.2 million in 1999, of which $108.8 million was
provided by Deluxe and $3.1 million from borrowings on our line of credit. We
used cash to repay debt of $6.7 million.
Net cash used by international operations during December 1999 represents
the change in the results of operations and financial position of some of our
professional services business. Previously, this business reported their
results of operations and financial position on a one-month lag. In January
2000, this business changed its reporting periods to coincide with the rest of
our company.
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<PAGE>
We had capital expenditures of $8.8 million in the first quarter of 2000,
$38.2 million in 1999, $30.5 million in 1998 and $18.0 million in 1997. We
anticipate a substantial increase in our capital expenditures in 2000 to
complete the integration of our infrastructure and for continued spending on
product development. In particular, we intend to consolidate our data centers
and customer contact centers. We estimate our capital expenditures to be
approximately $62.5 million in 2000.
Deluxe has agreed to provide us with a $75 million unsecured, revolving
credit facility until the earlier of the effective date of the split-off or
December 31, 2000. We currently do not have borrowings outstanding under this
facility. Borrowings under the facility will be due at the split-off or
maturity and will accrue interest at the London Interbank Offered Rate, or
LIBOR, plus a variable additional margin. The margin above LIBOR may vary
between 0.25% and 1.3% depending on changes to Deluxe's credit rating. As of
the time of this offering, if there were borrowings the rate would consist of
LIBOR at 6.38% plus margin of 0.25 for a total rate of 6.63%. At December 31,
1999, the applicable rate would have been 6.39% per annum. The credit facility
contains financial and restrictive covenants, including limitations on our
ability to incur secured debt, to dispose of assets, to consolidate and merge
and to sell all or substantially all of our assets, and financial maintenance
ratios. We intend to replace this facility with a new credit facility with one
or more financial institutions prior to the split-off or maturity. A
replacement credit facility may not be available to us, or if available, we may
not be able to obtain it on a timely basis or on terms acceptable to us.
We believe that cash generated from operations and borrowings under our
credit facilities are sufficient to sustain our existing operations and our
current level of growth. In lieu of borrowing under our credit facility or
reducing our anticipated level of capital expenditures, we will likely expend
approximately $25 million of the net proceeds of this offering to support our
capital expenditures, $10 million for the creation of this infrastructure
needed to enable us to operate as a stand-alone entity and $10 million for
product development activities. Based on our recent level of acquisition and
investment activity, we anticipate that we may use some of the net proceeds
from this offering to fund future acquisitions and investments, although we do
not have any agreements with respect to any material acquisitions as of the
date of this prospectus. If future acquisitions and investments should require
cash in excess of the amount of net proceeds from this offering and cash
generated from operations, we would consider our financing alternatives at that
time. Other than in connection with the possible split-off, we have no current
plans for future equity offerings in the near term.
Recently Issued Accounting Standards
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-5, "Reporting the Costs of Start-up Activities," which
provides guidance on the appropriate accounting for start-up activities
beginning in 1999. Application of the SOP did not have a material impact on our
reported operating results or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which provides guidance on accounting for derivatives
and hedge transactions. We do not anticipate that the effect of this
pronouncement, which is effective for us on January 1, 2001, will have a
material impact on our reported operating results.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements" which provides guidance in applying generally accepted accounting
principles to revenue recognition in financial statements. Applications of this
SAB did not have a material impact on our reported operating results or
financial position.
Market Risk Disclosure
We operate internationally, and so we are subject to potentially adverse
movements in foreign currency rate changes. We have not entered into foreign
exchange forward contracts to reduce our exposure to foreign
33
<PAGE>
currency rate changes on intercompany foreign currency denominated balance
sheet positions. As of March 31, 2000, we have borrowed $4.5 million on a line
of credit denominated in Indian rupees. The rate on the borrowing remains fixed
for the term of the borrowing. We do not believe that a change in interest
rates would result in a material effect on our future earnings, financial
position or cash flows. The funds borrowed are used exclusively by the business
within India and used to pay for expenses denominated in Indian rupees.
We are exposed to foreign exchange risk to the extent of adverse
fluctuations in the Indian rupee and British pounds. We do not believe that a
change in the Indian rupee and British pound exchange rates of 10% would result
in a material effect on our future earnings, financial position or cash flows.
34
<PAGE>
BUSINESS
Overview
We are a leading provider of transaction processing and risk management
services to financial institutions, retailers, electronic funds transfer
networks,, e-commerce providers and government agencies. Our electronic payment
solutions segment, which accounted for approximately 80% of our total net sales
in 1999, provides a comprehensive suite of transaction processing services and
decision support and risk management products for debit transactions. Our
decision support and risk management tools enable our clients to combat
identity fraud and account abuse in debit transactions. We also provide
financial institutions with customer relationship tools for opening accounts,
minimizing fraud and identifying cross-selling opportunities. In our
professional services segment, which accounted for approximately 4% of our
total net sales in 1999, we provide information technology consulting and
business process management services. We offer online electronic transfer of
benefits under entitlement programs on behalf of state and local governments
and Medicaid eligibility verification services under our government services
segment. This segment accounted for 16% of our total net sales in 1999.
Our business has been developed through the combination of several
businesses. Our core transaction processing business, SCAN check verification
service and ChexSystem new account application service were acquired by Deluxe
in several acquisitions from 1984 through 1990. In 1989, we initiated our
government services business, which rolled out our first state-wide system to
provide the electronic transfer of government entitlement benefits in 1993. We
formed a joint venture to provide professional services in 1997 and acquired
the remaining 50% interest in this venture in April 1999. In 1998, we began to
coordinate and enhance the operation of our decision support and risk
management businesses by creating our DebitBureau database. We acquired our
electronic check conversion business in February 1999.
In January 2000, as part of a strategy to create strategically focused
enterprises that independently define their business objectives, raise capital
and pursue growth opportunities, Deluxe announced that it planned to combine
our businesses under our company and to issue shares of our common stock to the
public.
Industry Background
Growth in Debit Cards. Payment methods are undergoing rapid change as new
technologies and the new business requirements, including in e-commerce, cause
newer electronic payment methods to supplant traditional paper methods.
Although paper-based payment methods, such as personal checks, cash, bank and
travelers checks and food stamps, represented more than 70% by dollar volume,
or $3,255 billion, of U.S. consumer payments in 1998, the Nilson Report
estimated in December 1999 that payments using these paper-based technologies
will decline to 52.1%, or $3,556 billion, of U.S. consumer payments by 2005.
This report also estimates that the dollar volume of debit card payments will
increase from 3.7%, or $168 billion, of U.S. consumer payments in 1998 to 10.9%
of domestic consumer payments, or $743 billion, in 2005.
The Nilson Report estimates that the number of U.S. debit cards payments
will increase from 4.9 billion transactions, or 4.9% of total consumer
transactions, in 1998 to 19.1 billion transactions, or 14.0% of total consumer
transactions, in 2005. This increase represents a compound annual growth rate
in debit transactions of 21.6%. From our perspective, this growth rate compares
favorably to the projected compound annual growth rate of only 3.1% in the
number of U.S. credit card payments, which Nilson expects to increase from 17.1
billion transactions, or 17.4% of total consumer transactions, in 1998 to 21.9
billion transactions, or 16.1% of total consumer transactions, in 2005. The
Nilson Report further estimates that the number of U.S. debit card transactions
will overtake credit cards payments by 2007. In many international markets,
including the United Kingdom and Canada, debit cards have replaced credit cards
as the leading form of consumer electronic payment. As a result, financial
institutions and retailers will require electronic payment processes that allow
for newer debit-based electronic payment methods as well as increase the
efficiency of continued paper payment transactions.
35
<PAGE>
Debit card use is increasing because it is widely accepted by retailers and
provides substantially the same level of convenience in making a purchase as
credit cards. Consumers use debit cards to direct a bank to pay money directly
from a demand deposit account, such as a checking account. Debit cards allow a
consumer to avoid accumulating credit card debt, provide a single summary of
the consumer's debit card and check transactions on the consumer's bank
statements and, in many cases, provide a cash-back feature at the point-of-
sale. For retailers, debit cards generally entail lower transaction costs than
credit cards due to higher processing costs and fees for credit card payments
and fewer fraud losses in the cases where the debit card transaction involves
the use of a unique personal identification number, or PIN, assigned to the
cardholder.
Growth in e-Commerce. Growth in e-commerce transactions is also expected to
increase the need for electronic payment solutions. According to a September
1999 report by Forrester Research, online retail purchases by U.S. consumers
will grow from $20 billion in 1999 to $184 billion in 2004, reaching 7% of
total retail spending in that year. An estimated 90% of Internet transactions
are currently paid for using credit cards. This dependence on credit cards
presents issues for e-commerce companies because they face the potential for a
substantial amount of credit card fraud due to identity manipulation. PIN-based
debit transactions could help alleviate this problem for merchants and give
consumers a higher degree of confidence in the security of Internet
transactions. By failing to provide debit payment alternatives, e-commerce
providers also exclude the estimated 32.4% of U.S. consumers who, according to
a survey published in January 2000 by the Federal Reserve Bank, do not have a
credit card. Consequently, we believe e-commerce companies are increasingly
likely to look to debit cards to expand payment options for consumers, lower
their transaction costs, provide greater transaction security and successfully
complete more transactions.
Decrease Transaction Costs. In general, merchants and financial institutions
are seeking to increase the use of electronic payment systems to decrease
transaction costs. A December 1997 study in the Journal of Banking and Finance
estimates that the cost of using electronic payments is one-third of the cost
of paper-based transactions. To facilitate electronic transactions, merchants
and financial institutions are installing greater numbers of ATMs and point-of-
sale debit terminals. The number of these devices increased by 36.6% from 1998
to 1999 according to a report published in July 1999 by Bank Network News.
Retailers and banks are also adopting new technologies to reduce costs
associated with paper checks. Electronic check conversion technologies, in
which physical checks are scanned at the point-of-sale and converted from a
paper into an electronic debit transaction, are gaining acceptance. Using
electronic check conversion, retailers and banks can realize cost savings and
cash management benefits while enabling customers to continue their check
writing practices.
A significant factor in transaction costs is fraud, such as using of a false
or stolen identity. Account abuses, such as writing checks with insufficient
funds or opening and closing accounts to avoid payments are also factors.
Losses from bad checks and check fraud totaled $1.3 billion for banks and $13
billion for merchants in the United States in 1998 according to a report
published in September 1999 by the Tower Group and bad check losses have
increased for merchants at a rate of 5% per year since 1996. In order to combat
fraud effectively, financial services companies and retailers require products
that enable them to identify and reduce potential risks. Debit card
transactions can also help to reduce fraud because transactions using PINs are
less likely to be fraudulent than signature based transactions.
Need for New Technologies. Financial service companies also face pressures
to adopt new payment technologies to better serve their customers and reduce
costs. Banks, credit unions and savings banks are making substantial
investments in online banking and brokers require efficient mechanisms for
online opening and funding of trading accounts. In each case, the financial
service companies must find online methods that reduce or eliminate the need to
deliver paper checks and manage the risk of online account funding. Financial
service companies require these services to retain highly valued customers and
to position themselves for expanded e-commerce activities. At the same time as
financial services companies and retailers are responding to these increasing
demands for new technologies, they also must control costs and address
shortages of information technology resources. One consequence is that
financial institutions and retailers are increasing
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their use of external information technology service providers. In a February
1999 report, The Tower Group estimated that spending by U.S. commercial banks
on external information technology services will increase from $26 billion in
1998 to $33 billion in 2002.
Market Opportunity
To accommodate the variety of payment methods in use today, merchants and
financial institutions need new technologies to help them acquire, authorize
and process payment transactions. For example, a consumer may wish to use a
debit card, ATM card, credit card or paper check to effect a transaction. The
financial institution or retailer must collect the consumer's account and
transaction information through a point-of-sale device, ATM, telephone order,
check or Internet interface. This account and transaction information must then
be processed for acceptance authorization and then processed for payment and
settlement. In addition, banks and other financial service providers need
technologies that allow them to open accounts online, manage their accounts
more effectively and allow them to "cross-sell" additional services. The
following diagram illustrates the elements of the payment cycle.
[DIAGRAM ILLUSTRATING THE FLOW OF THE PAYMENT CYCLE]
In the past, financial service companies and retailers have needed to work
with separate service providers to obtain the necessary technologies because
the electronic payments industry has historically been divided between delivery
and transaction processing companies and information and analysis providers. At
the same time, financial service companies and retailers need access to
professional information technology resources so that they can exploit the
promise of new technologies. Our company provides all of these services.
Our Competitive Advantages
We offer comprehensive electronic payment services that combine leading
transaction processing capabilities with decision support and risk management
tools. Our products enable our clients to manage and combat fraud, transfer
funds and enhance their customer relationships. In addition, our professional
services provides clients with the information technology resources they need
to respond to the demands for new technology, implement and integrate our
solutions and develop new software applications. Our decision support and risk
management tools and processing capabilities can be delivered as an integrated
electronic payment solution or deployed as separate modules. We believe this
mix of capabilities and flexible product offerings address developing market
opportunities and provides us with the following competitive advantages.
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Comprehensive Products and Services. Our products and services enable our
clients to manage the complete electronic debit payment cycle, from account
opening, to payment approval, to electronic funds transfer and settlement. Our
services reduce transaction costs, manage risks and enhance customer
relationships for our clients by providing:
. risk management and decision support tools based on DebitBureau, our
unique debit information database;
. customer relationship tools for opening financial accounts,
electronically funding these accounts, minimizing fraud and identifying
cross-selling opportunities;
. transaction processing, monitoring and settlement on an efficient, cost-
effective and worldwide basis;
. information technology professional services to create e-commerce and
Internet solutions, integrate our products into our clients' systems and
new technologies and develop custom software applications; and
. business process management services.
In the past, merchants, banks and other financial services companies needed
to integrate debit payment services from numerous providers using disparate
technologies and platforms. We believe we are the only single-source provider
of comprehensive electronic debit payment solutions on an integrated basis.
Clients can, however, use only those of our individual services that fit their
needs and we can implement these services in any environment.
Premier Database. We believe our DebitBureau database is the most
comprehensive source of data regarding debit transactions available. This
database contains more than 2.7 billion debit records, including account
openings and closings, checking and savings account activity, insufficient
funds check-writing histories and check order histories. Approximately 1.7
million records are added daily to DebitBureau. DebitBureau provides a unique
source of information because it aggregates data from market leading services
including SCAN, the most widely accessed check verification database in the
United States used at more than 82,000 retail locations, and ChexSystems, the
leading new account applicant verification service used by more than 86,000
financial locations. We also receive data from clients of Deluxe and other data
sources.
The breadth and depth of DebitBureau allows us to develop more powerful risk
management and analytical tools. Our clients can draw on DebitBureau to make
better risk management decisions, such as authorizing a new checking or savings
account or accepting a check, and to improve their customer relationship
decisions, such as identifying opportunities to cross-sell additional services
to their customers. We offer products that provide our clients online access to
the database and our proprietary risk assessment models. Information on a
proposed debit transaction or an account opening is entered by a client into
our system and is analyzed to determine the likelihood of identity fraud or
account abuse and to otherwise assess the overall risk of opening the new
account. The system also identifies customers of our client's who are most
likely to accept client product offers. For example, our products enable
financial institutions to identify opportunities to sell new customers credit
cards and home equity loans more effectively and to set more appropriate limits
on the customer's privileges, such as maximum withdrawals in debit card
transactions.
Global Processing Capabilities. Using our electronic processing services,
our clients have the ability to process debit payment transactions on a
worldwide basis. Our network connects with over 15,000 links to other networks
and institutions throughout the world. For example, we are the single gateway
for all of a major U.S. financial institution's ATM transactions outside its
internal network on a worldwide basis. We processed approximately 125 million
transactions in 45 countries for this client in 1999. Our processing services
can provide a single gateway for electronic funds transfers that can sort and
execute all of a client's electronic debit payment transactions using the
appropriate networks. We drive and manage the services for all major ATM models
through multiple telecommunication configurations.
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Expertise in Electronic Commerce. We have focused on electronic transaction
processing since 1976. This long history and industry focus provides us with
the experience and capabilities needed to migrate electronic debit payments to
many channels, including the Internet and point-of-sale devices. Because of our
background and skills, we believe we are uniquely positioned to enable debit
transactions on the Internet, and we recently introduced Integreat!, an online
service for opening, funding and managing accounts, to extend our fraud
management and client account management tools to this channel. We also offer
Web EFT, a browser-based Internet application that allows clients automatically
to collect and deposit pre-authorized customer payments.
Global Resources for Information Technology Solutions. Our high quality
professional services business provides information technology solutions by
teaming onsite consultants in the United States who analyze and manage projects
with software developers in India who develop client-specific software
solutions. We employ over 1,275 software programmers worldwide. Our global
delivery capabilities gives us the ability to provide high quality, around-the-
clock development services at competitive prices. We are presently engaged by
20 companies for our information technology professional services, including
Bank One, the Pershing Division of Donaldson, Lufkin & Jenrette and ReliaStar
Life Insurance Company.
Our Strategy
Our objective is to be the leading provider of electronic debit payment
solutions and related professional services to financial and retail industries.
Key elements of our business strategy are to:
. Adapt our Products for Internet Applications. Based on our processing
and risk management capabilities and industry expertise, we believe we
are uniquely positioned to help our clients take advantage of the
efficiencies and revenue opportunities of e-commerce. We intend to
continue to adapt our core capabilities in transaction processing, fraud
prevention and client account management for Internet applications and
to develop products and services that will assist in the development of
new e-commerce channels, such as business-to-business Internet
transactions. Our services can help make debit payments, which are
under-represented on the Internet as a payment option, safer, easier to
use, and more widespread. In our product development pipeline are:
. PIN-secured debit payment applications for purchases on the
Internet;
. ATM management applications that provide Internet access to product
advertising on the ATM screen; and
. Internet check acceptance software that can accept, authenticate,
authorize and settle a checking account-based debit transaction
initiated over the Internet.
. Extend Our Product Set. We are introducing new products, such as
Qualifile and DataNavigator. QualiFile is a new account opening service
for banks and brokerage firms that features improved risk scoring,
enhanced financial and demographic targeting of cross-selling
opportunities and an expanded set of customized instructions.
DataNavigator is a web-based, real-time electronic funds transfer data
management and customer support platform that provides full back-office
cash management support with transaction research, continuous settlement
and reconciliation services. As a part of our efforts to continue to
extend our product set, we intend to leverage the development skills of
our information technology professionals and expand our research and
development role on behalf of financial institutions. We believe our
ability to combine information and transaction delivery services will be
a critical element in our success. To that end, we plan to invest in the
technology and personnel required to expand our payment information
capabilities and merge them into new, broader, faster and more versatile
delivery systems.
. Expand Existing Client Relationships and Attract New Clients. Most of
our clients currently use only a portion of our services. As we continue
to integrate our information and processing capabilities, we believe we
can expand our relationships with existing clients to provide additional
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products and services. In addition, we plan to provide products for our
clients' e-commerce needs as they emerge. We intend to expand our sales
force to develop new clients, build brand awareness and cross-sell all
the components of our comprehensive suite of electronic payment
management services. We also are seeking new clients in rapidly growing
Internet markets such as online banking, electronic bill presentment and
payment and business-to-business e-commerce.
. Seek Acquisition and Strategic Alliance Opportunities. We intend to
pursue acquisitions of complementary businesses, technologies or product
lines. We believe there are opportunities to make accretive acquisitions
that will add services to enhance our product suite. In addition, we
plan to seek strategic relationships with key industry participants in
order to broaden our market presence and increase our sales penetration
by leveraging each participant's technology and expertise. For example,
we recently acquired a 24% interest in a client of our transaction
processing services that is a provider of ATM management and outsourcing
services to retailers and financial institutions.
. Broaden International Sales. We currently derive approximately 10% of
our revenue from international sales in 22 countries. We intend to
expand in international markets by further penetrating our existing
client base and by focusing on emerging international markets lacking
established electronic payment systems.
Our Products and Services
Electronic Payment Solutions
We deliver electronic payment solutions to financial institutions,
retailers, electronic funds transfer networks and gateways and e-commerce
providers. To address our clients' electronic payment needs, we offer a
comprehensive suite of products and services. Our products generally fit within
the following two broad categories:
. transaction processing services; and
. decision support and risk management tools;
These products and services can be deployed on a stand-alone basis, or
combined to provide a complete payment system. This flexibility enables our
customers to select individual services they need to meet their current
business objectives and then to add additional services as their requirements
evolve.
Transaction Processing
We are one of the largest third-party processors for regional automated
teller machine, or ATM, networks in the United States. We also provide
transaction processing for retail point-of-sale terminals that accept payments
from debit cards and electronic checks. Transaction processing involves
electronically transferring money from a person's checking or savings account
according to his or her instructions. For example, when a cardholder inserts
his or her debit card into an ATM or point-of-sale device and enters his or her
PIN and the type and amount of the transaction, the device contacts our systems
and transmits the request. We identify the institution that issued the card and
work through the necessary validation and authorization routines, such as
ensuring that the cardholder has entered the correct PIN, that the transaction
is within the cardholder's limits on withdrawals and that there are sufficient
funds in the cardholder's account. If all the routines are executed
successfully, we signal the ATM or point of sale device to complete the
transaction.
To carry out the tasks required, each ATM or point of sale device is
typically connected to several computer networks. These networks include
private networks that connect the devices of a single owner, shared networks
that serve several device owners in a region and national shared networks that
provide access to devices across regions. Each shared network has numerous
financial institution members. For example, the NYCE network has over 2,300
financial institution members, including Chase Manhattan and FleetBoston
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Financial, and the StarSystem Network has over 3,400 financial institution
members, including Bank of America and First Union. As part of our transaction
processing services, we, and other gateway service providers like us, provide
cardholders with access across these multiple networks.
We drive or operate more than 9,000 ATMs and more than 98,000 point-of-sale
terminals. In 1999, we processed approximately five billion transactions, with
99.99% system availability and at speeds up to 600 transactions per second. We
process virtually all types of debit-based transactions, including cash
withdrawals, cash deposits, balance inquiries, purchases, purchases with cash
back and purchase returns. In addition, we authorize cash advances and
purchases initiated with credit cards at ATM or point-of-sale locations. We
have the ability to process transactions to any electronic funds transfer
network in the world. We also provide 24 hour a day, 7 days a week monitoring
of 5,200 ATMs for system irregularities.
We are also developing Internet-based transaction processing capabilities.
We have entered into an agreement with NYCE, one of the largest operators of
ATM and debit card networks, to provide transaction processing over the
Internet for its SafeDebitTM product, which allows consumers to pay for
purchases on the Internet with funds withdrawn directly from their checking
accounts.
Our transaction processing services include: authorization of the
transaction, capture and transmission of the transaction data, settlement of
the payment transaction and information reporting. Our transaction processing
capabilities include:
. transaction processing from substantially all types of ATMs and point-
of-sale terminals;
. authorization and verification for online and offline debit and credit
cards, including Mastercard or VISA bank cards, and paper and electronic
checks;
. access to substantially all national and regional networks, such as
MasterCard/Maestro/Cirrus, Visa/PLUS, American Express, Discover, STAR,
NYCE, Pulse and MAC;
. transaction switching, allowing transactions to be routed through
different networks and internationally;
. cash management services through our DataNavigator product; and
. comprehensive settlement and reconciliation services.
For our transaction processing services, we receive fees for installation of
the software and hardware; monthly transaction processing charges, which
include a base fee plus a variable fee based on the number of transactions
processed; and additional service fees related to surcharged transactions, such
as network access and sponsorship, ATM operation, card and authorization
services, settlement services, ATM monitoring, testing resources and
professional services.
We license our electronic funds transfer software, the same software that
drives our electronic funds transfer processing business, to in-house
processors and regional networks in 22 foreign countries and in the United
States. In 1999, our licensees processed 10 billion transactions around the
world using our electronic funds transfer software. Our electronic funds
transfer software runs on IBM and Tandem computing platforms. We also provide
maintenance and support services.
DataNavigator. Our DataNavigator product is a software tool that gives
financial services companies, networks and independent service providers the
ability to perform real-time analysis of their electronic funds transfer data.
This monitoring capability helps our clients manage their profitability and
analyze consumer transaction behavior. Transactions can be analyzed based on
specific parameters, such as ATM location, or set dollar amounts at given
locations. A bank that owns multiple ATMs can, for example, determine its cash
position at a particular ATM at any point during the day. DataNavigator also
helps cut costs and improves customer satisfaction by speeding up settlement
and reporting and streamlining transaction research and reconciliation
services. DataNavigator is fully operational in our transaction processing
centers and may be accessed by our transaction processing clients for an
additional fee or may be licensed by our software clients as an additional
module.
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ACH Processing. We provide processing services to the American Clearing
House Association, a private sector automated clearinghouse service, or ACH,
provider. The ACH network is an electronic payment delivery system used
primarily to process repetitive payments, such as mortgage payments, payroll,
social security payments and utility payments. The ACH network routes
electronic funds transfers between financial institutions on behalf of their
customers. The Federal Reserve is the largest ACH service provider. We also
offer an ACH processing outsourcing service that allows a financial institution
to avoid the costs associated with operating an internal ACH processing and
settlement infrastructure. The fee structure for our ACH services consists of
installation fees, monthly fees and transaction fees.
We plan to extend our ACH processing services to help providers of
electronic bill payment services to authorize transactions and transfer funds.
We are positioning our decision support and risk management tools to address
fraud and security concerns in connection with electronic bill payment
services. In addition, we intend to use our information technology professional
service capabilities to help develop interoperability between developing
electronic bill presentment and payment systems and existing payment systems.
Decision Support and Risk Management
We offer products to help financial institutions, retailers and other
businesses that accept debit payments to:
. determine the likelihood of account fraud and identity manipulation;
. assess the overall risks involved in opening new accounts or accepting
payment transactions; and
. make better predictions about other products their customers are likely
to purchase.
Our decision support and risk management products are based on or enhanced
by our DebitBureau database. DebitBureau contains over 2.7 billion records and
includes data from our ChexSystems and SCAN businesses and other sources. We
use the data in DebitBureau to screen for potentially incorrect, inconsistent
or fraudulent social security numbers, home addresses, telephone numbers,
driver license information and other indicators of possible identity
manipulation. Using our data, we can perform various tests to validate a
consumer's identity, assess and rank the risk of fraud and match customers with
targeted product offerings.
SCAN. SCAN, or Shared Check Authorization Network, is the most widely
accessed check verification database in the United States. The SCAN database
helps retailers reduce the risk of write-offs for dishonored checks due to
insufficient funds and other forms of account fraud and identity manipulation.
When a check is presented as payment at the point-of-sale, SCAN members
electronically access our SCAN database by running the check through a scanner.
The information on the check is then compared to the database and analyzed for
the likelihood of fraud or insufficient funds. SCAN then indicates whether the
retailer should accept or reject the check. SCAN serves 17 of the top 20
retailers in the United States, including Wal-Mart, Kmart and Home Depot. More
than 82,000 retail locations report returned check activity to the SCAN network
and we verified checks with an aggregate value of approximately $181 billion in
1998. Merchants pay a service fee for SCAN based on the aggregate dollar value
of checks authorized by them using SCAN and additional fees per inquiry for
customer or retailer calls to the call centers.
As part of an integrated solution to help retailers manage their check
acceptance programs, we offer collection services to some SCAN members. We
tailor our collection strategies to specific retailer needs. The services
generally involve sending letters and follow-up telephone calls to consumers
whose checks have been returned. In addition, we currently extend to three SCAN
members the option of a portfolio purchase solution. Under this solution, we
purchase the returned checks from the retailer at a mutually agreed upon total
discounted purchase price and assume the collection liability. We may expand
this service to additional customers.
ChexSystems. Our ChexSystems business is the leading provider of new account
applicant verifications for financial institutions. ChexSystems provides access
to more than 22 million closed-for-cause account
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histories and 53 million records of new account inquiries. An account is
considered closed-for-cause when, for example, a consumer refuses to pay the
account fee and the bank closes the account. ChexSystems helps financial
institutions assess the risks involved in opening an account for a new customer
by allowing them to make inquiries against our database when a consumer applies
for a new account. This service is used by more than 86,000 financial
institution locations. ChexSystems receives an average of about 2.7 million new
account inquiries per month. Financial institutions may access the service
online or by telephone. We also are developing an Internet-based new account
verification service. Financial institutions pay a service fee for our new
account verification services based on the number of inquiries.
As a separate service, we also provide collection services to financial
institution clients of ChexSystems. We do not assume any collection liability
for these services. We contract with a third party for extended collection
activity.
QualiFile. Our QualiFile product is an online, real-time account-opening
service. It combines data from DebitBureau with comprehensive credit,
demographic and financial product-use data provided by third parties to help
financial service companies make informed decisions about opening new accounts
and offering additional financial products to new customers. QualiFile has the
following features:
. QualiFile validates an applicant's identity and predicts the likelihood
of account abuse by scoring the applicant's risk level;
. QualiFile creates a financial profile of the new customer and generates
a list of targeted products that matches the customer's likely needs
with the products offered by the financial institution; and
. QualiFile simplifies and automates the account-opening process.
QualiFile guides the new account representative through the new account
process by presenting on-screen messages indicating whether to accept or
deny the account or review the decision with a manager and product-offer
dollar limits, rates and terms.
The fee structure for QualiFile consists of a one-time set-up fee, a charge
for each customer inquiry and a monthly minimum participation fee. We
introduced QualiFile in September 1999. Clients using our QualiFile service
include BankUnited, Bank One, Union Planters and GTE Federal Credit Union.
FraudFinder. We also offer FraudFinder, an identity fraud-detection service
for new accounts which are opened in person or over the Internet. FraudFinder
accesses our DebitBureau database to help financial service companies identify
potential identity manipulation and fraud. FraudFinder scores and ranks new
accounts according to their level of risk using a complex mathematical model to
predict the likelihood of future behavior by analyzing and learning from data
supplied about past behavioral patterns. The fee structure for FraudFinder
consists of a one-time set-up fee and a charge for each customer inquiry.
FraudFinder was introduced in 1999 and is currently used by over 300 clients,
including Bank of the West, California National Bank and Citizens Bank.
New Product Initiatives
In December 1999, we introduced Integreat!, our first end-to-end product
that helps financial services companies open new accounts for consumers over
the Internet. Integreat! incorporates our QualiFile service to provide real-
time identity verification, risk assessment and customized financial product
offerings. Once the new account is approved, the customer authorizes the
electronic transfer of funds from an existing outside account to the new
account, eliminating the need to deliver a paper check and speeding up the time
to funding. The fee structure for Integreat! consists of a one-time setup fee,
a charge for each customer inquiry and a monthly minimum participation fee.
Clients using our Integreat! service include USA Bancshares.com and
Umbrellabank.com, although to date we have not received revenues in material
amounts from this product. We believe that our Internet account opening and
funding service has potential applications in other customer markets. We are
currently targeting online brokerage firms.
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In February 2000, we began to offer reports on consumer debit transactions
that can be used as part of credit reports and scoring models that assess a
consumer's payment risk. We are targeting the service to major credit issuers
and credit bureaus.
We recently introduced an electronic check service that converts paper
checks into electronic transactions at the point-of-sale. As part of this
system, a consumer's check is run through a point-of-sale check reader to
capture the consumer's account data. The check is then authorized through SCAN
OnLine, our real-time check verification service. Once the transaction is
accepted, the authorized amount of funds is deposited in the retailer's account
and debited from the consumer's account using the ACH network. We believe that
our electronic check service benefits retailers by reducing paper check
processing costs, minimizing bad-check write-offs and accelerating funds
collection. More than 1,950 point-of-sale devices use our electronic check
conversion service and seven companies remarket the service to their merchant
customers. We provide our electronic check service on a fee per transaction
basis.
We also offer an online banking software product for Internet delivery of
financial services to home users and businesses. Our Internet Financial
Management product offers banking customers the flexibility to access their
bank accounts 24 hours a day, 365 days a year, using a web browser or new
devices such as web-enabled mobile phones and personal digital assistants. We
introduced our Internet Financial Management product line in June 1999 and are
initially targeting this product to financial institutions in western Europe
and the United Kingdom. Currently, two clients are using the product on a test
basis. We are also developing systems and services to facilitate the web-based
delivery of various aspects of business-to-business e-commerce including
accounts receivable and accounts payable processing and reporting, payment
acquisition and settlement and the electronification of retail and wholesale
lockbox functions.
Professional Services
We have combined the information technology professionals from the various
business units being separated from Deluxe to form a single integrated
information technology professional services group. We offer a full range of
information technology professional services to complement our electronic debit
payment business and on a stand-alone basis. We specialize in the
implementation and integration of our own and third-party software product, the
development, redevelopment and maintenance of a broad range of computer
software applications and the development of custom e-commerce and Internet
solutions. In addition, we offer our clients the ability to outsource their
business processing services, such as accounting operations, transaction
processing and call center operations, to our shared services center in Delhi,
India. We offer our professional services either on a fixed-price, fixed-time
basis or on a time and materials basis. In 1999, we derived approximately 80%
of our information technology service net sales from time and materials
contracts. Deluxe was the principal customer of our professional services
business in 1999, accounting for approximately 43% of this segment's 1999 net
sales. We are targeting our services to financial institutions and other
businesses that accept debit payments, such as retailers and e-commerce
providers.
We provide our services through a global software development model which
combines industry, product and technical specialists based in our facilities in
the United States, United Kingdom, India and Australia. Our global delivery
capabilities give us the ability to provide high quality, a round-the-clock
development services at competitive prices. Our information technology
professional services group includes over 1,300 consultants and software
developers, including approximately 900 people in the United States,
approximately 300 people in our two software development centers in India and
approximately 100 people in the United Kingdom. Our first software development
center in Chennai, India has been assessed at Level 3 of the Software
Engineering Institute's Capability Maturity Model. The Software Engineering
Institute's Capability Maturity Model ratings are internationally recognized
standard for assessing the level of maturity and consistency of software
development centers. The Level 3 rating provides evidence of the quality and
consistency of our offshore software development capabilities, placing the
center in the top 10% of all software development facilities that have been
rated. We opened our second software development center in Chennai, India in
March 2000.
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We provide a variety of software development services that cover all stages
of the software development cycle. We develop new custom applications for our
clients on a variety of technology platforms, including mainframe and client-
server, and in a variety of programming languages. We specialize in developing
financial applications, particularly those used by large complex financial
institutions in the banking, insurance and securities industries. Our
experienced professional group can install, implement and integrate third party
software applications within our client's information technology
infrastructure. We perform testing and performance tuning of customer and
third-party applications, and help in the migration of customers' legacy
applications to client-server and Internet platforms. We also provide on-going
support and maintenance of customer applications. In addition, we provide a
number of specialized software application services, including workflow
management and document imaging, SAP implementation and support and project
management. Examples of our software development projects include the
development of a custody application for a major stock transfer company and
documenting management systems implementation and workflow analyses for the
corporate trust division of a major bank.
To complement and support our electronic payment solutions business, we
provide our clients with consulting services, customization and implementation
services and educational and training programs. Our services include the
installation of our electronic debit payment products and implementation and
integration of these products within the customer's existing information
technology infrastructure. We also customize our standard products and develop
new applications for clients who want additional features and functionality. We
help clients test and refine our products in their information technology
environments. In addition, we provide on-site user training on our products and
solutions for the information technology, operations and management staff of
clients. We build long-term continuing relationships with our clients by
providing on-going maintenance and support of our software products and
solutions.
We also help clients to develop e-commerce and Internet-related solutions.
Our services enable our clients to process business-to-customer, business-to-
business and customer-initiated transactions over the Internet. The scope of
our capabilities include: multi-channel integration for financial institutions,
such as integration of call centers, ATMs, personal computer and Internet
banking, development of client extranets and intranets and enablement of
electronic bill presentment and payments.
In addition to our information technology professional services, we offer
business process management and outsourcing services. We focus on both back-
office and customer support business processes, such as accounting operations,
transaction processing and call center operations. Our business process
outsourcing services are provided primarily at our shared services facility in
Gurgaon, India. This facility is staffed with over 150 experienced business
process personnel. Our offshore business processing capabilities allow our
clients to focus on their core processes, reduce their direct personnel costs,
avoid non-core capital investments and improve the quality of their outsourced
operations.
Currently, we provide business process management services only to Deluxe
under a five year agreement. These services consist of accounts receivable,
accounts payable and general ledger processing services. For additional
information concerning this agreement, see "Agreements Between eFunds and
Deluxe--Professional Services Agreement" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations-- Recent Events." We
have recently started to market our business process management services to
financial institutions and other clients as well. We believe this line of
business will tie in to our transaction processing services to provide a
complete back-office management solutions to our clients.
Government Services
We provide online electronic benefits transfer services on behalf of
governmental agencies responsible for the administration and management of
selected entitlement programs, primarily the Food Stamps and Transitional Aid
to Needy Families (formerly Aid to Families with Dependent Children) program.
Our electronic benefits transfer processing system manages, supports and
controls the electronic payment and distribution of cash benefits to program
participants through ATMs and point-of-sale networks. Our services
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reduce operating costs and fraud for the government agency administering the
benefits program, eliminate the food stamp stigma for recipients through the
use of a plastic ATM-like card and make benefits more readily available to
recipients at retail point-of-sale terminals and ATMs.
We provide electronic benefits transfer services to individual state and
local governments or coalitions of state governments formed to purchase these
services jointly. We provide these services as a prime contractor or
subcontractor to nine individual state and local governments. We also are a
subcontractor for three coalitions of state governments, representing 21
states. Our services are typically provided for a fixed fee per welfare case
plus fixed fees per transaction through the system. State and local governments
require that we enter into long-term contracts, typically five to seven years
in duration.
The principal components of this service include:
. transaction processing;
. point-of-sale terminal deployment and terminal operation for merchants;
. telecommunications network management;
. benefits card production and database management;
. financial settlement of funds with automated clearing house transfers;
. help desk support for consumers, merchants and government personnel; and
. electronic funds transfer gateway services.
We also offer a Medicaid eligibility verification processing service that
performs online verification of a person's eligibility for Medicaid services.
Our system provides authorization services, drug utilization review and
electronic claims capture and transmissions for pharmacies and managed care
firms. Currently, we provide the service for the State of New York's Medicaid
program. This program serves over 177,800 health care providers and 4.2 million
cardholders through 19,500 point-of-sale terminals. In 1999, our Medicaid
eligibility verification processing service generated revenues of approximately
$10.1 million, or about 21% of the net sales of our government services
business.
We have had a history of operating losses and charges for asset impairment
related to our government services business as described earlier in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." As a consequence, we have determined to exit this business as soon
as our current contractual commitments expire in 2006. During the wind down
period, we intend to continue to take steps to improve the profitability of the
current business. Deluxe has agreed to indemnify us against up to $14.6 million
of losses in excess of our existing reserves on our existing loss contracts.
Clients
The following is a representative list of our larger corporate clients based
on our 1999 net sales.
<TABLE>
<CAPTION>
Financial
Institutions Retailers Network/Gateway International
- --------------------- --------------------- ------------------------- ------------------------------
<S> <C> <C> <C>
Bank One Food Lion Access Cash International Bank of Montreal
Bank of America Home Depot Citishare Bank Pekao
Bank of the West J.C. Penney CU Cooperative Systems Cashcard Australia
Citibank Kmart NYCE International Nederlande Group
Credit Union Service Kroger Primary Payment Systems Finax Finansservice
Corp. Lowe's Companies Pulse EFT Societa per I Servizi Bancari
FleetBoston Financial National Data Funding STAR System The Royal Bank of Scotland
Wachovia Corporation Safeway
Washington Mutual Target
Savings Bank Wal-Mart
Wells Fargo Bank
</TABLE>
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<PAGE>
In 1999, none of our clients individually accounted for 10% or more of our
total net sales. In 2000, we expect that Deluxe will account for more than 10%
of our total net sales. We intend to expand our client base in new markets,
including e-commerce providers, online brokerages, telecommunication firms,
insurance companies and utilities.
Sales and Marketing
We market our electronic products and services through a direct sales force
and indirect sales channels, such as distributors, resellers and alliances. We
organize our direct sales force by customer market segment, including financial
institutions, networks and gateways, retailers and e-commerce providers. Our
direct sales force focuses is capable of selling all or a portion of our
products and services to offer the most effective solution for each customer's
particular needs. We work collaboratively with our customers and prospective
customers to help them identify issues and create new solutions using our
products and services. Because many of our customers use a single product or
service, or a combination of products or services, our direct sales force has
begun to target existing customers to capture cross-selling opportunities. We
plan to focus our information technology services marketing efforts on large
U.S. financial institutions and other businesses that accept debit payments.
Our international sales force is focused on the sale of our transaction
processing and online banking software.
We have full service direct sales offices in Milwaukee, Wisconsin;
Minneapolis, Minnesota; Phoenix, Arizona; Dallas, Texas; San Francisco,
California; New York, New York; and Charlotte, North Carolina. These offices
coordinate direct sales and arrange indirect sales channels in the various
regions. Our international sales offices, which have a total of five sales
people, are located in Sydney, Australia, Bombay, India and Runcorn, England.
As of April 30, 2000, our domestic direct sales force had 122 full-time
professionals. We intend to increase our sales force by adding new field sales
offices and by adding sales and marketing personnel to our existing
territories.
To further facilitate broad market penetration and complement our direct
sales efforts, we plan to expand our indirect sales channels, especially in
international markets. These indirect channels include resellers, distributors
and alliances. Among others, VISA USA, Access Cash International, eProfile, IBM
Australia/NZ and Card Soft International a.s. support our indirect sales
efforts.
We build awareness of our products and services and the eFunds corporate
name through targeted advertising, public relations, participating in trade
shows and conferences and providing product information through our web site.
Customer Support, Technology and Infrastructure
Customer Support. We believe that providing superior quality and accessible
and reliable customer and technical support is essential to developing and
maintaining customer relationships in each of our business segments. We provide
customer support services through our customer contact centers located in
Bloomington, Minnesota; Bothell, Washington; and Dallas, Texas. Our contact
centers are open 24 hours a day, 7 days a week and provide access to website,
e-mail and telephone support. As of April 30, 2000, we had 1,400 employees in
customer and technical support functions. In addition to user questions and
technical issues, in accordance with the Fair Credit Reporting Act we respond
to inquiries from consumers who have been denied check authorization or
rejected for a new account. We also provide on-site customer support services
in connection with our other products and services, and charge a separate fee
for these services based on an hourly rate.
Technology. Our products are configured to run on operating systems widely
adopted by the electronic debit payment industry. These include the Tandem,
IBM, UNIX and Windows operating environments. Our software is developed using
C, C++, Cobol, HTML and other programming languages. Our software products are
modular in design and flexible in implementation so that they can accommodate
specific customer requirements. Our software products are interoperable with a
wide range of terminal types and computer networks and support a variety of
communications protocols, such as TCP/IP.
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<PAGE>
As of April 30, 2000, we employed over 1,275 software programmers at our
offices in Milwaukee, Wisconsin; Minneapolis, Minnesota; Phoenix, Arizona;
Seattle, Washington; Toronto, Canada; Runcorn and Watford, United Kingdom;
Sydney, Australia; Chennai, India and Gurgaon, India.
Data Centers. We operate two highly secure, fault-tolerant data centers in
New Berlin, Wisconsin and Phoenix, Arizona. Our data centers have been
engineered to ensure minimal exposure to system failures and unauthorized
access. Each of our data centers contains multiple separate computer rooms to
provide containment and isolation. Physical security is maintained through
restricted card key access and closed circuit T.V. cameras. We use redundant
uninterruptible power supplies with battery backup and redundant generators to
ensure continuous flow of power to each data center in the event of any
component failure or power outage. The facilities have dual-entrance, fiber
optic SONET service for telecom redundancy.
Research and Product Development
We believe that our future success will depend in large part on our ability
to develop new and enhanced electronic payment products and services. We are
focusing our product development efforts on electronic payment options for
Internet and e-commerce providers, as well as insurance companies, utilities
and telecommunication companies. For example, we are currently working with a
third party to develop the application of voice authentication software and
technology to the debit payments industry.
We have developed all of our electronic payment software independently
through our software development group. Our principal research and development
sites are located in Runcorn and Watford, United Kingdom; Sydney, Australia;
and Glendale, Wisconsin. Our research and development expenses were
$3.7 million in 1999, $625,000 in 1998 and $1.4 million in 1997. Our
capitalized software development costs were $17.3 million in 1999, $3.2 million
in 1998 and $5.0 million in 1997.
Competition
We face intense competition from a number of companies. Further, we expect
that competition will intensify as the e-commerce and Internet markets continue
to develop and expand. Many of our competitors have significantly greater
financial, technical and marketing resources, greater name recognition and a
larger installed customer base than we do.
In the electronic payment management market, our principal competitors
include:
. third-party network and credit card processors, including First Data,
Equifax, Total System Services, EDS, Concord EFS and Alliance Data
Systems;
. financial institutions that have developed in-house processing
capabilities or services similar to ours, including Bank of America,
Marshall and Illsley and Fifth Third National Bank;
. electronic data interchange and cash management providers, including
Fiserv, CheckFree, M&I Data, EDS and Fundtech;
. electronic bill payment providers, including CheckFree, EDS, MasterCard,
Spectrum and Visa;
. electronic funds transfer software solution providers, including ACI,
Transaction System Architects, SLMsoft, Oasis, Mosaic and PaySys; and
. national information database companies, including Equifax, Experian and
TransUnion, and other content providers.
In the market for electronic transaction processing, the principal factors
on which we compete are price and service levels. The future growth of our
revenues in this market is dependent upon securing an increasing volume of
transactions. If we cannot control our transaction processing expenses, we may
not remain price competitive and our revenues will be adversely affected.
Competition for our decision support and risk
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<PAGE>
management products is based primarily on the quantity and quality of the data
available to us for this purpose and, to a somewhat lesser degree, price. Our
competitive position in these markets could be harmed if our competitors were
able to compile different data sources and analytical capabilities that proved
to be more effective than our products.
In the fragmented information technology professional services market, we
compete with numerous firms. We believe that our principal competition to date
has been the internal information technology departments of current and
potential clients. In addition, we compete with systems consulting and
integration firms, application software firms, Internet professional service
companies, services divisions of computer hardware and software vendors,
facilities management and outsourcing companies, "Big 5" accounting firms and
strategic consulting firms. Competition in this area is primarily based on the
continued availability of qualified technical personnel in an extremely
competitive U.S. labor market. Our professional services business will suffer
if we are unable to attract and retain personnel with the advanced technology
skills we require.
In addition to our current competitors, we expect substantial competition
from established and new companies as the e-commerce and Internet markets
continue to develop and expand. We cannot assure you that we will be able to
compete effectively against current and future competitors. Increased
competition could result in price reductions, reduced gross margins or loss of
market share.
Data Stewardship
We collect consumer data from multiple sources, including through:
. participating members of SCAN who provide checking account numbers and
drivers license numbers related to unpaid checks;
. participating members of ChexSystems who contribute checking and savings
account closures and names and addresses associated with those records;
. Deluxe's check printing customers whose data includes names, addresses,
checking account numbers and check order histories;
. state governmental agencies (e.g., drivers license information from the
Department of Motor Vehicles); and
. federal governmental agencies (e.g., social security numbers of deceased
persons from the Social Security Administration).
We obtain the data under agreements or licenses with suppliers. Some of
these agreements impose restrictions on the use and resale of the data and
others are governed by the Fair Credit Reporting Act. We do not rent or sell
lists of data for direct marketing purposes.
We have a strong commitment to the responsible use of data, including the
protection of consumer privacy rights. We have taken several measures to
fulfill this commitment, including actively participating in the development of
industry-wide privacy standards, maintaining strict information practices and
policies and creating an internal information-practices council and systems to
oversee appropriate data usage.
Our information practices and policies include the following:
. Accuracy. We use stringent procedures to ensure that information
collected, used and exchanged will be accurate and complete.
. Security. We employ advanced security measures for protecting
information from unauthorized access, use and disclosure.
. Compliance. We collect, use and disclose information in accordance with
the federal Fair Credit Reporting Act, applicable state laws and
contractual obligations.
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<PAGE>
. Confidentiality. We collect, use and exchange information in accordance
with strict confidentiality standards.
. Privacy. We promote self-regulation in recognition of consumers'
expectation of privacy and adhere with industry standards, such as those
established by the Direct Marketing Association and the American Bankers
Association.
. Responsiveness. We employ extensive internal monitoring systems and
conduct ongoing customer surveys to maintain high quality and timely
response standards with respect to consumer inquiries.
. Employee education. We educate our employees regarding sound information
practices and the proper handling and use of information.
Government Regulation
Various aspects of our businesses are subject to federal and state
regulation. Our failure to comply with any applicable laws and regulations
could result in restrictions on our ability to provide our products and
services, as well as the imposition of civil fines and criminal penalties.
As a provider of electronic data processing services to financial
institutions, we are subject to regulatory oversight and examination by the
Federal Financial Institutions Examination Council, an interagency body
comprised of the various federal bank and thrift regulators and the National
Credit Union Association. In addition, we may be subject to possible review by
state agencies that regulate banks in each state where we conduct our
electronic processing activities.
Because we collect and disclose debit data and other personal information
about consumers, we are subject to the federal Fair Credit Reporting Act and
any state laws providing greater consumer protections. The Fair Credit
Reporting Act provides that consumers have the right to know the contents of
the records pertaining to them which are maintained at our consumer reporting
agencies, to challenge the accuracy of the information and to have the
information verified, updated or removed. To comply with these requirements, we
maintain consumer relations call centers for each of our consumer reporting
businesses. We are also required to maintain a high level of security for the
computer systems in which consumer data files reside.
Our consumer reporting agencies and collection agencies are also subject to
regulation by the Federal Trade Commission. In addition, our debt collection
services are subject to the Fair Debt Collection Practices Act and state
collections statutes and licensing requirements.
Financial institutions will be subject to the requirements of a new federal
financial modernization law. The privacy provisions of this law, known as the
Gramm-Leach-Bliley Act, are scheduled to go into effect in July 2001. The Act
imposes significant requirements on any entity engaged in the business of
providing financial services, including entities that provide services to
financial institutions. The privacy provisions of the Act impose on each entity
subject to the new requirements an affirmative obligation to develop and
implement policies to protect the security and confidentiality of consumers'
nonpublic personal information and to disclose those policies to consumers
before a customer relationship is established and annually thereafter. The Act
directs the federal banking and thrift regulators, credit union regulators, the
Federal Trade Commission and the SEC to issue appropriate standards for
carrying out this duty. The banking regulators and the FTC have recently issued
regulations which will implement the privacy portions of the Act when they go
into effect next year.
The regulations require financial institutions to provide an "opt-out"
notice to consumers and an opportunity to opt-out before sharing nonpublic
personal information with an unaffiliated third party. There are numerous
exceptions that do not require that any notice or opportunity to opt-out be
given to consumers. These include:
. transfers of consumer information made to protect the confidentiality or
security of a consumer's records; to protect against or prevent actual
or potential fraud, unauthorized transactions, claims or other
liability; for required institutional risk control; and for resolving
customer disputes or inquires;
50
<PAGE>
. transfers of consumer information to a consumer reporting agency
pursuant to the Fair Credit Reporting Act; and
. transfers between affiliates of consumer reports produced by a consumer
reporting agency in compliance with the Fair Credit Reporting Act.
We believe these exceptions apply to our consumer reporting business and
will permit banks to provide debit data and other nonpublic personal
information to us without triggering the opt-out requirement. However,
government agencies could interpret their regulations in a manner that could
expand the scope of the Act in ways which could adversely affect our business.
In addition, even if the regulations do not affect us directly, uncertainty
over the scope of the regulations could make financial institutions unwilling
to share consumer-related information with us.
Congress and many states are considering more stringent laws or regulations
that, among other things, restrict the purchase, sale or sharing of nonpublic
personal information about consumers. For example, legislation has been
introduced in Congress to further restrict the sharing of consumer information
by financial institutions, restrict the use of social security numbers, as well
as require that a consumer opt-in prior to a financial institution's use of his
or her data in its marketing program. Given the current public concern over
consumer privacy rights, it is possible the Congress, individual states or
governmental agencies could enact new laws or regulations governing consumer
protection in the future. If enacted, these laws or regulations could directly
affect our ability to collect and use consumer data and could have a material
adverse effect on our business, results of operations and financial condition.
Laws and regulations may be adopted in the future with respect to the
Internet or e-commerce covering issues such as user privacy, pricing, content,
copyrights, consumer protections, taxation and characteristics and quality of
products and services. New laws or regulations may impede the growth of the
Internet. This could decrease the demand for our products and services and
increase our cost of doing business. Moreover, the applicability to the
Internet of existing laws governing property ownership, taxation, libel and
personal privacy is uncertain and may remain uncertain for a considerable
length of time.
Intellectual Property Rights
We rely on a combination of trademark, copyright, trade secret law and
confidentiality or license agreements to protect our trademarks, software and
know-how. We also have applied for patent protection on some of the features of
our newer products. Intellectual property laws afford limited protection. It
may be possible for a third party to copy our products and services or
otherwise obtain and use our proprietary information without our permission.
There is no assurance that our competitors will not independently develop
services and products that are substantially equivalent or superior to ours.
With regard to our information technology services, our business consists of
software applications development. Ownership of this software is generally
assigned to the client. We also develop software components that can be reused
in software application development and software toolsets, most of which
remains our property.
Employees
As of April 30, 2000, we had approximately 3,330 full-time employees,
including 2,770 persons employed within the United States and 560 persons
employed outside of the United States, including India. Of our total number of
employees, 1,275 persons were engaged in software development, 1,400 persons
were engaged in customer and technical support services, 145 persons were
engaged in sales and marketing and 510 persons were engaged in administrative
and other functions.
None of our employees are represented by a labor union, and we consider our
employee relations to be good.
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Facilities
The following table sets forth a description of our principal facilities:
<TABLE>
<CAPTION>
Owned or Lease
Approximate Expiration
Location Square Feet Date Function
---------------------- ----------- -------------- ---------------------------
<S> <C> <C> <C>
Milwaukee, Wisconsin 171,250 Owned Marketing, development and
administration
New Berlin, Wisconsin 82,600 Owned Data center
Phoenix, Arizona 92,813 Owned Data center
Chennai, India 18,614 January 2008 Software development center
Delhi, India 40,950 January 2002 Shared services center
Chennai, India 38,750 September 2002 Software development center
Bloomington, Minnesota 50,623 June 2002 Customer contact center
Shoreview, Minnesota 49,500 September 2001 DebitBureau and
professional services
Bothell, Washington 34,309 August 2004 Customer contact center
Bothell, Washington 24,702 September 2006 Office center
Dallas, Texas 42,052 January 2001 Customer contact center
Mesa, Arizona 3,208 August 2001 Business recovery site
New Berlin, Wisconsin 5,500 June 2000 Warehouse
</TABLE>
The leases set forth above generally have a term of 3 to 10 years, most of
which have options to extend for at least 3 years. We plan to relocate our
headquarters to Phoenix, Arizona following this offering. Apart from our need
to lease space for this purpose, we believe that our current facilities are
adequate to meet our anticipated space requirements. We believe that additional
space will be available at a reasonable cost to meet our future needs.
Legal Proceedings
On May 14, 1999, we filed a trademark infringement action against Citizen
Advisers, Inc. in the United States District Court for the Central District of
California. The complaint alleges false designation of origin and trademark
infringement, trade name infringement and unfair competition under California
law regarding the use of the "E FUND" mark and efund.com internet domain by
Citizen Advisers. We are seeking injunctive relief to prevent Citizen Advisers
from using the "E FUND" mark and efund.com internet domain, cancellation of
Citizen Advisers trademark registration of the "E FUND" mark and damages and
expenses, including attorneys' fees. The case is in the discovery stage and no
trial date has been set.
Our Separation from Deluxe
Our electronic payment solutions, professional services and government
services businesses were previously conducted through various operating units
of Deluxe. In addition to our businesses, Deluxe is the largest check printer
in the world. On January 31, 2000, as part of its strategy to create
strategically focused enterprises that can independently pursue their business
objectives, raise capital and pursue growth opportunities, Deluxe announced a
plan to combine our businesses into a separate, publicly-traded company. The
separation of our businesses from those of Deluxe has been substantially
completed.
Effects of the Separation. We believe that we will realize the following
benefits from our complete separation from Deluxe:
. Direct access to the capital markets. As a separate public company, we
will be able to directly access the capital markets to issue equity and
to use stock-based acquisition currency to finance expansion and growth
opportunities.
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. Greater strategic focus. We expect to have a sharper focus on our
businesses and growth opportunities as a result of our board and
management team concentrating only on our core businesses. Further, the
separation from Deluxe will eliminate any competition for capital
generated in its or our business.
. Increased ability to attract, retain and motivate employees. We believe
that incentive compensation arrangements for key employees, directly
related to the market performance of our common stock, will provide
enhanced incentives for performance. The separation will enable us to
offer our key employees compensation directly linked to the performance
of our businesses, which we expect to enhance our ability to attract and
retain qualified personnel.
In reaching our its decision to approve the separation, we also considered
the following potential disadvantages of the separation from Deluxe:
. Loss of Deluxe's Support. As a separate public company we will not be
able to access cash provided from Deluxe's check printing business or
Deluxe's borrowing capacity to fund our growth.
. Potential conflicts with Deluxe. We may have difficulties resolving
potential conflicts as a result of our business relationships with, and
control by Deluxe.
. Loss of data from Deluxe. After the split-off, we will not be able to
obtain the check printing data we currently use in some of our risk
management and decision support products. As a result, we will be
required to expend significant time and resources to obtain this
information directly from financial institutions. These agreements may
not be as favorable to us as our present arrangements with Deluxe.
The Exchange Offer. After this offering, Deluxe will own about 86.5% of our
common stock, or about 84.8% if the underwriters exercise their over-allotment
option in full. As long as Deluxe continues to hold a majority of our
outstanding stock, Deluxe will be able to elect all our directors and determine
the outcome of all our corporate actions requiring stockholder approval. In
addition, we will continue to derive a substantial portion of our revenue from
Deluxe in future periods. In 1999, payments from Deluxe represented 3% of our
total net sales and Deluxe has established minimum spending targets of $43
million per year for software development and maintenance services from our
professional services business for the next several years. Deluxe also has
agreed to purchase accounting and data entry services from our professional
services business.
Deluxe has announced that it plans to distribute all of its shares of our
common stock to its shareholders through a split-off. Deluxe's plans for a
split-off are subject to receiving a private letter ruling from the Internal
Revenue Service that the split-off will be tax-free to Deluxe and its
shareholders for U.S. federal income tax purposes. Deluxe has the sole
discretion to determine whether to proceed with the split-off based on the best
interests of Deluxe's shareholders and to decide what will be the timing,
structure and terms of the split-off. Subject to these conditions, Deluxe plans
to complete the split-off within one year following the completion of this
offering. Deluxe has submitted a private letter ruling request to the Internal
Revenue Service. We cannot be certain when or whether Deluxe will receive a
favorable tax ruling from the Internal Revenue Service, or that the
distribution by Deluxe will be completed. If Deluxe does not complete the
split-off, Deluxe will continue to control us and we may not realize the
benefits from our separation from Deluxe that we anticipate.
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MANAGEMENT
Directors and Executive Officers
The following table lists our directors and executive officers and persons
who have agreed to serve as directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John A. Blanchard III... 57 Chairman of the Board and Chief Executive Officer
Debra A. Janssen........ 43 President, Chief Operating Officer and Director
Dr. Nikhil Sinha........ 39 Executive Vice President, Global Corporate Development
Paul H. Bristow......... 57 Executive Vice President and Chief Financial Officer
Steven F. Coleman....... 41 Senior Vice President, General Counsel and Secretary
John J. (Jack) Boyle
III.................... 53 Director Nominee
Jack Robinson........... 45 Director Nominee
Hatim A Tyabji.......... 55 Director Nominee
John H. LeFevre......... 56 Director Nominee
Lois M. Martin.......... 37 Director Nominee
Lawrence J. Mosner...... 57 Director Nominee
</TABLE>
John A. Blanchard III has served as Chairman of our Board of Directors and
Chief Executive Officer since March 1, 2000. Mr. Blanchard has served as
President and Chief Executive Officer of Deluxe since May 1995 and as Chairman
of the Deluxe Board of Directors since May 1996 and will continue to serve in
those capacities until the completion of the split-off from Deluxe. From
January 1994 to April 1995, Mr. Blanchard was executive vice president of
General Instrument Corporation, a supplier of systems and equipment to the
cable and satellite television industry. From 1991 to 1993, Mr. Blanchard was
chairman and chief executive officer of Harbridge Merchant Services, a national
credit card processing company. Previously, Mr. Blanchard was employed by
American Telephone & Telegraph Company for 25 years, most recently as senior
vice president responsible for national business sales. Mr. Blanchard also
serves as a director of Wells Fargo and Company and ADC Telecommunications Inc.
Debra A. Janssen has served as our President and Chief Operating Officer
since March 1, 2000. Ms. Janssen joined Deluxe's Electronic Payment Solutions
division in February 1998 as Senior Vice President and was named President and
Chief Executive Officer of that division in March 1998. Prior to joining us,
Ms. Janssen worked for 14 years for M&I Data Services in a variety of
capacities, most recently as senior vice president and chief information
officer.
Paul H. Bristow has served as Executive Vice President and Chief Financial
Officer since March 2000. From 1993 until joining our company, Mr. Bristow
served as Executive Vice President--Finance Administration and Chief Financial
Officer of Galileo International, a computer reservation system company for the
travel industry. Previously, Mr. Bristow held various finance, accounting and
auditing positions with London International Group, plc, ITT Europe, ITT
Canada, Philip Morris and Arthur Andersen.
Dr. Nikhil Sinha has served as our Executive Vice President, Global
Corporate Development since March 1, 2000. Previously, Dr. Sinha served as
President and Chief Executive Officer of iDLX Technology Partners, Deluxe's
Professional Services Division, from June 1999 to February 2000. He was a
director of the Telecommunications and Information Policy Institute at the
University of Texas at Austin from September 1997 to May 1999 and associate
professor of International Communication from 1991 to 1997. Dr. Sinha has
worked as a consultant to the Informatics and Telecommunications Division for
the World Bank and as an advisor to the Indian Telecom Commission and the
Indian Planning Commission. Dr. Sinha also serves on the advisory committee of
the Indo-US Sub-Commission on Education and Culture. He is co-founder and
director of Sinha & Lariviere, Ltd., a consulting firm providing strategic and
investment advisory services to U.S. companies doing business in South Asia.
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<PAGE>
Steven F. Coleman has served as Senior Vice President, General Counsel and
Secretary since March 2000. From 1996 until joining our company, Coleman worked
as a Senior Attorney for Deluxe. Prior to joining Deluxe, Mr. Coleman was
associated with Dorsey & Whitney, a law firm located in Minneapolis, Minnesota,
and Fried, Frank, Harris, Shriver & Jacobson, a law firm located in New York,
New York.
John J. (Jack) Boyle III currently serves as Chief Executive Officer of Tuck
Partners, a newly formed web engineering company. From August 1994 to October
1999, Mr. Boyle served as President and Chief Executive Officer of Saville
Systems, PLC, a maker and marketer of customer care and billing systems for the
global telecommunications industry. Mr. Boyle served as Chairman of the Board
of Directors of Saville Systems from April 1998 to October 1999. Saville
Systems was acquired by ADC Telecommunications, Inc. in October 1999. Mr. Boyle
also serves as a director of ADC Telecommunications, Inc.
Jack Robinson has served as Chief Executive Officer of Personal Cuisine,
Inc., a recently formed food service company, since January 31, 2000. From
November 1998 to January 2000, Mr. Robinson served as Vice President, Finance
for the home and small business group of Dell Computer Corporation. From
February 1998 through November 1998, Mr. Robinson served as President of the
Foodservice unit of Sara Lee Bakery, a division of Sara Lee Corporation.
Between July 1996 and February 1998, Mr. Robinson served as President of the
Specialty Markets division of Sara Lee. Mr. Robinson joined Sara Lee in June
1993 as a Senior Vice President and Chief Financial Officer of its Sara Lee
Bakery division. Sara Lee is a global packaged food and consumer products
company. Mr. Robinson has been a director of Deluxe since June 1997 and expects
to resign from that position in August 2000.
Hatim A. Tyabji has served as chief executive officer and chairman of
Saraide Inc., a provider of Internet and wireless data services, since
September 1998. From November 1986 until March 1998, Mr. Tyabji served as
president and chief executive officer of VeriFone, Inc., which was acquired by
Hewlett Packard Company in June 1997. Mr. Tyabji also served as chairman of
VeriFone from 1992 until 1998. VeriFone is a global provider of transaction
automation systems and Internet commerce solutions. Mr. Tyabji has been a
director of Deluxe since November 1997 and expects to resign from that position
in August 2000. Mr. Tyabji also serves as a director of PubliCARD, Inc., Ariba,
Inc., Smart Disk Corp., and Best Buy Company, Inc.
John H. Lefevre has served as Senior Vice President, General Counsel and
Secretary of Deluxe since February 1994. From 1978 to February 1994, Mr.
LeFevre was employed by Wang Laboratories, Inc. From 1988 until February 1994,
he held various positions in Wang Laboratories' law department, including
corporate counsel, vice president, general counsel and secretary. Wang
Laboratories was in the business of manufacturing and selling computer hardware
and software and related services.
Lois M. Martin has served as Senior Vice President and Chief Financial
Officer of Deluxe since April 2000. From November 1997 to April 2000, Ms.
Martin served as Vice President and Corporate Controller. From December 1995 to
November 1997, Ms. Martin served as Vice President and Controller of Deluxe
Financial Services Group. From December 1993 to December 1995, Ms. Martin held
various accounting-related positions with Deluxe. Ms. Martin is a certified
public accountant.
Lawrence J. Mosner has served as Executive Vice President of Deluxe with
overall responsibility for all of its day-to-day operations since July 1997 and
he became Vice-Chairman of Deluxe's Board of Directors in August 1999.
Following the split-off, Mr. Mosner is expected to succeed Mr. Blanchard as
Chairman of the Board and Chief Executive Officer of Deluxe. From February 1997
to July 1997, Mr. Mosner served as President of the Paper Payment Systems unit
of Deluxe. From October 1996 to February 1997, Mr. Mosner served as President
of Deluxe Direct, Inc., a subsidiary of Deluxe. Between November 1995 and
October 1996, Mr. Mosner served as Senior Vice President of Deluxe.
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<PAGE>
Board Composition
Our board of directors is currently comprised of one director, Mr.
Blanchard. Prior to the completion of this offering, we expect that our board
will consist of seven directors. Messrs. Boyle, Robinson, Tyabji, LeFevre and
Mosner and Ms. Martin have agreed to become our directors. Messrs. LeFevre and
Mosner and Ms. Martin, each of whom is currently an executive officer of
Deluxe, has advised us that they will resign from our board following the
completion of the split-off. Our board of directors will be divided into three
classes for purposes of election. One class will be elected at each annual
meeting of stockholders to serve for a three year term.
Board Committees
Audit Committee. The audit committee is expected to consist of Jack Robinson
(chair), Jack Boyle and Hatim Tyabji. The audit committee is responsible for:
. reviewing the adequacy of our system of internal accounting controls;
. reviewing the results of the independent auditors' annual audit,
including any significant adjustments, management judgements and
estimates, new accounting policies and disagreements with management;
. determining the duties and responsibilities of the internal audit staff;
. reviewing the scope and results of our internal auditing procedures;
. reviewing our audited financial statements and discussing them with
management;
. reviewing the audit reports submitted by both the independent auditors
and our internal audit staff;
. reviewing disclosures by independent auditors concerning relationships
with our company and the performance of our independent auditors and
annually recommending independent auditors;
. adopting and annually assessing its charter; and
. preparing reports or statements required by Nasdaq or the securities
laws.
Compensation Committee. The compensation committee is expected to consist of
Jack Boyle (chair), Hatim Tyabji and Jack Robinson. The functions of the
compensation committee currently include:
. reviewing our general compensation strategy;
. reviewing the terms of employment agreements for executives earning over
a specified amount and approving compensation for executives if their
compensation is, or may become, subject to Section 162(m) of the
Internal Revenue Code; and
. administering our compensation and benefit plans.
Director Compensation
We will compensate our non-employee directors with an annual retainer of
$15,000, meeting fees of $1,000, committee chair fees of $2,500 and annual
options under the 2000 Stock Incentive Plan valued at $50,000. We expect to
allow our directors to elect to receive stock in lieu of cash or to participate
in some form of deferred compensation plan. Messrs. LeFevre and Mosner and Ms.
Martin will not be compensated for their services as directors.
Stock Ownership of Directors and Executive Officers
All of our common stock is currently owned by Deluxe, and thus none of our
directors and executive officers own any shares of our common stock. To the
extent our directors and executive officers own shares of Deluxe common stock
at the time of the split-off, they will participate in the exchange offer on
the same terms as other holders of Deluxe common stock.
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<PAGE>
The following table sets forth the number of shares of Deluxe common stock
beneficially owned on March 15, 2000 by each director, each executive officer
named in the Summary Compensation Table in the "--Executive Compensation"
section below, and all of our directors and executive officers as a group.
Except as otherwise noted, the individual director or officer had sole voting
and investment power with respect to such securities. The total number of
shares of Deluxe common stock outstanding as of March 15, 2000 was 72,218,276.
<TABLE>
<CAPTION>
Shares of Deluxe
Beneficially Owned
------------------
Name of Beneficial Owner Number Percentage
- ------------------------ ------- ----------
<S> <C> <C>
John A. Blanchard III (1).................................. 478,221 *
Debra A. Janssen (2)....................................... 18,539 *
Dr. Nikhil Sinha (3)....................................... 14,480 *
Paul H. Bristow............................................ 0 *
Steven F. Coleman (4)...................................... 4,415 *
John J. (Jack) Boyle III................................... 0 *
Jack Robinson (5).......................................... 10,546 *
Hatim A. Tyabji (5)........................................ 5,407 *
John H. LeFevre (6)........................................ 79,073 *
Lois M. Martin (7)......................................... 27,244 *
Lawrence J. Mosner (8)..................................... 235,601 *
All directors and executive officers as a group (11
persons).................................................. 873,526 1.2
</TABLE>
- --------
* Represents holdings of less than one percent.
(1) Includes options to purchase 414,000 shares of common stock that are
currently exercisable or will be excercisable within 60 days.
(2) Includes 1,889 restricted stock units that will convert into shares of
Deluxe common stock on January 28, 2001 if, subject to some conditions, the
holder remains in continuous employment until such date and options to
purchase 15,001 shares of common stock that are currently exercisable or
will be exercisable within 60 days.
(3) Includes 11,456 restricted shares awarded January 29, 2000 under Deluxe's
Stock Incentive Plan, which restrictions will expire on the one year
anniversary of this offering if, subject to some conditions, Dr. Sinha
remains in continuous employment until that date.
(4) Includes options to purchase 3,967 shares of common stock that are
currently exercisable or will be excercisable within 60 days.
(5) Includes 333 restricted shares which will vest on the date of Deluxe's next
annual meeting of stockholders if the holder remains a director of Deluxe
after that meeting.
(6) Includes 1,789 restricted stock units that will convert into shares of
Deluxe common stock on January 28, 2001 if, subject to some conditions, the
holder remains in continuous employment until such date and options to
purchase 69,667 shares of common stock that are currently exercisable or
will be exercisable within 60 days.
(7) Includes 3,093 restricted stock units that will convert into shares of
Deluxe common stock on January 28, 2001 if, subject to some conditions, the
holder remains in continuous employment until such date and, 1,000
restricted shares awarded October 31, 1997 options to purchase 18,534
shares of common stock that are currently exercisable or will be
exercisable within 60 days. The restrictions on the restricted shares will
lapse on October 31, 2000 if, subject to some conditions, Ms. Martin
remains in continuous employment until that date.
(8) Includes 16,801 restricted stock units that will convert into shares of
Deluxe common stock on January 28, 2001 if, subject to some conditions, the
holder remains in continuous employment until such date and options to
purchase 198,000 shares of common stock that are currently exercisable or
will be exercisable within 60 days.
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<PAGE>
Executive Compensation
The following table sets forth the compensation earned by our Chief
Executive Officer and each of our other most highly compensated executive
officers who, based on the salary and bonus compensation information from
Deluxe, were the most highly compensated for the year ended December 31, 1999.
All information set forth in this table reflects compensation earned by these
individuals for services with Deluxe and its subsidiaries for each of the last
three fiscal years. Mr. Bristow was not an employee of Deluxe prior to joining
us in March 2000 and accordingly he is not shown in the table. This prospectus
refers to these individuals as the Named Executive Officers.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------ ---------------------
Restricted Securities All Other
Name and Principal Other Annual Stock Underlying Compensation
Position Year Salary Bonus(1) Compensation Awards Options (2)
- ------------------ ---- -------- --------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. Blanchard III
(3). 1999 $680,000 $ 680,000 $22,866 -- 185,000 $136,400
Chairman and Chief 1998 600,000 1,200,000 13,848 -- 176,000 79,051
Executive Officer 1997 600,000 638,550 11,328 -- 100,000 67,745
Debra A. Janssen........ 1999 261,282 168,233 8,719 -- 25,000 17,476
President and Chief 1998 198,892 168,300 2,467 -- 10,000 --
Operating Officer
Dr. Nikhil Sinha (4).... 1999 175,000 87,500 -- -- 25,000 28,846
Executive Vice
President, Global
Corporate Development
Steven F. Coleman....... 1999 132,000 26,400 -- -- 2,000 14,820
Senior Vice President, 1998 120,000 36,000 -- -- 1,500 15,237
General Counsel and 1997 112,500 15,964 -- -- 1,000 11,110
Secretary
</TABLE>
- --------
(1) Recipients of awards under Deluxe's Annual Incentive Plan are entitled to
elect to receive all or a portion of their incentive compensation in the
form of shares of restricted stock or restricted stock units. If an
election is made to receive shares of restricted stock or restricted stock
units, the amount of cash foregone is increased by 25 percent in
determining the number of shares of restricted stock units to be awarded.
(2) All other compensation consists of (a) annual company contributions to
qualified retirement plans, (b) amounts credited to a non-qualified
supplemental retirement plan and (c) amounts credited to a non-qualified
deferred compensation plan as benefit plan equivalents. For 1999, the
amounts were: Mr. Blanchard--$16,000, $120,400 and 0; Ms. Janssen--$11,200,
$4,010 and $2,266; and Mr. Coleman--$14,260, $560 and 0. For Dr. Sinha, all
other compensation includes $28,846 paid in respect of his vacation pay
following the transfer of Deluxe employees to Deluxe Professional Services.
(3) Mr. Blanchard is entitled to supplemental retirement benefits in addition
to those ordinarily payable under Deluxe's profit-sharing, pension and
supplemental retirement plans, and with respect to any company-paid
portion of contributory retirement plans, such as Deluxe's 401(k) plan.
Deluxe is expected to make a lump-sum cash payment of approximately $3.8
million to Mr. Blanchard on January 1, 2001 in satisfaction of its
obligations in respect of the supplemental retirement benefits.
(4) Dr. Sinha began employment with Deluxe in April 1999.
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The following table contains information concerning the grant of options to
purchase shares of Deluxe common stock to the Named Executive Officers during
the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (2)
----------------------------------------- ----------------------
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price
Granted in Fiscal Per Expiration
Name (1) Year Share Date 5% ($) 10% ($)
---- ---------- ---------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John A. Blanchard III... 185,000 15.04% $35.9375 1/4/09 $4,181,167 $10,595,897
Debra A. Janssen........ 15,000 1.22 35.6250 1/29/09 336,066 851,656
10,000 .81 35.8125 5/04/09 225,223 570,759
Dr. Nikhil Sinha........ 25,000 2.03 37.5625 6/17/09 590,571 1,496,624
Steven F. Coleman....... 2,000 .16 35.6250 1/29/09 44,809 113,554
</TABLE>
- --------
(1) All options were granted at an exercise price that equaled or exceeded the
fair market value of the common stock on the date of grant, as determined
by the last sale price as reported on the New York Stock Exchange. The
options are exercisable in cumulative installments of 33-1/3 percent on
each anniversary of the date of grant.
(2) The amounts represent hypothetical gains that might be achieved by the
optionees if the respective options are exercised at the end of their
terms. These gains are based on assumed rates of stock price appreciation
of 5% and 10% mandated by rules of the Securities and Exchange Commission.
These rates are shown for illustrative purposes only and do not represent
our prediction of our stock price performance.
The following table sets forth information regarding exercises of options to
purchase Deluxe common stock during the year ended December 31, 1999 and
unexercised options to purchase Deluxe common stock as of December 31, 1999, by
each of the Named Executive Officers:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at Fiscal Year the-Money Options at
End Fiscal Year End (1)
------------------------- -------------------------
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John A. Blanchard III... -- -- 260,334 335,666 -- --
Debra A. Janssen........ -- -- 3,334 31,666 -- --
Dr. Nikhil Sinha........ -- -- -- 25,000 -- --
Steven F. Coleman....... -- -- 3,300 2,000 -- --
</TABLE>
- --------
(1) The value of unexercised in-the-money option is determined by multiplying
the difference between the exercise price and $27.4375, the closing price
of Deluxe common stock on the NYSE on December 31, 1999, by the number of
shares underlying the options. If the exercise price is greater than the
December 31, 1999 closing price, the options are not in-the-money and no
value is listed.
Treatment of Deluxe Options
As of March 31, 2000, options to purchase 5,553,000 shares of common stock
of Deluxe were outstanding. Concurrent with the split-off of Deluxe's remaining
interest in our company following this offering, these outstanding options will
be converted into new options to purchase Deluxe common stock and options to
purchase our common stock. All persons who hold Deluxe options will receive new
Deluxe options and eFunds options. The board of directors has adopted the
eFunds Corporation Stock Incentive Plan for Deluxe Conversion Awards to provide
for the eFunds options resulting from the conversion. Deluxe, as our sole
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<PAGE>
stockholder, has approved this plan, which is filed as an exhibit to our
registration statement of which this prospectus is a part. The purpose of this
plan is to allow the employees of Deluxe and eFunds to maintain the same
relative equity interest in the two companies as they held in the combined
enterprise.
The stock options granted under this plan generally will have the same terms
and conditions as the Deluxe options to which they relate. The eFunds options
will be granted concurrently with our split-off from Deluxe. The number of
shares and the exercise price of eFunds options to be granted under this plan
will depend on a conversion equation that we summarize below. The eFunds
options will maintain the original vesting and exercisability provisions and
option period as the converted Deluxe options. Any exercisability provision or
option term that is based on past employment or contingent on continued
employment will mean and include past-employment with Deluxe and continued
employment with eFunds for those participants who are employees of eFunds as of
the split-off date.
The basic principle for the conversion of Deluxe options is to maintain the
same value of the options based on the difference between exercise price and
market price, or intrinsic value. The conversion equation for calculating the
number of shares and the exercise price of all eFunds options to be granted
under the conversion plan is summarized below.
. The pre-split intrinsic value of all Deluxe options outstanding is
calculated by multiplying the number of Deluxe options outstanding by
the difference between the market price of Deluxe common stock at the
close of market on the day before the split-off and the weighted average
exercise price of all Deluxe options outstanding.
. The pre-split intrinsic value will be allocated after the split-off
between the new Deluxe options and eFunds options according to the
relative value of Deluxe and the proportion of eFunds owned by Deluxe.
. The exercise price of the eFunds options to be granted will be equal to
the market price of eFunds stock on the day after the split-off
multiplied by the ratio of the weighted price of all Deluxe options
outstanding to the closing price of the Deluxe shares the day before the
split-off.
. The number of options to be granted will be calculated by dividing the
pre-split intrinsic value allocated to eFunds options by the difference
between the market price of eFunds common stock the day after the split
and the exercise price calculated above.
For example, assume that there are options to purchase 5.553 million shares
of Deluxe common stock outstanding prior to the split and the weighted average
exercise price is $32.40. The assumed market price of Deluxe common stock is
$25.94. The pre-split total intrinsic deficit value would be $35.9 million
(($25.94-$32.40)* 5.553 million). Assume that the pre-split market value of
shares of eFunds held by Deluxe is $600.0 million and the pre-split market
value of Deluxe, excluding the market value of eFunds shares held, is
$1,267.5 million. The relative proportionate value is therefore (32.1%/67.9%)
which results in an intrinsic deficit value of $11.5 million to be distributed
in eFunds options. The exercise price of the eFunds options in this example is
$18.74 ($15* (32.40/25.94)). The number of options which would be granted is
3.1 million (($11.5) million/($15-$18.74)).
This example uses hypothetical numbers that are unlikely to be accurate on
the day of the split-off. The number of eFunds options granted pursuant to the
conversion plan and the exercise price of those options is subject to a large
number of variables, particularly the relative market prices for our common
stock and Deluxe's common stock on the day before and on the day of the split-
off. At this time, we cannot provide any certainty regarding the number of
options we will grant under to the conversion plan or the exercise price for
those options.
Employment Agreements
John A. Blanchard III. We will enter into an Executive Employment Agreement
with Mr. Blanchard related to his service as our Chairman and Chief Executive
Officer. The term of the agreement begins as of the
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<PAGE>
date of the split-off and expires on December 31, 2002. Under the agreement,
Mr. Blanchard will receive a salary of $680,000, subject to increase at the
discretion of our board. Mr. Blanchard is also eligible to receive annual cash
bonuses on the same basis that we pay bonuses to our other executives, with a
target bonus equal to his base salary. Mr. Blanchard is eligible to participate
in our stock incentive plan. We anticipate that he will receive annual stock
option grants having a value equal to 200% of his base salary, as determined by
the Black-Scholes method. Mr. Blanchard will receive double-options in 2000,
which are listed in the table below under "-- 2000 Stock Incentive Plan
Grants." In recognition of the termination of Mr. Blanchard's existing
supplemental retirement benefits, Mr. Blanchard is also entitled to receive
$490,768 on or about January 2, 2003. This amount is reflective of the present
value on that date of the retirement benefits Mr. Blanchard would have been
entitled to under his supplemental retirement benefit plan if that plan was
continued throughout the term of his Executive Employment Agreement. Mr.
Blanchard has the option to receive the economic equivalent of this benefit on
an annuity basis for 15 years following his retirement.
If we terminate Mr. Blanchard's employment other than for cause, or if Mr.
Blanchard terminates his employment for good reason, Mr. Blanchard is entitled
to a lump sum payment equal to:
. the sum of (1) his unpaid base salary due through the date of
termination, (2) the product of his most recent annual bonus and the
fraction of the year he was employed and (3) any deferred compensation
and any accrued vacation pay;
. an amount equal to the annual base salary that Mr. Blanchard would have
earned during the remaining term of the Executive Employment Agreement
had his employment not been terminated; and
. an amount equal to the annual bonus that Mr. Blanchard would have earned
had he remained continuously employed throughout the employment period
and been awarded his annual target bonus amount to the extent this bonus
amount has not theretofore been paid.
In addition, upon any such termination of Mr. Blanchard's employment, Mr.
Blanchard will be entitled to participate in all benefits plans, including
medical, disability, life and other health insurance benefits and to certain
out-placement services. All unvested options granted to Mr. Blanchard will
immediately vest and remain exercisable for a five year period or, their
remaining term, and all other restricted shares and restricted stock units held
by Mr. Blanchard under the stock incentive plan vest and are converted into
shares of common stock on the date of any termination other than for cause or
for good reason. Mr. Blanchard would also be entitled to retain and earn any
performance-based awards previously received under our stock incentive plan as
if he had continued in our employ until the expiration of the relevant
performance period. Any options granted to Mr. Blanchard will also vest and
remain exercisable for five years following any termination of Mr. Blanchard's
employment upon the expiration of his Executive Employment Agreement.
The agreement also provides that if any payment or benefit received or to be
received by Mr. Blanchard would be subject to the federal excise tax on "excess
parachute payments," we will pay Mr. Blanchard such additional amount as may be
necessary so that he realizes, after the payment of the excise tax and any
income tax or excise tax on that additional amount, the amount of such
compensation.
Debra A. Janssen. We entered into a letter agreement with Ms. Janssen
effective as of March 1, 2000. The agreement provides for annual base salary of
$400,000 with a target bonus equal to 50% of base salary. Ms. Janssen is
eligible to receive annual stock option grants having a value equal to 225% of
her base salary, as determined by the Black-Scholes method. Ms. Janssen will
receive double-options in 2000, which are listed in the table below under "--
2000 Stock Incentive Plan Grants." Ms. Janssen's letter agreement also contains
a severance provision allowing her to receive one year's base salary plus a
second year of income continuation, if she is terminated for reasons other than
willful misconduct, gross negligence or unlawful actions toward us or toward
others involved with our business.
Paul H. Bristow. We entered into a letter agreement with Mr. Bristow
effective as of March 1, 2000. The agreement provides for an annual base salary
of $300,000 with a bonus ranging from 0% to 100% of base salary, depending on
our performance. The target bonus is 50%, or $150,000 annually. Mr. Bristow is
eligible
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<PAGE>
to receive annual stock option grants having a value equal to 150% of his base
salary, as determined by the Black-Scholes method. Mr. Bristow will receive
double-options in 2000, which are listed in the table below under "--2000 Stock
Incentive Plan Grants." Mr. Bristow's letter agreement also contains a
severance provision allowing him to receive one year's base salary plus a
second year of income continuation, if he is terminated for reasons other than
willful misconduct, gross negligence or unlawful actions toward us or toward
others involved with our business.
Dr. Nikhil Sinha. We entered into a letter agreement with Dr. Sinha
effective as of March 1, 2000. The agreement provides for an annual base salary
of $300,000 with a bonus ranging from 0% to 100% of base salary, depending on
our performance. The target bonus is 50%, or $150,000 annually. Dr. Sinha is
eligible to receive annual stock option grants having a value equal to 115% of
his base salary, as determined by the Black-Scholes method. Dr. Sinha will
receive double-options in 2000, which are listed in the table below under "--
2000 Stock Incentive Plan Grants." Dr. Sinha also will be entitled to receive
an option grant having a value of $250,000 upon completion of this offering in
consideration of the termination of iDLX Technology Partners options provided
to him under our 1999 employment agreement. Dr. Sinha's letter agreement also
contains a severance provision allowing him to receive one year's base salary
plus a second year of income continuation, if he is terminated for reasons
other than willful misconduct, gross negligence or unlawful actions toward us
or toward others involved with our business.
Steven F. Coleman. We entered into a letter agreement with Mr. Coleman
effective as of March 1, 2000. The agreement provides for an annual base salary
of $200,000 with a bonus ranging from 0% to 80% of base salary, depending on
our performance. The target bonus is 40%, or $80,000 annually. Mr. Coleman is
eligible to receive annual stock option grants having a value equal to 100% of
his base salary, as determined by the Black-Scholes method. Mr. Coleman will
receive double-options in 2000, which are listed in the table below under "-
2000 Stock Incentive Plan Grants." Mr. Coleman's letter agreement also contains
a severance provision allowing him to receive one year's base salary plus a
second year of income continuation, if he is terminated for reasons other than
willful misconduct, gross negligence or unlawful actions toward us or toward
others involved with our business.
Change in Control Arrangements
We have entered into Change in Control Agreements with each of Ms. Janssen
and Messrs. Sinha, Bristow and Coleman. These agreements are designed to
diminish the distractions that could be caused by personal uncertainties and
risks associated with changes of control and other significant business
combinations involving our company by providing these officers with assurances
regarding their compensation and benefits expectations under such
circumstances.
Under the Change in Control Agreements, each of these officers agrees to
remain in our employ, and we agreed to continue to employ each officer, until
the third anniversary following any "business combination" involving our
company. During that three-year period, each officer is entitled to maintain a
position, authority, duties and responsibilities at least commensurate with the
most significant of those held by the officer during the 180 day period prior
to the effective date of the business combination or change in control. The
base salary of the officer may not be reduced below that earned by the officer
during the twelve month period preceding the effective date of the business
combination. In determining any increase in an officer's base salary during the
three year period, the officer is to be treated in a manner consistent with
other peer executives. The officers are also entitled to receive annual bonus
payments, stock option grants and other benefits during the three year period
on the same objective basis as other peer executives.
If, during the three year period, we terminate an officer's employment other
than for "cause" or "disability" or the officer terminates his or her
employment for "good reason," the officer is entitled to a lump sum payment
equal to the sum of any unpaid base salary, accrued vacation pay and any unpaid
portions of incentive awards earned by the executive prior to the date of
termination. In addition, the officer is entitled to
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<PAGE>
receive a lump sum payment equal to three times the sum of the officer's annual
base salary and the officer's historical or target incentive award, plus the
amount that we would have contributed to the retirement plans in which the
officer participated prior to his or her termination in respect of such sum.
The officers are also entitled to the continuation of their medical,
disability, life and other health insurance benefits for up to a three year
period after a qualifying termination and to certain out-placement services.
All unvested options granted to an officer vest and remain exercisable for a
five year period or their remaining term following a qualifying termination and
all other restricted shares and restricted stock units held by the officer
under our stock incentive plan vest and are converted into shares of common
stock on the date of any such termination.
The agreements also provide that if any payment or benefit received or to be
received by an officer, whether or not pursuant to his or her change in control
agreement, would be subject to the federal excise tax on "excess parachute
payments," we will pay to the officer such additional amount as may be
necessary so that the officer realizes, after the payment of such excise tax
and any income tax or excise tax on such additional amount, the amount of such
compensation.
2000 Stock Incentive Plan
Our 2000 Stock Incentive Plan provides for grants of options to purchase
shares of common stock, stock appreciation rights, restricted stock and
restricted stock rights, performance awards and other stock-based awards. All
of our full-time employees are eligible for grants under this plan. Our
directors, consultants and advisors are also eligible for grants under this
plan.
The maximum aggregate number of shares of common stock that may be
distributed under this plan is 20% of the total number of shares of our common
stock outstanding at the time of the award, subject to adjustment.
Administration. This plan will be administered by our board of directors or
by a committee of directors appointed by our board of directors. The
compensation committee of the board will administer the plan.
Stock Options. Our committee may award stock options under this plan and set
their terms, including the number and kind of stock options granted, the
exercise price of the stock options, the vesting schedule applicable to such
stock options, the period during which they can be exercised and the form of
consideration, which may include, without limitation, cash, common stock, other
securities, any combination thereof or any other form of valid consideration
that is acceptable to the committee. The exercise price of incentive stock
options cannot be less than 100% of the fair market value of a share of common
stock on the date of grant, unless required by law or government regulation. No
stock option can be exercised more than ten years after the date of grant. The
committee may provide that any option granted under the plan contain a reload
feature. If an option containing this feature is exercised using shares of
common stock or if shares are withheld or tendered as payment of the amount to
be withheld under applicable income tax laws, the optionee will receive an
additional option on a number of shares equal to the number of shares tendered
or withheld. The exercise price of this reload option will be equal to the fair
market value of our stock on the date the reload option is granted.
Stock Appreciation Rights. Our committee may grant stock appreciation rights
under this plan and set their terms, including grant price, term, methods of
exercise, dates of exercise, methods of settlement and any other terms or
conditions of any stock appreciation right. Each stock appreciation right
entitles the holder to receive an amount equal to the excess of the fair market
value of a share of common stock on the date the holder exercises the stock
appreciation right over the grant price, as determined by the committee. The
grant price may not be less than 100% of the fair market value of a share of
common stock on the date of the grant, unless required by law or government
regulation.
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Restricted Stock And Restricted Stock Units. Our committee may grant shares
of restricted stock and restricted stock units and set their terms, including
voting rights for restricted shares and dividend rights with respect to such
shares and units. The committee may determine when restrictions shall lapse. If
the participant's employment or service terminates, the participant will
forfeit unvested restricted stock and restricted stock units as of the date of
such event, unless our committee determines otherwise with respect to some or
all of the unvested restricted stock and restricted stock units.
Performance Awards. The committee may grant performance awards, which
entitle the holder to receive payments upon the achievement of specified
performance goals and set their terms, including the performance goals to be
achieved during the performance period, the length of the performance period
and the amount and form of payment of the performance award. A performance
award may be denominated or payable in cash, shares of stock or other
securities, or other awards or property.
Other Stock-Based Awards. The committee may grant other awards denominated
or payable in, valued by reference to, or otherwise based on or related to
shares of common stock as are deemed by the committee to be consistent with the
purpose of plan. The committee will determine the terms and conditions of such
other stock-based awards, including the consideration to be paid for shares of
common stock or other securities delivered pursuant to a purchase right granted
under such award. The value of such consideration shall not be less than 100%
of the fair market value of such shares or other securities as of the date such
award is granted, unless required by law or government regulation.
Transfer Restrictions. The rights of a participant with respect to the stock
options, stock appreciation rights, restricted stock and restricted stock
rights, performance awards, dividend equivalents and other stock based awards
granted under this plan generally are not transferable by the participant other
than by will or the laws of descent and distribution.
Amendment And Termination of this Plan. This plan may be terminated and may
be altered, amended, suspended or terminated at any time, in whole or in part,
by our board of directors, except that:
. no alteration or amendment will be effective without stockholder
approval if approval is required by law or under the rules of the Nasdaq
Stock Market or any stock exchange on which our common stock is listed;
and
. no such termination, suspension, alteration or amendment may adversely
alter or affect the terms of any then outstanding awards without the
consent of the affected participant.
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Grants as of this Offering
Our board of directors has approved the grant of options to purchase up to
2,639,524 shares of our common stock under our 2000 stock incentive plan,
including the grants to individuals listed in the table below. The table has
been prepared based on an assumed initial offering price of $15.00 per share.
The exercise price of these options will be equal to the initial public
offering price. These options granted to our employees will vest in three equal
installments, beginning on the first anniversary of the date of grant, while
options granted to our outside directors will vest in two equal installments,
beginning on the first anniversary of the date of grant.
<TABLE>
<CAPTION>
Number
Name of Options
---- ----------
<S> <C>
John A. Blanchard III........................................... 335,802
Debra A. Janssen................................................ 222,227
Paul H. Bristow................................................. 111,111
Dr. Nikhil Sinha................................................ 116,049
Steven F. Coleman............................................... 49,383
All current executive officers as a group....................... 834,572
All expected members of our board of directors who are not
executive officers as a group.................................. 18,519
All employees, including current officers but excluding
directors and executive officers, as a group................... 1,786,433
</TABLE>
Related Party Transactions
Prior to joining our professional services business as its President and
Chief Executive Officer, Dr. Sinha was a 50% partner in a consulting firm
employed by Deluxe. The consulting firm provided international development
consulting services to Deluxe at per diem rates subject to minimum amounts. In
1999, Deluxe paid $28,713 to the consulting firm for services rendered. In
addition, in connection with the hiring of Dr. Sinha and the consequent
termination of the consulting agreement, Deluxe paid approximately $1.1 million
to the members of the consulting firm in lieu of an equity interest in HCL-
Deluxe N.V. Dr. Sinha received 50% of this amount.
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AGREEMENTS BETWEEN eFUNDS AND DELUXE
We have provided below a summary description of the initial public offering
and distribution agreement along with the key related agreements. This
description, which summarizes the material terms of the agreements, is not
complete. You should read the full text of the agreements, which have been
filed with the Securities and Exchange Commission as exhibits to the
registration statement of which this prospectus is a part.
Initial Public Offering and Distribution Agreement
General. On March 31, 2000, we entered into an initial public offering and
distribution agreement with Deluxe, which governs offerings of our securities,
including this offering and the split-off. Although Deluxe has announced that
it currently plans to complete the split-off, Deluxe is not obligated to do so.
Deluxe has the sole discretion to determine whether or when the split-off will
occur and all terms of the split-off, including the form, structure and terms
of any transactions or offerings to effect the split-off and the timing of and
conditions to the completion of the split-off. We cannot assure you as to
whether or when the split-off will occur or as to the terms of the
distribution. We refer you to "Risk Factors -- Risks Relating to Our Separation
from Deluxe."
Offerings of Our Securities and the Split-Off. We have agreed that we will
cooperate with Deluxe in all respects to accomplish:
. any primary offerings of our common stock and other securities,
including this offering, prior to the split-off or other similar
transaction; and
. the split-off or similar transaction.
We also agreed that, at Deluxe's direction, we will promptly take all
actions necessary or desirable to effect these transactions, including the
registration under the Securities Act of shares of our common stock.
Expenses. We have agreed to pay all costs and expenses relating to any
primary offerings of our common stock and our other securities prior to the
split-off, including this offering. Deluxe has agreed to pay all costs and
expenses relating to the split-off.
Covenants. We and Deluxe have agreed to provide each other with access to
information relating to the assets, business and operations of the requesting
party. We have agreed that, for so long as Deluxe is required to consolidate
our results of operations and financial position, we will:
. provide Deluxe with financial information regarding our company and our
subsidiaries and access to our books and records;
. not select a different accounting firm than Deloitte & Touche LLP to
serve as our auditors;
. complete the audit of our financial statements on the same schedule as
the audit of Deluxe's financial statements; and
. consult with Deluxe and provide Deluxe and its auditors with notice of
any proposed determination of, or significant changes in, our accounting
estimates and accounting principles.
As long as Deluxe beneficially owns 50% or more of our outstanding common
stock, we may not take any action that may result in a contravention or an
event of default by Deluxe of:
. any provision of law, including the Internal Revenue Code or the
Employee Retirement Income Security Act of 1974, as amended;
. any provision of Deluxe's articles of incorporation or bylaws;
. any credit agreement or other material agreement binding upon Deluxe; or
. any judgment, order or decree of any governmental body, agency or court.
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Options. We have granted to Deluxe options to purchase additional shares of
common stock to the extent necessary to own at least 80.1% of the total
combined voting power of all classes of our outstanding voting stock and to own
at least 80.1% of each outstanding class of nonvoting stock. These options may
be exercised immediately prior to the issuance of any of our equity securities,
other than in this offering or upon exercise of the underwriters' over-
allotment option.
The purchase price of the shares of voting stock purchased upon any exercise
will be the market price of our voting stock on the date of delivery of the
exercise notice. The purchase price of nonvoting capital stock will be the
price at which that stock may be purchased by third parties. These options will
terminate when Deluxe or its affiliates own less than 45% of the total combined
voting power of all classes of our outstanding equity of our company.
Registration Rights Agreement
We and Deluxe have entered into a registration rights agreement which only
becomes effective in the event Deluxe does not proceed with the split-off. Upon
the request of Deluxe, we must use our reasonable best efforts to register
under applicable securities laws any of the shares of our common stock owned by
Deluxe for sale in accordance with Deluxe's intended method of disposition.
Deluxe will also have the right to include shares of our common stock owned by
Deluxe in other registrations of equity securities we initiate. Deluxe will pay
all costs and expenses relating to each such registration that Deluxe requests
or in which Deluxe participates except for our out-of-pocket expenses and the
fees of our attorneys, accountants and other advisors. We have agreed to
indemnify Deluxe against liabilities in connection with registrations in which
Deluxe participates, including liabilities under the Securities Act or to
contribute to payments Deluxe may be required to make for these liabilities.
Assignment and Assumption Agreement
We have entered into an assignment and assumption agreement with Deluxe
which governs the terms of the transfer to us of assets and liabilities from
Deluxe. All transfers by Deluxe to us are on an "as is, where is" basis, and
without any representations or warranties. As a result, we have agreed to bear
the economic and legal risks that any conveyances of assets are insufficient to
vest in us good and marketable title to such assets and as to defects in the
condition of the assets. We and our subsidiaries assumed sole financial
responsibility for all liabilities associated with our businesses and
operations other than government services and all of the assets transferred to
us as of March 31, 2000. Based on their historical cost at March 31, 2000, the
value of the assets transferred to us was approximately $27.3 million.
Tax-Sharing Agreement
In general, we will be included in Deluxe's consolidated group for federal
income tax purposes for so long as Deluxe beneficially owns at least 80% of the
total voting power and value of our outstanding stock. Each member of a
consolidated group is jointly and severally liable for the federal income tax
liability of each other member of the consolidated group. We will enter into a
tax-sharing agreement with Deluxe which allocates tax liabilities between us
and Deluxe during the period in which we are included in Deluxe's consolidated
group. We could, however, be liable in the event that any federal tax liability
is incurred, but not discharged, by other members of Deluxe's consolidated
group.
We and Deluxe will make payments to each other such that the amount of taxes
to be paid by us will generally be determined as though we had filed separate
federal, state and local income tax returns. We will be responsible for any
taxes with respect to tax returns that include us and our subsidiaries. In
determining the amount of our tax-sharing payments, Deluxe will prepare for us
pro forma returns with respect to federal and applicable state and local income
taxes.
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Prior to the split-off, Deluxe will continue to have all the rights as our
parent for purposes of federal, state and local tax law. Deluxe will be the
sole and exclusive agent for us in any and all matters relating to our income,
franchise and similar tax liabilities. Deluxe will have sole and exclusive
responsibility for the preparation and filing of consolidated federal and
consolidated or combined or unitary state income tax returns or amended
returns. Deluxe will have the power, in its sole discretion, to contest,
compromise or settle any asserted tax adjustment or deficiency and to file,
litigate or compromise any claim for a refund on our behalf. In addition,
Deluxe has agreed to undertake to provide these services with respect to our
separate state and local tax returns and our foreign tax returns. We generally
will pay Deluxe $37,500 per month for the tax services to be provided to us by
Deluxe.
The tax-sharing agreement also will provide that we will indemnify Deluxe
for any taxes due from Deluxe if the split-off or some of the related
transactions fail to qualify as tax-free as a result of our actions or
inactions. We are required under the tax sharing agreement to comply with the
representations made to the Internal Revenue Service in connection with our
private letter ruling request regarding the tax-free nature of the split-off.
In addition, we have agreed to indemnify Deluxe for a portion of any taxes due
from Deluxe if the split-off on some of the related transactions fail to
qualify as tax-free as a result of a retroactive change of law or other reason
unrelated to the action or inaction of either us or Deluxe.
Employee Benefits Agreement
As of the completion of this offering, we will enter into an employee
benefits agreement with Deluxe to allocate assets, liabilities, and
responsibilities relating to our current and former U.S. employees and their
participation in the benefit plans that Deluxe currently sponsors and
maintains.
All of our eligible employees will continue to participate in the Deluxe
benefit plans on comparable terms and conditions to those currently applicable
to them until the split-off or the time at which we establish comparable
benefit plans for our current and former employees.
At the time of the split-off, we expect to adopt benefit plans corresponding
to the Deluxe plans, including qualified retirement plans, executive deferred
compensation and supplemental benefit plans, health and welfare plans, fringe
benefit plans, and leave of absence programs. It is intended that our benefit
plans will take into account all service, compensation and other benefit
determinations that, as of the split-off, were recognized under the
corresponding Deluxe benefit plan.
It is intended that our benefit plans will generally assume any liabilities
for our employees under the corresponding Deluxe benefit plan. Assets relating
to the employee liabilities are expected to be transferred to us or our related
plans and trusts from trusts and other funding vehicles associated with
Deluxe's benefit plans.
Real Estate Agreements
We have purchased real property and a data center located in Phoenix,
Arizona and personal property from a subsidiary of Deluxe at their historical
cost for approximately $10 million. As of the completion of this offering, we
and Deluxe will enter into several agreements under which Deluxe or its
subsidiaries will agree to:
. lease nine sites to us for use as communication nodes for a period of
approximately 12 to 18 months at approximately $942 per month;
. sublease a portion of a building in Shoreview, Minnesota to us for a
period of approximately 12 months at approximately $60,296 per month;
. lease a portion of a data center in Phoenix, Arizona from us at
approximately $116,404 per month; and
. assign their rights as tenant under various leases to us.
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Transitional Services Agreement
As of the completion of this offering, we and Deluxe will enter into a
transitional services agreement under which Deluxe and we will agree to provide
services to each other, including:
. materials procurement,
. financial and administrative services,
. treasury,
. cash management and insurance services,
. sales support,
. legal services, and
. employee benefits administration.
Each service provided under the transitional services agreements will be
provided for a specified time period beginning on completion of this offering
and continuing until either completion of the split off or December 31, 2001.
Either party may terminate any or all services that they receive under the
transitional services agreements at any time upon 60 days' prior written
notice. Any or all services may be extended for one additional 60 day period.
We have agreed to pay $294,422 per month to Deluxe for transitional services
provided to us. Deluxe has agreed to pay $28,800 per month to us for
transitional services provided to Deluxe. These amounts will gradually decrease
as services are terminated.
Professional Services Agreement
We will enter into a master agreement with Deluxe under which we will
provide Deluxe with:
. software development and maintenance services for information technology
applications;
. financial shared services including accounts receivable, accounts
payable and general accounting transaction processing; and
. data entry services.
This agreement will expire on March 31, 2005, and will automatically renew
each year for an additional one year term unless terminated by either party. In
addition, this agreement may be terminated by Deluxe at its option if we are
acquired, whether by merger, the sale of all or substantially all of our
assets, by a third party. During the term of the agreement, we anticipate that
Deluxe will spend approximately $43 million per year for software development,
and repair services for information technology applications, which amounts will
be based on the actual number of hours of information technology services that
we provide to Deluxe. If Deluxe fails to reach the $43 million spending target
per year, it will be obligated to make compensatory payments for a portion of
our fees based on our estimates of lost margins. If Deluxe exceeds the $43
million spending target per year, Deluxe will be entitled to receive reduced
rates. We also will provide business process management services, including
accounts receivable, accounts payable and other general accounting services,
and data entry services. Deluxe's annual minimum spending target for these
business process management services will range from $8.1 million in 2000 to
$4.2 million in 2004. The agreement will also provide for credits to Deluxe for
unsatisfactory performance by us and bonuses for superior performances as are
typical for information technology professional services. The provision of
services by us under the agreement is non-exclusive, and Deluxe may contract
with any third party for the provision of information technology and business
process management services.
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Third Party Indemnification Agreement
Under the third party indemnification agreement, we will agree to indemnify
Deluxe in connection with any liabilities incurred by Deluxe after the split-
off as a result of:
. Deluxe's purchase or lease of property or services for our benefit under
any master agreement; or
. any guaranties under which Deluxe guaranteed our performance of
agreements with third parties.
We are obligated to indemnify Deluxe for any liability to the extent such
liability primarily relates to the past, present or future operation of our
business or operations.
Network Access Agreement
As of the completion of this offering, Deluxe will provide us a license to
use its proprietary network connection to its check printing customers in order
to allow us to continue to provide our products to financial institutions
through this network. In exchange for access to this product delivery channel,
we will pay Deluxe its cost of providing these services during 2000 and cost
plus 10% in 2001. We estimate the cost of these services to be approximately
$3.5 million in 2000. Deluxe will maintain ownership of all rights in its
network, except that we will own the interface between the network security
layer and our back-end systems. The agreement will expire on December 31, 2001.
Data and Related Agreements
We and Deluxe will enter into several agreements which will govern the
transfer of data between us. Under a data contribution agreement, Deluxe will
provide us, at no cost, with consumer account records pertaining to its direct
to consumer check printing business. We will agree to only use this information
for purposes that are consistent with applicable federal, state and local laws,
including the Fair Credit Reporting Act. Customers of Deluxe will have the
ability to request that their information not be provided to us. The agreement
has a term that will end on July 1, 2001.
Under a processing agreement, we will provide Deluxe with bank routing
numbers to enable us to obtain check order history files from Deluxe as long as
we have obtained a consent from the applicable financial institution to receive
this data. Deluxe may only use the bank routing numbers for the purpose of
performing the processing requested by us. We estimate the cost of these
processing services to be approximately $97,472 per year. Either party may
terminate this agreement upon 30 days' prior written notice.
Loan Agreement
Deluxe has agreed to provide us with a revolving credit facility of up to
$75 million until the earlier of the effective date of the split-off, or
December 31, 2000. Borrowings under the facility will be due at the time of the
split-off or maturity and will accrue interest at the London Interbank Offered
Rate, plus a variable additional margin based on Deluxe's credit rating. The
credit facility includes financial and restrictive covenants. We intend to
replace this facility with a new credit facility with one or more financial
institutions prior to the split-off or maturity.
Indemnification Agreement
Deluxe has agreed to indemnify us for any losses on identified government
services loss contracts in excess of the loss contract reserves. We are
required to calculate any charges for loss contracts in a manner consistent
with Deluxe's current loss accrual practices. Deluxe will also indemnify us
against any liabilities, losses or expenses arising from litigation and claims
asserted against us in connection with the operation of our government services
business prior to the completion of this offering. Deluxe's indemnification
obligations are limited to a maximum amount equal to $14.6 million. We have
agreed to indemnify Deluxe for all other claims related to the operation of our
government services business that occur after the completion of this offering.
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PRINCIPAL STOCKHOLDER
All of the shares of our common stock outstanding before this offering are
owned by Deluxe. After this offering, Deluxe will own about 86.5% of our
outstanding common stock. Except for Deluxe, we are not aware of any person or
group that will beneficially own more than 5% of the outstanding shares of our
common stock following this offering.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 250 million shares of common stock,
$.01 par value per share, and 100 million shares of preferred stock, $.01 par
value per share. The following discussion is a summary of the material terms of
our capital stock.
Common Stock
Each holder of our common stock is entitled to one vote for each share held
of record on all matters to be voted upon by the stockholders. There are no
cumulative voting rights. Subject to the preferences of preferred stock issued
after the sale of the common stock in this offering, holders of common stock
are entitled to receive ratably any dividends that may be declared from time to
time by the board of directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up, holders of common
stock would be entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights and there
are no redemption or sinking fund provisions applicable to the common stock.
All outstanding shares of common stock and the shares of common stock
offered by us in this offering, when issued and paid for, will be fully paid
and nonassessable, except for certain statutory liabilities which may be
imposed by Section 180.0622 of the Wisconsin Business Corporation Law for
unpaid employee wages. Section 180.0622 of the Wisconsin Business Corporation
Law provides that shareholders of every corporation that does business in
Wisconsin are personally liable to an amount equal to the par value of the
shares owned by them and for all debts owing to employees for services
performed for such corporation, but not exceeding six months' service in the
case of any individual employee. The rights, preferences and privileges of the
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we may
designate in the future.
Preferred Stock
Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 100 million shares
of preferred stock, in one or more series, with each of such series to have
such rights and preferences, including, without limitation, voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by unlimited discretion of the board of
directors.
Issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of our
outstanding voting stock. We currently have no plans to issue any shares of
preferred stock.
Stockholder Rights Plan
Prior to the completion of this offering, we plan to declare a dividend of
one preferred share purchase right for each outstanding share of common stock
outstanding on the business day immediately preceding the
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date of this prospectus to the stockholders of record on that date. Each right
will entitle the registered holder to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $0.01 per share, at a
price of $ per one one-hundredth of a preferred share, subject to
adjustment. The description and terms of the share purchase rights are set
forth in a Rights Agreement between eFunds and , as Rights Agent, a
copy of the form of which is filed as an exhibit to the registration statement
of which this prospectus is a part.
Initially, the certificates for shares of common stock then outstanding will
evidence the rights and we will not distribute separate right certificates. The
rights will separate from the common stock on the share purchase rights
distribution date, which is the earlier of:
. the first date of public announcement that a person or group of
affiliated or associated persons has become the beneficial owner of 15%
or more of the outstanding common stock, subject to certain exceptions;
and
. the close of business on the 10th day, or such later date as may be
determined by the board of directors prior to such time as any person
becomes the beneficial owner of 15% or more of the outstanding common
stock, following the commencement or public announcement of a tender
offer or exchange offer, the consummation of which would result in a
person or group of affiliated or associated persons becoming the
beneficial owner of 15% or more of the outstanding common stock.
Under the plan, Deluxe's ownership of our stock will not cause the rights to
separate from the common stock or result in a share purchase rights
distribution date.
The board of directors, after receiving such advice as it deems necessary
and giving due consideration to all relevant factors, may elect to approve a
tender offer or an exchange offer for all of our outstanding common stock if
the board determines the offer to be in our best interest and the best
interests of our stockholders. If the board does approve a tender offer or
exchange offer, the rights will expire.
Until the share purchase rights distribution date,
. the rights will be evidenced by the certificates for shares of common
stock and will be transferred with and only with the common stock;
. any common stock certificates issued after the business day immediately
preceding the date of this prospectus upon transfer or new issuance of
the common stock will contain a notation incorporating the Rights
Agreement by reference; and
. the transfer of any common stock will also constitute the transfer of
the rights associated with the common stock.
As promptly as practicable following the share purchase rights distribution
date, we will mail separate certificates evidencing the share purchase rights
to holders of record of the common stock as of the close of business on that
date, and such separate certificates alone will evidence the share purchase
rights.
The holders of our common stock and the share purchase rights cannot
exercise the rights until the distribution date. The rights will expire on the
date that is ten years after the business day immediately preceding the date of
this prospectus, unless we extend or earlier redeem or exchange as described
below. We will not issue fractions of a preferred share, other than fractions
in integral multiples of one one-hundredth of a share, and, in lieu thereof, we
will make a cash adjustment on the closing price on the last trading date prior
to the date of exercise.
We will adjust the purchase price payable and the number of preferred shares
issuable upon exercise of the rights from time to time to prevent dilution:
. in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the preferred shares;
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. upon the grant to holders of the preferred shares of certain rights,
options or warrants to subscribe for or purchase preferred shares or
convertible securities at less than the then current market price of the
preferred shares; or
. upon the distribution to holders of the preferred shares of any evidence
of indebtedness or assets, excluding regular periodic cash dividends or
dividends payable in preferred shares, or of subscription rights or
warrants, other than those described in clause (2) of this paragraph.
With certain exceptions, we are not required to adjust the purchase price
until cumulative adjustments require an adjustment of at least 1% in the
purchase price. We also will adjust the number of outstanding share purchase
rights and the number of preferred shares issuable upon exercise of the rights
in the event of a stock split of the common stock or a stock dividend on the
common stock payable in common stock or subdivisions, consolidations or
combinations of the common stock occurring, in any such case, prior to the
distribution date.
We cannot redeem the preferred shares purchasable upon exercise of the
rights. Each preferred share will be entitled to a minimum preferential
quarterly dividend payment of $ per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per share of common
stock. In the event of liquidation, the holders of the preferred shares will be
entitled to a minimum preferential liquidation payment of $ per share
but will be entitled to an aggregate payment of 100 times the payment made per
share of common stock. Each preferred share will have 100 votes, voting
together with the common stock. Finally, in the event of any merger,
consolidation or other transaction in which common stock is exchanged, each
preferred share will be entitled to receive 100 times the amount received per
share of common stock. These rights are subject to adjustment in the event of a
stock dividend on the common stock or a subdivision, combination or
consolidation of the common stock.
In the event any person becomes the beneficial owner of 15% or more of the
outstanding common stock, each holder of a share purchase right shall
thereafter have a right to receive, in lieu of preferred shares, a number of
shares of our common stock having an aggregate market price equal to twice the
exercise price of the share purchase right. In other words, each holder of a
right will have the right to receive shares of our common stock at a 50%
discount to the then current market price. In the event that at any time after
there is a beneficial owner of 15% or more of the outstanding common stock, we
are acquired in a merger or other business combination or 50% or more of our
assets or earning power are sold, holders of the rights will thereafter have
the right to receive a number of shares of common stock of the acquiring
company at a 50% discount to its then current market price.
At any time after a person becomes the beneficial owner of 15% or more of
the outstanding common stock, subject to certain exceptions, and prior to the
acquisition by a person of 50% or more of the outstanding common stock, the
board of directors may exchange all or part of the rights for common stock at
an exchange ratio of one share of common stock per right, subject to
adjustment.
At any time before a person has become the beneficial owner of 15% or more
of the outstanding common stock, the board of directors may redeem the rights
in whole, but not in part, at a price of $0.01 per right, subject to
adjustment. The redemption of the rights may be made effective at such time, on
such basis and with such conditions as the board of directors in its sole
discretion may establish.
Until a right is exercised, the holder of the right will have no rights as a
stockholder, including without limitation, the right to vote or to receive
dividends.
The rights have anti-takeover effects. The rights will cause substantial
dilution to a person or group that attempts to acquire us pursuant to an offer
that is not approved by the board of directors, unless the rights have been
redeemed. However, the rights should not interfere with any tender offer or
merger approved by the board because the board of directors may redeem the
rights or approve an offer at any time prior to such time as any person has
becomes the beneficial owner of 15% or more of the outstanding common stock.
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Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
. breach of their duty of loyalty to the corporation or its stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Our amended and restated certificate of incorporation provides that we will
indemnify our directors, officers, employees and other agents to the fullest
extent permitted by Delaware law. We believe that indemnification under our
amended and restated certificate of incorporation covers at least negligence
and gross negligence on the part of indemnified parties. Our amended and
restated certificate of incorporation also permits us to secure insurance on
behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
amended and restated certificate of incorporation would permit such
indemnifications.
At present, there is no litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for indemnification.
Anti-Takeover Provisions
Some provisions of our amended and restated certificate of incorporation and
bylaws could make more difficult the acquisition of control of our company, and
the removal of existing management:
. The amended and restated certificate of incorporation does not provide
for cumulative voting for directors;
. We have a classified board of directors with each class serving a
staggered three-year term;
. The board of directors fixes the size of the board of directors, may
create new directorships and may elect new directors to serve for the
full term of the class of directors in which the new directorship was
created. The board of directors (or its remaining members, even though
less than a quorum) also may fill vacancies on the board of directors
occurring for any reason for the remainder of the term of the class of
director in which the vacancy occurred.
. The board of directors may issue preferred stock without any vote or
further action by the stockholders;
. The board of directors may adopt, amend, alter or repeal the bylaws
without a vote of the stockholders;
. All stockholder actions must be taken at a regular or special meeting of
the stockholders and cannot be taken by written consent without a
meeting;
. We require advance notice procedures with respect to stockholder
proposals and the nominations of candidates for election as directors;
and
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<PAGE>
. Without the affirmative vote of the holders of at least 66-2/3% of the
outstanding shares of common stock, together with the affirmative vote
of at least 66-2/3% of the members of the board of directors, we may not
(1) consolidate or merge with any other entity, (2) convey, transfer,
lease or otherwise dispose of all or substantially all of its property
and assets, (3) amend the certificate of incorporation to permit the
removal of directors without cause or (4) amend, modify or repeal the
anti-takeover and indemnification provisions of the amended and restated
certificate of incorporation.
These provisions are expected to discourage coercive takeover practices and
inadequate takeover bids. They are also designed to encourage persons seeking
to acquire control of us to first negotiate with our board. We believe that the
benefits of increased protection give us the potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us and outweigh the disadvantages of discouraging such proposals.
Negotiating with the proponent could result in an improvement of the terms of
the proposal.
Section 203 of the Delaware General Corporation Law
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a business combination with an
interested stockholder for a period of three years following the date the
person became an interested stockholder, unless:
. the board of directors approved the transaction in which such
stockholders became an interested stockholder prior to the date the
interested stockholder attained such status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; and
. the business combination is approved by a majority of the board of
directors and by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder.
A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an interested stockholder is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding an aggregate of
46,250,000 shares of common stock, assuming no exercise of the underwriters'
over-allotment option. All of the shares of common stock sold in this offering
will be freely tradeable without restriction under the Securities Act, unless
such shares are purchased by our "affiliates" as that term is defined in Rule
144 under the Securities Act. Persons who are affiliates may sell shares that
are issued in this offering in the public market only through registration
under the Securities Act or under an exemption from registration, such as the
one provided by Rule 144.
Deluxe has announced that, subject to specified conditions, it intends to
distribute all of its shares of our common stock in the split-off. Any shares
distributed by Deluxe will be freely tradeable, except for shares received by
our affiliates.
Rule 144
In general, under Rule 144, beginning 91 days after the date of this
prospectus, a person who beneficially owns "restricted securities" within the
meaning of Rule 144 for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this offering;
or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice of Form 144 with respect to that sale.
Sales under Rule 144 also are subject to manner of sale and notice requirements
and to the availability of current public information about us. Our affiliates
who purchase shares of our common stock pursuant to this offering or acquire
our shares of common stock in the tax-free distribution would be subject to the
resale restrictions of Rule 144 described above.
Lock-Up Agreements
We, our executive officers and directors have agreed not to sell or
otherwise dispose of any shares of our common stock or any securities
convertible into or exchangeable for common stock, for a period of 180 days
after the date of this prospectus, without the prior written consent of Lehman
Brothers Inc., subject to limited exceptions. See "Underwriting -- No Sales of
Similar Securities."
Stock Options
We will grant shares of our common stock pursuant to our stock plans. Upon
completion of this offering, we will have reserved 13,412,500 shares of our
common stock for issuance under our incentive stock option plan and our plan
for the conversion of Deluxe options in connection with the split-off. We
expect to grant options to purchase an aggregate of 2,639,524 shares of our
common stock under our incentive stock option plan upon the completion of this
offering with an exercise price equal to the initial public offering price,
unless a lower price is required by law or government regulation. We currently
expect to file registration statements under the Securities Act to register
shares reserved for issuance under our stock plans. Shares issued pursuant to
our stock plans after the effective date of that registration statement, other
than shares issued to affiliates, generally will be freely tradeable without
further registration under the Securities Act. In addition, at the time of the
split-off, all outstanding options to purchase Deluxe common stock will be
converted into new options to purchase Deluxe common stock and options to
purchase our common stock. At the time of the split-off, all outstanding
options to purchase Deluxe common stock will be converted into new options to
purchase Deluxe common stock and options to purchase our common stock. The
actual number of options will be determined at the time of the split-off based
on the market price of our common stock and Deluxe common stock. Based upon an
assumed price of $15.00 per share for our shares and assuming the market price
of Deluxe's common stock at the time of the split-off is the same as the
closing market price on May 11, 2000, the number of our shares for which
options would be granted under this conversion plan would be approximately 3.1
million and the weighted average exercise price would be $18.74 per share. See
"Management -- Treatment of Deluxe Options."
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<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following discussion is a summary of the material United States federal
income and estate tax consequences of the ownership and disposition of our
common stock by non-United States holders. This discussion does not deal with
all aspects of United States federal income and estate taxation and does not
deal with foreign, state and local tax consequences. This discussion does not
address all tax considerations that may be relevant to non-United States
holders in light of their personal circumstances, or to certain non-United
States holders that may be subject to special treatment under United States
federal income or estate tax laws. Furthermore, this discussion is based on the
Internal Revenue Code of 1986, as amended, Treasury Department regulations,
published positions of the Internal Revenue Service and court decisions now in
effect, all of which are subject to change, possibly with retroactive effect.
You are urged to consult your own tax advisor regarding the United States
federal tax consequences of owning and disposing of our common stock, as well
as the applicability and effect of any state, local or foreign tax laws.
In this section we use the term United States holder to refer to a
beneficial owner of stock that is:
. a citizen or resident of the United States;
. a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision of the
United States;
. an estate the income of which is subject to United States federal income
taxation regardless of its source; or
. a trust that:
- is subject to the supervision of a court within the United States
and the control of one or more United States persons; or
- has a valid election in effect under applicable United States
Treasury regulations to be treated as a United States person.
We use the term non-United States holder to refer to a beneficial owner of
stock that is not a United States holder.
Dividends
Generally, any dividend paid to a non-United States holder will be subject
to United States withholding tax either at a rate of 30% of the gross amount of
the dividend or at a lesser applicable treaty rate. However, dividends that are
effectively connected with the conduct of a trade or business of the non-United
States holder within the United States and, where a tax treaty applies, that
are attributable to a United States permanent establishment of the non-United
States holder are not subject to the withholding tax but instead are subject to
United States federal income tax on a net income basis at applicable graduated
individual or corporate rates.
In order for dividends paid to a non-United States holder to be exempt from
withholding under the effectively connected income exemption, the holder must
comply with certification and disclosure requirements. In some circumstances, a
foreign corporation that receives effectively connected dividends may be
subject to an additional branch profits tax at a 30% rate or a lesser
applicable treaty rate.
Until January 1, 2001, dividends paid to an address outside the United
States are presumed to be paid to a resident of that country, unless the payer
has knowledge to the contrary, for purposes of the withholding tax discussed
above and, under the current regulations, for purposes of determining the
applicability of a reduced rate of withholding under the terms of a tax treaty.
If you wish to claim the benefit of an applicable treaty rate and avoid backup
withholding, as discussed below, for dividends paid after December 31, 2000,
final regulations effective after that date will require you to satisfy
applicable certification and other requirements.
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If you are eligible for a reduced treaty rate of United States withholding
tax pursuant to an income tax treaty, you may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the Internal
Revenue Service.
Gain on Disposition of Common Stock
If you are a non-United States holder, you will generally not be subject to
United States federal income tax with respect to gain recognized on a sale or
other disposition of our common stock unless:
. the gain is effectively connected with a trade or business of yours in
the United States or, where a tax treaty provides, the gain is
attributable to a United States permanent establishment of yours;
. you are an individual and hold our common stock as a capital asset, you
are present in the United States for 183 or more days in the taxable
year of the sale or other disposition and certain other conditions are
met;
. you are subject to tax pursuant to the provisions of the United States
federal income tax laws applicable to certain United States expatriates;
or
. we are or have been a United States real property holding corporation
for United States federal income tax purposes.
We believe that we are not, and do not anticipate becoming, a United States
real property holding corporation for United States federal income tax
purposes. If we were to become a United States real property holding
corporation, so long as our common stock continues to be regularly traded on an
established securities market, you would be subject to federal income tax on
any gain from the sale or other disposition of the stock only if you actually
or constructively owned, during the five-year period preceding the disposition,
more than 5% of our common stock.
Special rules may apply to non-United States holders, such as controlled
foreign corporations, passive foreign investment companies, foreign personal
holding companies and corporations that accumulate earnings to avoid federal
income tax, that are subject to special treatment under the Code. These
entities should consult their own tax advisors to determine the United States
federal, state, local and other tax consequences that may be relevant to them.
Backup Withholding and Information Reporting
We must report annually to the Internal Revenue Service and to you the
amount of dividends paid to you and the tax withheld with respect to these
dividends, regardless of whether withholding was required. Copies of the
information returns reporting the dividends and withholding may also be made
available to the tax authorities in the country in which you reside under the
provisions of an applicable income tax treaty.
Under current law, backup withholding at the rate of 31% generally will not
apply to dividends paid to you at an address outside the United States, unless
the payer has knowledge that you are a United States person. However, under the
final regulations effective for dividends paid on or after January 1, 2001, you
will be subject to backup withholding unless applicable certification
requirements are met.
Payment of the proceeds of a sale of our common stock within the United
States or conducted through certain United States related financial
intermediaries is subject to both backup withholding and information reporting
unless you certify under penalties of perjury that you are a non-United States
holder and the payer does not have actual knowledge that you are a United
States person, or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against your United States federal income tax liability
provided you furnish the required information to the Internal Revenue Service.
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<PAGE>
Estate Tax
Common stock held by an individual non-United States holder at the time of
death will be included in that holder's gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise,
and may be subject to United States federal estate tax.
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<PAGE>
UNDERWRITING
Under the terms of an underwriting agreement, which is filed as an exhibit
to the registration statement of which this prospectus is a part, the
underwriters of the offering named below, for whom Lehman Brothers Inc., Bear,
Stearns & Co. Inc., FAC/Equities, a division of First Albany Corporation, John
G. Kinnard & Company Incorporated and Fidelity Capital Markets, a division of
National Financial Services Corporation are acting as representatives, have
each agreed to purchase from us the respective number of shares of common stock
set forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Lehman Brothers Inc. .........................................
Bear, Stearns & Co. Inc. .....................................
FAC/Equities, a division of First Albany Corporation..........
John G. Kinnard and Company, Incorporated.....................
Fidelity Capital Markets, a division of National Financial
Services Corporation.........................................
---------
Total....................................................... 6,250,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock which the underwriters have
agreed to purchase under the underwriting agreement must be purchased. The
conditions in the underwriting agreement include the requirement that the
representations and warranties made by us to the underwriters are true, that
there is no material change in the financial markets and that we deliver to the
underwriters customary closing documents.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act or to contribute to payments that the
underwriters may be required to make for these liabilities.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter of this offering and will be
facilitating electronic distribution of information through the Internet.
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed five percent of the total number of
shares of common stock offered by them.
Certain of the underwriters and their affiliates provide investment banking,
financial advisory and other services to us and Deluxe for which they may
receive customary fees and commissions. Specifically, Lehman Brothers Inc. has
been engaged by Deluxe to act as exchange agent and provide advisory services
in connection with the split-off. Lehman Brothers Inc. will receive customary
fees in connection with the split-off transaction.
Commissions and Discounts
The following table summarizes the underwriting discount we will pay and any
other amounts that are deemed to be underwriting compensation by the NASD's
rules of fair practice. The underwriting discount is equal to the public offer
price per share less the amount paid to us per share. The underwriting discount
is equal to % of the public offering price.
<TABLE>
<CAPTION>
Paid by Us No Exercise Full Exercise
---------- ----------- -------------
<S> <C> <C>
Per share......................................
Total..........................................
</TABLE>
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The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the initial public
offering price set forth on the cover of this prospectus and to dealers, who
may include the underwriters, at the same price less a selling concession not
in excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After the offering, the offering price and other selling terms may change.
The following table summarizes the costs and expenses, other than the
underwriting discount, we will pay in connection with the offering. All amounts
are estimates except the SEC Registration Fee, the NASD Filing Fee and the
Nasdaq Filing Fee.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 30,360
NASD Filing Fee............................................... 12,000
Nasdaq Filing Fee............................................. 100,000
Blue Sky fees and expenses.................................... 10,000
Accountants' fees and expenses................................ 2,000,000
Legal fees and expenses....................................... 2,000,000
Printing and engraving expenses............................... 150,000
Transfer agent and registrar fees............................. 50,000
Miscellaneous expenses........................................ 147,640
----------
Total....................................................... $4,500,000
==========
</TABLE>
Over-Allotment Option
We have granted to the underwriters an option to purchase up to an aggregate
of 937,500 additional shares of common stock, exercisable to cover over-
allotments, if any, at the initial public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option any time during the 30-day period after
the date of this prospectus. If this option is exercised, each underwriter will
be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares to the underwriters.
No Sales of Similar Securities
We, Deluxe and our executive officers and directors have agreed not to
directly or indirectly do any of the following, whether any transaction
described in clause (1) or (2) below is to be settled by delivery of common
stock or other securities, in cash or otherwise, in each case without the prior
written consent of Lehman Brothers Inc. on behalf of the underwriters, for a
period of 180 days after the date of this prospectus:
(1) offer for sale, sell or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to,
result in the disposition or purchase by any person at any time in the
future of) any shares of common stock or securities convertible into or
exchangeable for common stock or substantially similar securities,
other than any of the following:
. the common stock sold under this prospectus;
. distribution of common stock pursuant to the split-off;
. shares of common stock we issue under employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date of this prospectus or under currently
outstanding options, warrants or rights; and
. shares of common stock issued pursuant to an agreement by us to
purchase, acquire or effect the merger of another entity into us if
in connection with the transaction each initial transferee agrees to
be subject to the 180-day lock-up.
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(2) sell or grant options, rights or warrants with respect to any shares
of our common stock or securities convertible into or exchangeable for
our common stock or substantially similar securities, other than the
grant of options under option plans existing on the date of this
prospectus.
Determination of Offering Price
Prior to this offering, there has been no public market for the shares of
our common stock. The initial public offering price will be negotiated between
the representatives and us. In determining the initial public offering price of
the common stock, primary considerations of the representatives will be, among
other things and in addition to prevailing market conditions, our performance
and capital structure, estimates of our business potential and earnings
prospects, an overall assessment of our management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
Nasdaq National Market Listing
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "EFDS."
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with this offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position
or to stabilize the price of the common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
this offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Reserved Shares
At our request, the underwriters have reserved up to 300,000 shares of the
common stock offered by this prospectus for sale to our directors and officers
and other persons with whom we have established business relationships at the
initial public offering price set forth on the cover page of this prospectus.
All of these
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<PAGE>
purchases will be subject to lock-up agreements. These persons must commit to
purchase no later than the close of business on the day following the date of
this prospectus. The number of shares available for sale to the general public
will be reduced to the extent these persons purchase the reserved shares.
Canadian Offers
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
LEGAL MATTERS
The validity of the issuance of shares of common stock offered by us in this
offering will be passed upon for us by Dorsey & Whitney LLP, Minneapolis,
Minnesota. Certain legal matters related to the offering will be passed upon
for the underwriters by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing in this prospectus and elsewhere
in the registration statement, and are included in reliance upon the report of
such firm, given upon their authority, as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not include all of the information contained in the
registration statement. For further information about us and our common stock,
you should refer to the registration statement and the exhibits. Statements
contained in this prospectus regarding the contents of any contract or any
other document to which reference is made are not necessarily complete. In each
instance, please refer to the copy of such contract or other document filed as
an exhibit to the registration statement. Each statement about the contract or
other document contained in the prospectus is qualified in all respects to the
actual document filed with the registration statement.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934 and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Our fiscal year ends on December 31. We intend
to furnish our stockholders with annual reports containing audited financial
statements and other appropriate reports.
You may read and copy the registration statement on Form S-1 and any other
document we file with the Commission at its public reference room at 450 Fifth
Street, NW, Washington, DC 20549, as well as at its regional offices located at
7 World Trade Center, Suite 1300, New York, NY 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661. Please call the Commission
at 1-800-SEC-0330 for further information about its public reference facilities
and copy charges. Our filings are also available to the public from the
Commission's web site at http://www.sec.gov.
Deluxe Corporation is subject to the information requirements of the
Securities Exchange Act of 1934. You may obtain copies of the documents that
Deluxe files electronically with the Commission at its web site located at
http://www.sec.gov. The documents filed by Deluxe are not deemed to be
incorporated into this prospectus or deemed to be a part of this prospectus or
the registration statement of which it forms a part.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1999 and March 31,
2000 (Unaudited)........................................................ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999 and the Quarters Ended March 31, 1999 and 2000
(Unaudited)............................................................. F-4
Consolidated Statements of Comprehensive Income (Loss) for the Years
Ended December 31, 1997, 1998 and 1999 and the Quarters Ended March 31,
1999 and 2000 (Unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999 and the Quarters Ended March 31, 1999 and 2000
(Unaudited)............................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
eFunds Corporation
We have audited the accompanying consolidated balance sheets of eFunds
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, comprehensive income (loss) and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsiblity is to express and opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of eFunds Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
April 3, 2000 (May 12, 2000 as to the effects of the stock split described in
Note 2 and as to Note 15)
F-2
<PAGE>
eFUNDS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, Unaudited
------------------ March 31,
1998 1999 2000
-------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents..................... $ 16,055 $ 35,849 $ 26,876
Restricted custodial cash..................... 545 3,429 4,247
Accounts receivable--net...................... 49,620 52,834 61,931
Deferred income taxes......................... 20,755 10,552 10,552
Income taxes receivable....................... 2,799 7,109 --
Prepaid expenses and other current assets..... 3,428 3,061 4,756
-------- -------- --------
Total current assets......................... 93,202 112,834 108,362
Long-term Investments........................... 1,370 3,347 23,982
Deferred Income Taxes........................... -- 1,549 1,539
Restricted Cash................................. 3,921 28,939 24,470
Property and Equipment
Land and land improvements.................... 5,001 4,993 6,843
Buildings and building improvements........... 32,351 33,683 44,262
Computer and other equipment.................. 76,522 80,211 84,141
-------- -------- --------
Total........................................ 113,874 118,887 135,246
Less accumulated depreciation................. (55,414) (58,414) (64,786)
-------- -------- --------
Property and equipment--net.................. 58,460 60,473 70,460
Intangibles
Cost in excess of net assets acquired--net.... 9,258 46,905 45,933
Internal use software--net.................... 5,550 20,746 25,425
Other intangible assets--net.................. 14,574 15,136 15,579
-------- -------- --------
Total intangibles............................ 29,382 82,787 86,937
-------- -------- --------
Total non-current assets..................... 93,133 177,095 207,388
-------- -------- --------
Total assets............................... $186,335 $289,929 $315,750
======== ======== ========
Current Liabilities
Accounts payable.............................. $ 10,728 $ 19,791 $ 22,916
Accrued liabilities:
Accrued compensation and employee benefits... 10,480 18,172 12,030
Accrued contract losses...................... 14,697 20,599 19,542
Reserve for legal proceedings................ 35,754 1,554 1,465
Other........................................ 18,184 22,116 29,782
Borrowings on line of credit.................. -- 3,100 4,528
Long-term debt due within one year............ 1,490 1,895 2,047
-------- -------- --------
Total current liabilities.................... 91,333 87,227 92,310
Long-term Debt.................................. 4,029 3,597 3,284
Deferred Income Taxes .......................... 1,170 -- 50
Commitments and Contingencies (Notes 11 and 14)
Stockholder's Equity
Common shares $.01 par value (authorized:
250,000,000 shares;
issued and outstanding: 40,000,000 shares)... 400 400 400
Additional paid-in capital.................... 14,564 292,198 327,290
Retained earnings (accumulated deficit)....... 74,967 (92,946) (106,655)
Accumulated other comprehensive loss.......... (128) (547) (929)
-------- -------- --------
Stockholder's equity......................... 89,803 199,105 220,106
-------- -------- --------
Total liabilities and stockholder's
equity.................................... $186,335 $289,929 $315,750
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
eFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
Quarter Ended
Year Ended December 31, March 31,
---------------------------- -----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- --------
(dollars and shares in thousands, except
per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales..................... $229,065 $267,520 $302,340 $67,856 $100,255
-------- -------- -------- ------- --------
Cost of sales, excluding
loss contract and asset
impairment charges......... 143,966 171,359 185,590 43,060 58,757
Loss contract and asset
impairment charges......... -- 40,949 8,700 60 --
-------- -------- -------- ------- --------
Total cost of sales....... 143,966 212,308 194,290 43,120 58,757
-------- -------- -------- ------- --------
Gross Margin.................. 85,099 55,212 108,050 24,736 41,498
-------- -------- -------- ------- --------
Selling, general and
administrative............. 70,542 81,198 105,382 17,887 38,178
Research and development.... 1,398 625 3,756 536 579
Asset impairment charges.... 11,831 -- -- -- --
-------- -------- -------- ------- --------
Total operating expenses.. 83,771 81,823 109,138 18,423 38,757
-------- -------- -------- ------- --------
Income (loss) from
operations................. 1,328 (26,611) (1,088) 6,313 2,741
Other Income (Expense)
Legal proceedings........... (40,050) 4,157 2,094 2,094 --
Other income (expense)...... (918) (3,495) (4,609) (866) 13
Interest income (expense)... (825) 2,789 963 803 (801)
-------- -------- -------- ------- --------
Income (Loss) Before Income
Taxes........................ (40,465) (23,160) (2,640) 8,344 1,953
Benefit (Provision) for Income
Taxes........................ 6,397 8,569 (5,586) (4,530) (737)
-------- -------- -------- ------- --------
Net Income (Loss)............. $(34,068) $(14,591) $ (8,226) $ 3,814 $ 1,216
======== ======== ======== ======= ========
Net Income (Loss) per Share--
Basic and Diluted............ $ (0.85) $ (0.36) $ (0.21) $ 0.10 $ 0.03
======== ======== ======== ======= ========
Weighted Average Common Shares
Outstanding--Basic and
Diluted...................... 40,000 40,000 40,000 40,000 40,000
======== ======== ======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
eFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Unaudited
Quarter Ended
Year Ended December 31, March 31,
--------------------------- --------------
1997 1998 1999 1999 2000
-------- -------- ------- ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net Income (Loss) ................ $(34,068) $(14,591) $(8,226) $3,814 $1,216
Other Comprehensive (Loss) Income,
Net of Tax--
Foreign currency translation
adjustments.................... (972) 44 (419) (164) (382)
-------- -------- ------- ------ ------
Comprehensive Income (Loss) ...... $(35,040) $(14,547) $(8,645) $3,650 $ 834
======== ======== ======= ====== ======
Related Tax Benefit (Expense) of
Other Comprehensive Income
(Loss)--
Foreign currency translation
adjustments.................... $ 182 $ (26) $ (795) $ 312 $ (144)
======== ======== ======= ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
eFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
Quarter Eended
Year Ended December 31, March 31,
---------------------------- ----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income (loss)............ $(34,068) $(14,591) $ (8,226) $ 3,814 $ 1,216
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation................ 9,914 12,015 12,519 2,998 2,900
Amortization of
intangibles................ 12,834 9,504 9,982 2,000 3,639
Asset impairment charges.... 11,831 26,252 492 60 --
Equity in pre-acquisition
earnings of the
professional services
segment.................... 665 1,759 1,114 852 --
Loss on sales of capital
assets..................... 449 2,635 4,973 391 69
Deferred income taxes....... (13,521) (6,529) 8,927 16 9
Changes in assets and
liabilities, net of effects
from acquisitions:
Restricted cash........... -- (4,466) (27,902) (480) 3,651
Accounts receivable....... (5,256) (6,629) 393 (6,294) (8,649)
Accounts payable.......... 1,996 (6,571) 7,963 1,805 4,507
Income taxes
receivable/payable....... (119) (10,218) (4,310) 3,715 8,450
Reserve for legal
proceedings.............. 41,982 (6,228) (34,200) (34,134) (89)
Accrued contract losses... -- 14,697 5,902 (1,299) (1,058)
Other assets and
liabilities.............. (769) (3,809) 10,223 (3,351) (1,019)
-------- -------- -------- ------- -------
Net cash provided by (used
in) operating
activities............... 25,938 7,821 (12,150) (29,907) 13,626
-------- -------- -------- ------- -------
Cash Flows from Investing
Activities
Purchases of capital assets.. (17,985) (30,468) (38,225) (7,614) (8,797)
Payments for acquisitions and
investments, net of cash
acquired.................... -- -- (35,667) (13,038) (20,000)
Proceeds from sales of
capital assets.............. 131 70 1,229 -- --
Other........................ (665) (1,139) (546) (40) (49)
-------- -------- -------- ------- -------
Net cash used in investing
activities............... (18,519) (31,537) (73,209) (20,692) (28,846)
-------- -------- -------- ------- -------
Cash Flows from Financing
Activities
Net borrowings on lines of
credit...................... -- -- 3,054 -- 739
Proceeds from issuance of
long-term debt.............. 290 61 11 -- 7
Payments on long-term debt... (2,293) (2,125) (6,665) (2,796) (477)
(Distributions to)
contributions by Deluxe,
net......................... (8,799) 17,992 268,440 55,417 23,905
Dividends paid to Deluxe..... -- -- (159,687) -- (13,800)
-------- -------- -------- ------- -------
Net cash (used in)
provided by financing
activities............... (10,802) 15,928 105,153 52,621 10,374
-------- -------- -------- ------- -------
Net Cash Used by Certain
International Operations
During December, 1999 (see
Note 1)....................... -- -- -- -- (4,127)
-------- -------- -------- ------- -------
Net (Decrease) Increase in Cash
and Cash Equivalents.......... (3,383) (7,788) 19,794 2,022 (8,973)
Cash and Cash Equivalents at
Beginning of Period........... 27,226 23,843 16,055 16,055 35,849
-------- -------- -------- ------- -------
Cash and Cash Equivalents at
End of Period................. $ 23,843 $ 16,055 $ 35,849 $18,077 $26,876
======== ======== ======== ======= =======
Supplementary cash flow
disclosure:
Interest paid................ $ 949 $ 673 $ 1,091 $ 119 $ 430
======== ======== ======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
eFUNDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (INFORMATION AS
OF MARCH 31, 2000
AND FOR THE QUARTERS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
Note 1: Split-off and basis of presentation
In January 2000, Deluxe Corporation (Deluxe) announced that its board of
directors approved a plan (the Plan) to combine its electronic payment
solutions, professional services and government services businesses into a
separate, independent publicly traded company to be called eFunds Corporation
(the Company). The Company, a Delaware corporation, changed its name from
Deluxe Electronic Payment Systems, Inc. to eFunds Corporation in September
1999. Electronic payment solutions provides a comprehensive suite of
transaction processing services and decision support and risk management
products for debit transactions to the financial services and retail
industries. Professional services provides information technology consulting
and business process management services to financial services companies and to
all of the Company's and Deluxe's businesses. Government services provides
online electronic benefits transfer (EBT) services under entitlement programs
on behalf of state and local governments and Medicaid eligibility verification
services.
Deluxe has announced that it plans to issue shares of the Company's common
stock to the public through an initial public offering (IPO). After the IPO,
Deluxe will own at least 80.1% of the Company's outstanding shares. Deluxe
plans to distribute all of its shares of the Company's common stock to its
shareholders who tender shares of Deluxe's common stock in an exchange offer
(the Split-off). Deluxe has requested a private letter ruling from the Internal
Revenue Service that the Split-off would be a tax-free transaction to Deluxe
and its shareholders. The Split-off is contingent upon Deluxe receiving a
favorable tax ruling from the IRS. In accordance with Emerging Issues Task
Force No. 96-4, Accounting for Reorganizations Involving a Non-Pro Rata Split-
Off of Certain Nonmonetary Assets to Owners, and Accounting Principles Board
No. 29, Accounting for Nonmonetary Transactions, Deluxe will account for the
Split-off as a non-pro rata split-off of a segment of the business in a
corporate plan of reorganization and will account for the transaction at fair
value.
As part of the Split-off, the Company and Deluxe will enter into various
agreements that address matters, such as information technology consulting and
business processing management services, indemnification, data sharing, real
estate, tax-sharing and transitional services.
Certain agreements between the Company and Deluxe relate to services that
each party also provides to external customers, i.e. revenue-generating
services. These agreements are intended to be on-going once the Company is
split-off from Deluxe. The Company will provide information technology
consulting, data entry, and financial services to Deluxe as it would to any
other external customers. Conversely, Deluxe will provide the Company certain
development and support services as it would to any external customer.
Deluxe has agreed to indemnify the Company for any additional losses on
identified government services loss contracts after the Split-off. The Company
plans to record any amounts earned from Deluxe after this point as a reduction
of expense. Under the indemnification agreement, the Company is required to
calculate increases or decreases to the loss contract reserve in a manner
consistent with Deluxe's current loss accrual practices and generally accepted
accounting principles. Deluxe will also indemnify the Company against any
liabilities, losses or expenses arising from the litigation or claims asserted
against the Company in connection with the operation of the government services
business prior to the completion of the IPO and against third party claims
related to Deluxe's business after the IPO. Deluxe's total indemnification
obligations to the Company are limited to $14.6 million, except that claims
related to Deluxe's business after the IPO are not subject to this limitation.
F-7
<PAGE>
Deluxe will assist the Company with certain treasury, accounting, legal, and
sales services through the Split-off date. Deluxe will also assist the Company
in the administration of benefit and compensation plans, printing services and
rental of certain facilities through December 31, 2000. The purpose of these
transitional service agreements is to allow the party receiving the services to
locate another source for such service. As such, the party receiving the
transitional service may discontinue the service at any time prior to the
termination date contained within the agreement, or may extend the service
period for an additional 60 days if necessary. In addition, the Company will
sublease portions of certain facilities to Deluxe for various periods through
December 2001.
Deluxe contributed the ownership of various subsidiaries and certain assets
and liabilities of business operations (the Transferred Businesses) to the
Company on March 31, 2000. As the Company and the Transferred Businesses are
under common control, the consolidated financial statements of the Company
include all of the assets, liabilities, revenues and expenses of the businesses
conducted through the electronic payment solutions, professional services and
government services segments.
All transactions between the entities included in the consolidated financial
statements have been eliminated. Because the Transferred Businesses are under
common control, the accompanying consolidated financial statements have been
retroactively restated to reflect the historical consolidated financial
position as of December 31, 1999 and 1998 and the consolidated results of
operations and cash flows for each of the three years in the period ended
December 31, 1999 as if the contribution of the Transferred Business described
above had occurred and been operating as a stand-alone business throughout the
periods presented, on an "as-if-pooled" basis.
Included in the consolidated financial statements are allocated portions of
Deluxe's corporate assets, liabilities and expenses relating to the Transferred
Businesses. Deluxe and the Company believe the allocation method and the
allocations are reasonable; however, the Company has no history as an
independent operating company. The historical financial information the Company
has included in the consolidated financial statements may not be reflective of
what the results of operations, financial condition and cash flows would have
been had the Company had been a separate, stand-alone entity during the periods
presented. Following the IPO, the Company will be required to have its own
financial, administrative and other resources to operate as an independent
public company and to replace other services provided by Deluxe. As a result,
the historical financial information may not necessarily be indicative of what
the results of operations, financial condition and cash flows will be in the
future. The Company has not made adjustments to reflect changes that may occur
to its cost structure, funding and operations as a result of the separation
from Deluxe.
The allocations of common expenses, which were calculated based on a
percentage of Company revenue to total Deluxe revenue, headcount, square
footage and transaction processing costs, included costs for various support
functions such as human resources, information services and finance. These
common costs to the Company and Deluxe were allocated since specific
identification of the actual costs incurred was not practicable. In addition,
historically, the Deluxe corporate entity has purchased certain assets or paid
certain liabilities that were attributable to the Company. These items were
specifically identified from within the Deluxe consolidated financial
statements and have been recorded in the Company's consolidated financial
statements.
Note 2: Significant accounting policies
Consolidation--The consolidated financial statements include the accounts of
the Company and the Transferred Businesses. All significant intercompany
accounts, transactions and profits have been eliminated. For purposes of
consolidating the professional services segment, which is primarily based in
India, the Company has used financial statements with a November 30 fiscal
period end.
Effective January 1, 2000, the professional services segment, which had
previously reported their results of operations and financial position on a
one-month lag, changed their reporting dates to coincide with the rest of
F-8
<PAGE>
the Company's subsidiaries. This change, which was made in conjunction with the
implementation of the Company's central accounting and financial reporting
system, will reflect the financial results of that segment on a timely basis
and improve operating and planning efficiencies. The results of operations for
the professional services segment for the month of December 1999 were excluded
from the Company's statements of operations and were reflected as an adjustment
to accumulated deficit in the three months ended March 31, 2000. This segment
generated a net loss of $1.1 million in the month of December 1999.
Cash and cash equivalents--The Company considers all cash on hand, money
market funds, outstanding transfers of cash for authorized settlement of
automated teller machines (ATMs) with financial institutions and other highly
liquid investments with original maturities of three months or less to be cash
and cash equivalents. The carrying amounts reported in the consolidated balance
sheets for cash and cash equivalents approximate fair value.
Restricted cash--The Company has entered into agreements with a third party
to supply cash for ATMs maintained by the third party in various locations
throughout the United States. The agreements provide that the Company retains
control over and ownership of this cash. Subject to the approval of the
Company, the other party to the agreements determines the level of cash
required to be maintained within the ATMs up to an authorized level. The
Company currently has an aggregated outstanding authorized cash level of $35
million. The agreements are effective through August 31, 2004. The cash in the
ATMs is not available for general operating use and is reflected in the
Company's consolidated balance sheets as a non-current asset.
In connection with the Company's electronic payment transactions, the
Company also has cash belonging to customers that temporarily resides in
custodial accounts maintained by the Company. The Company records these amounts
as current restricted custodial cash with a corresponding liability within
other accrued liabilities in the consolidated balance sheets.
Accounts receivable--Accounts receivable are stated net of allowances for
uncollectible accounts of $2.1 million and $4.5 million at December 31, 1998
and 1999, respectively. The Company records allowances for uncollectible
accounts when it is probable that the full amount of its accounts receivable
balance will not be collected and when this uncollectible amount can be
reasonably estimated. When estimating the allowances for uncollectible
accounts, the Company takes into consideration such factors as its day-to-day
knowledge of specific customers, the industry and size of its customers, the
overall composition of its accounts receivable aging, prior history of accounts
receivable write-offs and prior history of allowances in proportion to the
overall receivable balance. Increases in the allowances for uncollectible
accounts are recorded as bad debt expense and are reflected in selling, general
and administrative expense in the Company's consolidated financial statements.
Bad debt expense was $1.5 million in 1997, $1.1 million in 1998 and $2.9
million in 1999. When a specific account receivable is determined to be
uncollectible, the Company reduces both its accounts receivable and allowances
for uncollectible accounts accordingly. As of December 31, 1998 and 1999, no
one customer accounted for 10% or more of total receivables.
Long-term investments--At December 31, 1997, 1998, and 1999, long-term
investments consisted principally of cash surrender values of insurance
contracts. The carrying values approximate their fair values. See Note 15.
Property and equipment--Property and equipment, including leasehold and
other improvements that extend an asset's useful life or productive
capabilities, are stated at historical cost. Buildings with 40-year lives and
computer and other equipment with lives of three to eight years are generally
depreciated using accelerated methods. Leasehold and building improvements are
depreciated on a straight-line basis over the estimated useful life of the
property or the life of the lease, whichever is shorter.
Intangibles--Intangibles are presented in the consolidated balance sheets
net of accumulated amortization. Amortization expense is determined on the
straight-line basis over periods of 10 to 30 years for cost in excess
F-9
<PAGE>
of net assets acquired (goodwill) and one to five years for internal use
software and other intangibles. Other intangibles consist primarily of licensed
software and software held for sale. The Company continually re-evaluates the
original assumptions and rationale utilized in the establishment of the
estimated lives of its identifiable intangible assets and goodwill. The
carrying values of its intangible assets are evaluated for impairment in
accordance with the Company's policy on impairment of long-lived assets and
intangibles. Total intangibles were as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31, Unaudited
----------------- March 31,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
Cost in excess of net assets acquired (see
Note 4)................................... $ 21,431 $ 61,577 $61,657
Internal use software...................... 11,729 34,164 41,109
Other intangible assets.................... 68,711 69,784 70,675
-------- -------- --------
Total.................................... 101,871 165,525 173,441
Less accumulated amortization.............. 72,489 82,738 86,504
-------- -------- --------
Intangibles--net........................... $ 29,382 $ 82,787 $ 86,937
======== ======== ========
</TABLE>
Impairment of long-lived assets--The Company periodically evaluates the
recoverability of property, plant, equipment and identifiable intangibles not
held for sale by measuring the carrying amount of the asset against the
estimated undiscounted future cash flows associated with it. When the asset
being evaluated was acquired in a purchase business combination in which
goodwill was recorded, a pro rata portion of the goodwill value is included in
the carrying amount of the asset. This pro rata portion of goodwill is based on
the relative fair values at the date of acquisition of the long-lived assets
and identifiable intangibles acquired. Should the sum of the expected future
net cash flows be less than the carrying value of the asset being evaluated, an
impairment loss would be recognized. The impairment loss would be calculated as
the amount by which the carrying value of the asset exceeds the fair value of
the asset. In evaluating whether there is any impairment of long-lived asset
associated with a long-term service contract, the amount of any loss contract
accrual is excluded from the undiscounted future cash flows associated with the
long-lived asset when determining whether the asset is impaired.
The Company periodically evaluates the recoverability of property, plant,
equipment and identifiable intangibles held for disposal by comparing the
asset's carrying amount with its fair value less costs to sell. If a large
segment or separable group of assets which were acquired in a purchase business
combination were held for disposal, all or a portion of the unamortized
goodwill associated with the assets would be included in the carrying amount of
the assets for purposes of this evaluation. Should the fair value less costs to
sell be less than the carrying value of the long-lived asset(s), an impairment
loss would be recognized. The impairment loss would be calculated as the amount
by which the carrying value of the asset(s) exceeds the fair value of the
asset(s) less costs to sell.
The Company evaluates the carrying value of goodwill at an enterprise level
when events or changes in circumstances at the businesses to which the goodwill
relates indicate that recoverability of the carrying amount may not be
recoverable. Such circumstances could include, but are not limited to, (1) a
current period operating or cash flow loss combined with a history of operating
or cash flow losses, (2) a forecast that demonstrates continuing losses, (3) a
significant adverse change in legal factors or in business climate, or (4) an
adverse action or assessment by a regulator. In evaluating the recoverability
of enterprise goodwill, the Company measures the carrying amount of the
goodwill against the estimated undiscounted future cash flows of the businesses
to which the goodwill relates. In determining the future cash flows, the
Company looks to historical results, current forecasts and internal earnings
targets. The estimated net cash flows include the effects of income tax
payments and interest charges. Should the sum of the expected future net cash
flows be less than the carrying value of the goodwill, an impairment loss would
be recognized. The impairment loss would be calculated as the amount by which
the net book value of the related businesses exceeds the fair value of these
businesses.
F-10
<PAGE>
Income taxes--In most cases, the Company's domestic businesses are included
in the Deluxe consolidated tax return. Tax payments are made to Deluxe and tax
benefits are reimbursed by Deluxe to the extent they are used. The consolidated
financial statements include income tax provisions and liabilities calculated
as if separate tax returns were prepared for the periods covered. Deferred
income taxes result from temporary differences between the financial reporting
basis of assets and liabilities and their respective tax reporting bases.
Future tax benefits are recognized to the extent that realization of such
benefits is more likely than not.
Translation adjustment--The financial position and results of operations of
the Company's international subsidiaries are measured using local currencies as
the functional currencies. Assets and liabilities of these operations are
translated at the exchange rate in effect at the balance sheet date. Income
statement accounts are translated at the average exchange rate during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in other comprehensive income in the
stockholder's equity section of the consolidated balance sheets. Gains and
losses that result from foreign currency transactions are included in earnings.
Revenue recognition--Revenues are recorded net of any applicable discounts.
Transaction processing and service fees are recognized in the period that the
service is performed. These services consist of processing the Company's
customers' electronic debit transactions through electronic funds transfer
networks and settling the funds with the financial institutions involved in the
transactions. Additionally, these services include monitoring ATMs and point-
of-sale devices to alert the Company's customers when potential problems occur.
These fees are charged on a per transaction basis, depending on the contractual
arrangement with the customer. Government services fees are recognized in the
period services are provided based on monthly fees per benefits recipient.
Decision support fees are recognized as revenue in the period the services
are provided. Decision support services consist of new account applicant and
check verification screenings to manage the risk associated with account
openings and check acceptance. Decision support fees are based on the number of
inquiries against the databases used for screening purposes or monthly fees
based on the aggregate dollar value of checks authorized by the retailer,
depending on the product and service.
Software license fees for standard software products are recognized when
delivery has occurred, the license fee is fixed and determinable,
collectibility is probable and evidence of this arrangement exists. License
fees are charged based on modules purchased by the customer.
Software maintenance and support revenues are recognized ratably over the
term of the contract, and/or as the services are provided. Support services
such as customization of standard software modules, are charged on a time and
materials basis and recognized as hours are completed.
Revenues from professional services for information technology consulting
and business process management services are generally recognized under two
methods, depending on contractual terms. Under the time and materials method,
revenue is based on a fee per hour basis, and is recognized as hours are
completed. Under the fixed contract method, a pre-set fee is agreed upon for a
project, and revenue is recognized proportionately to the percentage completion
of the project.
Long-term service contracts--Long-term service contracts are definitive
agreements to provide services over a period of time in excess of one year and
with respect to which the Company has no contractual right to adjust the prices
or terms at or on which its services are supplied during the term of the
contract. The Company's long-term service contracts are for transaction
processing and business process management services. Revenues are recognized
for all long-term service contracts when the service is performed. Total
revenues for some long-term service contracts may vary based on the demand for
services. Revenues on long-term service contracts are recognized under the
revenue recognition policy above. Expenses are recognized when incurred, with
the exception of installation costs. In existing long-term service contracts,
installation costs are not recovered at the time of installation. Rather they
are factored into billing rates over the term of the contract. Accordingly,
installation costs for long-term service contracts are initially capitalized
and then
F-11
<PAGE>
amortized over the life of the contract. Any equipment and software purchased
to support a long-term service contract is capitalized and depreciated or
amortized over the life of the related contract or the life of the asset,
whichever is shorter.
In determining the profitability of a long-term service contract, only
direct and allocable indirect costs associated with the contract are included
in the calculation. The appropriateness of allocations of indirect costs
depends on the circumstances and involves the judgment of management, but such
costs may include the costs of indirect labor, contract supervision, tools and
equipment, supplies, quality control and inspection, insurance, repairs and
maintenance, depreciation and amortization and, in some circumstances, support
costs. The method of allocating any indirect costs included in the analysis is
also dependent upon the circumstances and the judgment of management, but the
allocation method must be systematic and rational. General and administrative
costs and selling costs are not included in the analysis. Provisions for
estimated losses on long-term service contracts, if any, are made in the period
in which the loss first becomes probable and reasonably estimable. Projected
losses are based on management's best estimates of a contract's revenue and
costs. Actual losses on individual long-term service contracts are compared to
the loss projections periodically, with any changes in the estimated total
contract loss recognized as they become probable and reasonably estimable.
Certain direct costs associated with the EBT contracts discussed in Note 5
are common to a number of contracts and are attributed to each contract based
on its use of the services associated with these common direct costs. Revenues,
case counts or other applicable statistics are used to attribute these costs to
individual contracts.
In the event an asset impairment loss is recognized on long-lived assets
used to support a long-term service contract, the original estimation of the
contract's costs is revised to reduce the depreciation and amortization
associated with the impaired assets.
Research and development expense--Research and development costs, which are
expensed as incurred, relate to investigating new or improved processes and
techniques and developing such research findings into a potential new product
or service.
Advertising expense--Advertising and promotional costs are expensed as
incurred. The Company incurred advertising and promotional expense of $0.3
million, $0.4 million, and $0.7 million in 1997, 1998 and 1999, respectively.
Capitalization of internal-use software--The Company capitalizes costs of
software developed or obtained for internal use once the preliminary project
stage has been completed, management commits to funding the project and it is
probable that the project will be completed and the software will be used to
perform the function intended. Capitalized costs include only (1) external
direct costs of materials and services consumed in developing or obtaining
internal-use software, (2) payroll and payroll-related costs for employees who
are directly associated with and who devote time to the internal-use software
project, and (3) interest costs incurred, when material, while developing
internal-use software. Capitalization of costs ceases when the project is
substantially complete and ready for its intended use. The carrying value of
internal-use software is reviewed in accordance with the Company's policy on
impairment of long-lived assets and intangibles.
Capitalization of software developed for resale--The Company capitalizes
costs of software developed for licensing and resale once technological
feasibility has been established. Costs incurred prior to establishing
technological feasibility are expensed as incurred and are included in research
and development expense in the Company's consolidated financial statements.
Technological feasibility is established when the Company has completed all
planning, designing, coding and testing activities that are necessary to
determine that a product can be produced to meet its design specifications,
including functions, features and technical performance requirements.
Capitalization of costs ceases when the product is available for general
release to customers. Such costs are amortized on a product-by-product basis,
but no longer than five years. The carrying value of
F-12
<PAGE>
software developed for resale is reviewed in accordance with the Company's
policy on impairment of long-lived assets and intangibles.
In certain situations the Company's customers do not take possession of the
software. Instead, it remains installed on the Company's hardware and customers
access it as needed via a dedicated line. The development costs of these
software products are capitalized as if the software were being developed for
resale.
Web site development costs--The Company capitalizes costs associated with
the development of web sites in accordance with its policy on capitalization of
internal-use software. Costs incurred with populating the site with information
on the Company or on products available to customers are expensed as incurred.
Employee stock-based compensation--The Company participates in Deluxe's
stock incentive program. In connection with the IPO and the Split-off, the
Company intends to adopt new stock incentive programs. As permitted by
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, the Company continues to account for its employee
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. No compensation cost has been
recognized for fixed stock options issued under the Deluxe stock incentive or
DeluxeSHARES programs. The Company discloses pro forma net loss and net loss
per share as if the fair value method of SFAS No. 123 had been used (see Note
9).
Income (loss) per share and stockholder's equity--The following table
reflects the calculation of basic and diluted income (loss) per share (dollars
and shares outstanding in thousands, except per share amounts).
<TABLE>
<CAPTION>
Unaudited
Quarter Ended
Year Ended December 31, March 31,
--------------------------- ---------------
1997 1998 1999 1999 2000
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income (loss)................ $(34,068) $(14,591) $(8,226) $ 3,814 $ 1,216
Weighted average shares
outstanding..................... 40,000 40,000 40,000 40,000 40,000
-------- -------- ------- ------- -------
Net income (loss) per share--
basic and diluted............... $ (0.85) $ (0.36) $ (0.21) $ 0.10 $ 0.03
======== ======== ======= ======= =======
</TABLE>
On January 27, 2000, the Company increased the number of authorized shares
from 2,500 to 250 million. On May 12, 2000, the Company declared a 16,000 to
one stock split, increasing the shares issued and outstanding from 2,500 to 40
million. The income (loss) per share is presented as if the 40 million shares
had been outstanding for all periods presented.
Comprehensive income--Comprehensive income includes charges and credits to
equity that are not the result of transactions with stockholders. The Company's
total comprehensive income consists of net income or loss and foreign currency
translation adjustments. The foreign currency translation adjustments are
reflected as accumulated other comprehensive loss on the Company's consolidated
balance sheets and in the Company's stockholder's equity statement presented in
Note 12.
Unaudited interim financial information--The consolidated balance sheet as
of March 31, 2000 and the consolidated statements of operations and the
consolidated statements of cash flows for the quarters ended March 31, 1999 and
2000 are unaudited. In the opinion of management, all adjustments necessary for
a fair presentation of such consolidated financial statements are included.
Other than those discussed in the notes below, such adjustments consist only of
normal recurring items. Interim results are not necessarily indicative of
results for a full year.
Use of estimates--The Company has prepared the accompanying consolidated
financial statements in conformity with accounting principles generally
accepted in the United States of America. In this process, it is necessary for
management to make certain assumptions and related estimates affecting the
amounts reported in the consolidated financial statements and attached notes.
These estimates and assumptions are developed based upon all information
available using management's best efforts. However, actual results can differ
from assumed and estimated amounts.
F-13
<PAGE>
New accounting pronouncements--In April 1998, the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, Reporting the Costs of Start-up
Activities, which provides guidance on the appropriate accounting for start-up
activities beginning in 1999. Application of the SOP did not have a material
impact on the Company's reported operating results or financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which provides
guidance on accounting for derivatives and hedge transactions. This statement
is effective for the Company on January 1, 2001. The Company does not
anticipate that the effect of this pronouncement will have a material impact on
reported operating results.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements
which provides guidance in applying generally accepted accounting principles to
revenue recognition in financial statements. Applications of this SAB did not
have a material impact on the Company's reported operating results or financial
position.
Note 3: Transactions with Deluxe
Purchase and sale transactions between the Company and Deluxe are executed
at either current market pricing or agreed-upon transfer prices. Purchases from
Deluxe were $1.0 million, $0.2 million, $2.9 million, zero and $3.4 million for
the years ended December 31, 1997, 1998 and 1999 and the quarters ended March
31, 1999 and 2000, respectively. Sales to Deluxe were $2.4 million, $1.6
million, $8.8 million, $58,000 and $15.6 million for the years ended December
31, 1997, 1998 and 1999 and the quarters ended March 31, 1999 and 2000,
respectively. Under Deluxe's centralized cash management system, advances from
Deluxe and excess cash sent to Deluxe are reflected as contributions by and
distributions to Deluxe and are included in stockholder's equity in the
consolidated balance sheets.
Deluxe allocated to the Company $15.5 million, $25.3 million, $25.6 million,
$2.8 million and $1.9 million for the years ended December 31, 1997, 1998 and
1999 and the quarters ended March 31, 1999 and 2000, respectively, for the
costs of corporate services provided. These allocations, which were calculated
based on a percentage of Company revenue to total Deluxe revenue, headcount and
transaction processing costs, included expenses for various support functions
such as human resources, information services and finance. These common costs
to the Company and Deluxe were allocated since specific identification of the
actual costs incurred was not practicable. The Company and Deluxe believe that
this allocation method was reasonable. The amounts allocated to the Company are
included in selling, general and administrative expense in the consolidated
statements of operations.
During 2000, the majority of the costs for these support functions are
incurred directly by the Company. The remaining corporate services provided by
Deluxe were allocated to the Company based on estimates of the costs which
would be incurred by the Company if they were a stand-alone, independent
company. The amounts allocated to the Company are included in selling, general
and administrative expense in the consolidated statements of operations.
Deluxe also charges the Company for interest expense or credits the Company
for interest income based on the cash the Company has borrowed from or provided
to Deluxe. The Company was charged or credited net interest (expense) income
from Deluxe of $(0.7) million, $3.0 million, $2.8 million, $0.8 million and
$(0.5) million for the years ended December 31, 1997, 1998 and 1999 and the
quarters ended March 31, 1999 and 2000, respectively. The interest rates used
to calculate these amounts were 7.5%, 5.4%, 5.1%, 5.0% and 5.8% for the years
ended December 31, 1997, 1998, and 1999 and the quarters ended March 31, 1999
and 2000, respectively. These amounts are included in interest (expense) income
in the consolidated statements of operations. The interest rate for net
receivables owed to Deluxe is based on the average 30-day commercial paper
composite rate and net payables is based on the average 30-day commercial paper
composite rate plus 2%.
F-14
<PAGE>
Note 4: Business combinations
On February 19, 1999, Deluxe acquired all of the outstanding shares of
eFunds Corporation of Tustin California, an electronic check conversion
company, for $13 million in cash. The company provides electronic check
conversion and electronic funds transfer solutions for financial services
companies and retailers. The ownership of this company was transferred to the
Company under the Plan discussed in Note 1. The acquisition was accounted for
under the purchase method of accounting. Accordingly, the consolidated
financial statements of the Company include the results of this business
subsequent to its acquisition date. This business is included in the electronic
payment solutions segment in Note 13. The purchase price was allocated to the
assets acquired and liabilities assumed based on their fair values on the date
of purchase. Total cost in excess of net assets acquired in the amount of $15.7
million is reflected as goodwill and is being amortized over 10 years.
On April 13, 1999, Deluxe acquired the remaining 50% ownership interest in
HCL-Deluxe, N.V. (HCL) for $23.4 million in cash. The joint venture, which
Deluxe entered into with HCL Corporation of India in 1996, commenced operations
in September 1997. The company provides information technology consulting and
business process management services to financial services companies and to all
of the Company's and Deluxe's businesses. The ownership of this company was
transferred to the Company under the Plan discussed in Note 1. The acquisition
was accounted for under the purchase method of accounting. Accordingly, the
consolidated financial statements of the Company include the entire results of
this business from the date the Company acquired 100% ownership. Prior to this,
the Company recorded its 50% ownership of the joint venture's results under the
equity method of accounting. As such, its results of operations prior to the
acquisition are included in other expense in the consolidated statements of
operations. This business comprises the professional services segment in Note
13. The purchase price was allocated to the assets acquired and liabilities
assumed based on their fair values on the date of purchase. Total cost in
excess of net assets acquired in the amount of $24.9 million is reflected as
goodwill and is being amortized over 15 years.
Note 5: Contract losses
During 1998, the Company recorded charges of $14.7 million to provide for
expected future losses on existing long-term service contracts of the
government services segment. These charges are reflected in cost of sales in
the 1998 consolidated statement of operations. Due to a continuing strong
economy, record low unemployment and welfare reform, the actual transaction
volumes and expected future revenues of this business are well below original
expectations. Additionally, actual and expected future telecommunications,
installation, help desk and other costs are significantly higher than
originally anticipated. These factors resulted in expected future losses on the
existing EBT contracts of this business.
During 1999, charges of $8.2 million were recorded to provide for additional
expected future losses on the contracts of the government services segment.
These charges are reflected in cost of sales in the 1999 consolidated statement
of operations. A majority of the charges resulted from the conclusion of
negotiations with a prime contractor regarding the timing and costs of
transitioning switching services from the Company to a new processor. Also,
lower than projected actual transaction volumes (primarily related to states
fully rolled-out in 1999) contributed to the changes in the estimates
underlying the 1998 charges. These increases to the reserve for accrued
contract losses were partially offset by the application of $2.3 million of
contract losses against the reserve during 1999.
Note 6: Impairment losses
During 1997, the Company determined that it would dispose of certain
international operations of its electronic payment solutions segment. Based on
fair market value estimates, the Company determined that the long-lived assets
of these operations were impaired and recorded a charge of $11.8 million to
write down the carrying value of these operations to their estimated fair value
less costs to sell. These impairment charges are reflected as operating
expenses in the 1997 consolidated statement of operations. During 1998, there
was a change in the management of the electronic payment solutions segment. As
a result, in January 1999, the
F-15
<PAGE>
Company determined that the international operations of this segment maintained
a continuing strategic importance and were no longer considered held for sale.
The assets that were written off in 1997 remain at zero book value.
During 1998, the Company recorded impairment charges of $26.3 million to
write down the carrying value of long-lived assets of the government services
segment. The assets consisted of point-of-sale equipment, internal-use software
and capitalized installation costs utilized in the EBT activities of this
segment. The Company concluded that the operating losses incurred by this
business would continue. This is primarily due to the fact that the variable
costs associated with supporting benefit recipient activity are higher than
originally anticipated and actual transaction volumes are below original
expectations. In calculating the impairment charge, the Company determined that
the assets utilized by this business have no fair market value. The point-of-
sale equipment was purchased via capital leases. The lease buy-out prices for
this equipment plus the deinstallation costs exceeded the amount equipment
resellers were willing to pay for the equipment. The utility of the internal-
use software was limited to its use in supporting the EBT business, and the
installation costs could not be resold. Thus, the long-lived assets of this
business were reduced to a carrying value of zero. These impairment charges are
reflected as cost of sales in the 1998 consolidated statement of operations.
During 1999, due to the continued operating losses of the government
services segment, additional impairment charges of $0.5 million were recorded.
These charges represent the write-down of long-lived assets purchased by this
segment during 1999. These assets consisted primarily of software and
installation costs associated with the continued roll-out of additional states.
All assets purchased were reduced to a carrying value of zero, as they were in
1998. These impairment charges are reflected in cost of sales in the 1999
consolidated statement of operations.
Note 7: Restructuring charges
During 1997, the Company recorded restructuring charges of $1.5 million for
severance relating to management changes within the electronic payment
solutions segment. This reduction of four employees was completed in 1998.
These charges are reflected in selling, general and administrative (SG&A)
expense in the 1997 consolidated statement of operations.
During 1998, the Company recorded restructuring charges of $3.2 million for
severance associated with the Company's initiative to reduce its SG&A expense.
The Company anticipated eliminating 76 positions in various support functions
within sales, marketing, finance, human resources and information services
through 2000. As of December 31, 1999, 33 of the positions have been
eliminated. Also during 1998, the Company reversed $1.0 million of a 1996
restructuring charge. The 1996 charge related to planned reductions in various
support functions at the international operations of the electronic payment
solutions segment. Due to higher than anticipated attrition, it was necessary
to reduce this reserve. This accrual reversal and the new restructuring
accruals are reflected in SG&A expense in the 1998 consolidated statement of
operations.
During 1999, the Company reversed $2.4 million of restructuring accruals
relating to its 1998 initiative to reduce SG&A expense and the 1996 plan to
reduce the workforce at the international operations of the electronic payment
solutions segment. The reduction in the SG&A expense initiative accrual was due
to higher than anticipated attrition, resulting in severance payments to 37
fewer employees than originally anticipated. Also, due to the Company's
decision in 1999 to retain the international operations of its electronic
payment solutions segment (see Note 6), planned reductions within that business
were canceled. These accrual reversals are reflected in SG&A expense in the
1999 consolidated statement of operations.
The Company's consolidated balance sheets reflect restructuring accruals for
employee severance costs of $4.7 million, $1.2 million and $1.3 million as of
December 31, 1998 and 1999 and March 31, 2000, respectively.
F-16
<PAGE>
During the first quarter of 1999, restructuring accruals of $2.0 million
were reversed. These reversals related to the Company's decision in 1999 to
retain the international operations of its electronic payment solutions
segment. These reversals are reflected in selling, general and administrative
expenses in the consolidated statement of operations for the three months ended
March 31, 1999.
During the first quarter of 2000, additional restructuring accruals of $0.2
million were recorded relating to the continuing reorganization of the Company.
Additionally, accruals of $0.1 million were reversed.
The following table summarizes the change in the Company's restructuring
accruals for 1997, 1998 and 1999 and the quarter ended March 31, 2000 (dollars
in thousands):
<TABLE>
<CAPTION>
Unaudited
Year Ended December 31, Quarter Ended
------------------------------------------------------ March 31,
1997 1998 1999 2000
---------------- ----------------- ----------------- ----------------
Number of Number of Number of Number of
employees employees employees employees
affected Amount affected Amount affected Amount affected Amount
--------- ------ --------- ------- --------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--beginning of
year................... 190 $3,500 174 $ 4,574 186 $ 4,672 6 $1,242
Severance paid.......... (20) (442) (19) (2,053) (18) (1,031) (3) (91)
Adjustments to accrual.. 4 1,516 31 2,151 (162) (2,399) 1 110
--- ------ --- ------- ---- ------- --- ------
Balance--end of year.... 174 $4,574 186 $ 4,672 6 $ 1,242 4 $1,261
=== ====== === ======= ==== ======= === ======
</TABLE>
Note 8: Benefit (provision) for income taxes
(Loss) income before income taxes consists of (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Domestic..................................... $(25,620) $(24,591) $(2,163)
Foreign...................................... (14,845) 1,431 (477)
-------- -------- -------
Total...................................... $(40,465) $(23,160) $(2,640)
======== ======== =======
</TABLE>
The components of the benefit (provision) for income taxes are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------ --------
<S> <C> <C> <C>
Current tax benefit (provision):
Federal..................................... $(6,866) $1,324 $ 5,527
State....................................... (1,345) 1,169 (271)
------- ------ --------
Total..................................... (8,211) 2,493 5,256
Deferred tax benefit (provision):
Federal..................................... 14,574 6,157 (10,811)
State....................................... 34 (81) (31)
------- ------ --------
Total..................................... $ 6,397 $8,569 $ (5,586)
======= ====== ========
</TABLE>
F-17
<PAGE>
The Company's effective tax rate on pretax loss differs from the U.S.
Federal statutory tax rate of 35% as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Income tax at Federal statutory rate............. $14,163 $8,106 $ 924
State income taxes net of Federal income tax
benefit......................................... (852) 707 (196)
Amortization and write-down of non-deductible
intangibles..................................... (3,132) (231) (1,074)
Change in valuation allowance.................... (1,810) 636 (4,591)
Other............................................ (1,972) (649) (649)
------- ------ -------
Benefit (provision) for income taxes............. $ 6,397 $8,569 $(5,586)
======= ====== =======
</TABLE>
Tax effected temporary differences which give rise to a significant portion
of deferred tax assets and liabilities at December 31, 1998 and 1999, are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1999
------------------------- -------------------------
Deferred tax Deferred tax Deferred tax Deferred tax
assets liabilities assets liabilities
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net operating loss carry
forwards............... $ 8,123 $ -- $ 13,249 $--
Reserve for legal
proceedings............ 12,669 -- 646 --
Accrued contract
losses................. 5,664 -- 8,085 --
Restructuring accruals.. 1,793 -- 476 --
Property and equipment.. -- 1,941 954 --
Intangibles............. 1,343 -- 718 --
Employee benefit plans.. 840 -- 879 --
Miscellaneous reserves
and accruals........... 854 -- 1,327 --
All other............... 175 595 131 239
------- ------ -------- ----
Subtotal................ 31,461 2,536 26,465 239
Valuation allowance..... (9,340) -- (14,125) --
------- ------ -------- ----
Total deferred taxes.... $22,121 $2,536 $ 12,340 $239
======= ====== ======== ====
</TABLE>
The valuation allowance at both dates relates to the uncertainty of
realizing foreign and state deferred tax assets.
At December 31, 1999, net operating loss carryforwards relating to both
foreign and state jurisdictions totaled $92.1 million. Of these carryforwards,
$83.0 million expire in various years between 2001 and 2014 and $9.1 million
may be carried forward indefinitely.
Note 9: Employee benefit plans
Stock purchase plan--The Company participates in Deluxe's employee stock
purchase plan that enables eligible employees to purchase Deluxe's common stock
at 75% of its fair market value on the first business day following each three-
month purchase period. Compensation expense recognized for the difference
between the employees' purchase price and the fair value of the stock was $0.6
million, $0.7 million and $0.7 million in 1997, 1998 and 1999, respectively.
Stock incentive plan--The Company participates in Deluxe's stock incentive
plan. In connection with the IPO, the Company intends to adopt a new stock
incentive program. Under these plans, stock-based awards may be issued to
employees via a broad range of methods, including non-qualified or incentive
stock options, restricted stock and restricted stock units, stock appreciation
rights and other awards based on the value of the respective Company's common
stock. Options become exercisable in varying amounts beginning generally one
year after the date of grant.
F-18
<PAGE>
The Company also participates in Deluxe's DeluxeSHARES program. In 1998,
under this program, options were awarded to substantially all employees of the
Company (excluding foreign employees), allowing them, subject to certain
conditions, to purchase 100 shares of Deluxe common stock. The options become
exercisable when the value of Deluxe's common stock reaches $49.50 per share or
January 30, 2001, whichever occurs first.
All options issued under the Deluxe stock incentive and DeluxeSHARES
programs allow for the purchase of shares of Deluxe's common stock at prices
equal to their market value at the date of grant. Options issued to Company
employees under these Deluxe plans for the purchase of 698,000 and 1.1 million
shares were outstanding at December 31, 1998 and 1999, respectively.
Deluxe issued restricted shares and restricted stock units to Company
employees as follows: 1,338 shares and units at a weighted-average fair value
of $33.00 per share during 1997, 979 shares and units at a weighted-average
fair value of $35.63 per share during 1998, and 6,264 shares and units at a
weighted-average fair value of $26.19 per share during 1999. These awards
generally vest over periods ranging from one to five years. No consideration is
paid by the employees for these awards. As such, the Company recorded
compensation expense of $23,000, $57,000 and $164,000 for restricted share and
restricted stock unit awards for the years ended December 31, 1997, 1998 and
1999, respectively.
In connection with the Split-off (see Note 1), Deluxe and the Company have
decided that options outstanding as of the Split-off date will be converted to
options of the Company and options of Deluxe based on a formula. The formula
will be based on the market value of the Company's and Deluxe's common stock at
the Split-off date and is designed to maintain an equivalent intrinsic value
for the option holder utilizing the criteria described in Emerging Issues Task
Force No. 90-9, Changes to Fixed Employee Stock Option Plans as a Result of
Equity Restructuring. The Company does not expect a compensation charge to
result from this conversion process.
Pro forma information regarding net loss and net loss per share has been
determined as if the Company had accounted for its employee stock-based
compensation under the fair value method. The fair value of options was
estimated at the date of grant using a Black-Scholes option pricing model. The
following weighted-average assumptions were used in valuing options issued in
1997, 1998 and 1999, respectively: risk-free interest rate of 6.0%, 5.9% and
6.7%; dividend yield of 4.0%, 4.5% and 4.6%; and expected volatility of 23.0%,
21.8% and 24.0%. The weighted-average expected option life was 7.2 years, 5.9
years and 9.0 years for 1997, 1998 and 1999, respectively. The weighted-average
fair value of options granted in 1997, 1998 and 1999 was $6.87, $6.13 and $8.28
per share, respectively. For purposes of pro forma disclosures, the estimated
fair value of the options was recognized as expense over the options' vesting
periods. The Company's pro forma net loss and net loss per share were as
follows (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported.............................. $(34,068) $(14,591) $ (8,226)
Pro forma................................ $(34,501) $(15,299) $(10,638)
Basic and diluted net loss per share:
As reported.............................. $ (0.85) $ (0.36) $ (0.21)
Pro forma................................ $ (0.86) $ (0.38) $ (0.27)
</TABLE>
These pro forma calculations only include the effects of grants made
subsequent to January 1, 1995. As such, these impacts are not necessarily
indicative of the pro forma effects on reported net income of future years.
Also, these calculations relate to options issued under the Deluxe plan that
will be converted into options of the Company as noted above. The Company
intends to establish a new stock incentive plan, the provisions and assumptions
of which may be different from the Deluxe Plan.
F-19
<PAGE>
Profit sharing, defined contribution and 401(k) plans--The Company
participates in Deluxe's profit sharing plans, defined contribution pension
plan and plans established under section 401(k) of the Internal Revenue Code to
provide retirement benefits for certain employees. The plans cover
substantially all full-time employees with approximately 15 months of service.
Contributions to the profit sharing and defined contribution plans are made
solely by the Company. Employees may contribute up to the lesser of $10,000 or
10% of their wages to the 401(k) plan. The Company will match the first 1% of
wages contributed and 50% of the next 4% of wages contributed. All
contributions are remitted to the plans' respective trustees, and benefits
provided are paid from accumulated funds of the trusts.
Contributions to the defined contribution pension plan equaled 6% of
eligible compensation in 1997 and 4% of eligible compensation in 1998 and 1999.
Related expense allocated to the Company for these years was $2.1 million, $2.5
million and $3.2 million, respectively. Contributions to the profit sharing
plans vary based on the Company's performance. Related expense allocated to the
Company for these plans was $2.2 million, $4.6 million and $4.8 million in
1997, 1998 and 1999, respectively. Company contributions to the 401(k) plan
were $1.2 million, $1.5 million and $1.5 million in 1997, 1998 and 1999,
respectively.
Profit sharing and defined contribution expenses are recorded by the Company
based on system generated payroll reports detailing the eligible wages on which
the contribution is based. The expense is determined based on Deluxe's
contribution percentage for the plan year multiplied by the applicable wages.
Prior to 1999, 401(k) expense was allocated to the Company through the
Company's payroll system and determined based on the employee's 401(k)
withholding. During 1999, the allocation for 401(k) expense was based on a
fixed percentage of the Company's salaries and wages and varied by business
segment. The rate ranged from 1.4% to 2.3% of the Company's salaries and wages
and was determined based on the history of 401(k) expense for each particular
business segment.
As part of the Split-off (see Note 1), the Company intends to establish its
own employee benefit plans. The specific provisions of such plans have not yet
been determined and may be different than the provisions of Deluxe's plans.
Note 10: Post-retirement benefits
The Company provides certain health care benefits for a portion of its
retirees. The plan covers employees in the former Deluxe Electronic Payment
Systems, Inc. business. Although the plan was combined with the Deluxe
Corporation Post-retirement Health Care Plan (the Deluxe plan), the Company did
not change the eligibility requirements to match those of the Deluxe plan. The
actuarial valuation for the Company's plan is calculated separately from the
rest of the Deluxe plan. Employees included in the plan may become eligible for
such benefits if they attain the appropriate years of service and age while
working for the Company. The Company's benefit obligation under this plan is
not funded.
The following table summarizes the change in benefit obligation during 1998
and 1999 (dollars in thousands):
<TABLE>
<S> <C>
Benefit obligation, January 1, 1998................................ $ 577
Service cost..................................................... 69
Interest cost.................................................... 41
Actuarial (gains) and losses..................................... 125
Benefits paid from general funds of the Company.................. (8)
-----
Benefit obligation, December 31, 1998.............................. 804
Service cost..................................................... 86
Interest cost.................................................... 54
Actuarial (gains) and losses..................................... (138)
Benefits paid from general funds of the Company.................. (5)
-----
Benefit obligation, December 31, 1999.............................. $ 801
=====
</TABLE>
F-20
<PAGE>
The status of the plan was as follows at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Accumulated post-retirement benefit obligation................ $804 $801
Less:
Unrecognized net loss....................................... 296 141
Unrecognized transition obligation.......................... 71 66
---- ----
Accrued post-retirement liability recognized in the
consolidated balance sheets................................ $437 $594
==== ====
</TABLE>
Net post-retirement benefit cost for the years ended December 31 consisted
of the following components (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the year............ $62 $ 69 $ 86
Interest cost on the accumulated post-retirement benefit
obligation.............................................. 22 41 54
Amortization of transition obligation.................... 5 6 5
Recognized net amortization of gains and losses.......... -- 6 17
--- ---- ----
Total post-retirement benefit cost....................... $89 $122 $162
=== ==== ====
</TABLE>
In measuring the accumulated post-retirement benefit obligation as of
December 31, 1999, the Company's health care inflation rate for 2000 and beyond
was assumed to be 5%. A one percentage point increase in the health care
inflation rate for each year would increase the accumulated post-retirement
benefit obligation by $139,000 and the service and interest cost components of
the net post-retirement benefit cost by $29,000. A one percentage point
decrease in the health care inflation rate for each year would decrease the
accumulated post-retirement benefit obligation by $119,000 and the service and
interest cost components of the net post-retirement benefit cost by $24,000.
The discount rate used in determining the accumulated post-retirement benefit
obligation as of December 31, 1998 and 1999 was 6.75% and 7.50%, respectively.
The Company intends to terminate this plan as of the Split-off (see Note 1).
Deluxe will assume the obligation for the eligible employees and retirees as of
the Split-off. The Company intends to account for this as a reduction of
liabilities and a capital contribution. As of December 31, 1999, the
contribution would be $153,000.
Note 11: Lease and debt commitments
Long-term debt was as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31, Unaudited
---------------- March 31,
1998 1999 2000
------- ------- ---------
<S> <C> <C> <C>
Capital leases and other...................... $ 5,519 $ 5,492 $ 5,331
Less amount due within one year............... (1,490) (1,895) (2,047)
------- ------- -------
Total....................................... $ 4,029 $ 3,597 $ 3,284
======= ======= =======
</TABLE>
Long-term debt consists principally of equipment capital leases on
equipment. The capital lease obligations bear interest rates of 6.7% to 15.7%
and are due through the year 2004. Carrying value materially approximates fair
value for these obligations. Maturities of long-term debt for the five years
ending December 31, 2004, are $1.9 million, $2.1 million, $1.3 million, $0.1
million and $0.1 million.
F-21
<PAGE>
The Company has entered into operating leases on certain facilities and
equipment. Future minimum lease payments for all noncancelable operating leases
for the five years ending December 31, 2004, are $17.0 million, $10.1 million,
$4.3 million, $2.2 million and $1.6 million and $2.9 million thereafter. Rental
expense was $14.7 million, $18.8 million and $20.7 million in 1997, 1998 and
1999, respectively.
As of December 31, 1999, the Company had a $5.0 million line of credit,
which is denominated in Indian rupees and guaranteed by Deluxe, available to
its international operations at an interest rate of 15.81%. The average amount
drawn on this line during 1999 was $2.7 million. As of December 31, 1999, $3.1
million was outstanding. The line of credit was increased on March 9, 2000 to
$10.0 million and remains guaranteed by Deluxe until October 1, 2000. The
average amount drawn on this line during the first three months of 2000 was
$4.1 million. As of March 31, 2000, $4.5 million was outstanding.
Note 12: Stockholder's equity
<TABLE>
<CAPTION>
Retained Accumulated
Common stock Additional earnings other Total
------------- paid-in (accumulated comprehensive stockholder's
Shares Amount capital deficit) income (loss) equity
------ ------ ---------- ------------ ------------- -------------
(dollars and shares in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 40,000 $400 $ 7,071 $ 123,626 $ 800 $ 131,897
Net loss ............... -- -- -- (34,068) -- (34,068)
Distributions to Deluxe,
net.................... -- -- (9,167) -- -- (9,167)
Translation adjustment.. -- -- -- -- (972) (972)
------ ---- -------- --------- ----- ---------
Balance, December 31,
1997................... 40,000 400 (2,096) 89,558 (172) 87,690
Net loss ............... -- -- -- (14,591) -- (14,591)
Contributions by Deluxe,
net.................... -- -- 16,660 -- -- 16,660
Translation adjustment.. -- -- -- -- 44 44
------ ---- -------- --------- ----- ---------
Balance, December 31,
1998................... 40,000 400 14,564 74,967 (128) 89,803
Net loss ............... -- -- -- (8,226) -- (8,226)
Contributions by Deluxe,
net.................... -- -- 277,634 -- -- 277,634
Dividends paid to
Deluxe................. -- -- -- (159,687) -- (159,687)
Translation adjustment.. -- -- -- -- (419) (419)
------ ---- -------- --------- ----- ---------
Balance, December 31,
1999................... 40,000 400 292,198 (92,946) (547) 199,105
Net income (unaudited).. -- -- -- 1,216 -- 1,216
Adjustment for lag in
financial reporting
(see Note 2)
(unaudited)............ -- -- -- (1,125) -- (1,125)
Contributions by Deluxe,
net (unaudited)........ -- -- 35,092 -- -- 35,092
Dividends paid to Deluxe
(unaudited)............ -- -- -- (13,800) -- (13,800)
Translation adjustment
(unaudited)............ -- -- -- -- (382) (382)
------ ---- -------- --------- ----- ---------
Balance, March 31, 2000
(unaudited)............ 40,000 $400 $327,290 $(106,655) $(929) $ 220,106
====== ==== ======== ========= ===== =========
</TABLE>
Note 13: Business segment information
The Company has organized its business units into three operating segments
based on the nature of the products and services offered by each: electronic
payment solutions, professional services and government services. Electronic
payment solutions provides a comprehensive suite of transaction processing
services and decision support and risk management products for debit
transactions to the financial services and retail industries. Professional
services provides information technology consulting and business process
management
F-22
<PAGE>
services to financial services companies and to all of the Company's and
Deluxe's businesses. Government services provides online EBT services under
entitlement programs on behalf of state and local government and Medicaid
eligibility verification services. The Company's segments operate primarily in
the United States. The electronic payment solutions and professional services
segments also have international operations. No single customer of the Company
accounted for more than 10% of total net sales in 1997, 1998 or 1999. Deluxe
accounted for 15.6% of the Company's total net sales during the quarter ended
March 31, 2000.
The accounting policies of the segments are the same as those described in
Note 2. In evaluating segment performance, management focuses on income from
operations. The income from operations measurement utilized by management
excludes special charges (e.g., restructuring charges, asset impairment
charges, certain one-time charges that management believes are not reflective
of on-going operations, etc.). During the quarters ended March 31, 1999 and
2000, no such charges were excluded from the segments' operating results.
Prior to the acquisition of the remaining 50% interest in HCL-Deluxe, N.V.
in 1999 (see Note 4), the results of this business were recorded under the
equity method of accounting. As such, the Company recorded its 50% ownership of
the joint venture's results of operations prior to the acquisition in other
expense in the consolidated statements of operations. To be consistent with
management reporting, the entire results of the joint venture for the pre-
acquisition periods are reflected in the business segment information as if the
business had been a consolidated entity.
<TABLE>
<CAPTION>
Electronic
Payment Professional Government Total
Year Ended December 31, 1997 Solutions Services Services Segments
- ---------------------------- ---------- ------------ ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net sales to unaffiliated
external customers.............. $199,662 $ 1,589 $ 26,965 $228,216
Net sales to external
affiliates...................... 2,438 1,615 -- 4,053
Total net sales to external
customers....................... 202,100 3,204 26,965 232,269
Intersegment sales............... -- 76 -- 76
Operating income (loss) excluding
special charges................. 27,744 (1,590) (12,269) 13,885
Asset impairment charges......... 11,831 -- -- 11,831
Other special charges............ 2,316 -- -- 2,316
Operating income (loss) including
special charges................. 13,597 (1,590) (12,269) (262)
Depreciation and amortization
expense......................... 19,168 12 3,580 22,760
Segment assets................... 141,360 3,704 46,115 191,179
Capital purchases................ 17,295 151 690 18,136
</TABLE>
<TABLE>
<CAPTION>
Electronic
Payment Professional Government Total
Year Ended December 31, 1998 Solutions Services Services Segments
- ---------------------------- ---------- ------------ ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net sales to unaffiliated
external customers.............. $221,964 $7,994 $ 43,970 $273,928
Net sales to external
affiliates...................... 1,586 4,100 -- 5,686
Total net sales to external
customers....................... 223,550 12,094 43,970 279,614
Intersegment sales............... -- 1,134 -- 1,134
Operating income (loss) excluding
special charges................. 23,459 (3,406) (6,496) 13,557
Asset impairment charges......... -- -- 26,252 26,252
Other special charges............ 2,375 -- 14,928 17,303
Operating income (loss) including
special charges................. 21,084 (3,406) (47,676) (29,998)
Depreciation and amortization
expense......................... 17,294 260 4,225 21,779
Segment assets................... 145,572 5,410 37,286 188,268
Capital purchases................ 30,148 1,934 320 32,402
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
Electronic
Payment Professional Government Total
Year Ended December 31, 1999 Solutions Services Services Segments
- ---------------------------- ---------- ------------ ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net sales to unaffiliated
external customers.............. $237,885 $ 10,745 $48,277 $296,907
Net sales to external
affiliates...................... 3,500 6,258 -- 9,758
Total net sales to external
customers....................... 241,385 17,003 48,277 306,665
Intersegment sales............... -- 2,372 -- 2,372
Operating income (loss) excluding
special charges................. 14,842 (7,809) 3,454 10,487
Special charges (recoveries)..... (225) 2,938 10,096 12,809
Operating income (loss) including
special charges................. 15,067 (10,747) (6,642) (2,322)
Depreciation and amortization
expense......................... 20,681 1,963 -- 22,644
Segment assets................... 210,661 36,200 34,410 281,271
Capital purchases................ 34,068 3,373 929 38,370
</TABLE>
<TABLE>
<CAPTION>
Electronic
Quarter Ended March 31, 1999 Payment Professional Government Total
(unaudited) Solutions Services Services Segments
- ---------------------------- ---------- ------------ ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net sales to unaffiliated external
customers......................... $ 56,488 $ 1,755 $ 11,310 $ 69,553
Net sales to external affiliates... 58 533 -- 591
Total net sales to external
customers......................... 56,546 2,288 11,310 70,144
Intersegment sales................. -- 259 -- 259
Operating income (loss)............ 6,137 (650) 179 5,666
Depreciation and amortization
expense........................... 4,998 93 -- 5,091
Segment assets..................... 174,135 8,575 36,909 219,619
Capital purchases.................. 7,537 145 77 7,759
<CAPTION>
Electronic
Quarter Ended March 31, 2000 Payment Professional Government Total
(unaudited) Solutions Services Services Segments
- ---------------------------- ---------- ------------ ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net sales to unaffiliated external
customers......................... $ 69,086 $ 3,738 $ 11,790 $ 84,614
Net sales to external affiliates... 238 15,403 -- 15,641
Total net sales to external
customers......................... 69,324 19,141 11,790 100,255
Intersegment sales................. -- 1,740 -- 1,740
Operating income (loss)............ 1,849 (1,143) 2,035 2,741
Depreciation and amortization
expense........................... 5,665 874 -- 6,539
Segment assets..................... 252,795 37,080 24,336 314,211
Capital purchases.................. 6,684 2,113 -- 8,797
</TABLE>
F-24
<PAGE>
Segment information reconciles to consolidated amounts as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Unaudited
Quarter Ended
Year Ended December 31, March 31,
---------------------------- -----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Total net sales to external
customers
Total segment net sales to
external customers........... $232,269 $279,614 $306,665 $70,144 $100,255
Professional services pre-
acquisition elimination...... (3,204) (12,094) (4,325) (2,288) --
-------- -------- -------- ------- --------
Total consolidated net sales
to external customers...... $229,065 $267,520 $302,340 $67,856 $100,255
======== ======== ======== ======= ========
Operating income (loss)
including special charges
Total segment operating loss.. $ (262) $(29,998) $ (2,322) $ 5,666 $ 2,741
Professional services pre-
acquisition elimination...... 1,590 3,387 1,234 647 --
-------- -------- -------- ------- --------
Total consolidated operating
income (loss).............. $ 1,328 $(26,611) $ (1,088) $ 6,313 $ 2,741
======== ======== ======== ======= ========
Depreciation and amortization
expense
Total segment depreciation and
amortization expense......... $ 22,760 $ 21,779 $ 22,644 $ 5,091 $ 6,539
Professional services pre-
acquisition elimination...... (12) (260) (143) (93) --
-------- -------- -------- ------- --------
Total consolidated
depreciation and
amortization expense....... $ 22,748 $ 21,519 $ 22,501 $ 4,998 $ 6,539
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Unaudited
December 31, March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets
Total segment assets........ $191,179 $188,268 $281,271 $219,619 $314,211
Professional services pre-
acquisition elimination.... (3,369) (4,732) -- (6,950) --
Income tax receivable and
long-term deferred tax
asset not allocated to
segments................... -- 2,799 8,658 -- 1,539
-------- -------- -------- -------- --------
Total consolidated
assets................... $187,810 $186,335 $289,929 $212,669 $315,750
======== ======== ======== ======== ========
<CAPTION>
Unaudited
Quarter Ended
Year Ended December 31, March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Capital purchases
Total segment capital
purchases.................. $ 18,136 $ 32,402 $ 38,370 $7,759 $8,797
Professional services pre-
acquisition
elimination................ (151) (1,934) (145) (145) --
-------- -------- -------- -------- --------
Total consolidated capital
purchases................ $ 17,985 $ 30,468 $ 38,225 $7,614 $8,797
======== ======== ======== ======== ========
</TABLE>
F-25
<PAGE>
Revenues are attributed to geographic areas based on the location of the
assets producing the revenues. The Company's operations by geographic area are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
Total External Net Sales Long-Lived Assets
------------------------------------------- -------------------------------
Unaudited
Quarter Ended Unaudited
Year Ended December 31, March 31, December 31, March 31,
-------------------------- ---------------- --------------- ---------------
1997 1998 1999 1999 2000 1998 1999 1999 2000
-------- -------- -------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States........... $214,741 $245,682 $281,933 $63,443 $94,158 $55,763 $55,587 $55,222 $64,490
United Kingdom.......... 12,801 21,555 17,468 4,413 3,783 2,647 1,948 2,486 1,952
India................... -- -- 2,939 -- 2,314 -- 2,904 -- 3,984
Other foreign
countries.............. 1,523 283 -- -- -- 50 34 44 34
-------- -------- -------- ------- -------- ------- ------- ------- -------
Total consolidated..... $229,065 $267,520 $302,340 $67,856 $100,255 $58,460 $60,473 $57,752 $70,460
======== ======== ======== ======= ======== ======= ======= ======= =======
</TABLE>
Note 14: Legal proceedings
During 1997, a judgment was entered against the Company in the U.S. District
Court for the Western District of Pennsylvania. The case was brought against
the Company by Mellon Bank (Mellon) in connection with a potential bid to
provide electronic benefit transfer services for the Southern Alliance of
States. In September 1997, the Company recorded a charge of $40 million to
reserve for this judgment and other related costs. This charge is reflected in
legal proceedings in the 1997 consolidated statement of operations.
In 1998, Mellon's motion for prejudgment interest was denied by the district
court. The Company reversed $4.2 million of the $40 million liability. This
reversal is reflected in legal proceedings in the 1998 consolidated statement
of operations. At December 31, 1998, the remaining liability of $34.4 million
was included in the reserve for legal proceedings in the consolidated balance
sheet.
In January 1999, the United States Court of Appeals for the Third Circuit
affirmed the judgment of the district court and the Company paid $32.2 million
to Mellon in February 1999. The portion of the reserve remaining after the
payment of this judgment ($2.1 million) was reversed and is reflected in legal
proceedings in the 1999 consolidated statement of operations.
Note 15: Subsequent events
In March 2000, the Company paid $20.0 million for an approximately 24%
interest in a limited liability company that provides automated teller machine
management and outsourcing services to retailers and financial institutions.
This investment is being accounted for under the equity method of accounting
and is included in other long-term investments in the Company's consolidated
balance sheet as of March 31, 2000. The Company's consolidated financial
statements reflect the Company's share of the results of this business
subsequent to its acquisition date in other income (expense) within the
Company's electronic payment solutions segment. The difference between the
carrying value of the investment and the underlying equity in the net assets of
the limited liability company is being accounted for in the same manner as
goodwill and is being amortized over 15 years.
Deluxe has agreed to provide the Company with an unsecured revolving credit
facility of up to $75 million until the earlier of the effective date of the
Split-off or December 31, 2000. There is currently no amount outstanding under
this facility. Borrowings under the facility will be due at the Split-off or
maturity and will accrue interest at the London Interbank Offered Rate, or
LIBOR, plus a variable additional margin based on Deluxe's credit rating. If
there were currently borrowings the interest rate would be 6.63%. The credit
facility includes financial and restrictive covenants. The Company is currently
in compliance with all covenants.
F-26
<PAGE>
Beginning in 2000 the Company's information technology consulting services
to Deluxe have been formalized into a five year outsourcing agreement. During
the term of the agreement, the Company anticipates Deluxe will spend
approximately $43 million per year for information technology consulting
services for information technology applications. Amounts will be based on the
actual number of hours of information technology services that the Company
provides to Deluxe. If Deluxe fails to reach the $43 million spending target
per year, it will be obligated to make liquidated damages payments for a
portion of the Company's fees based on its estimates of lost margins. The
Company also will provide business process management services to Deluxe.
Deluxe's annual minimum spending target for business process management
services will range from $8.1 million in 2000 to $4.2 million in 2004. The
agreement will also provide for liquidated damages for non-performance by the
Company and bonuses for superior performances. The provision of services by the
Company under the agreement is non-exclusive, and Deluxe may contract with any
third party for the provision of professional services.
Deluxe has agreed to indemnify the Company for any additional losses on
identified government services loss contracts after the Split-off. The Company
plans to record any amounts earned from Deluxe after this point as a reduction
of expense. Under the indemnification agreement, the Company is required to
calculate increases or decreases to the loss contract reserve in manner
consistent with Deluxe's current loss accrual practices and generally accepted
accounting principles. Deluxe will also indemnify the Company against any
liabilities, losses or expenses arising from the litigation or claims asserted
against the Company in connection with the operation of the government services
business prior to the completion of the IPO and against third party claims
relating to Deluxe's business after the IPO. Deluxe's total indemnification
obligations to the Company are limited to $14.6 million, except that claims
related to Deluxe's business after the IPO are not subject to this limitation.
On March 31, 2000, the Company purchased real property and a data center
located in Phoenix, Arizona and personal property from a subsidiary of Deluxe.
The Company previously rented portions of this facility.
On April 4, 2000, the Company authorized 100 million shares of preferred
stock with a par value of $.01 per share. No shares are issued or outstanding.
On April 17, 2000, the Company completed negotiations with the prime
contractor for a state coalition for which the Company's government services
segment provides EBT services. Prior to this, the Company and the prime
contractor were operating without a binding, legally enforceable contract for
this coalition. The Company will increase its provision for expected future
losses on long-term contracts by approximately $12.2 million in the second
quarter of 2000 to reflect the fact that the Company now has a definitive
agreement with this contractor.
Under a registration rights agreement, the Company has agreed to indemnify
Deluxe against liabilities in connection with registrations in which Deluxe
participates, including liabilities under the Securities Act or to contribute
to payments Deluxe may be required to make for these liabilities.
The company has entered into a tax-sharing agreement with Deluxe which
allocates tax liabilities between the Company and Deluxe during the period in
which the Company is included in Deluxe's consolidated group. The Company
could, however, be liable in the event that any federal tax liability is
incurred, but not discharged, by other members of Deluxe's consolidated group.
In determining the amount of the Company's tax-sharing payments, Deluxe will
prepare for the Company pro forma returns with respect to federal and
applicable state and local income taxes.
F-27
<PAGE>
eFUNDS CORPORATION
SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998 Quarter Ended
-------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.......................... $63,316 $66,455 $ 67,726 $70,023
Cost of sales...................... 41,269 43,120 84,229 43,690
Net income (loss).................. 381 1,503 (22,067)(1) 5,592
Per share of common stock
Net income (loss)--basic and
diluted......................... $ .01 $ .04 $ (.55) $ .14
</TABLE>
<TABLE>
<CAPTION>
1999 Quarter Ended
------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales......................... $67,856 $72,567 $79,895 $82,022
Cost of sales..................... 43,120 45,120 48,806 57,244
Net income (loss)................. 3,814 (2,479) (9,234) (327)(2)
Per share of common stock
Net income (loss)--basic and
diluted........................ $ .10 $ (.06) $ (.23) $ (.01)
</TABLE>
- --------
(1) 1998 third quarter results include charges of $14.7 million for losses
on existing contracts of the government services segment, asset
impairment charges of $26.3 million on the long-lived assets of the
Government services segment and restructuring charges of $2.2 million.
(2) 1999 fourth quarter results include charges of $8.2 million to reserve
for additional expected future losses on existing contracts of the
government services segment.
F-28
<PAGE>
Schedule II,
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at the Balance at
Beginning the End
Description of the Year Additions Deductions of the Year
- ----------- -------------- --------- ---------- -----------
<S> <C> <C> <C> <C>
(dollars in thousands)
Allowance for Doubtful
Accounts, year ended:
December 31, 1997........... $3,457 $1,462 $(1,421) $3,498
December 31, 1998........... 3,498 1,078 (2,454) 2,122
December 31, 1999........... 2,122 2,968(A) (577) 4,513
</TABLE>
- --------
(A) Includes $19,000 acquired with the purchase of iDLX.
<PAGE>
Existing End-to-End Solutions
Debit payment management
eFunds offers comprehensive debit payment services for electronic transactions.
[Photo of person using ATM machine]
Consumer initiates Payment approved Funds drawn from
transaction at store customer account customer account
or ATM
Data capture/Risk scoring
ID verification
Funds are switched Settlement
and routed to
merchant's bank
Real-time reporting
New Product Initiatives
Internet account opening and funding
eFunds offers a comprehensive account opening solution to convert applicants
into customers quickly over the Internet.
[Photo of computer user]
Consumer vists New account Account approved
Web site selected or denied
Data capture for screening/Account risk scoring
Cross sell descisioning
Targeted product, Consumer accepts Online
service offers product suggestions confirmation
and chooses to and reporting
fund account
Data capture for funding/Funding verification
Funding settlement
Electronic check conversion
eFunds is helping to bring paper checks into the digital age with a
comprehensive electronic check conversion solution focused on the point of sale.
[Photo of retail customer of merchant using electronic check conversion]
Check converted to electronic
payment at the POS
Consumer initiates Consumer selects Payment approved
sale at store paper check payment or denied
Data capture for screening/Transaction risk scoring
Funds transfer Automated re-presentment
via ACH and collections
Funds drawn from Funds deposited in
consumer's account merchant's account
Information reporting/Optional guarantee
<PAGE>
[LOGO]
6,250,000 Shares
[LOGO]
Common Stock
-----------------
PROSPECTUS
, 2000
-----------------
Lehman Brothers
Bear, Stearns & Co. Inc.
FAC/Equities
John G. Kinnard and Company,
Incorporated
Fidelity Capital Markets
a division of National Financial Services Corporation
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
common stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 30,360
NASD Filing Fee............................................... 12,000
Nasdaq Filing Fee............................................. 100,000
Blue Sky fees and expenses.................................... 10,000
Accountants' fees and expenses................................ 2,000,000
Legal fees and expenses....................................... 2,000,000
Printing and engraving expenses............................... 150,000
Transfer agent and registrar fees............................. 50,000
Miscellaneous expenses........................................ 147,640
----------
Total....................................................... $4,500,000
==========
</TABLE>
Item 14. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law (DGCL) authorizes a
corporation's board of directors to grant indemnity to directors and officers
in terms sufficiently broad to permit indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act.
As permitted by the DGCL, the Registrant's certificate of incorporation
provides that the Registrant shall indemnify its directors, officers, employees
and agents to the fullest extent permitted by the DGCL. As permitted by the
DGCL, the Registrant's certificate of incorporation also includes a provision
that eliminates the personal liability of its directors for monetary damages
for breach of the director's fiduciary duty, except for liability (1) for any
breach of the director's duty of loyalty to the Registrant or its stockholders;
(2) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (3) under Section 174 of the DGCL
regarding payments of dividends, stock purchases or redemptions which are
unlawful; or (4) for any transaction from which the director derived an
improper personal benefit.
The Registrant also intends to maintain director and officer liability
insurance.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement contains provisions indemnifying officers and directors of the
Registrant against liabilities arising under the Securities Act, or otherwise.
Item 15. Recent Sales of Unregistered Securities
None.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1* Initial Public Offering and Distribution Agreement, dated as of March
31, 2000, by and between Deluxe and eFunds
3.1* Amended and Restated Certificate of Incorporation of eFunds
Corporation
3.2* Bylaws of eFunds Corporation
4.1 Form of eFunds common stock certificate
4.2 Form of Rights Agreement, by and between eFunds and the
Rights Agent
5.1 Opinion of Dorsey & Whitney LLP
10.2 Third Party Indemnification Agreement, dated as of , 2000, by and
between eFunds and Deluxe
10.3* Registration Rights Agreement, dated as of March 31, 2000, by and
between Deluxe and eFunds
10.4 Tax Sharing Agreement, dated as of April 1, 2000, by and between
eFunds and Deluxe
10.5 Employee Matters Agreement, dated as of , 2000, by and between
eFunds and Deluxe
10.6 Sublease, dated as of May , 2000, by and between eFunds and Deluxe
Financial Services, Inc., for property located in Shoreview, Minnesota
10.7 Lease, dated as of May , 2000, by and between eFunds and Deluxe
Financial Services, Inc., for property located in Phoenix, Arizona
10.8 Purchase Agreement, dated as of April 3, 2000, by and between eFunds
and Deluxe Financial Services, Inc., for property located in Phoenix,
Arizona
10.9 Transitional Services Agreement, dated as of May , 2000, by and
between eFunds and Deluxe
10.10 Professional Services Agreement, dated as of April 1, 2000, by and
between eFunds and Deluxe**
10.11 ONE Application Development and Support Agreement, dated as of January
1, 2000, by and between eFunds and Deluxe Financial Services, Inc.
10.12 EBT Support Services Agreement, effective as of April 1, 1996, by and
between eFunds and Citicorp Services, Inc.
10.13 Data Contribution Agreement, dated as of May 1, 2000, by and between
eFunds and Direct Checks Unlimited, Inc.
10.14 Processor Agreement, dated as of , 2000 by and between eFunds and
Deluxe
10.15 Amendment to ATM Cash Agreements, dated February 20, 2000**
10.16 Credit Agreement, dated as of April , 2000, by and between eFunds and
Deluxe
10.17 Government Services Indemnification Agreement, dated as of May ,
2000, by and between eFunds and Deluxe
10.18 eFunds Corporation 2000 Stock Incentive Plan
10.19 eFunds Corporation Stock Incentive Plan for Deluxe Conversion Awards
10.20 Form of Change in Control Agreement
10.21 Executive Employment Agreement, dated as of May 9, 2000, by and
between eFunds and John. A. Blanchard III.
10.22 Letter Agreement, dated as of February 28, 2000, by and between eFunds
and Debra Janssen
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.23 Letter Agreement, dated as of February 29, 2000, by and between eFunds
and Dr. Nikhil Sinha
10.24 Letter Agreement, dated as of February 7, 2000, by and between eFunds
and Paul H. Bristow
10.25 Letter Agreement, dated as of February 14, 2000, by and between eFunds
and Steven F. Coleman
10.26 Form of Automated Teller Machine Cash Agreement
21.1 Subsidiaries of eFunds
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
23.3 Consent of Debra A. Janssen
23.4 Consent of John J. Boyle
23.5 Consent of Jack Robinson
23.6 Consent of Hatim A. Tyabji
23.7 Consent of John H. LeFevre
23.8 Consent of Lois M. Martin
23.9 Consent of Lawrence J. Mosner
24.1 Power of Attorney (included on signature page)
27.1* Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
** Pursuant to Rule 406 of Regulation C, confidential portions have been
omitted and filed separately with the Commission.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that (1) for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective; and (2) for the purpose of determining any liability under
the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Shoreview, State of Minnesota, on May 15, 2000.
eFunds Corporation
By: ____/s/ John A. Blanchard II_____I
John A. Blanchard III
Chairman of the Board andChief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul H. Bristow and Steven F. Coleman, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
(or any other registration statement for the same offering that is effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933) and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his or her substitute or substitutes, may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement on Form S-1 has been signed by the following persons
in the indicated capacities on May 15, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
By: _______/s/ John A. Blanchard II________IChairman of the Board and Chief
John A. Blanchard III Executive Officer (Principal
Executive Officer)
By: __________/s/ Paul H. Bristo___________wExecutive Vice President and
Paul H. Bristow Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1* Initial Public Offering and Distribution Agreement, dated as of March
31, 2000, by and between Deluxe and eFunds
3.1* Amended and Restated Certificate of Incorporation of eFunds
Corporation
3.2* Bylaws of eFunds Corporation
4.1 Form of eFunds common stock certificate
4.2 Form of Rights Agreement, by and between eFunds and the
Rights Agent
5.1 Opinion of Dorsey & Whitney LLP
10.1* Assignment and Assumption Agreement, dated as of March 31, 2000, by
and between eFunds and Deluxe
10.2 Third Party Indemnification Agreement, dated as of , 2000, by and
between eFunds and Deluxe
10.3* Registration Rights Agreement, dated as of March 31, 2000, by and
between Deluxe and eFunds
10.4 Tax Sharing Agreement, dated as of April 1, 2000, by and between
eFunds and Deluxe
10.5 Employee Matters Agreement, dated as of , 2000, by and between
eFunds and Deluxe
10.6 Sublease, dated as of May , 2000, by and between eFunds and Deluxe
Financial Services, Inc., for property located in Shoreview, Minnesota
10.7 Lease, dated as of May , 2000, by and between eFunds and Deluxe
Financial Services, Inc., for property located in Phoenix, Arizona
10.8 Purchase Agreement, dated as of April 3, 2000, by and between eFunds
and Deluxe Financial Services, Inc., for property located in Phoenix,
Arizona
10.9 Transitional Services Agreement, dated as of May , 2000, by and
between eFunds and Deluxe
10.10 Professional Services Agreement, dated as of April 1, 2000, by and
between eFunds and Deluxe**
10.11 ONE Application Development and Support Agreement, dated as of January
1, 2000, by and between eFunds and Deluxe Financial Services, Inc.
10.12 EBT Support Services Agreement, effective as of April 1, 1996, by and
between eFunds and Citicorp Services, Inc.
10.13 Data Contribution Agreement, dated as of May 1, 2000, by and between
eFunds andDirect Checks Unlimited, Inc.
10.14 Processor Agreement, dated as of , 2000 by and between eFunds and
Deluxe
10.15 Amendment to ATM Cash Agreements, dated February 20, 2000**
10.16 Credit Agreement, dated as of April , 2000, by and between eFunds and
Deluxe
10.17 Government Services Indemnification Agreement, dated as of May ,
2000, by and between eFunds and Deluxe
10.18 eFunds Corporation 2000 Stock Incentive Plan
10.19 eFunds Corporation Stock Incentive Plan for Deluxe Conversion Awards
10.20 Form of Change in Control Agreement
10.21 Executive Employment Agreement, dated as of May 9, 2000, by and
between eFunds and John. A. Blanchard III.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.22 Letter Agreement, dated as of February 28, 2000, by and between eFunds
and Debra Janssen
10.23 Letter Agreement, dated as of February 29, 2000, by and between eFunds
and Dr. Nikhil Sinha
10.24 Letter Agreement, dated as of February 7, 2000, by and between eFunds
and Paul H. Bristow
10.25 Letter Agreement, dated as of February 14, 2000, by and between eFunds
and Steven F. Coleman
10.26 Form of Automated Teller Machine Cash Agreement
21.1 Subsidiaries of eFunds
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
23.3 Consent of Debra A. Janssen
23.4 Consent of John J. Boyle
23.5 Consent of Jack Robinson
23.6 Consent of Hatim A. Tyabji
23.7 Consent of John H. LeFevre
23.8 Consent of Lois M. Martin
23.9 Consent of Lawrence J. Mosner
24.1 Power of Attorney (included on signature page)
27.1* Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
** Pursuant to Rule 406 of Regulation C, confidential portions have been
omitted and filed separately with the Commission.
<PAGE>
EXHIBIT 4.2
FINAL
- --------------------------------------------------------------------------------
eFunds Corporation
and
[Rights Agent],
Rights Agent
RIGHTS AGREEMENT
Dated as of [date], 2000
- --------------------------------------------------------------------------------
[date]
[record date]
[price]
[1/100th of authorized common]
[address]
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1. Certain Definitions 1
Section 2. Appointment of Rights Agent 4
Section 3. Issue of Right Certificates 4
Section 4. Form of Right Certificates 5
Section 5. Countersignature and Registration 6
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or
Stolen Right Certificates 6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights 7
Section 8. Cancellation of Right Certificates 8
Section 9. Availability of Preferred Shares 8
Section 10. Preferred Shares Record Date 9
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights 9
Section 12. Certificate of Adjusted Purchase Price or Number of Shares 16
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power 16
Section 14. Fractional Rights and Fractional Shares 19
Section 15. Rights of Action 20
Section 16. Agreement of Right Holders 20
Section 17. Right Certificate Holder Not Deemed a Stockholder 21
Section 18. Concerning the Rights Agent 21
Section 19. Merger or Consolidation or Change of Name of Rights Agent 21
Section 20. Duties of Rights Agent 22
Section 21. Change of Rights Agent 24
<PAGE>
Section 22. Issuance of New Right Certificates 24
Section 23. Redemption 25
Section 24. Exchange 25
Section 25. Notice of Certain Events 26
Section 26. Notices 27
Section 27. Supplements and Amendments 28
Section 28. Successors 28
Section 29. Benefits of this Agreement 28
Section 30. Severability 28
Section 31. Governing Law 28
Section 32. Counterparts 28
Section 33. Descriptive Headings 28
Signatures 29
Exhibit A-- Certificate of Designations of Series A Junior Participating
Preferred Stock
Exhibit B -- Form of Right Certificates
<PAGE>
RIGHTS AGREEMENT
----------------
AGREEMENT, dated as of [date], 2000, between eFunds Corporation, a Delaware
corporation (the "Company"), and [Rights Agent] (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
of the Company outstanding at the Close of Business on the business day prior to
the Company's initial public offering (the "Record Date"), each Right
representing the right to purchase one one-hundredth of a Preferred Share, upon
the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each Common
Share that shall become outstanding between the Record Date and the earliest of
the Distribution Date, the Redemption Date and the Final Expiration Date (as
such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
"Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner
of the Threshold Percentage or more of the Common Shares then outstanding
other than as a result of a Permitted Offer, but shall not include any
Exempt Person. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to the
Threshold Percentage or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the
Beneficial Owner of the Threshold Percentage or more of the Common Shares
of the Company then outstanding by reason of share purchases by the Company
and shall, after such share purchases by the Company, increase the number
of Common Shares of the Company beneficially owned by such Person above the
number of Common Shares of the Company beneficially owned by such Person at
the time of the share purchase by the Company that caused such person to
exceed the Threshold Percentage, then such Person shall be deemed to be an
"Acquiring Person." Notwithstanding the foregoing, if the Board of
Directors of the Company determines in good faith that a Person who would
otherwise be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph, has become such inadvertently, and such
Person divests as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an "Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph, then such
Person shall not be deemed to be an "Acquiring Person" for any purposes of
this Agreement.
<PAGE>
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act. A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, including
without limitation securities with respect to which such Person or any
such Person's Affiliates or Associates has "beneficial ownership"
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on the date of this Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights (other than
these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to
vote such security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is
not also then reportable on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to
clause(ii)(B) above) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the
number of such
<PAGE>
securities not then actually issued and outstanding which such Person would
be deemed to own beneficially hereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in the state where the principal office
of the Rights Agent is located are authorized or obligated by law or
executive order to close.
"Close of Business" on any given date shall mean 5:00 P.M., prevailing
time where the principal office of the Rights Agent is located, on such
date; provided, however, that if such date is not a Business Day, it shall
mean 5:00 P.M., prevailing time, on the next succeeding Business Day.
"Common Shares," when used with reference to the Company, shall mean
the shares of Common Stock, par value $.01 per share, of the Company.
"Common Shares," when used with reference to any Person other than the
Company, shall mean the capital stock (or equity interest) with the
greatest voting power of such other Person or, if such other Person is a
Subsidiary of any other Person, the Person or Persons which ultimately
control such first mentioned Person.
"Distribution Date" shall have the meaning set forth in Section 3.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Date" shall have the meaning set forth in Section 7.
"Exempt Person" shall mean the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the
Company, and any Person organized, appointed or established by the Company
for or pursuant to the terms of any such plan. Deluxe Corporation, a
Minnesota corporation, shall be an Exempt Person until such time as Deluxe
Corporation owns less than 15% of the Company's Common Shares. In addition,
any underwriter participating in the initial public offering of the
Company's Common Shares shall also be an Exempt Person until the earliest
of (i) the date any such underwriter owns less than 15% of the Company's
Common Shares, (ii) the date Deluxe Corporation owns less than 15% of the
Company's Common Shares or (iii) December 31, 2000.
"Final Expiration Date" shall have the meaning set forth in Section 7.
"Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"Permitted Offer" shall mean a tender offer or an exchange offer for
all outstanding Common Shares of the Company determined by the Board of
Directors of the Company, after receiving such advice as it deems necessary
and
<PAGE>
giving due consideration to all relevant factors, to be in the best
interests of the Company and its stockholders.
"Preferred Shares" shall mean shares of Series A Junior Participating
Preferred Stock, par value $.01, of the Company having the rights and
preferences set forth in the form of Certificate of Designations attached
to this Agreement as Exhibit A.
"Redemption Date" shall have the meaning set forth in Section 7.
"Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) of the
Exchange Act) by the Company or any Person that a Person has become an
Acquiring Person.
"Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
"Threshold Percentage" shall mean 15%.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3, shall prior to the Distribution Date also be the
holders of the Common Shares) in accordance with the terms and conditions of
this Agreement, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth day after the Shares
Acquisition Date or (ii) the tenth day (or such later date as may be
determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than an Exempt Person) of, or of the first public
announcement of the intention of any Person (other than an Exempt Person)
to commence, a tender or exchange offer the consummation of which would
result in any Person becoming an Acquiring Person (the earlier of such
dates being referred to herein as the "Distribution Date"), (x) the Rights
will be evidenced (subject to the provisions of Section 3(b)) by the
certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be Right Certificates)
and not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of
Common Shares. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and
the Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, postage-prepaid mail, to each record
holder of Common Shares as of the Close of Business on the Distribution
Date, at the address of such holder shown on the records of the Company, a
Right Certificate, in substantially the form of Exhibit B (a "Right
Certificate"), evidencing one Right for each Common Share so held. As of
the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
<PAGE>
(b) With respect to certificates for Common Shares outstanding as of
the Close of Business on the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of
the holders thereof. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date if occurring prior to the
Distribution Date), the surrender for transfer of any certificate for
Common Shares outstanding on the Record Date shall also constitute the
transfer of the Rights associated with the Common Shares represented
thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the
last sentence of this paragraph (c)) after the Record Date but prior to the
earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between eFunds
Corporation and [Rights Agent] or any successor (as amended from time
to time the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive office of eFunds Corporation Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. eFunds Corporation will mail to the holder of
this certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances, as
set forth in the Rights Agreement, Rights issued to any Person who
becomes an Acquiring Person or an Associate or Affiliate thereof (as
defined in the Rights Agreement), or certain transferees of such
Person, may become null and void.
With respect to such certificates containing the foregoing legend, until
the Distribution Date, the Rights associated with the Common Shares
represented by such certificates shall be evidenced by such certificates
alone, and the surrender for transfer of any such certificate shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Company purchases or acquires
any Common Shares after the Record Date but prior to the Distribution Date,
any Rights associated with such Common Shares shall be deemed canceled and
retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Shares which are no longer outstanding.
(d) Reference in this Agreement to certificates for Common Shares
include uncertificated Common Shares, and any uncertificated Common Share
shall also represent the associated right. Any legend required to be placed
on any certificate for Common Shares may instead be included on any book
entry confirmation or notification to the holder of such Common Shares.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially the same as Exhibit B and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may
<PAGE>
deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable law or with any
rule or regulation made pursuant thereto or with any rule or regulation of any
stock exchange or automated quotations system on which the Rights may from time
to time be listed, or to conform to usage. Subject to the provisions of Section
11, the Right Certificates shall entitle the holders thereof to purchase such
number of one one-hundredths of a Preferred Share as shall be set forth therein
at the price per one one-hundredth of a Preferred Share set forth therein (the
"Purchase Price"), but the number of such one one- hundredths of a Preferred
Share and the Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates shall
be executed on behalf of the Company by its Chairperson of the Board, its Chief
Executive Officer, its President, any of its Vice Presidents or its Treasurer
either manually or by facsimile signature and shall be attested by the Secretary
or an Assistant Secretary of the Company, or if one shall not have been elected,
the Chief Financial Officer, either manually or by facsimile signature. The
Right Certificates shall be manually countersigned by the Rights Agent for
purposes of authorization only and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such Person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its principal office, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights evidenced
on its face by each of the Right Certificates and the date of each of the Right
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14, at any time after the Close of Business on the
Distribution Date, and at or prior to the Close of Business on the earlier of
the Redemption Date or the Final Expiration Date, any Right Certificate or Right
Certificates (other than Right Certificates representing Rights that have become
void pursuant to Section 11(a)(ii)) may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a Preferred
Share as the Right Certificate or Right Certificates surrendered then entitled
such holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent. Thereupon the Rights
Agent shall countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that
<PAGE>
may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will issue, execute and deliver
a new Right Certificate of like tenor to the Rights Agent for countersignature
and delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or
in part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the office or offices of the
Rights Agent designated for such purpose, together with payment of the
Purchase Price for each one one-hundredth of a Preferred Share as to which
the Rights are exercised, at or prior to the earliest of (i) the Close of
Business on [record date], 2010 (the "Final Expiration Date"), (ii) the
time at which the Rights are redeemed as provided in Section 23 (the
"Redemption Date") or (iii) the time at which such Rights are exchanged as
provided in Section 24 (the "Exchange Date").
(b) The Purchase Price for each one one-hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be
$[price], shall be subject to adjustment from time to time as provided in
Sections 11 and 13 and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the aggregate Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the
holder of such Right Certificate in accordance with Section 9 by certified
check, cashier's check or money order payable to the order of the Company,
the Rights Agent shall thereupon promptly (i) (A) requisition from any
transfer agent for the Preferred Shares (or make available, if the Rights
Agent is the transfer agent for the Preferred Shares) certificates for the
number of Preferred Shares to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests,
or (B) if the Company shall have elected to deposit with a depository agent
the total number of Preferred Shares issuable upon exercise of the Rights
hereunder, requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a Preferred Share as are
to be purchased and the Company hereby directs the depositary agent to
comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate,
registered in such name or names as may be designated by such holder, and
(iv) when appropriate, after receipt, deliver such cash to or upon the
order of the registered holder of such Right Certificate.
<PAGE>
(d) In case the registered holder of any Right Certificate shall
exercise less than all of the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of
such Right Certificate or to such holder's duly authorized assigns, subject
to the provisions of Section 14.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake
any action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section unless such registered
holder shall have (i) duly completed and executed the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered
for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) of such Right
Certificate or Affiliates or Associates thereof as the Company shall
reasonably request.
Section 8. Cancellation of Right Certificates. All Right Certificates
surrendered for the purpose of exercise, transfer, split up, combination or
exchange shall, if surrendered to the Company or to any of its agents, be
delivered to the Rights Agent for cancellation or in canceled form, or, if
surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company.
Section 9. Availability of Preferred Shares.
(a) The Company will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares, or any Preferred Shares held
in its treasury, the number of Preferred Shares that will be sufficient to
permit the exercise in full of all outstanding Rights.
(b) At such time, if any, as the Preferred Shares issuable upon the
exercise of Rights may be listed on any national securities exchange, the
Company shall use its best efforts to cause, from and after such time as
the Rights become exercisable (but only to the extent that it is reasonably
likely that the Rights will be exercised), all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company will prepare and file, as soon as practicable after
the Distribution Date, a registration statement under the Securities Act of
1933, as amended (the "Act"), with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, and use its
best efforts to cause such registration statement to (i) become effective
as soon as practicable after such filing and (ii) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
earlier of (A) the date as of which the Rights are no longer exercisable
for such securities or (B) the Final Expiration Date. The Company will also
take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with
the exercisability of the Rights. The
<PAGE>
Company may temporarily suspend, for a period of time not to exceed 90 days
after the date the registration statement is filed, the exercisability of
the Rights in order to permit the registration statement to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the requisite qualification in such jurisdiction shall not
have been obtained or the exercise thereof is not permitted under
applicable law.
(d) The Company will take all such action as may be necessary to
ensure that all Preferred Shares delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price and any applicable transfer
taxes), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(e) The Company will pay when due and payable any and all federal and
state transfer taxes and charges which may be payable in respect of the
issuance or delivery of the Right Certificates or of any Preferred Shares
upon the exercise of Rights. The Company shall not, however, be required to
pay any transfer tax which may be payable in respect of any transfer or
delivery of Right Certificates to a Person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Shares in
a name other than that of the registered holder of the Right Certificate
evidencing Rights surrendered for exercise, or to issue or to deliver any
certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction
that no such tax is due.
Section 10. Preferred Shares Record Date. Each Person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the transfer books of the Company for the Preferred Shares are closed,
such Person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
such transfer books are open. Prior to the exercise of the Rights evidenced
thereby, the holder of a Right Certificate shall not be entitled to any rights
of a holder of Preferred Shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11:
<PAGE>
(a)(i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of Preferred
Shares or (D) issue any shares of its capital stock in a reclassification
of the Preferred Shares (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a),
the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock to
which a Right applies on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if
such Right had been exercised immediately prior to such date and at a time
when the Preferred Shares transfer books of the Company were open, such
holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification;
provided, however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one Right.
If an event occurs which would require an adjustment under both Section
11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, unless the event by which such
Person became an Acquiring Person is a transaction described in
Section 13(a), each holder of a Right shall thereafter have a right to
receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable, in accordance
with the terms of this Agreement and in lieu of Preferred Shares, such
number of Common Shares of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the
number of one one-hundredths of a Preferred Share for which a Right is
then exercisable and dividing that product by (y) 50% of the then
current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d)) on the date that such Person
becomes an Acquiring Person. In the event that any Person shall become
an Acquiring Person and the Rights shall then be outstanding, the
Company shall not take any action that would eliminate or diminish the
benefits intended to be afforded by the Rights other than as provided
in the next paragraph.
From and after the date that such Person becomes an Acquiring
Person, any Rights that are or were acquired or beneficially owned by
any Acquiring Person (or any Associate or Affiliate of such Acquiring
Person) shall be void and any holder of such Rights shall thereafter
have no right to exercise such Rights under any provision of this
Agreement. No Right Certificate shall be issued pursuant to Section 3
that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any
Associate or Affiliate thereof; no Right Certificate shall be issued
at any time upon the transfer of any Rights to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence or any
<PAGE>
Associate or Affiliate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate; and any Right Certificate delivered to
the Rights Agent for transfer to an Acquiring Person whose Rights
would be void pursuant to the preceding sentence shall be canceled.
(iii) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit
the exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Company shall take all such action as may be
necessary to authorize additional Common Shares for issuance upon
exercise of the Rights. In the event the Company shall, after good
faith effort, be unable to take all such action as may be necessary to
authorize such additional Common Shares, the Company shall substitute,
for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that
the current per share market price of one Preferred Share multiplied
by such number or fraction is equal to the current per share market
price of one Common Share as of the date of issuance of such Preferred
Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling
them to subscribe for or purchase Preferred Shares (or shares having the
same rights, privileges and preferences as the Preferred Shares (such
shares are herein called "preferred share equivalents")) or securities
convertible into Preferred Shares or preferred share equivalents at a price
per Preferred Share or preferred share equivalent (or having a conversion
price per share, if a security convertible into Preferred Shares or
preferred share equivalents) less than the then current per share market
price (as such term is defined in Section 11(d)) of the Preferred Shares on
such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be
the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or preferred share equivalents so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price
and the denominator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of additional Preferred
Shares and/or preferred share equivalents to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. In case such subscription price may be paid in
a consideration part or all of which shall be in a form other than cash,
the value of such consideration shall be determined in good faith by the
Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. Preferred Shares held for the
account
<PAGE>
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not
been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b)), the Purchase Price to be in
effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share market
price of the Preferred Shares on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with
the Rights Agent) of the portion of the assets or evidences of indebtedness
so to be distributed or of such subscription rights or warrants applicable
to one Preferred Share, and the denominator of which shall be such current
per share market price of the Preferred Shares; provided, however, that in
no event shall the consideration to be paid upon the exercise of one Right
be less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event
that such distribution is not so made, the Purchase Price shall again be
adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive
Trading Days immediately prior to such date; provided, however, that in the
event that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such Security
of (A) a dividend or distribution on such Security payable in shares of
such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to
the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current
per share market price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security after such
ex-dividend or record date. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the Security is not listed or admitted to
trading on the New
<PAGE>
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Security is listed or admitted to
trading or, if the Security is not listed or admitted to trading on any
national securities exchange, the last sale price on the Nasdaq National
Market or such other system then in use, or, if on any such date the
Security is not quoted on the Nasdaq National Market, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
Company. If on any such day no market maker is making a market in the
Common Shares, the fair value of such share on such day as determined in
good faith by the Board of Directors of the Company shall be used in lieu
of the closing price for such day. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the Security
is listed or admitted to trading or the Nasdaq National Market, as
applicable, is open for the transaction of business or, if the Security is
not listed or admitted to trading on any national securities exchange or
the Nasdaq National Market, a Business Day.
(ii) For the purpose of any computation hereunder, the "current
per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the
Preferred Shares are not publicly traded, the "current per share
market price" of the Preferred Shares shall be conclusively deemed to
be the current per share market price of the Common Shares as
determined pursuant to Section 11(d)(i) (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held
or so listed or traded, "current per share market price" of the
Preferred Shares shall mean the fair value per share as determined in
good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the nearest one
one-millionth of a Preferred Share or one ten-thousandth of any other share
or security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction
which requires such adjustment or (ii) the date of the expiration of the
right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) and
13(a), the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Preferred Shares
<PAGE>
contained in Section 11(a) through (c), inclusive, and the provisions of
Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares shall
apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths
of a Preferred Share purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), subject to the provisions of Sections 11(a) and 13, upon
each adjustment of the Purchase Price as a result of the calculations made
in Sections 11(b) and (c), each Right outstanding immediately prior to the
making of such adjustment shall thereafter evidence the right to purchase,
at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-hundredths of
a Preferred Share covered by a Right immediately prior to this adjustment
by (y) the Purchase Price in effect immediately prior to such adjustment of
the Purchase Price and (ii) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding
after such adjustment of the number of Rights shall be exercisable for the
number of one one-hundredths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of
the Purchase Price by the Purchase Price in effect immediately after
adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of
the adjustment to be made. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least ten days later than the
date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date
Right Certificates evidencing, subject to Section 14, the additional Rights
to which such holders shall be entitled as a result of such adjustment, or,
at the option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Right Certificates held
by such holders prior to the date of adjustment, and upon surrender
thereof, if required by the Company, new Right Certificates evidencing all
the Rights to
<PAGE>
which such holders shall be entitled after such adjustment. Right
Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein, may bear, at the option of
the Company, the adjusted Purchase Price, and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-hundredths of a Preferred Share which were expressed in the initial
Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any,
of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully
paid and nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such
record date of the Preferred Shares and other capital stock or securities
of the Company, if any, issuable upon such exercise over and above the
Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that in their sole discretion the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation
or subdivision of the Preferred Shares, (ii) issuance wholly for cash of
any Preferred Shares at less than the current market price, (iii) issuance
wholly for cash of Preferred Shares or securities which by their terms are
convertible into or exchangeable for Preferred Shares, (iv) dividends on
Preferred Shares payable in Preferred Shares or (v) issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter
made by the Company to holders of its Preferred Shares shall not be taxable
to such stockholders.
(n) The Company shall not, at any time after the Distribution Date,
(i) consolidate with any other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o)), (ii) merge
with or into any other
<PAGE>
Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o)), or (iii) sell or transfer (or permit any
Subsidiary to sell or transfer), in one transaction, or a series of related
transactions, assets or earning power aggregating more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Company and/or any of
its Subsidiaries in one or more transaction each of which complies with
Section 11(o)), if (x) at the time of or immediately after such
consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the shareholders of the Person
who constitutes, or would constitute, the "Principal Party" for purposes of
Section 13(a) shall have received a distribution of Rights previously owned
by such Person or any of its Affiliates and Associates.
(o) The Company, after the Distribution Date, will not, except as
permitted by Section 23, 24 or 27, take (or permit any Subsidiary of the
Company to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement or the Rights to the contrary
notwithstanding, in the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare
or pay any dividend on the Common Shares payable in Common Shares or (ii)
effect a subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common
Shares) into a greater or lesser number of Common Shares, then in any such
case (i) the Purchase Price for each one one-hundredths of a Preferred
Share purchasable after such event upon proper exercise of each Right shall
be determined by multiplying the Purchase Price for each one one-hundredths
of a Preferred Share so purchasable immediately prior to such event by a
fraction, the numerator of which is the number of Common Shares outstanding
immediately before such event and the denominator of which is the number of
Common Shares outstanding immediately after such event, and (ii) each
Common Share outstanding immediately after such event shall have issued
with respect to it that number of Rights which each Common Share
outstanding immediately prior to such event had issued with respect to it.
The adjustments provided for in this Section 11(p) shall be made
successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected. If an event occurs
which would require an adjustment under Section 11(a)(ii) and this Section
11(p), the adjustments provided for in this Section 11(p) shall be in
addition and prior to any adjustment required pursuant to Section
11(a)(ii).
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13, the Company
shall promptly (a) prepare a certificate setting forth such adjustment and a
brief statement of the facts accounting for such adjustment, (b) file with the
Rights Agent and with each transfer agent for the Common
<PAGE>
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.
(a) In the event, directly or indirectly, at any time after there is
an Acquiring Person,
(w) the Company shall consolidate with, or merge with and into,
any other Person and the Company shall not be the continuing or
surviving corporation of such consolidation or merger,
(x) any Person shall consolidate with, or merge with and into,
the Company, the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with
such consolidation or merger, all or part of the Common Shares shall
be changed into or exchanged for stock or other securities of any
other Person (or the Company) or cash or any other property,
(y) the Company shall effect a statutory share exchange with the
outstanding Common Shares of the Company being exchanged for stock or
other securities of any other Person, cash or property, or
(z) the Company shall sell or otherwise transfer (or one or more
of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any other Person other than the Company or one or more of
its wholly owned Subsidiaries,
then, and in each such case, except as contemplated by Section 13(e),
proper provision shall be made so that (i) each holder of a Right (except
as otherwise provided in this Agreement) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable, in accordance with
the terms of this Agreement and in lieu of Preferred Shares, such number of
validly authorized and issued, fully paid, nonassessable and freely
tradeable Common Shares of the Principal Party, not subject to any liens,
encumbrances, rights of first refusal or adverse claims, as shall be equal
to the result obtained by (x) multiplying the then current Purchase Price
by the number of one one-hundredths of a Preferred Share for which a Right
is, immediately prior to such consolidation, merger, statutory share
exchange, sale or transfer, exercisable and (y) dividing that product by
50% of the current per share market price of the Common Shares of such
Principal Party (determined pursuant to Section 11(d)) on the date of
consummation of such consolidation, merger, statutory share exchange, sale
or transfer; (ii) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such merger, consolidation, statutory share
exchange, sale or transfer, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such Principal Party; and (iv) such Principal Party
shall take such steps (including, but not limited to, the reservation of a
sufficient number of its Common Shares to permit the exercise of all
outstanding Rights) in connection with the consummation of any such
transaction as may
<PAGE>
be necessary to assure that the provisions of this Agreement shall
thereafter be applicable, as nearly as reasonably may be, in relation to
its Common Shares thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clauses (w), (x)
or (y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which Common Shares of the Company are
converted in such merger, consolidation or exchange, or if no
securities are so issued, the Person that is the other party to such
merger, consolidation or exchange; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Shares of such
Person are not at such time or have not been continuously over the
preceding 12-month period registered under Section 12 of the Exchange Act,
and such Person is a direct or indirect Subsidiary of another Person the
Common Shares of which are and have been so registered, "Principal Party"
shall refer to such other Person, and (2) in case such Person is a
Subsidiary, directly or indirectly, of more than one Person, the Common
Shares of two or more of which are and have been so registered, "Principal
Party" shall refer to whichever of such Persons is the issuer of the Common
Shares having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
share exchange, sale or transfer unless the Principal Party shall have a
sufficient number of authorized, unreserved Common Shares which have not
been issued or are held in treasury to permit the exercise in full of the
Rights in accordance with this Section 13 and unless prior thereto the
Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing for the terms set forth in
paragraphs (a) and (b) of this Section 13 and further providing that, as
soon as practicable after the date of any such consolidation, merger, share
exchange, sale or transfer, the Principal Party will:
(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable upon exercise of
the Rights, on an appropriate form, and use its best efforts to cause
such registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
earlier of (1) the date as of which the Rights are no longer
exercisable for such securities or (2) the Final Expiration Date;
(ii) take such action as may be appropriate under, or to ensure
compliance with, the securities or "blue sky" laws of the various
states in connection with the exercisability of the Rights; and
<PAGE>
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
(d) The Company shall not enter into any transaction of the kind
referred to in this Section 13 if at the time of such transaction there are
any rights, warrants, instruments or securities outstanding or any
agreements or arrangements which, as a result of the consummation of such
transaction, would substantially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights. Without limiting the
generality of the preceding sentence, in case the Principal Party which is
to be a party to a transaction of the kind referred to in this Section 13
has a provision in any of its authorized securities or in its certificate
of incorporation or bylaws or other instrument governing its corporate
affairs, which provision would have the effect of (i) causing such
Principal Party to issue, in connection with, or as a consequence of, the
consummation of a transaction of the kind referred to in this Section 13,
Common Shares of such Principal Party at less than the then current per
share market price (determined pursuant to Section 11(d)) or securities
exercisable for or convertible into Common Shares of such Principal Party
at less than such then current market price (other than to holders of
Rights pursuant to this Section 13) or (ii) providing for any special
payment, tax or similar provisions in connection with the issuance of
Common Shares of such Principal Party pursuant to the provisions of Section
13, then, in such event, the Company shall not consummate any such
transaction unless prior thereto the provision in question of such
Principal Party shall have been canceled, waived or amended so as to avoid
any of the effects referred to in clauses (i) and (ii) of this paragraph,
or the authorized securities shall have been redeemed, so that the
applicable provision will have no effect in connection with, or as a
consequence of, the consummation of the proposed transaction.
(e) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in clauses
(w), (x) or (y) of Section 13(a) if (i) such transaction is consummated
with a Person or Persons who acquired Common Shares pursuant to a Permitted
Offer (or a wholly owned Subsidiary of any such Person or Persons), (ii)
the price per Common Share offered in such transaction is not less than the
price per Common Share paid to all holders of Common Shares whose shares
were purchased pursuant to such tender offer or exchange offer and (iii)
the form of consideration being offered to the remaining holders of Common
Shares pursuant to such transaction is the same as the form of
consideration paid pursuant to such tender offer or exchange offer. Upon
consummation of any such transaction contemplated by this Section 13(e),
all Rights hereunder shall expire.
(f) The provisions of this Section 13 shall similarly apply to
successive mergers, consolidations, statutory share exchanges or sale or
other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu
of such fractional Rights, there shall be paid to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section
14(a), the current market value of a whole Right shall be the closing price
of the Rights for the Trading Day immediately
<PAGE>
prior to the date on which such fractional Rights would have been otherwise
issuable determined in accordance with Section 11(d)(i).
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other
than fractions which are integral multiples of one one-hundredth of a
Preferred Share). Fractions of Preferred Shares in integral multiples of
one one-hundredth of a Preferred Share may, at the election of the Company,
be evidenced by depositary receipts pursuant to an appropriate agreement
between the Company and a depositary selected by it; provided, however,
that if the Company issues depositary receipts pursuant to any such
agreement, such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which
they are entitled as beneficial owners of the Preferred Shares represented
by such depositary receipts. In lieu of fractional Preferred Shares that
are not integral multiples of one one-hundredth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at the
time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Preferred Share.
For the purposes of this Section 14(b), the current market value of a
Preferred Share shall be the closing price of a Preferred Share (as
determined pursuant to Section 11(d)) for the Trading Day immediately prior
to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives such holder's right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in such holder's own behalf and
for such holder's own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, such holder's right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
<PAGE>
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the principal office of the Rights Agent, duly endorsed or accompanied
by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations
of ownership or writing on the Right Certificates or the associated Common
Shares certificate made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and neither the Company nor the Rights
Agent shall be affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions of
this Agreement.
Section 18. Concerning the Rights Agent.
(a) The Company will pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on demand
of the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The
Company will indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability, or expense, incurred without negligence, bad
faith or willful misconduct on the part of the Rights Agent, for anything
done or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Right Certificate or certificate for the Preferred Shares (or for
depositary receipts evidencing fractional interests in Preferred Shares) or
Common Shares or for other securities of the Company, instrument of
assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons, or
otherwise upon the advice of counsel as set forth in Section 20.
<PAGE>
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the stock transfer or corporate trust business of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights
Agent under this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties to this Agreement,
provided that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21. In case at the
time such successor Rights Agent shall succeed to the agency created by
this Agreement any of the Right Certificates shall have been countersigned
but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent
may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and
in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall
not have been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name; and in all
such cases such Right Certificates shall have the full force provided in
the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the
Chairperson of the Board, the President, any Vice President, the Treasurer
or the Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
<PAGE>
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be
deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery of this
Agreement (except the due execution of this Agreement by the Rights Agent)
or in respect of the validity or execution of any Right Certificate (except
its countersignature thereof); nor shall it be responsible for any breach
by the Company of any covenant or condition contained in this Agreement or
in any Right Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant
to Section 11(a)(ii)) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Section 3,
11, 13, 23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the exercise
of Rights evidenced by Right Certificates after receipt of actual notice
from the Company stating that a change or adjustment is required and
specifying the manner and amount thereof); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant
to this Agreement or any Right Certificate or as to whether any Preferred
Shares will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company will perform, execute, acknowledge and deliver or
cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any one of the Chairperson of the Board, the President, any Vice President,
the Secretary or the Treasurer of the Company, and to apply to such
officers for advice or instructions in connection with its duties, and it
shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent
<PAGE>
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from
any such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or liability is
not reasonably assured to it.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares and Preferred Shares by registered or certified mail, and
to the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares and Preferred Shares by
registered or certified mail. If the Rights Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit such holder's Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be (a) a corporation organized and doing business under the
laws of the United States or of the State of New York (or of any other state of
the United States so long as such corporation is authorized to do business as a
banking institution in the State of Wisconsin or New York), in good standing,
having an office in the State of Wisconsin or New York, which is authorized
under such laws to exercise corporate trust or stock transfer powers and is
subject to supervision or examination by federal or state authority and which
has or is a subsidiary of a corporation which has at the time of its appointment
as Rights Agent a combined capital and surplus of at least $100 million, or (b)
an affiliate of a corporation described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares and
Preferred Shares. Failure to
<PAGE>
give any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or
sale of Common Shares after the Distribution Date, the Company shall, with
respect to Common Shares issued upon the exercise, conversion or exchange of
securities hereinafter issued by the Company and outstanding on the Distribution
Date, issue Right Certificates representing the appropriate number of rights in
connection with such issuance; provided, however, that (i) no such Right
Certificate shall be issued if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued, and (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the Close of Business on the tenth day after the Shares
Acquisition Date, redeem all but not less than all of the then outstanding
Rights at a redemption price of $0.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring
after the date of this Agreement (such redemption price being hereinafter
referred to as the "Redemption Price"). The redemption of the Rights by the
Board of Directors may be made effective at such time and on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter
of the holders of Rights shall be to receive the Redemption Price. The
Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give, or any defect in, any such notice shall
not affect the validity of such redemption. Within ten days after such
action of the Board of Directors ordering the redemption of the Rights, the
Company shall mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Any notice
which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption
Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time
in any manner other than that specifically set forth in this Section 23 or
in Section 24, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
<PAGE>
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any
time after the Close of Business on the tenth day after the Shares
Acquisition Date, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii)) for Common Shares at an
exchange ratio of one Common Share per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring
after the date of this Agreement (such exchange ratio being hereinafter
referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the
Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than an Exempt Person) together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of
50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of Common Shares
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of
such Rights at their last addresses as they appear upon the registry books
of the Rights Agent. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the
exchange of the Common Shares for Rights will be effected and, in the event
of any partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of
outstanding and exercisable Rights (other than Rights which have become
void pursuant to the provisions of Section 11(a)(ii)) held by each holder
of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued and unreserved to
permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company shall take all such action as may be necessary to
authorize additional Common Shares for issuance upon exchange of the
Rights. In the event the Company shall, after good faith effort, be unable
to take all such action as may be necessary to authorize such additional
Common Shares, the Company shall substitute, for each Common Share that
would otherwise be issuable upon exchange of a Right, a number of Preferred
Shares or fraction thereof such that the current per share market price of
one Preferred Share multiplied by such number or fraction is equal to the
current per share market price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company shall pay to
the registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole Common
Share. For the purposes of this paragraph (d), the current market value of
a whole Common Share shall be the closing price of a Common Share (as
determined pursuant to the second sentence of Section
<PAGE>
11(d)(i)) for the Trading Day immediately prior to the date of exchange
pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose at any time after the
Distribution Date (i) to pay any dividend payable in stock of any class to
the holders of its Preferred Shares or to make any other distribution to
the holders of its Preferred Shares (other than a regular quarterly cash
dividend), (ii) to offer to the holders of its Preferred Shares rights or
warrants to subscribe for or to purchase any additional Preferred Shares or
shares of stock of any class or any other securities, rights or options,
(iii) to effect any reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to
effect any sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect
any statutory share exchange with the outstanding Common Shares of the
Company being exchanged for stock or other securities of any other
corporation or cash or other property, (vi) to effect the liquidation,
dissolution or winding up of the Company or (vii) to declare or pay any
dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common
Shares), then, in each such case, the Company shall give to each holder of
a Right Certificate, in accordance with Section 26, a notice of such
proposed action, which shall specify the record date for the purposes of
such stock dividend, or distribution of rights or warrants, or the date on
which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given
in the case of any action covered by clause (i) or (ii) of this paragraph
at least ten days prior to the record date for determining holders of the
Preferred Shares for purposes of such action, and in the case of any such
other action, at least ten days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the
Common Shares and/or Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) shall occur, then
the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate, in accordance with Section 26, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii).
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
eFunds Corporation
400 West Deluxe Parkway
P.O. Box 12536
Milwaukee, WI 53212
Attn: Chief Financial Officer
<PAGE>
Copy to: General Counsel
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
[Rights Agent]
Attention:
[address]
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to time
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order (i) to extend the Final Expiration Date or, provided that
at the time of such amendment no Person has become an Acquiring Person, the
period during which the Rights may be redeemed, (ii) to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions of this Agreement, (iii) prior to the
time that any Person becomes an Acquiring Person, to otherwise change or
supplement any provision in this Agreement in any manner which the Company may
deem necessary or desirable, or (iv) subject to clause (i) of this Section 27,
from and after the time that any Person becomes an Acquiring Person, to
otherwise change or supplement any provision in this Agreement in any manner
which the Company may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Right Certificates (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person).
Section 28. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
<PAGE>
Section 31. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
EFUNDS CORPORATION
By: _______________________________
Name: _____________________________
[RIGHTS AGENT]
By: _______________________________
Name: _____________________________
<PAGE>
Exhibit 5.1
-----------
May 15, 2000
eFunds Corporation
400 W. Deluxe Parkway
PO Box 12536
Milwaukee, WI 53212-0536
Re: Registration Statement on Form S-1
SEC File No. 333-33992
Ladies and Gentlemen:
We have acted as counsel to eFunds Corporation, a Delaware corporation
(the "Company"), in connection with a Registration Statement on Form S-1 (the
"Registration Statement") relating to the sale by the Company of up to 7,187,500
shares of common stock of the Company, par value $0.01 per share (including
937,500 shares to be subject to the Underwriter's over-allotment option) (the
"Common Stock").
We have examined such documents and have reviewed such questions of law
as we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials. We have
also assumed that the Common Stock will be priced by the Pricing Committee
established by the authorizing resolutions adopted by the Company's Board of
Directors in accordance with such resolutions and will be issued and sold as
described in the Registration Statement.
Based on the foregoing, we are of the opinion that the shares of Common
Stock to be sold by the Company pursuant to the Registration Statement have been
duly authorized by all requisite corporate action and, upon issuance, delivery
and payment therefor as described in the Registration Statement, will be validly
issued, fully paid and nonassessable.
<PAGE>
Efunds Corporation
May 15, 2000
Page 2
Our opinions expressed above are limited to the Delaware General
Corporation Law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: May 15, 2000
Very truly yours,
Dorsey & Whitney
JBA
<PAGE>
EXHIBIT 10.2
THIRD PARTY INDEMNIFICATION AGREEMENT
THIRD PARTY INDEMNIFICATION AGREEMENT (this "Agreement") dated as of
_______________, 2000 by and between Deluxe Corporation, a Minnesota corporation
("Deluxe"), and eFunds Corporation, a Delaware corporation and wholly owned
subsidiary of Deluxe ("eFunds").
RECITALS
WHEREAS, Deluxe currently owns all of the issued and outstanding capital
stock of eFunds;
WHEREAS, pursuant to the Assignment and Assumption Agreement, dated March
31, 2000 between Deluxe and eFunds (the "Assignment Agreement"), Deluxe
contributed and transferred to eFunds, and eFunds received and assumed, directly
or indirectly, substantially all of the assets and liabilities currently
associated with the business and operations of eFunds (the "eFunds Business");
WHEREAS, Deluxe currently contemplates that, several months following an
initial public offering of eFunds, Deluxe will distribute to the holders of its
common stock by means of an exchange offer and/or a pro rata distribution all of
the shares of eFunds capital stock owned by Deluxe (the "Distribution");
WHEREAS, during the period of Deluxe's ownership, the eFunds Businesses
purchased and leased certain property and services, and Deluxe purchased and
leased certain property and services for the benefit of the eFunds Businesses,
from certain third parties under master purchase and lease agreements and master
services agreements entered into between Deluxe and such third parties,
including but not limited to the agreements listed on Exhibit A ("Master
Agreements");
WHEREAS, pursuant to the Assignment Agreement, eFunds agreed to sublease
from Deluxe that portion of the property, machinery, equipment and/or services
used by the eFunds Businesses covered under such Master Agreements;
WHEREAS, during the period of Deluxe's ownership of the eFunds Businesses,
Deluxe entered into certain guaranty agreements with certain third parties under
which it guaranteed the performance of the eFunds Businesses under various
eFunds Businesses' agreements with such third parties, including but not limited
to the guaranties listed on Exhibit B ("Guaranties");
WHEREAS, as an integral step in the Distribution, without which the
Distribution would not occur in the form contemplated, the parties desire to
enter into this Agreement to set forth their agreement regarding the obligation
of eFunds to indemnify Deluxe with
<PAGE>
respect to any costs or liability incurred by Deluxe under the Master Agreements
and the Guaranties insofar as such cost or liability is primarily related to the
eFunds Businesses.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Deluxe and eFunds, for themselves,
their successors, and assigns, hereby agree as follows:
1. Indemnification. eFunds agrees to indemnify in full Deluxe, its
officers, directors, employees, agents, representatives and officers
(collectively, the "Deluxe Indemnitees") and hold them harmless from and against
any and all losses, liabilities, deficiencies, damages, expenses or costs
(including reasonable legal and other external advisors fees and expenses)
(each, an "Indemnifiable Loss") which any Deluxe Indemnitee may suffer, sustain
or become subject to under the Master Agreements and Guaranties insofar as such
Indemnifiable Loss is primarily related to the past, present or future operation
of any of the eFunds Businesses; provided, however that in no event shall any
losses, liabilities, deficiencies, damages, expenses, costs or other payments
that Deluxe may suffer, sustain or become subject to pursuant to the provisions
of the Government Services Indemnification Agreement to be entered into between
Deluxe and eFunds constitute an Indemnifiable Loss under the terms of this
Agreement. eFunds irrevocably waives (a) any requirement that Deluxe proceed
first against any other party or against any collateral security, (b) any
defense relating to the absence of any attempt by the third party to collect
under the Master Agreements or Guaranties from eFunds or any other guarantor, or
the absence of any other action to enforce the same (c) any defense relating to
the failure by the third party to take any steps to perfect and maintain its
security interest in, or to preserve rights to, any security or collateral
relating the Master Agreements or Guaranties, or the release by operation of law
or otherwise, of any security interest, security, collateral or right of
recourse or liability relating to the Master Agreements or Guaranties or (d) any
defense relating to any assignment or transfer of rights by eFunds relating to
the Master Agreements or Guaranties. Nothing herein shall be construed to
prevent either party from pursuing a claim it may have against the other party
for the breach of such other party's obligations under the Master Agreements, or
under the Guaranties and the third party agreements under which the Guaranties
were issued.
2. Indemnification Procedures.
(a) If a claim or demand for an Indemnifiable Loss is made against a
Deluxe Indemnitee by any Person who is not a party to the this Agreement (a
"Third Party Claim") as to which such Deluxe Indemnitee is entitled to
indemnification pursuant Section 1 hereof, such Deluxe Indemnitee shall
give eFunds notice of such Third Party Claim, as promptly as practicable,
but in any event no later than 15 days of the receipt by the Deluxe
Indemnitee of such notice; provided, however, that the failure to provide
such notice shall not release eFunds from any of its obligations under this
Agreement except to the extent eFunds is materially prejudiced by such
failure and shall not relieve eFunds from any other
<PAGE>
obligation or liability that it may have to any Deluxe Indemnitee otherwise
than under this Agreement. If eFunds acknowledges in writing its
obligations to indemnify the Deluxe Indemnitee hereunder against any
Indemnifiable Losses that may result from such Third Party Claim, then
eFunds shall be entitled to assume and control the defense of such Third
Party Claim at its expense and through counsel of its choice, subject to
the approval of the Deluxe Indemnitee (which approval shall not be
unreasonably withheld or delayed), if it gives notice of its intention to
do so to the Deluxe Indemnitee within 15 business days of the receipt of
such notice from the Deluxe Indemnitee; provided, however, that if there
exists or is reasonably likely to exist a conflict of interest that would
make it inappropriate in the reasonable judgment of the Deluxe Indemnitee
for the same counsel to represent both the Deluxe Indemnitee and eFunds,
then the Deluxe Indemnitee shall be entitled to retain its own counsel, in
each jurisdiction for which the Deluxe Indemnitee determines counsel is
required to participate in such defense, at the expense of eFunds. In the
event eFunds exercises the right to undertake any such defense against any
such Third Party Claim as provided above, the Deluxe Indemnitee shall
cooperate with eFunds in such defense and make available to eFunds, at
eFunds's expense, all witnesses, pertinent records, materials and
information in the Deluxe Indemnitee's possession or under the Deluxe
Indemnitee`s control relating thereto as is reasonably required by eFunds,
subject to reimbursement of reasonable out-of-pocket expenses. Similarly,
in the event the Deluxe Indemnitee is, directly or indirectly, conducting
the defense against any such Third Party Claim, eFunds shall cooperate with
the Deluxe Indemnitee in such defense and make available to the Deluxe
Indemnitee all such witnesses, records, materials and information in
eFunds's possession or under eFunds's control relating thereto as is
reasonably required by the Deluxe Indemnitee, subject to reimbursement of
reasonable out-of-pocket expenses. No such Third Party Claim may be settled
by eFunds without the prior written consent of the Deluxe Indemnitee (which
shall not be unreasonably withheld or delayed) unless such settlement is
solely for money and includes an unconditional release of each Deluxe
Indemnitee from any and all Indemnifiable Losses arising out of such
action, claim, suit or proceeding and would not otherwise adversely affect
the Deluxe Indemnitee. No such Third Party Claim may be settled by the
Deluxe Indemnitee without the prior written consent of eFunds which shall
not be unreasonably withheld or delayed.
(b) All Persons who by their relationship to a party to this agreement
(including, without limitation all Affiliates of such party and all
officers, directors, employees and agents of such party and its Affiliates)
are, or may become, entitled to indemnification hereunder shall, as a
condition of their rights to indemnification hereunder, be deemed to have
granted such party an irrevocable power of attorney, coupled with an
interest, with respect to all matters for which any determination may be
made, action may be taken or consent may be given or withheld under this
Section 2, including, without limitation, any determination regarding
selection of counsel and any consent regarding settlement, and any such
<PAGE>
determination, action or consent made, taken, given or withheld by such
party shall be binding upon such Person as if made, taken, given or
withheld by such Person personally.
3. Notwithstanding the foregoing, eFunds shall not be entitled to
assume the defense of any Third Party Claim and shall be liable for the
fees and expenses of counsel incurred by the Deluxe Indemnitee in defending
such Third Party Claim if the Third Party Claim seeks an order, injunction
or other equitable relief or relief for other than money damages against
the Deluxe Indemnitee which the Deluxe Indemnitee reasonably determines,
after conferring with its counsel, cannot be separated from any related
claim for money damages. If such equitable relief or other relief portion
of the Third Party Claim can be so separated from that for money damages,
eFunds shall be entitled to assume the defense of the portion relating to
money damages.
(d) In the event any Deluxe Indemnitee should have a claim against
eFunds that does not involve a Third Party Claim, the Deluxe Indemnitee
shall deliver a notice of such claim with reasonable promptness to eFunds.
If eFunds notifies the Deluxe Indemnitee that it does not dispute the claim
described in such notice or fails to notify the Deluxe Indemnitee within 20
business days after delivery of such notice by the Deluxe Indemnitee
whether eFunds disputes the claim described in such notice, the
Indemnifiable Loss in the amount specified in the Deluxe Indemnitee's
notice will be conclusively deemed a liability of eFunds and eFunds shall
pay the amount of such Indemnifiable Loss to the Deluxe Indemnitee on
demand. If eFunds has timely disputed the liability with respect to such
claim, the Chief Financial Officer of eFunds and the Chief Financial
Officer of Deluxe will proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through the negotiations of such
individuals within 20 days after the delivery of the Deluxe Indemnitee's
notice of such claim, such dispute shall be resolved fully and finally in
Minneapolis, Minnesota, by an arbitrator selected pursuant to and an
arbitration governed by Commercial Arbitration Rules of the American
Arbitration Association, as modified herein. The parties will jointly
appoint a mutually acceptable independent arbitrator, seeking assistance in
such regard from the American Arbitration Association. The arbitrator shall
resolve the dispute within 30 days after selection and judgment upon the
award rendered by such arbitrator may be entered in any court of competent
jurisdiction. Each of Deluxe, on the one hand, and eFunds, on the other,
shall bear its own fees and expenses in connection with such arbitration
and shall bear 50% of the fees and expenses of the arbitrator.
4. Continuing Indemnity. This is a continuing indemnity and shall not be
revoked or terminated by eFunds until all obligations under the Master
Agreements and Guaranties have been paid or performed in full, with no further
recourse whether at law or in equity, against Deluxe being available to any
third party with respect to such obligations. The indemnity set forth herein
shall be reinstated if and to the extent that, for
<PAGE>
any reason, any payment of the Master Agreements or Guaranties is rescinded or
must be otherwise restored, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise.
5. Representations and Warranties of eFunds. eFunds hereby represents and
warrants to Deluxe as follows:
(a) eFunds has all requisite power and authority to enter into this
Agreement and to perform its obligations contemplated hereby. The
execution, delivery and performance of this Agreement by eFunds and the
performance of the obligations contemplated hereby have been duly and
validly authorized by all requisite corporate action and no other corporate
proceedings on eFunds's part are necessary to authorize the execution,
delivery or performance of this Agreement. This Agreement has been duly
executed and delivered by eFunds and, assuming due authorization, execution
and delivery by Deluxe, constitutes the valid and binding obligation of
eFunds enforceable in accordance with its terms.
(b) The execution, delivery and performance of this Agreement by
eFunds does not and the performance of the obligations contemplated hereby
will not: (a) contravene any provision of the Certificate of Incorporation
or Bylaws of eFunds; (b) violate or conflict in any material respect with
any foreign, federal, state or local law, statute, ordinance, rule,
regulation or any decree, writ, injunction, judgment or order of any court
or administrative or other governmental body or of any arbitration award
which is either applicable to, binding upon or enforceable against eFunds
or the business or any assets of eFunds; (c) conflict with, result in any
breach of any of the provisions of, or constitute a default (or any event
which would, with the passage of time or the giving of notice or both,
constitute a default) under, result in a violation of, result in the
creation of a right of termination, amendment, modification, abandonment or
acceleration under any indenture, mortgage, lease, license, loan agreement
or other material agreement or instrument which is either binding upon or
enforceable against eFunds; (d) result in the creation of any material
lien, security interest, charge or encumbrance upon eFunds or any of the
assets of eFunds; or (e) require any authorization, consent, approval,
exemption or other action by or notice to any court, commission,
governmental body regulatory authority, agency or tribunal wherever located
or any other third party.
6. Representations and Warranties of Deluxe. Deluxe hereby represents and
warrants to eFunds as follows:
(a) Deluxe has all requisite power and authority to enter into this
Agreement and to perform its obligations contemplated hereby. The
execution, delivery and performance of this Agreement by Deluxe and the
performance of the obligations contemplated hereby have been duly and
validly authorized by all requisite
<PAGE>
corporate action and no other corporate proceedings on Deluxe's part are
necessary to authorize the execution, delivery or performance of this
Agreement. This Agreement has been duly executed and delivered by Deluxe
and, assuming due authorization, execution and delivery by eFunds,
constitutes the valid and binding obligation of Deluxe enforceable in
accordance with its terms.
(b) The execution, delivery and performance of this Agreement by
Deluxe does not and the performance of the obligations contemplated hereby
will not: (a) contravene any provision of the Articles of Incorporation or
Bylaws of Deluxe; (b) violate or conflict in any material respect with any
foreign, federal, state or local law, statute, ordinance, rule, regulation
or any decree, writ, injunction, judgment or order of any court or
administrative or other governmental body or of any arbitration award which
is either applicable to, binding upon or enforceable against Deluxe or the
business or any assets of Deluxe; (c) conflict with, result in any breach
of any of the provisions of, or constitute a default (or any event which
would, with the passage of time or the giving of notice or both, constitute
a default) under, result in a violation of, result in the creation of a
right of termination, amendment, modification, abandonment or acceleration
under any indenture, mortgage, lease, license, loan agreement or other
material agreement or instrument which is either binding upon or
enforceable against Deluxe; (d) result in the creation of any material
lien, security interest, charge or encumbrance upon Deluxe or any of the
assets of Deluxe; or (e) require any authorization, consent, approval,
exemption or other action by or notice to any court, commission,
governmental body regulatory authority, agency or tribunal wherever located
or any other third party.
7. Assignment. Neither party may assign its rights or obligations under
this Agreement, in whole or in part, without the consent of the other party,
which consent will not be unreasonably withheld.
8. Entire Agreement. This Agreement contains the entire agreement of the
parties concerning the indemnification obligations of eFunds with respect to the
Master Agreements and Guaranties and may not be amended or modified except by a
writing signed by eFunds and Deluxe.
9. Choice of Law. This Agreement shall be governed by the internal laws (as
opposed to conflicts of law provisions) and decisions of the State of Minnesota.
If any provision of this indemnity shall be prohibited by or invalid under that
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement. EFUNDS WAIVES ANY RIGHT TO TRIAL BY
JURY. Each of eFunds and Deluxe consents to the jurisdiction of any local, state
or Federal court located within the State of Minnesota, and waives any objection
relating to improper venue of forum non conveniens to the conduct of any
proceeding in any such court.
<PAGE>
10. Notices. All notices, consents, requests, approvals, and other
communications provided for or required herein, and all legal process in regard
thereto, must be in writing and shall be deemed validly given, made or served,
(a) when delivered personally or sent by telecopy to the facsimile number
indicated below with a required confirmation copy sent in accordance with
subsection (c) below; or (b) on the next business day after delivery to a
nationally recognized express delivery service with instructions and payment for
overnight delivery; or (c) on the fifth (5th) day after deposited in any
depository regularly maintained by the United States postal service, postage
prepaid, certified or registered mail, return receipt requested, addressed to
the following addresses or to such other address as the party to be notified
shall have specified to the other party in accordance with this section:
If to Deluxe:
Deluxe Corporation
3680 Victoria Street North
Shoreview, Minnesota 55126
Attn: Chief Financial Officer
Facsimile: (651) 481-4477
Copy to: General Counsel
Facsimile: (651) 787-2749
If to eFunds:
eFunds Corporation
400 West Deluxe Parkway
P.O. Box 12536
Milwaukee, Wisconsin 53212
Attn: Chief Financial Officer
Facsimile: (651) 483-7337
Copy to: General Counsel
Facsimile: (651) 787-2749
11. Definitions. Capitalized terms not otherwise defined herein have the
meaning given to them in the IPO and Distribution Agreement dated March 31, 2000
between Deluxe and eFunds.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date and year first written above.
DELUXE CORPORATION
By:
------------------------------------
Name:
Title:
EFUNDS CORPORATION
By:
------------------------------------
Name:
Title:
<PAGE>
TAX SHARING AGREEMENT
---------------------
THIS TAX SHARING AGREEMENT (this "Agreement") dated effective as of April
1, 2000, by and among Deluxe Corporation ("Deluxe"), a Minnesota corporation,
each Deluxe Affiliate (as defined below), eFunds Corporation ("eFunds"), a
Delaware corporation and currently a direct, wholly owned subsidiary of Deluxe,
and each eFunds Affiliate (as defined below) is entered into in connection with
the Distribution (as defined below).
RECITALS
--------
WHEREAS, as of the date hereof, Deluxe and its direct and indirect domestic
subsidiar ies are members of an Affiliated Group (as defined below), of which
Deluxe is the common parent corporation;
WHEREAS, as set forth in the Assignment and Assumption Agreement dated as
of March 31, 2000 (the "Assignment and Assumption Agreement"), and subject to
the terms and conditions thereof, Deluxe has transferred and assigned to eFunds
substantially all of the assets and liabilities currently associated with the
eFunds Business (as defined below) and the stock or similar interests currently
held by Deluxe in subsidiaries and other entities that conduct such business
(the "Transfer");
WHEREAS, as set forth in the Initial Public Offering and Distribution
Agreement dated as of March 31, 2000 (the "Distribution Agreement"), and subject
to the terms and conditions thereof, Deluxe and eFunds currently contemplate
that, following the Transfer, eFunds will make an initial public offering (the
"IPO") of eFunds common stock that will reduce Deluxe's ownership of eFunds on a
fully diluted basis to not less than eighty and one-tenth percent (80.1%);
WHEREAS, as set forth in the Distribution Agreement, and subject to the
terms and conditions thereof, Deluxe intends, sometime after the IPO, to
distribute all of its shares of eFunds common stock to Deluxe shareholders in
exchange for shares of Deluxe common stock (the "Distribution");
WHEREAS, the Transfer and the Distribution are intended to qualify as a
tax-free reorganization and distribution under sections 368(a)(1)(D) and 355 of
the Code; and
WHEREAS, in contemplation of the Distribution pursuant to which eFunds and
its direct and indirect domestic subsidiaries will cease to be members of the
Deluxe Group (as defined below) the parties hereto have determined to enter into
this Agreement, setting forth their agreement with respect to certain tax
matters.
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AGREEMENT
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NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Deluxe, for itself and on behalf of its subsidiaries as of the
Transfer Date and its future subsidiaries (other than eFunds and its
subsidiaries), and eFunds, for itself and on behalf of its subsidiaries as of
the Transfer Date and its future subsidiaries, hereby agree as follows:
Section 1. Definitions.
As used in this Agreement, capitalized terms shall have the following
meanings (such meanings to be equally applicable to both the singular and the
plural forms of the terms defined):
"Affiliated Group" means an affiliated group of corporations within the
meaning of section 1504(a)(1) of the Code that files a consolidated return.
"After Tax Amount" means any additional amount necessary to reflect the
hypothetical Tax consequences of the receipt or accrual of any payment required
to be made under this Agreement (including the receipt or payment of an
additional amount or amounts hereunder and the effect of the deductions
available for interest paid or accrued and for Taxes such as state and local
income Taxes), determined by using the highest marginal corporate Tax rate (or
rates, in the case of an item that affects more than one Tax) for the relevant
taxable period (or portion thereof).
"Assignment and Assumption Agreement" has the meaning set forth in the
Recitals.
"Audit" includes any audit, assessment of Taxes, other examination by any
Tax Authority, proceeding, or appeal of such a proceeding relating to Taxes,
whether administrative or judicial, including proceedings relating to competent
authority determinations.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Return" means any Tax Return, other than with respect to United
States federal Income Taxes, filed on a consolidated, combined (including nexus
combination, worldwide combination, domestic combination, line of business
combination or any other form of combination) or unitary basis wherein eFunds or
one or more eFunds Affiliates join in the filing of such Tax Return (for any
taxable period or portion thereof) with Deluxe or one or more Deluxe Affiliates.
"Consolidated Return" means any Tax Return with respect to United States
federal Income Taxes filed on a consolidated basis wherein eFunds or one or more
eFunds Affiliates join in the filing of such Tax Return (for any taxable period
or portion thereof) with Deluxe or one or more Deluxe Affiliates.
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"Deluxe Affiliate" means any corporation or other entity directly or
indirectly controlled by Deluxe, but excluding eFunds or any eFunds Affiliate.
"Deluxe Employee" means an employee of Deluxe or any Deluxe Affiliate
immediately after the Distribution, or a retiree or other former employee of
Deluxe or any Deluxe Affiliate who is not an eFunds Employee, provided that any
eFunds Employee who becomes a Deluxe Employee shall be considered a Deluxe
Employee.
"Deluxe Group" means the Affiliated Group, or similar group of entities as
defined under corresponding provisions of the laws of other jurisdictions, of
which Deluxe is the common parent corporation, and any corporation or other
entity which may be, may have been or may become a member of such group from
time to time, but excluding any member of the eFunds Group.
"Distribution" has the meaning set forth in the Recitals.
"Distribution Agreement" has the meaning set forth in the recitals to this
Agreement.
"Distribution Date" means the close of business on the date which the
Distribution is effected.
"Distribution Taxes" means any Taxes imposed on Deluxe or any Deluxe
Affiliate resulting from, or arising in connection with, the failure of the
Distribution to be tax-free to such party under the Code (including, without
limitation, any Tax resulting from the failure of the Distribution to qualify
under section 355 and section 368(a)(1)(D) of the Code or the application of
section 355(d) or section 355(e) of the Code to the Distribution) or
corresponding provisions of the laws of any other jurisdictions. Each Tax
referred to in the immediately preceding sentence shall be determined using the
highest marginal corporate Income Tax rate for the relevant taxable period (or
portion thereof).
"eFunds Affiliate" means any corporation or other entity directly or
indirectly controlled by eFunds.
"eFunds Business" means (a) the business and operations of the business
entities of Deluxe currently known under the following names, and as such
business and operations will continue following the Transfer Date: (i) eFunds,
(ii) iDLX Corporation, (iii) eFunds Holdings Ltd., (iv) Connex Europe SRL, (v)
eFunds Overseas, Inc., (vi) eFunds Corporation(of Tustin California), (vii)
Deluxe Payment Protection Systems, Inc., (viii) Chex Systems, Inc., (ix)
Analytic Research Technologies, Inc., (x) eFunds Canada, Inc., (xi) eFunds
Electronic Benefits, Inc., (xii) eFunds International Limited, (xiii) iDLX
International B.V., (xiv) iDLX Holdings N.V., (xv) eFunds IT Solutions Group,
Inc., (xvi) iDLX Technology Partners Private Limited, and (xvii) Access Cash
International LLC, and (b) except as otherwise expressly provided herein,
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any terminated, divested or discontinued businesses or operations that at the
time of termination, divestiture or discontinuation primarily related to the
eFunds business as then conducted.
"eFunds Employee" means an employee of eFunds or any eFunds Affiliate
immediately after the Distribution, or a retiree or other former employee of
eFunds or any eFunds Affiliate who is not a Deluxe Employee, provided that any
Deluxe Employee who becomes an eFunds Employee shall be considered an eFunds
Employee.
"eFunds Group" means the Affiliated Group, or similar group of entities as
defined under corresponding provisions of the laws of other jurisdictions, of
which eFunds will be the common parent corporation immediately after the
Distribution, and any corporation or other entity which may become a member of
such group from time to time.
"Estimated Tax Installment Date" means the estimated Tax installment due
dates prescribed in section 6655(c) of the Code and any other date on which an
installment of Taxes is required to be made.
"Filing Party" has the meaning set forth in Section 8.01.
"Final Determination" shall mean the final resolution of liability for any
Tax for any taxable period, by or as a result of: (i) a final and unappealable
decision, judgment, decree or other order by any court of competent
jurisdiction; (ii) a final settlement with the IRS, a closing agreement or
accepted offer in compromise under Code sections 7121 or 7122, or a comparable
agreement under the laws of other jurisdictions, which resolves the entire Tax
liability for any taxable period; (iii) any allowance of a refund or credit in
respect of an overpayment of Tax, but only after the expiration of all periods
during which such refund may be recovered by the jurisdiction imposing the Tax;
or (iv) any other final disposition, including by reason of the expiration of
the applicable statute of limitations.
"Income Tax" shall mean any federal, state, local or foreign Tax determined
by reference to income, net worth, gross receipts or capital, or any such Taxes
imposed in lieu of such Tax.
"Independent Firm" has the meaning set forth in Section 9.03.
"Initial Ruling" means any private letter ruling issued by the IRS in
connection with the Distribution in response to Deluxe's request for such a
letter ruling filed on March 31, 2000.
"Interim Period" means a taxable period beginning on or after the Transfer
Date but before the Distribution Date.
"IPO" has the meaning set forth in the Recitals.
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"IRS" means the United States Internal Revenue Service or any successor
thereto, including, but not limited to its agents, representatives, and
attorneys.
"Joint Responsibility Item" means any Tax Item for which the non-Filing
Party's responsibility under this Agreement could exceed one million dollars
($1,000,000), but not a Sole Responsibility Item.
"Option" means an option to acquire common stock, or other equity-based
incentives the economic value of which is designed to mirror that of an option,
including non-qualified stock options, discounted non-qualified stock options,
cliff options to the extent stock is issued or issuable (as opposed to cash
compensation), and tandem stock options to the extent stock is issued or
issuable (as opposed to cash compensation).
"Owed Party" has the meaning set forth in Section 7.04.
"Owing Party" has the meaning set forth in Section 7.04.
"Payment Period" has the meaning set forth in Section 7.04(e).
"Post-Distribution Period" means a taxable period beginning after the
Distribution Date.
"Pre-Distribution Period" means any Pre-Transfer Period and/or Interim
Period.
"Pre-Transfer Period" means a taxable period beginning before the Transfer
Date.
"Ruling Documents" means (1) the request for a private letter ruling under
section 355 and various other sections of the Code, filed with the IRS on March
31, 2000, together with any supplemental filings or ruling requests or other
materials subsequently submitted on behalf of Deluxe, its subsidiaries and
shareholders to the IRS, the appendices and exhibits thereto, and any rulings
issued by the IRS to Deluxe (or any Deluxe Affiliate) in connection with the
Distribution or (2) any similar filings submitted to, or rulings issued by, any
other Tax Authority in connec tion with the Distribution.
"Separate Tax Liability" means an amount equal to the Tax liability that
eFunds and each eFunds Affiliate would have incurred if they had filed a
consolidated return, combined return or a separate return, as the case may be,
separate from the Deluxe Group, for all Pre- Distribution Periods, and such
amount shall be computed by Deluxe using the highest marginal corporate Tax rate
(or rates, in the case of an item that affects more than one Tax) for the
relevant taxable period (or portion thereof), giving effect to any carryforward
or carryover of any Tax Asset and in a manner consistent with (i) general Tax
accounting principles, (ii) the Code and the Treasury regulations promulgated
thereunder, (iii) any similar provisions of the laws of other jurisdictions, if
applicable, and (iv) past practice, if any.
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"Sole Responsibility Item" means any Tax Item for which the non-Filing
Party has the entire economic liability under this Agreement.
"Supplemental Ruling" means (1) any ruling issued by the IRS in connection
with the IPO or Distribution other than a ruling in response to Deluxe's request
for a private letter ruling filed on March 31, 2000, and (2) any similar ruling
issued by any other Tax Authority in connection with the IPO or Distribution
addressing the application of a provision of the laws of another jurisdiction.
"Supplemental Ruling Documents" means (1) the request for a Supplemental
Ruling and any materials, appendices and exhibits submitted or filed therewith
and any Supplemental Rulings issued by the IRS to Deluxe and (2) any similar
filings submitted to, or rulings issued by, any other Taxing Authority in
connection with the Distribution.
"Tax Asset" means any Tax Item that has accrued for Tax purposes, but has
not been used during a taxable period, and that could reduce a Tax in another
taxable period, including a net operating loss, net capital loss, investment tax
credit, foreign tax credit, research and experimentation credit, charitable
deduction or credit related to alternative minimum tax or any other Tax credit.
"Tax Benefit" means a reduction in the Tax liability of a taxpayer (or of
the Affiliated Group of which it is a member) for any taxable period. Except as
otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been
realized or received from a Tax Item in a taxable period only if and to the
extent that the Tax liability of the taxpayer (or of the Affiliated Group of
which it is a member) for such period, after taking into account the effect of
the Tax Item on the Tax liability of such taxpayer in the current period and all
prior periods, is less than it would have been if such Tax liability were
determined without regard to such Tax Item.
"Tax Detriment" means an increase in the Tax liability of a taxpayer (or of
the Affiliated Group of which it is a member) for any taxable period. Except as
otherwise provided in this Agreement, a Tax Detriment shall be deemed to have
been realized or received from a Tax Item in a taxable period only if and to the
extent that the Tax liability of the taxpayer (or of the Affiliated Group of
which it is a member) for such period, after taking into account the effect of
the Tax Item on the Tax liability of such taxpayer in the current period and all
prior periods, is more than it would have been if such Tax liability were
determined without regard to such Tax Item.
"Tax Item" means any item of income, gain, loss, deduction or credit, or
other attribute that may have the effect of increasing or decreasing any Tax.
"Tax Return" means any return, report, certificate, form or similar
statement or document (including any related or supporting information or
schedule attached thereto and any information return, amended tax return, claim
for refund or declaration of estimated tax) required
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to be supplied to, or filed with, a Taxing Authority in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, regulations or administra tive requirements relating to any Tax.
"Taxes" includes all taxes, charges, fees, duties, levies, imposts, rates
or other assess ments imposed by any federal, state, local or foreign Taxing
Authority, including, but not limited to, income, gross receipts, excise,
property, sales, use, license, capital stock, transfer, franchise, payroll,
withholding, social security, value added or other taxes, and any interest,
penalties or additions attributable thereto.
"Taxing Authority" means any governmental authority or any subdivision,
agency, commission or authority thereof or any quasi-governmental or private
body having jurisdiction over the assessment, determination, collection or
imposition of any Tax (including the IRS).
"Tax Services" has the meaning set forth in Section 2.05(a).
"Transfer" has the meaning set forth in the Recitals.
"Transfer Date" means March 31, 2000.
Section 2. Preparation and Filing of Tax Returns.
2.01. Deluxe's Responsibility. Deluxe shall have sole and exclusive
responsibility for the preparation and filing of:
(a) all Tax Returns with respect to Deluxe, any Deluxe Affiliate,
eFunds, and/or any eFunds Affiliate for Pre-Transfer Periods and all
Consolidated Returns and all Combined Returns for any Interim Periods; and
(b) all Tax Returns with respect to Deluxe and any Deluxe Affiliate
for Post- Distribution Periods.
2.02. eFunds's Responsibility. Except as otherwise provided in Section 2.01
of this Agreement, eFunds shall have sole and exclusive responsibility for the
preparation and filing of (1) all Tax Returns (other than Consolidated Returns
and Combined Returns) for eFunds and any eFunds Affiliate for any Interim
Periods and (2) all Tax Returns with respect to eFunds and any eFunds Affiliate
for Post Distribution Periods.
2.03. Agent. Subject to the other applicable provisions of this Agreement,
eFunds hereby irrevocably designates, and agrees to cause each eFunds Affiliate
to so designate, Deluxe as its sole and exclusive agent and attorney-in-fact to
take such action (including execution of documents) as Deluxe, in its sole
discretion, may deem appropriate in any and all matters (including Audits)
relating to any Tax Return described in Section 2.01 of this Agreement.
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2.04. Manner of Tax Return Preparation.
(a) Unless otherwise required by a Taxing Authority, the parties
hereby agree to prepare and file all Tax Returns, and to take all other
actions, in a manner consistent with (1) this Agreement, (2) any Ruling
Documents, and (3) any Supplemental Ruling Documents. All Tax Returns shall
be filed on a timely basis (taking into account applicable extensions) by
the party responsible for filing such returns under this Agreement.
(b) Deluxe shall have the exclusive right, in its sole discretion,
with respect to any Tax Return described in Section 2.01(a) of this
Agreement (without regard to which party is responsible for preparing and
filing such Tax Return) to determine (1) the manner in which such Tax
Return shall be prepared and filed, including the elections, method of
accounting, positions, conventions and principles of taxation to be used
and the manner in which any Tax Item shall be reported, (2) whether any
extensions may be requested, (3) the elections that will be made by Deluxe,
any Deluxe Affiliate, eFunds, or any eFunds Affiliate on such Tax Return,
(4) whether any amended Tax Returns shall be filed, (5) whether any claims
for refund shall be made, (6) whether any refunds shall be paid by way of
refund or credited against any liability for the related Tax, and (7)
whether to retain outside firms to prepare or review such Tax Returns.
Deluxe shall provide eFunds with copies of all Tax Returns with respect to
eFunds and/or any eFunds Affiliate for Pre-Transfer Periods and all
Consolidated Returns and all Combined Returns for any Interim Periods
within thirty (30) days after filing any such Tax Returns.
(c) Within ninety (90) days after filing the 2000 Consolidated Return,
Deluxe shall notify eFunds of the Tax attributes associated with eFunds and
each eFunds Affiliate, and the Tax bases of the assets and liabilities,
transferred to eFunds in connection with the Transfer. At eFunds's request,
Deluxe will use its best efforts to provide eFunds with preliminary
estimates of such information as soon as is practicable.
2.05. Tax Services Agreement.
(a) In General. Deluxe shall perform the duties and obligations
ascribed to eFunds in Section 2.02 of this Agreement and provide other Tax
related services to eFunds, as set forth on Schedule 2.05(a) attached
hereto (the "Tax Services"). In consideration for the Tax Services, eFunds
shall pay to Deluxe $37,500 for each month in which the Tax Services are to
be performed. Payment with respect to Tax Services performed in a
particular month shall be made within thirty (30) days of the end of such
month in immediately available funds as instructed by Deluxe. Deluxe will
continue to perform the Tax Services until December 31, 2001; provided,
however, that, from time to time prior to December 31, 2001, the parties
can negotiate in good faith to amend Schedule 2.05(a) and the accompanying
fee.
(b) Right to Review. Upon eFunds's request, Deluxe shall provide
eFunds with any Tax Return to be filed by Deluxe on behalf of eFunds
pursuant to the Tax Services at least ten (10) days prior to the due date
of such Tax Return or as is otherwise consistent with past
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practice. eFunds shall have the right to comment on any such Tax Return and
Deluxe shall reasonably consider all comments made by eFunds.
(c) Information. eFunds shall timely provide, in a manner consistent
with past practice, all information necessary for Deluxe to prepare all Tax
Returns and compute all estimated Tax payments (for purposes of Section
7.01 of this Agreement). Deluxe shall provide eFunds with copies of all Tax
Returns filed on behalf of eFunds pursuant to the Tax Services and any
notices or communications from any Taxing Authority relating to any Tax or
Tax Return of eFunds or any eFunds Affiliate covered by the Tax Services.
eFunds shall execute and deliver to Deluxe a power of attorney authorizing
the appropriate Deluxe employees to sign any Tax Return prepared by Deluxe
on behalf of eFunds pursuant to the Tax Services.
Section 3. Liability for Taxes.
3.01. eFunds's Liability for Section 2.01(a) Taxes. With respect all Tax
Returns described in Section 2.01(a) of this Agreement, eFunds shall be liable
for the Separate Tax Liability of eFunds and all eFunds Affiliates, and shall be
entitled to receive and retain all refunds or credits of Taxes previously paid
by eFunds with respect to any such Separate Tax Liability.
3.02. Deluxe's Liability for Section 2.01 Taxes. With respect all Tax
Returns described in Section 2.01(a) of this Agreement, Deluxe shall be liable
for the difference between the Separate Tax Liability and all Taxes shown as due
on such Tax Returns, and shall be entitled to receive and retain all refunds or
credits of Taxes attributable to such difference. With respect all Tax Returns
described in Section 2.01(b) of this Agreement, Deluxe shall be liable for all
Taxes due with respect thereto, and shall be entitled to receive and retain all
refunds or credits of Taxes previously paid by Deluxe with respect to such
Taxes.
3.03. eFunds's Liability for Section 2.02 Taxes. With respect all Tax
Returns described in Section 2.02 of this Agreement, eFunds shall be liable for
all Taxes due with respect thereto, and shall be entitled to receive and retain
all refunds or credits of Taxes previously paid by eFunds with respect to such
Taxes.
3.04. Payment of Tax Liability. If one party is liable for Taxes, under
Sections 3.01 through 3.03 of this Agreement, with respect to Tax Returns for
which another party is responsi ble for preparing and filing, then the liable
party shall pay the Taxes to the other party pursuant to Section 7.04 of this
Agreement.
3.05. Computation. Deluxe shall provide eFunds with a written calculation
in reasonable detail setting forth the amount of any Separate Tax Liability or
estimated Separate Tax Liability (for purposes of Section 7.01 of this
Agreement). eFunds shall have the right to review and comment on such
calculation. Any dispute with respect to such calculation shall be resolved
pursuant to Section 9.03 of this Agreement, provided, however, that,
notwithstanding any dispute
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with respect to any such calculation, in no event shall any payment attributable
to the amount of any Separate Tax Liability or estimated Separate Tax Liability
be paid later than the date provided in Section 7 of this Agreement, subject to
subsequent resolution of such dispute pursuant to Section 9.03 of this
Agreement.
Section 4. Distribution Taxes and Deconsolidation.
4.01. Distribution Taxes.
(a) Deluxe's Liability for Distribution Taxes. Notwithstanding
Sections 3.01 through 3.03 of this Agreement, Deluxe and each Deluxe
Affiliate shall be liable for one hundred percent (100%) of any
Distribution Taxes that result from one or more of the following:
(i) any act, failure to act or omission of or by Deluxe (or any
Deluxe Affiliate) inconsistent with any material, information,
covenant or representation in the Ruling Documents, Supplemental
Ruling Document, Initial Ruling, or Supplemental Ruling;
(ii) any act, failure to act or omission of or by Deluxe (or any
Deluxe Affiliate) after the date of the Distribution, including,
without limitation, a cessation, transfer to affiliates, or
disposition of its active trades or businesses, or an issuance of
stock, stock buyback or payment of an extraordinary dividend by Deluxe
(or any Deluxe Affiliate) following the Distribution;
(iii) any acquisition of any stock or assets of Deluxe (or any
Deluxe Affiliate) by one or more other persons prior to or following
the Distribution; or
(iv) any issuance of stock by Deluxe (or any Deluxe Affiliate),
or change in ownership of stock in Deluxe (or any Deluxe Affiliate),
that causes section 355(d) or section 355(e) of the Code to apply to
the Distribution.
(b) eFunds's Liability for Distribution Taxes. Notwithstanding
Sections 3.01 through 3.03 of this Agreement, eFunds and each eFunds
Affiliate shall be liable for one hundred percent (100%) of any
Distribution Taxes that result from one or more of the following:
(i) any act, failure to act or omission of or by eFunds (or any
eFunds Affiliate) inconsistent with any material, information,
covenant or representation in the Ruling Documents, Supplemental
Ruling Document, Initial Ruling, or Supplemental Ruling;
(ii) any act, failure to act or omission of or by eFunds (or any
eFunds Affiliate) after the date of the Distribution, including
without limitation, a cessation, transfer to affiliates or disposition
of its active trades or businesses, or an issuance of stock, stock
buyback or payment of an extraordinary dividend by eFunds (or any
eFunds Affiliate) following the Distribution;
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(iii) any acquisition of any stock or assets of eFunds (or any
eFunds Affiliate) by one or more other persons following the
Distribution; or
(iv) any issuance of stock by eFunds (or any eFunds Affiliate),
or change in ownership of stock in eFunds (or any eFunds Affiliate),
that causes section 355(d) or section 355(e) of the Code to apply to
the Distribution.
(c) Joint Liability for Remaining Distribution Taxes. The liability
for any Distribution Taxes not allocated by Sections 4.01(a) or (b) of this
Agreement shall be borne eighty percent (80%) by Deluxe and twenty percent
(20%) by eFunds.
4.02. Private Letter Rulings.
(a) Information. Deluxe has provided eFunds with copies of the Ruling
Docu ments submitted on or prior to the date hereof and shall provide
eFunds with copies of any additional Ruling Documents prepared after the
date hereof prior to the submission of such Ruling Documents to a Taxing
Authority.
(b) Supplemental Rulings.
(i) In General. Deluxe agrees that at the reasonable request of
eFunds, Deluxe shall cooperate with eFunds and use its reasonable best
efforts to seek to obtain, as expeditiously as possible, a
Supplemental Ruling or other guidance from the IRS or any other Taxing
Authority for the purpose of confirming (1) the continuing validity of
any ruling issued by any Taxing Authority addressing the application
of the law to the Distribution or (2) compli ance on the part of
eFunds (or any eFunds Affiliate) with its obligations under Section
4.01(b) of this Agreement. However, Deluxe shall not be obligated to
seek a Supplemental Ruling if it reasonably believes that seeking such
Supplemental Ruling would adversely affect Deluxe (or any Deluxe
Affiliate). Further, in no event shall Deluxe be required to file any
Supplemental Ruling Documents unless eFunds represents that (1) it has
read the Supplemental Ruling Documents and (2) all information and
representations, if any, relating to eFunds (or any eFunds Affiliate)
contained in the Supplemental Ruling Documents are true, correct and
complete in all material respects. eFunds shall reimburse Deluxe for
all costs and expenses incurred by Deluxe in obtaining a Supplemental
Ruling requested by eFunds. Neither eFunds nor any eFunds Affiliate
shall seek any guidance (whether written or oral) from the IRS or any
other Taxing Authority concerning the Distribution except as set forth
in this Section 4.02(b). The preceding sentence shall not in any way
limit the ability of any outside counsel to eFunds to request informal
guidance from the IRS regarding such issues on an anonymous basis.
(ii) Participation Rights. If Deluxe requests a Supplemental
Ruling or other guidance after the date of this Agreement: (1) Deluxe
shall keep eFunds informed in a timely manner of all material actions
taken or proposed to be taken by Deluxe in connection therewith; (2)
Deluxe shall (A) reasonably in advance of the submission of any such
Supplemen tal Ruling Documents provide eFunds with a draft copy
thereof, (B) reasonably consider eFunds's comments on such draft copy,
and (C) provide eFunds with a final copy and, (D) provide eFunds with
notice reasonably in advance of, and eFunds shall have the right to
attend, any meetings with the Taxing Authority (subject to the
approval of the Taxing Authority) that
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relate to such Supplemental Ruling. eFunds agrees that eFunds shall
cooperate fully with Deluxe with respect to any request by Deluxe for
a Supplemental Ruling.
4.03. Carrybacks.
(a) In General. Deluxe agrees to pay to eFunds the United States
federal income Tax Benefit from the use in any Pre-Distribution Period (the
"Carryback Period") of a carryback of any Tax Asset of the eFunds Group
from a Post-Distribution Period (other than a carryback of any Tax Asset
attributable to Distribution Taxes). If subsequent to the payment by Deluxe
to eFunds of the United States federal income Tax Benefit of a carryback of
a Tax Asset of the eFunds Group, there shall be a Final Determination which
results in a (1) change to the amount of the Tax Asset so carried back or
(2) change to the amount of such United States federal income Tax Benefit,
eFunds shall repay to Deluxe, or Deluxe shall repay to eFunds, as the case
may be, any amount which would not have been payable to such other party
pursuant to this Section 4.03(a) had the amount of the benefit been
determined in light of these events. Nothing in this Section 4.03(a) shall
require Deluxe to file an amended Tax Return or claim for refund or credit
of Taxes; provided, however, that Deluxe shall use its reasonable best
efforts to use any carryback of a Tax Asset of the eFunds Group that is
otherwise carried back under this Section 4.03(a).
(b) Net Operating Losses. Notwithstanding any other provision of this
Agree ment, eFunds hereby expressly agrees to elect (under section
172(b)(3) of the Code and, to the extent feasible, any similar provision of
any state, local or foreign Tax law) to relinquish any right to carryback
net operating losses for any tax year with respect to which such net
operating loss could otherwise be carried back into a Consolidated Return
or a Combined Return (in which event no payment shall be due from Deluxe to
eFunds in respect of such net operating losses).
4.04. Allocation of Tax Items. All Tax computations for (1) any
Pre-Distribution Periods ending on the Distribution Date and (2) the immediately
following taxable period of eFunds or any eFunds Affiliate, shall be made
pursuant to the principles of section 1.1502-76(b) of the Treasury Regulations
or of a corresponding provision under the laws of other jurisdictions, as
determined by Deluxe, taking into account all reasonable suggestions made by
eFunds with respect thereto.
4.05. Continuing Covenants. Deluxe (for itself and each Deluxe Affiliate)
and eFunds (for itself and each eFunds Affiliate) agree (1) not to take any
action reasonably expected to result in an increased Tax liability to the other,
a reduction in a Tax Asset of the other or an increased liability to the other
under this Agreement and (2) to take any action reasonably requested by the
other that would reasonably be expected to result in a Tax Benefit or avoid a
Tax Detriment to the other, provided that such action does not result in any
additional direct or indirect cost not fully compensated for by the requesting
party. The parties hereby acknowledge that the preceding sentence is a statement
of general principle and is not intended to limit, and
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therefore shall not apply to, the rights of the parties with respect to matters
otherwise covered by this Agreement.
4.06. Allocation of Tax Assets.
(a) In General. In connection with the Distribution, Deluxe and eFunds
shall cooperate in determining the allocation of any Tax Assets among
Deluxe, each Deluxe Affiliate, eFunds, and each eFunds Affiliate. The
parties hereby agree that in the absence of controlling legal authority or
unless otherwise provided under this Agreement, Tax Assets shall be
allocated to the legal entity that incurred the cost or burden associated
with the creation of such Tax Asset (other than with respect to any Tax
Asset created by reason of a contribution to the capital of eFunds by
Deluxe on or before the Distribution Date, in which case eFunds shall be
permitted to retain such Tax Asset).
(b) Earnings and Profits. Deluxe will advise eFunds in writing of the
decrease in Deluxe earnings and profits attributable to the Distribution
under section 312(h) of the Code (i) not later than September 15, 2001,
with respect to transactions completed on or before December 31, 2000 and
(ii) not later than September 15, 2002 with respect to transactions
completed on or before December 31, 2001; provided, however, that Deluxe
shall provide eFunds with estimates of such amounts (determined in
accordance with past practice) prior to such anniversary as reasonably
requested by eFunds.
Section 5. Stock Options.
5.01. Deduction, Notices, Withholding, Reporting.
(a) To the extent permitted by law, Deluxe (or the appropriate member
of the Deluxe Group) shall claim all Tax deductions arising by reason of
exercises of Options to acquire eFunds stock held by Deluxe Employees. To
the extent permitted by law, eFunds (or the appropriate member of the
eFunds Group) shall claim all Tax deductions arising by reason of exercises
of Options to acquire Deluxe stock held by eFunds Employees.
(b) Deluxe shall, to the extent required by law, withhold applicable
Taxes and satisfy applicable Tax reporting obligations with respect to
exercises of Options to acquire eFunds stock held by Deluxe Employees.
eFunds shall, to the extent required by law, withhold applicable Taxes and
satisfy applicable Tax reporting obligations with respect to exercises of
Options to acquire Deluxe stock held by eFunds Employees.
(c) Deluxe and eFunds shall timely provide to the other party all
information necessary for such party to satisfy its obligations described
in Section 5.01(b) of this Agreement.
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Section 6. Indemnification
6.01. Generally. The Deluxe Group shall jointly and severally indemnify
eFunds, each eFunds Affiliate, and their respective directors, officers and
employees, and hold them harmless from and against any and all Taxes for which
Deluxe or any Deluxe Affiliate is liable under this Agreement and any loss,
cost, damage or expense, including reasonable attorneys' fees and costs, but
excluding any consequential, special, punitive or exemplary damages, that is
attributable to, or results from the failure of Deluxe, any Deluxe Affiliate or
any of their respective directors, officers or employees to make any payment
required to be made under this Agreement. The eFunds Group shall jointly and
severally indemnify Deluxe, each Deluxe Affiliate, and their respective
directors, officers and employees, and hold them harmless from and against any
and all Taxes for which eFunds or any eFunds Affiliate is liable under this
Agreement and any loss, cost, damage or expense, including reasonable attorneys'
fees and costs, but excluding any consequential, special, punitive or exemplary
damages, that is attributable to, or results from, the failure of eFunds, any
eFunds Affiliate or any of their respective directors, officers or employees to
make any payment required to be made under this Agreement.
6.02. Inaccurate or Incomplete Information. The Deluxe Group shall jointly
and severally indemnify eFunds, each eFunds Affiliate, and their respective
directors, officers and employees, and hold them harmless from and against any
cost, fine, penalty, or other expense of any kind, excluding any consequential,
special, punitive or exemplary damages, that is attribut able to the negligence
of Deluxe or any Deluxe Affiliate in supplying eFunds or any eFunds Affiliate
with inaccurate or incomplete information, in connection with the preparation of
any Tax Return. The eFunds Group shall jointly and severally indemnify Deluxe,
each Deluxe Affiliate, and their respective directors, officers and employees,
and hold them harmless from and against any cost, fine, penalty, or other
expenses of any kind, excluding any consequential, special, punitive or
exemplary damages, that is attributable to the negligence of eFunds or any
eFunds Affiliate in supplying Deluxe or any Deluxe Affiliate with inaccurate or
incomplete information, in connection with the preparation of any Tax Return.
6.03. No Guarantee for Tax Items. Nothing in this Agreement shall be
construed as a guarantee of the existence or amount of any loss, credit,
carryforward, basis or other Tax Item, whether past, present or future, of
Deluxe, any Deluxe Affiliate, eFunds or any eFunds Affiliate.
Section 7. Payments.
7.01. Estimated Tax Payments. As requested by Deluxe, eFunds shall
promptly, but not later than the date immediately preceding each Estimated Tax
Installment Date with respect to a taxable period for which a Consolidated
Return or a Combined Return will be filed, pay to Deluxe on behalf of the eFunds
Group an amount equal to the amount of any estimated Separate Tax Liability that
eFunds would have otherwise been required to pay to a Taxing Authority on such
Estimated Tax Installment Date.
14
<PAGE>
7.02. True-Up Payments. Not later than the date of filing of a Tax Return,
eFunds shall pay to Deluxe, or Deluxe shall pay to eFunds or apply as a credit
against future Tax liability, as appropriate, an amount equal to the difference,
if any, between the eFunds Separate Tax Liability and the aggregate amount paid
by eFunds with respect to such period under Section 7.01 of this Agreement.
7.03. Redetermination Amounts. In the event of a redetermination of any Tax
Item reflected on any Tax Return described in Section 2.01(a) of this Agreement
(other than Tax Items relating to Distribution Taxes), as a result of a refund
of Taxes paid, a Final Determination or any settlement or compromise with any
Taxing Authority which may affect eFunds's Separate Tax Liability, Deluxe shall
prepare a revised pro forma Tax Return for the relevant taxable period
reflecting the redetermination of such Tax Item as a result of such refund,
Final Determination, settlement or compromise. eFunds shall pay to Deluxe, or
Deluxe shall pay to eFunds, as appropriate, an amount equal to the difference,
if any, between the Separate Tax Liability based on such revised pro forma Tax
Return and the Separate Tax Liability for such period as origi nally computed
pursuant to this Agreement.
7.04. Payments Under This Agreement. In the event that one party (the
"Owing Party") is required to make a payment to another party (the "Owed Party")
pursuant to this Agreement, then such payments shall be made according to this
Section 7.04.
(a) In General. All payments shall be made to the Owed Party or to the
appropri ate Taxing Authority as specified by the Owed Party within the
time prescribed for payment in this Agreement, or if no period is
prescribed, within twenty (20) days after delivery of written notice of
payment owing together with a computation of the amounts due.
(b) Treatment of Payments. Unless otherwise required by any Final
Determina tion, the parties agree that any payments made by one party to
another party (other than pay ments of interest pursuant to Section 7.04(e)
of this Agreement and payments of After Tax Amounts pursuant to Section
7.04(d) of this Agreement) pursuant to this Agreement shall be treated for
all Tax and financial accounting purposes as nontaxable payments (dividend
distribu tions or capital contributions, as the case may be) made
immediately prior to the Distribution and, accordingly, as not includible
in the taxable income of the recipient or as deductible by the payor.
(c) Prompt Performance. All actions required to be taken by any party
under this Agreement shall be performed within the time prescribed for
performance in this Agreement, or if no period is prescribed, such actions
shall be performed promptly or, with respect to the Tax Services, on a
timely basis.
(d) After Tax Amounts. If pursuant to a Final Determination it is
determined that the receipt or accrual of any payment made under this
Agreement (other than payments of interest pursuant to Section 7.04(e) of
this Agreement) is subject to any Tax, the party making
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<PAGE>
such payment shall be liable for (a) the After Tax Amount with respect to
such payment and (b) interest at the rate described in Section 7.04(e) of
this Agreement on the amount of such After Tax Amount from the date such
After Tax Amount is due under this Agreement through the date of payment of
such After Tax Amount. A party making a demand for a payment pursuant to
this Agreement and for a payment of an After Tax Amount with respect to
such payment shall separately specify and compute such After Tax Amount.
However, a party may choose not to specify an After Tax Amount in a demand
for payment pursuant to this Agreement without thereby being deemed to have
waived its right subsequently to demand an After Tax Amount with respect to
such payment.
(e) Interest. Payments pursuant to this Agreement that are not made
within the period prescribed in this Agreement (the "Payment Period") and
were not otherwise setoff against amounts owed by one party to the other
party as provided in Section 9.16 of this Agreement shall bear interest for
the period from and including the date immediately following the last date
of the Payment Period through and including the date of payment at a per
annum rate equal to the prime rate as published in The Wall Street Journal
on the last day of such Payment Period, plus two and one-half percent (2
1/2%). Such interest will be payable at the same time as the payment to
which it relates and shall be calculated on the basis of a year of 365 days
and the actual number of days for which due.
Section 8. Tax Proceedings.
8.01. In General. Except as otherwise provided in this Agreement, the party
responsible for preparing and filing a Tax Return pursuant to Section 2 of this
Agreement (the "Filing Party") shall have the exclusive right, in its sole
discretion, to control, contest, and represent the interests of Deluxe, any
Deluxe Affiliate, eFunds, and any eFunds Affiliate in any Audit relating to such
Tax Return and to resolve, settle or agree to any deficiency, claim or
adjustment proposed, asserted or assessed in connection with or as a result of
any such Audit. The Filing Party's rights shall extend to any matter pertaining
to the management and control of an Audit, including execution of waivers,
choice of forum, scheduling of conferences and the resolution of any Tax Item.
Any costs incurred in handling, settling, or contesting an Audit shall be borne
by the Filing Party.
8.02. Participation of non-Filing Party. Except as otherwise provided in
this Agreement, the non-Filing Party shall have the right to assume control over
decisions to resolve, settle or otherwise agree to any deficiency, claim or
adjustment: (i) with respect to any Sole Responsibil ity Item for which the
non-Filing Party's responsibility under this Agreement could exceed one hundred
thousand dollars ($100,000), upon delivery to the Filing Party of a written
opinion of a nationally recognized law or accounting firm chosen by the parties
substantially to the effect that the non-Filing Party's position with respect to
such deficiency, claim, or adjustment should be upheld on appeal; and (ii) with
respect to any Sole Responsibility Item for which the non-Filing Party's
responsibility under this Agreement could exceed two hundred and fifty thousand
dollars ($250,000), upon delivery to the Filing Party of a written opinion of a
nationally recognized law
16
<PAGE>
or accounting firm chosen by the parties substantially to the effect that the
non-Filing Party's position with respect to such deficiency, claim, or
adjustment is more likely than not to be upheld on appeal. The Filing Party and
the non-Filing Party shall have joint control over decisions to resolve, settle
or otherwise agree to any deficiency, claim or adjustment with respect to any
Joint Responsibility Item. The Filing Party shall not settle any Audit they
control concerning a Tax Item of an Interim Period on a basis that would
materially adversely affect the non-Filing Party without obtaining such
non-Filing Party's consent, which consent shall not be unreasonably withheld if
failure to consent would adversely affect the Filing Party.
8.03. Notice. Within ten (10) days after a party receives a written notice
from a Taxing Authority of a proposed adjustment to a Tax Item that would
reasonably be expected to give rise to an indemnification obligation or other
liability (including a liability for Tax) under this Agreement, such party shall
notify the other party of such proposed adjustment, and thereafter shall
promptly forward to the other party copies of notices and material
communications with any Taxing Authority relating to such proposed adjustment;
provided, however, that the failure to provide such notice shall not release the
indemnifying party from any of its obligations under this Agreement except to
the extent that such indemnifying party is materially prejudiced by such
failure.
8.04. Control of Distribution Tax Proceedings.
(a) Subject to the provisions of Section 8.04(b) of this Agreement,
Deluxe shall have the exclusive right, in its sole discretion, to control,
contest, and represent the interests of Deluxe, any Deluxe Affiliate,
eFunds, and any eFunds Affiliate in any Audits relating to Distribution
Taxes and to resolve, settle or agree to any deficiency, claim or
adjustment proposed, asserted or assessed in connection with or as a result
of any such Audit. Deluxe's rights shall extend to any matter pertaining to
the management and control of such Audit, including execution of waivers,
choice of forum, scheduling of conferences and the resolution of any Tax
Item.
(b) Notwithstanding the provisions of Section 8.04(a) of this
Agreement, eFunds shall have the exclusive right, in its sole discretion,
to control, contest, and represent the interests of Deluxe, any Deluxe
Affiliate, eFunds, and any eFunds Affiliate in any Audits relating to
Distribution Taxes and to resolve, settle or agree to any deficiency, claim
or adjustment proposed, asserted or assessed in connection with or as a
result of any such Audit, if it (i) acknowledges in writing that it has
sole liability for any Distribution Taxes that might arise in such Audit,
(ii) demonstrates to the satisfaction of Deluxe by clear and convincing
evidence that it has the financial ability to discharge all liabilities
arising from or related to any Distribution Taxes that may arise in such
Audit, and (iii) acknowledges in writing that it will forego any right to
challenge their liability under this Agreement for such Distribution Taxes.
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<PAGE>
(c) If Deluxe and eFunds are unable to agree as to who would have
liability for Distribution Taxes as a result of an Audit relating to
Distribution Taxes, then Deluxe shall permit eFunds to jointly defend any
such Audit.
Section 9. Miscellaneous Provisions.
9.01. Effectiveness. This Agreement shall be effective as of April 1, 2000.
9.02. Cooperation and Exchange of Information.
(a) Cooperation. eFunds and Deluxe shall each cooperate fully (and
each shall cause its respective affiliates to cooperate fully) with all
reasonable requests from another party in connection with the preparation
and filing of Tax Returns, claims for refund, and Audits concerning issues
or other matters covered by this Agreement. Such cooperation shall include,
without limitation:
(i) the retention until the expiration of the applicable statute
of limitations, and the provision upon request, of Tax Returns, books,
records (including information regarding ownership and Tax basis of
property), documentation and other information relating to the Tax
Returns, including accompanying schedules, related work papers, and
documents relating to rulings or other determinations by Taxing
Authorities;
(ii) the execution of any document that may be necessary or
reasonably helpful in connection with any Audit, or the filing of a
Tax Return or refund claim by a member of the Deluxe Group or the
eFunds Group, including certification, to the best of a party's
knowledge, of the accuracy and completeness of the information it has
supplied; and
(iii) the use of the party's best efforts to obtain any
documentation that may be necessary or reasonably helpful in
connection with any of the foregoing. Each party shall make its
employees and facilities available on a reasonable and mutually
convenient basis in connection with the foregoing matters.
(b) Failure to Perform. If a party fails to comply with any of its
obligations set forth in Section 9.02(a) of this Agreement upon reasonable
request and notice by the other party, and such failure results in the
imposition of additional Taxes, the nonperforming party shall be liable in
full for such additional Taxes.
(c) Retention of Records. A party intending to dispose of
documentation of Deluxe (or any Deluxe Affiliate) or eFunds (or any eFunds
Affiliate), including without limitation, books, records, Tax Returns and
all supporting schedules and information relating thereto (after the
expiration of the applicable statute of limitations), shall provide written
notice to the other party describing the documentation to be destroyed or
disposed of sixty (60) business
18
<PAGE>
days prior to taking such action. The other party may arrange to take
delivery of the documenta tion described in the notice at its expense
during the succeeding sixty (60) day period.
9.03. Dispute Resolution. In the event that Deluxe and eFunds disagree as
to the amount or calculation of any payment to be made under this Agreement, or
the interpretation or application of any provision under this Agreement, the
parties shall attempt in good faith to resolve such dispute. If such dispute is
not resolved within sixty (60) business days following the commencement of the
dispute, Deluxe and eFunds shall jointly retain a nationally recognized law or
accounting firm, which firm is independent of both parties (the "Independent
Firm"), to resolve the dispute; provided, however, that in order to pursue any
such dispute resolution under this Section 9.03, the Owing Party must either (i)
first pay to the Owed Party, or place in an escrow reasonably satisfactory to
the Owed Party pending resolution of such dispute, an amount equal to the
payment which is the subject of such dispute, or (ii) deliver to the Owed Party
a written opinion of a nationally recognized law or accounting firm chosen by
the parties substan tially to the effect that with respect to such dispute the
Owing Party is more likely than not to prevail in its entirety in the dispute
resolution proceeding. The Independent Firm shall act as an arbitrator to
resolve all points of disagreement and its decision shall be final and binding
upon all parties involved. Following the decision of the Independent Firm,
Deluxe and eFunds shall each take or cause to be taken any action necessary to
implement the decision of the Independent Firm. The fees and expenses relating
to the Independent Firm shall be borne equally by Deluxe and eFunds; provided,
however, that the Independent Firm shall be entitled, in its sole discretion, to
allocate such fees and expenses otherwise between the parties. Notwithstanding
anything in this Agreement to the contrary, the dispute resolution provisions
set forth in this Section 9.03 shall not be applicable to any disagreement
between Deluxe and eFunds relating to Distribution Taxes.
9.04. Notices. Any notice, request, instruction or other document to be
given or delivered under this Agreement by any party to another party shall be
in writing and shall be deemed to have been duly given or delivered when (1)
delivered in person or sent by telecopy to the facsimile number indicated below
with a required confirmation copy sent in accordance with clause (2) below, (2)
deposited in the United States mail, postage prepaid and sent certified mail,
return receipt requested or (3) delivered to Federal Express or similar service
for overnight delivery to the address of the party set forth below:
If to Deluxe or any Deluxe Affiliate to:
Deluxe Corporation
3680 Victoria Street North
Shoreview, Minnesota 55126
Attention: General Counsel
Facsimile: (651) 787-2749
with a copy to:
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<PAGE>
Deluxe Corporation
3680 Victoria Street North
Shoreview, Minnesota 55126
Attention: Director of Corporate Tax
Facsimile: (651) 787-1566
If to eFunds or any eFunds Affiliate to:
eFunds Corporation
c/o Deluxe Corporation
3680 Victoria Street North
Shoreview, Minnesota 55126
Attention: General Counsel
Facsimile: (651) 787-2749
with a copy to:
eFunds Corporation
400 West Deluxe Parkway
P.O. Box 12536
Milwaukee, Wisconsin 53212
Attention: Chief Financial Officer
Facsimile: (414) 341-5075
Either party may, by written notice to the other parties, change the address or
the party to which any notice, request, instruction or other document is to be
delivered.
9.05. Changes in Law.
(a) Any reference to a provision of the Code or a law of another
jurisdiction shall include a reference to any applicable successor
provision or law.
(b) If, due to any change in applicable law or regulations or their
interpretation by any court of law or other governing body having
jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their
commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by
such provision.
9.06. Confidentiality. Each party shall hold and cause its directors,
officers, employees, advisors and consultants to hold in strict confidence,
unless compelled to disclose by judicial or administrative process or, in the
opinion of its counsel, by other requirements of law, all information (other
than any such information relating solely to the business or affairs of such
20
<PAGE>
party) concerning the other parties hereto furnished it by such other party or
its representatives pursuant to this Agreement (except to the extent that such
information can be shown to have been (1) in the public domain through no fault
of such party, (2) later lawfully acquired from other sources not known to be
under a duty of confidentiality by the party to which it was furnished, or (3)
independently developed), and each party shall not release or disclose such
information to any other person, except its directors, officers, employees,
auditors, attorneys, financial advisors, bankers and other consultants who shall
be advised of and agree to be bound by the provisions of this Section 9.06. Each
party shall be deemed to have satisfied its obligation to hold confidential
information concerning or supplied by the other party if it exercises the same
care as it takes to preserve confidentiality for its own similar information.
9.07. Successors. This Agreement shall be binding on and inure to the
benefit and detriment of any successor, by merger, acquisition of assets or
otherwise, to any of the parties hereto, to the same extent as if such successor
had been an original party.
9.08. Affiliates. Deluxe shall cause to be performed, and hereby guarantees
the performance of, all actions, agreements and obligations set forth herein to
be performed by any Deluxe Affiliate, and eFunds shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any eFunds Affiliate; provided,
however, that (1) if it is contemplated that an eFunds Affiliate may cease to be
an eFunds Affiliate as a result of a transfer of its stock or other ownership
interests to a third party in exchange for consideration in an amount
approximately equal to the fair market value of the stock or other ownership
interests transferred and such consideration is not distributed outside of the
eFunds Group to the shareholders of eFunds then eFunds may request in writing no
later than thirty (30) days prior to such cessation that Deluxe execute a
release of such eFunds Affiliate from its obligations under this Agreement
effective as of such transfer and Deluxe shall promptly execute and deliver such
release to eFunds provided that eFunds shall have confirmed in writing its
obligations and the obligations of its remaining eFunds Affiliates with respect
to their own obligations and those of the departing eFunds Affiliate and that
such departing eFunds Affiliate shall have executed a release of any rights it
may have against Deluxe or any Deluxe Affiliate by reason of this Agreement, and
(2) if it is contemplated that a Deluxe Affiliate may cease to be a Deluxe
Affiliate as a result of a transfer of its stock or other ownership interests to
a third party in exchange for consideration in an amount approximately equal to
the fair market value of the stock or other ownership interests transferred and
such consideration is not distrib uted outside of the Deluxe Group to the
shareholders of Deluxe then Deluxe may request in writing no later than thirty
(30) days prior to such cessation that eFunds execute a release of such Deluxe
Affiliate from its obligations under this Agreement effective as of such
transfer and eFunds shall promptly execute and deliver such release to Deluxe
provided that Deluxe shall have confirmed in writing its obligations and the
obligations of its remaining Deluxe Affiliates with respect to their own
obligations and the obligations of the departing Deluxe Affiliate and that such
departing Deluxe Affiliate shall have executed a release of any rights it may
have against eFunds or any eFunds Affiliate by reason of this Agreement. The
requested party hereunder shall not unreasonably withhold the provision of any
such release.
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<PAGE>
9.09. Authorization, Etc. Each of the parties hereto hereby represents and
warrants that it has the power and authority to execute, deliver and perform
this Agreement, that this Agreement has been duly authorized by all necessary
corporate action on the part of such party, that this Agreement constitutes a
legal, valid and binding obligation of each such party and that the execution,
delivery and performance of this Agreement by such party does not contravene or
conflict with any provision of law or of its charter or bylaws or any agreement,
instrument or order binding on such party.
9.10. Entire Agreement. This Agreement contains the entire agreement among
the parties hereto with respect to the subject matter hereof and supersedes any
prior tax sharing agreements between Deluxe (or any Deluxe Affiliate) and eFunds
(or any eFunds Affiliate) and such prior tax sharing agreements shall have no
further force and effect.
9.11. Applicable Law; Jurisdiction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
without giving effect to laws and principles relating to conflicts of law.
9.12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
9.13. Severability. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction (or an arbitrator or
arbitration panel) to be invalid, void, or unenforceable, the remainder of the
terms, provisions, covenants, and restrictions set forth herein shall remain in
full force and effect, and shall in no way be affected, impaired, or
invalidated. In the event that any such term, provision, covenant or restriction
is held to be invalid, void or unenforceable, the parties hereto shall use their
best efforts to find and employ an alternate means to achieve the same or
substantially the same result as that contemplated by such terms, provisions,
covenant, or restriction.
9.14. No Third Party Beneficiaries. This Agreement is solely for the
benefit of Deluxe, the Deluxe Affiliates, eFunds and the eFunds Affiliates. This
Agreement should not be deemed to confer upon third parties any remedy, claim,
liability, reimbursement, cause of action or other rights in excess of those
existing without this Agreement.
9.15. Waivers, Etc. No failure or delay on the part of the parties in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
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<PAGE>
9.16. Setoff. All payments to be made by any party under this Agreement may
be netted against payments due to such party under this Agreement, but otherwise
shall be made without setoff, counterclaim or withholding, all of which are
hereby expressly waived.
9.17. Other Remedies. eFunds recognizes that (1) any act, failure to act,
or omission specified in Section 4.01(b)(i)-(ii) of this Agreement of or by
eFunds or any eFunds Affiliate or (2) the occurrence of any event specified in
Section 4.01(b)(iii)-(iv) of this Agreement, may result in Distribution Taxes
which could cause irreparable harm to Deluxe, Deluxe Affiliates and their
stockholders, and that such persons may be inadequately compensated by monetary
damages for such act, failure to act, omission, or event. Accordingly, neither
eFunds nor any eFunds Affiliate shall permit (1) any act, failure to act, or
omission specified in Section 4.01(b)(i)-(ii) of this Agreement or (2) the
occurrence of any event specified in Section 4.01(b)(iii)-(iv) of this
Agreement, that could be reasonably foreseeable to result in any Distribu tion
Taxes, and Deluxe and each Deluxe Affiliate shall be entitled to injunctive
relief, in addition to all other remedies, in order to prevent any such act,
failure to act, omission, or occurrence.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by a duly authorized officer on ____________, 2000, but effective as
of the date first above written.
DELUXE CORPORATION
on behalf of itself and the Deluxe Affiliates
By
-------------------------------------------
Name:
Title:
EFUNDS CORPORATION
on behalf of itself and the eFunds Affiliates
By
-------------------------------------------
Name:
Title:
24
<PAGE>
Schedule 2.05(a)
TAX SERVICES
<TABLE>
<CAPTION>
DESCRIPTION TIMING AMOUNT
----------- ------ ------
<S> <C> <C>
Federal Income Tax Compliance Services Monthly 4,000
International Tax Compliance Services Monthly 6,000
State and Local Income & Franchise Tax Compliance Services Monthly 4,000
State and Local Sales & Use, Property Tax Compliance Services Monthly 2,500
Other Compliance Services (escheat, licenses, excise, etc.) Monthly 500
Federal Audit Management Services Monthly 3,500
State and Local Income & Franchise Tax Audit Mgmt Services Monthly 1,000
State and Local Sales & Use, Property Tax Audit Mgmt Services Monthly 1,000
Federal Tax Planning & Consulting Services Monthly 4,000
International Tax Planning and Consulting Services Monthly 6,000
State and Local Income & Franchise Tax Planning and Consulting Services Monthly 2,000
State and Local Sales & Use, Property Tax Planning and Consulting Services Monthly 2,000
Other Tax & Business Planning Services Monthly 1,000
Special Tax Services - Merger, Acquisition & Divestiture Tax Planning As requested Additional as negotiated
Special Tax Services - Compensation and Payroll Tax Consulting As requested Additional as negotiated
Special Tax Services - Other As requested Additional as negotiated
Overhead / Facility Monthly 0
---------------------
37,500
=====================
</TABLE>
<PAGE>
EXHIBIT 10.5
EMPLOYEE MATTERS AGREEMENT
BETWEEN
DELUXE CORPORATION
AND
eFUNDS CORPORATION
DATED AS OF
___________, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS...................................................1
1.1. Affiliate.....................................................1
1.2. Agreement.....................................................1
1.3. Ancillary Agreement...........................................2
1.4. ASO Contracts.................................................2
1.5. COBRA.........................................................2
1.6. Code..........................................................2
1.7. Conversion Plan...............................................2
1.8. Deluxe........................................................2
1.9. Deluxe Deferred Compensation Plan.............................2
1.10. Deluxe 401(k) Plan............................................2
1.11. Deluxe Fringe Benefits........................................2
1.12. Deluxe Group..................................................2
1.13. Deluxe Health Plans...........................................2
1.14. Deluxe Health and Welfare Plans...............................2
1.15. Deluxe MPP....................................................3
1.16. Deluxe Option.................................................3
1.17. Deluxe Option Plans...........................................3
1.18. Deluxe PSP....................................................3
1.19. Deluxe Supplemental Benefit Plan..............................3
1.20. Deluxe VEBA...................................................3
1.21. Deluxe WCP....................................................3
1.22. Distribution..................................................3
1.23. Distribution Agreement........................................3
1.24. Distribution Date.............................................3
1.25. DOL...........................................................3
1.26. eFunds........................................................3
1.27. eFunds Employee...............................................4
1.28. eFunds 401(k) Plan............................................4
1.29. eFunds Group..................................................4
1.30. eFunds Health Plans...........................................4
1.31. eFunds Health and Welfare Plans...............................4
1.32. eFunds Option.................................................4
1.33. eFunds Stock..................................................5
1.34. eFunds Terminated Employee....................................5
1.35. ERISA.........................................................5
1.36. FMLA..........................................................5
1.37. HCFA..........................................................5
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<PAGE>
1.38. HMO...........................................................5
1.39. HMO Agreements................................................5
1.40. iDLX..........................................................5
1.41. iDLX Employee.................................................5
1.42. iDLX Terminated Employee......................................6
1.43. Insurance Policies............................................6
1.44. IRS...........................................................6
1.45. Material Feature..............................................6
1.46. Outsource.....................................................6
1.47. Participating Employer........................................6
1.48. Person........................................................6
1.49. Plan..........................................................6
1.50. QDRO..........................................................6
1.51. QMCSO.........................................................7
ARTICLE II. GENERAL PRINCIPLES............................................8
2.1. Termination of Participating Employer Status..................8
2.2. Terms of Participation by eFunds Employees in eFunds Plans....8
2.3. eFunds' Obligation to Establish and Maintain Plans............9
2.4. Benefits Committee and Dispute Resolution.....................9
2.5. Deluxe Option Plans and Conversion Plan.......................9
ARTICLE III. QUALIFIED RETIREMENT PLANS...................................10
3.1. Establishment of 401(k) Plan and Trust Required..............10
3.2. Transfer of Deluxe 401(k) Plan Assets and Liabilities........10
3.3. Transfer of Deluxe PSP Assets and Liabilities................10
3.4. Transfer of Deluxe MPP Assets and Liabilities................10
3.5. Deluxe MPP 401(h) Benefits...................................11
3.6. No Distribution to eFunds and iDLX Employees.................11
3.7. Final Year Contribution......................................11
3.8. Qualified 401(k) Plan Loans..................................12
3.9. Qualified Domestic Relations Orders..........................12
3.10. Minimum Required Distributions...............................12
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<PAGE>
ARTICLE IV. NON-QUALIFIED RETIREMENT PLANS...............................13
4.1. Establishment of Plans Discretionary.........................13
4.2. No Transfer of Liabilities...................................13
4.3. Final Year Credits...........................................13
ARTICLE V. HEALTH AND WELFARE PLANS.....................................14
5.1. Establishment of Health and Welfare Plans....................14
5.2. No Transfer of VEBA Assets...................................14
5.3. Assumption of Health and Welfare Plan Liabilities............14
5.4. Claims for Health and Welfare Plans..........................15
5.5. Post-Distribution Transitional Arrangements..................15
5.6. Vendor Arrangements..........................................16
5.7. COBRA........................................................17
5.8. Dependent and Health Care Reimbursement Accounts.............17
5.9. Long-Term Disability.........................................17
5.10. Deluxe Workers' Compensation Program.........................17
ARTICLE VI. EQUITY AND OTHER COMPENSATION................................19
6.1. Deluxe Stock Purchase Plan...................................19
6.2. Deluxe Option Plans..........................................19
6.3. Administrative Matters.......................................19
6.4. Fees and Expenses............................................19
ARTICLE VII. FRINGE AND OTHER BENEFITS....................................20
7.1. Auto/HomeownerInsurance Program..............................20
7.2. Adoption Assistance..........................................20
7.3. Employee Student Loan Program................................20
7.4. Other Deluxe Benefit Programs................................20
7.5. eFunds Benefit Programs......................................20
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<PAGE>
ARTICLE VIII. ADMINISTRATIVE MATTERS.......................................21
8.1. Reporting and Disclosure Communications to Participants......21
8.2. Audits Regarding Vendor Contracts............................21
8.3. Employee Identification Numbers..............................21
8.4. Beneficiary Designations.....................................21
8.5. Requests for IRS and DOL Opinions............................22
8.6. Fiduciary Matters............................................22
8.7. Consent of Third Parties.....................................22
8.8. World Wide Web...............................................22
8.9. Tax Cooperation..............................................22
ARTICLE IX. EMPLOYMENT-RELATED MATTERS...................................23
9.1. Terms of eFunds Employment...................................23
9.2. Human Resources Data Support Systems.........................23
9.3. Confidentiality and Proprietary Information..................23
9.4. Personnel and Pay Records....................................23
9.5. Non-Termination of Employment; No Third-Party
Beneficiaries................................................23
9.6. Employment Litigation........................................24
ARTICLE X. GENERAL PROVISIONS...........................................26
10.1. Effect if Distribution Does Not Occur........................26
10.2. Relationship of Parties......................................26
10.3. Affiliates...................................................26
10.4. Incorporation of Distribution and Ancillary Agreement
Provisions...................................................26
10.5. Governing Law................................................26
10.6. Severability.................................................26
10.7. Amendment....................................................27
10.8. Termination..................................................27
10.9. Conflict.....................................................27
10.10. Counterparts.................................................27
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<PAGE>
SCHEDULE 1-- HEALTH AND WELFARE PLANS.......................................S-1
SCHEDULE 2--THIRD PARTY ASO CONTRACTS.......................................S-2
SCHEDULE 3--INSURANCE POLICIES..............................................S-3
SCHEDULE 4--THIRD PARTY HMO CONTRACTS.......................................S-4
SCHEDULE 5(a) & (b)-- EMPLOYMENT LITIGATION TRANSFERRED CLAIMS..............S-5
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<PAGE>
EMPLOYEE MATTERS AGREEMENT
This EMPLOYEE MATTERS AGREEMENT (this "Agreement") is entered into on
____________, 2000, between Deluxe Corporation ("Deluxe"), a Minnesota
corporation, and eFunds Corporation ("eFunds"), a Delaware corporation.
Capitalized terms used herein and not otherwise defined, shall have the
respective meanings assigned to them in Article I hereof.
WHEREAS, the Board of Directors of Deluxe has determined that it is in the
best interests of Deluxe and its shareholders to separate Deluxe's existing
businesses into two (2) independent businesses, Deluxe and eFunds;
WHEREAS, in furtherance of the foregoing, Deluxe and eFunds have agreed to
enter into this Agreement to allocate between them assets, liabilities and
responsibilities with respect to certain employee compensation, benefit plans
and programs, and certain employment matters with respect to United States
employees; and
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Wherever used in this Agreement, the following terms shall have the meanings
indicated below, unless a different meaning is plainly required by the context.
The singular shall include the plural, unless the context indicates otherwise.
Headings of sections are used for convenience of reference only, and in case of
conflict, the text of this Agreement, rather than such headings, shall control:
1.1. Affiliate. "Affiliate" means, with respect to Deluxe, any business entity
which is under "common control" with Deluxe or which is a member of an
"affiliated service group" that includes Deluxe, as those terms are defined in
section 414(b), (c), and (m) of the Code, and with respect to eFunds, any
business entity which is under "common control" with eFunds or which is a member
of an "affiliated service group" that includes eFunds, as those terms are
defined in section 414(b), (c), and (m) of the Code. For purposes of this
Agreement, eFunds and its Affiliates shall not be considered Affiliates of
Deluxe and its Affiliates and Deluxe and its Affiliates (excluding eFunds and
its Affiliates) shall not be considered Affiliates of eFunds.
1.2. Agreement. "Agreement" means this Employee Matters Agreement, including all
the Addendums, Schedules and Exhibits hereto, and all amendments made hereto
from time to time.
<PAGE>
1.3. Ancillary Agreement. "Ancillary Agreement" shall have the meaning in the
Distribution Agreement.
1.4. ASO Contracts. "ASO Contracts" is defined in Section 5.6(a) and Schedule 2.
1.5. COBRA. "COBRA" means the continuation coverage requirements for "group
health plans" under Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended from time to time, and as codified in Code Section 4980B
and ERISA Sections 601 through 608.
1.6. Code. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.7. Conversion Plan. "Conversion Plan" means the eFunds Corporation Stock
Incentive Plan for Deluxe Conversion Awards.
1.8. Deluxe. "Deluxe" means Deluxe Corporation, a Minnesota corporation. In all
such instances in which Deluxe is referred to in this Agreement, it shall also
be deemed to include a reference to each member of the Deluxe Group, unless it
specifically provides otherwise; Deluxe shall be solely responsible to eFunds
for ensuring that each member of the Deluxe Group complies with the applicable
terms of this Agreement.
1.9. Deluxe Deferred Compensation Plan. "Deluxe Deferred Compensation Plan"
means the non-qualified deferred compensation plan maintained by Deluxe under a
document entitled "Deluxe Corporation Deferred Compensation Plan" effective
January 1, 1996, as amended.
1.10 Deluxe 401(k) Plan. "Deluxe 401(k) Plan" means the tax-qualified earnings
reduction profit sharing plan maintained by Deluxe under a document entitled
"Deluxe Corporation 401(k) Plan (1997 Statement)," as amended.
1.11. Deluxe Fringe Benefits. "Fringe Benefits" means all fringe benefits,
plans, programs and arrangements sponsored and maintained by Deluxe (as set
forth in Article VII).
1.12. Deluxe Group. "Deluxe Group" means Deluxe and each Affiliate of Deluxe (or
any predecessor organization thereof), but not including eFunds or iDLX.
1.13. Deluxe Health Plans. "Deluxe Health Plans" means all medical,
pharmaceutical, vision and dental plans, programs or arrangements listed on
Schedule 1 maintained by Deluxe for the benefit of the Deluxe Group.
1.14. Deluxe Health and Welfare Plans. "Deluxe Health and Welfare Plans" means
the health and welfare plans listed on Schedule 1 established and maintained by
Deluxe for the benefit of employees and retirees of the Deluxe Group.
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<PAGE>
1.15. Deluxe MPP. "Deluxe MPP" means the tax-qualified money purchase pension
plan maintained by Deluxe under a document entitled "Deluxe Defined Contribution
Pension Plan (1997 Restatement)," as amended.
1.16. Deluxe Option "Deluxe Option" means an option to purchase shares of Deluxe
common stock which was granted under a Deluxe Option Plan and is outstanding
immediately prior to the Distribution.
1.17. Deluxe Option Plans "Deluxe Option Plans" means the Deluxe Corporation
1984 Stock Option Plan, the Deluxe Corporation Stock Incentive Plan (as amended)
and the Deluxe Corporation 1998 DeluxeSHARES Plan.
1.18. Deluxe PSP. "Deluxe PSP" means the tax-qualified profit sharing plan
maintained by Deluxe under a document entitled "Deluxe Corporation Profit
Sharing Plan (1997 Restatement),"as amended.
1.19. Deluxe Supplemental Benefit Plan. "Supplemental Benefit Plan" means the
non-qualified deferred compensation plan maintained by Deluxe under a document
entitled "Deluxe Corporation Supplemental Benefit Plan" effective January 1,
1996, as amended.
1.20. Deluxe VEBA. "Deluxe VEBA" means the Deluxe Corporation Voluntary Employee
Benefits Organization Trust which is intended to be a voluntary employees'
beneficiary association under Code Section 501(c)(9).
1.21. Deluxe WCP. "Deluxe WCP" means the Deluxe Workers' Compensation Program,
comprised of the various arrangements established by a member of the Deluxe
Group to comply with the workers, compensation requirements of the states in
which the Deluxe Group conducts business.
1.22. Distribution. "Distribution" means Deluxe's distribution to the holders of
its common stock by means of an exchange offer and/or a pro rata distribution of
all the shares of eFunds Stock owned by Deluxe.
1.23. Distribution Agreement. "Distribution Agreement" means the Initial Public
Offering and Distribution Agreement dated as of March 31, 2000, by and between
Deluxe and eFunds.
1.24. Distribution Date. "Distribution Date" means the date that the
Distribution is effective.
1.25. DOL. "DOL" means the United States Department of Labor.
1.26. eFunds. "eFunds" means eFunds Corporation, a Delaware corporation. In all
such instances in which eFunds is referred to in this Agreement, it shall also
be deemed to include a reference to each member of the eFunds Group, unless it
specifically provides otherwise; eFunds
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<PAGE>
shall be solely responsible to Deluxe for ensuring that each member of the
eFunds Group complies with the applicable terms of this Agreement.
1.27. eFunds Employee. "eFunds Employee" means any individual who, as of the
Distribution Date, is: (a) either actively employed by, or on a leave of absence
from, the eFunds Group; (b) an eFunds Terminated Employee; (c) an alternate
payee under a QDRO, alternate recipient under a QMCSO, beneficiary, covered
dependent, or qualified beneficiary (as such term is defined under COBRA), in
each case, of an employee or former employee, described in clause (a) or (b)
with respect to that employee's or former employee's benefit under the
applicable Plan(s) (unless specified otherwise in this Agreement, such an
alternate payee, alternate recipient, beneficiary, covered dependent, or
qualified beneficiary shall not otherwise be considered an eFunds Employee with
respect to any benefits he or she accrues or accrued under any applicable
Plan(s), unless he or she is an eFunds Employee by virtue of clause (a) or (b));
or (d) an employee or group of employees designated by Deluxe and eFunds, by
mutual agreement, as eFunds Employees. An employee may be an eFunds Employee
pursuant to this Section regardless of whether such employee is, as of the
Distribution Date, alive, actively employed, on a temporary leave of absence
from active employment, on layoff, terminated from employment, retired or on any
other type of employment or post-employment status relative to a Deluxe Plan,
and regardless of whether, as of the Distribution Date, such employee is then
receiving any benefits from a Deluxe Plan.
1.28. eFunds 401(k) Plan. "eFunds 401(k) Plan" means the tax-qualified earnings
reduction profit sharing plan to be established by eFunds pursuant to Section
3.1.
1.29. eFunds Group. "eFunds Group" means eFunds and each of the following United
States entities that are contemplated to be an Affiliate of eFunds after the
Distribution Date: Deluxe Analytic Research Technologies, Inc., a Minnesota
corporation; Chex Systems, Inc., a Minnesota corporation; eFunds Electronic
Benefits, a Delaware corporation; Deluxe Payment Protection Systems, Inc., a
Delaware corporation; eFunds Corporation (Tustin), a California corporation;
Deluxe Overseas, Inc., a Minnesota corporation. Notwithstanding anything to the
contrary in this Agreement, neither iDLX nor any foreign Affiliate of eFunds
shall be included as part of the eFunds Group for purposes of this Agreement.
1.30. eFunds Health Plans "eFunds Health Plans" means the health plans, programs
and arrangements to be established by eFunds pursuant to Article V that
correspond to the respective Deluxe Health Plans.
1.31. eFunds Health and Welfare Plans. "eFunds Health and Welfare Plans" means
the health and welfare plans established by eFunds pursuant to Article V that
correspond to the respective Deluxe Health and Welfare Plans.
1.32. eFunds Option "eFunds Option" means an option to purchase shares of eFunds
common stock, which option shall be granted pursuant to the terms of the
Conversion Plan.
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<PAGE>
1.33. eFunds Stock. "eFunds Stock" means any class of eFunds capital stock,
including any class of eFunds voting stock and any class of eFunds nonvoting
stock.
1.34. eFunds Terminated Employee. "eFunds Terminated Employee" means any
individual who is a former employee of the eFunds Group. Notwithstanding the
foregoing, "eFunds Terminated Employee" shall not, unless otherwise expressly
provided to the contrary in this Agreement, include (a) an individual who is
employed by an Affiliate of the Deluxe Group (which is not an Affiliate of the
eFunds Group) at the Distribution Date, or (b) an individual who was formerly an
employee of eFunds but who is on long-term disability as of the Distribution
Date. Any employee described in clause (b) who returns to active employment with
eFunds after the Distribution Date shall be treated as an eFunds Employee.
1.35. ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
1.36. FMLA. "FMLA" means the Family and Medical Leave Act of 1993, as amended
from time to time.
1.37. HCFA. "HCFA" means the United States Health Care Financing Administration.
1.38. HMO. "HMO" means a health maintenance organization that provides benefits
under the Deluxe Health Plans or the eFunds Health Plans.
1.39. HMO Agreements. "HMO Agreements" is defined in Section 5.6(c) and Schedule
4.
1.40. iDLX. "iDLX" means iDLX Corporation, a Delaware corporation (an Affiliate
of eFunds), and its domestic and foreign subsidiaries.
1.41. iDLX Employee. "iDLX Employee" means any individual who, as of the
Distribution Date, is: (a) either actively employed by, or on a leave of absence
from, iDLX; (b) an iDLX Terminated Employee; (c) an alternate payee under a
QDRO, alternate recipient under a QMCSO, beneficiary, covered dependent, or
qualified beneficiary (as such term is defined under COBRA), in each case, of an
employee or former employee, described in clause (a) or (b) with respect to that
employee's or former employee's benefit under the applicable Plan(s) (unless
specified otherwise in this Agreement, such an alternate payee, alternate
recipient, beneficiary, covered dependent, or qualified beneficiary shall not
otherwise be considered an iDLX Employee with respect to any benefits he or she
accrues or accrued under any applicable Plan(s), unless he or she is an iDLX
Employee by virtue of clause (a) or (b)); or (d) an employee or group of
employees designated by Deluxe and eFunds, by mutual agreement, as iDLX
Employees. An employee may be an iDLX Employee pursuant to this Section
regardless of whether such employee is, as of the Distribution Date, alive,
actively employed, on a temporary leave of absence from active employment, on
layoff, terminated from employment, retired or on any other type of employment
or post-employment status
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<PAGE>
relative to an Deluxe Plan, and regardless of whether, as of the Distribution
Date, such employee is then receiving any benefits from a Deluxe Plan.
1.42. iDLX Terminated Employee. "iDLX Terminated Employee" means any individual
who is a former employee of iDLX. Notwithstanding the foregoing, "iDLX
Terminated Employee" shall not, unless otherwise expressly provided to the
contrary in this Agreement, include an individual who is employed by an
Affiliate of the Deluxe Group (which is not an Affiliate of the eFunds Group) at
the Distribution Date.
1.43. Insurance Policies. "Insurance Policies" is defined in Section 5.6(b) and
Schedule 3.
1.44. IRS. "IRS" means the United States Internal Revenue Service.
1.45. Material Feature. "Material Feature" means any feature of a Plan that
could reasonably be expected to be of material importance to the sponsoring
employer or the participants (or their dependents or beneficiaries) (in the
aggregate) of that Plan, which could include, depending on the type and purpose
of the particular Plan, the class or classes of employees eligible to
participate in such Plan, the nature, type, form, source, and level of benefits
provided under such Plan and the amount or level of contributions, if any,
required to be made by participants (or their dependents or beneficiaries) to
such Plan.
1.46. Outsource. "Outsource" is defined in Sections 5.4(b) and 5.10(a)(iii) for
purposes of each such respective section.
1.47. Participating Employer. "Participating Employer" means: (a) Deluxe; (b)
any Person (other than an individual) that Deluxe has approved for participation
in, has accepted participation in, and which is participating in, a Plan
sponsored by Deluxe; or (c) any Person (other than an individual) which, by the
terms of such Plan, participates in such Plan or any employees of which, by the
terms of such Plan, participate in or are covered by such Plan.
1.48. Person. "Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, and a governmental entity or any
department, agency or political subdivision thereof.
1.49. Plan. "Plan," means any plan, policy, program, payroll practice,
arrangement, contract, trust, insurance policy, or any agreement or funding
vehicle providing compensation or benefits to employees, former employees or
directors of Deluxe, iDLX or eFunds.
1.50. QDRO. "QDRO" means a domestic relations order which qualifies under Code
Section 414(p) and ERISA Section 206(d) and which creates or recognizes an
alternate payee's right to, or assigns to an alternate payee, all or a portion
of the benefits payable to a participant under any of the Deluxe Retirement
Plans.
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<PAGE>
1.51. QMCSO. "QMCSO" means a medical child support order which qualifies under
ERISA Section 609(a) and which creates or recognizes the existence of an
alternate recipient's right to, or assigns to an alternate recipient the right
to, receive benefits for which a participant or beneficiary is eligible under
any of the Health Plans.
-7-
<PAGE>
ARTICLE II
GENERAL PRINCIPLES
2.1. Termination of Participating Employer Status. Except as otherwise may be
mutually agreed upon by Deluxe and eFunds, effective as of the Distribution
Date, eFunds and all eFunds Affiliates shall automatically cease to be
Participating Employers in any and all Deluxe Plans.
2.2. Terms of Participation in eFunds Plans.
(a) Non-Duplication of Benefits. As of the Distribution Date or such later
date that applies to the particular eFunds Plan established
thereafter, the eFunds Plans shall be, with respect to eFunds
Employees (and where applicable, iDLX Employees), in all respects the
successors in interest to, and shall not provide benefits that
duplicate benefits provided by, the corresponding Deluxe Plans. Deluxe
and eFunds shall agree on methods and procedures, including amending
the respective Plan documents, to prevent employees from receiving
duplicate benefits from the Deluxe Plans and the eFunds Plans.
(b) Service Credit. Except as specified otherwise in this Agreement, with
respect to eFunds Employees (and where applicable iDLX Employees),
each eFunds Plan shall provide that all service, all compensation and
all other benefit-affecting determinations that, as of the
Distribution Date, were recognized under the corresponding Deluxe Plan
shall, as of the Distribution Date, receive full recognition and
credit and be taken into account under such eFunds Plan to the same
extent as if such items occurred under such eFunds Plan, except to the
extent that duplication of benefits would result. Notwithstanding the
foregoing, Deluxe and eFunds shall recognize service with either
Deluxe or eFunds that was recognized as of the Distribution Date,
except to the extent provided in Section 2.2(a) above. The service
crediting provisions shall be subject to any respectively applicable
"service bridging," "break in service," "employment date," "adjusted
hire date" or "eligibility date" rules under the eFunds Plans and the
Deluxe Plans.
(c) Assumption of Liabilities. The provisions of this Agreement for the
transfer of assets relating to Deluxe Plans to eFunds and/or the
appropriate eFunds Plans are based upon the understanding of the
parties that eFunds and/or the appropriate eFunds Plan will assume all
liabilities of the corresponding Deluxe Plan to or relating to eFunds
Employees (and where applicable, iDLX Employees), as provided for
herein. If any such liabilities are not effectively assumed by eFunds
and/or the appropriate eFunds Plan, then the amount of transferred
assets shall be recomputed accordingly, taking into account the
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<PAGE>
retention of such liabilities by such Deluxe Plan, and assets shall be
transferred from eFunds and/or the appropriate eFunds Plan to Deluxe
and/or the appropriate Deluxe Plan so as to place eFunds and/or the
appropriate eFunds Plan in the position it would have been in, had the
initial asset transfer been made in accordance with such recomputed
amount of assets.
2.3. eFunds' Obligation to Establish and Maintain Plans. Except as otherwise
provided in this Agreement, eFunds shall not be required to establish or
maintain any employee benefit plan or program of any kind. Except as otherwise
provided in this Agreement, eFunds may, at any time after the Distribution Date,
amend, merge, modify, terminate, eliminate, reduce, or otherwise alter in any
respect any eFunds Plan, any benefit under any eFunds Plan or any trust,
insurance policy or funding vehicle related to any eFunds Plan (to the extent
permitted by law.
2.4. Benefits Committee and Dispute Resolution. From the date of this Agreement
through the Distribution Date, the management of the Plans shall be conducted
under the supervision of the Benefits Committee. The Benefits Committee shall be
comprised of an equal number of representatives from Deluxe and eFunds as
appointed by their respective Chief Executive Officer, and shall provide
strategic oversight and direction of the cohesive administration of the Plans.
Issues that cannot be resolved by the Benefits Committee shall be decided, at
the request of either party, by the eFunds Vice President, Human Resources (or
his or her authorized delegate) and the Deluxe Vice President, Human Resources
(or his or her authorized delegate). After exhaustion of this process, any
outstanding issues shall be resolved in accordance with Section 7.01(g) of the
Distribution Agreement.
2.5 Deluxe Option Plans and Conversion Plan. Notwithstanding any provision in
this Agreement to the contrary, the Deluxe Option Plans and the Conversion Plan
shall be administered as provided in the respective plans, including, without
limitation, the termination thereof and any amendment, modification,
interpretation, delegation of authority, exercise of discretion or adoption,
modification or discontinuation of any procedure or practice relating thereto
and permitted or authorized therein.
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ARTICLE III
QUALIFIED RETIREMENT PLANS
3.1. Establishment of 401(k) Plan and Trust Required. Effective as of the
Distribution Date or such other date(s) as Deluxe and eFunds may mutually agree,
eFunds shall adopt the eFunds 401(k) Plan and shall establish, or cause to be
established, a separate trust, which is intended to be qualified under Code
Section 401(a), to be exempt from taxation under Code Section 501(a)(1), and to
hold assets of the eFunds 401(k) Plan. eFunds shall determine the Material
Features of the eFunds 401(k) Plan; provided, however, that any optional form of
distribution or other "section 411(d)(6) protected benefit" (as defined by
Treasury Regulations ss. 1.411(d)-4 and any subsequent guidance from the
Internal Revenue Service) available as to all or a portion of the transferred
assets and liabilities shall continue to be available with respect to the
portion of transferred assets and liabilities to which such protected benefit
applies.
3.2. Transfer of Deluxe 401(k) Plan Assets and Liabilities. Effective as of the
Distribution Date: (i) the eFunds 401(k) Plan shall assume and be solely
responsible for all liabilities for or relating to eFunds and iDLX Employees
(excluding eFunds Terminated Employees and iDLX Terminated Employees) under the
Deluxe 401(k) Plan; and (ii) Deluxe shall cause the accounts of the eFunds
Employees and iDLX Employees (excluding eFunds Terminated Employees and iDLX
Terminated Employees) under the Deluxe 401(k) Plan and assets attributable
thereto that are held by its related trust as of the Distribution Date to be
transferred to the eFunds 401(k) Plan and its related trust, and eFunds shall
cause such transferred accounts and assets to be accepted by such plan and its
related trust.
3.3. Transfer of Deluxe PSP Assets and Liabilities. Effective as of the
Distribution Date: (i) the eFunds 401(k) Plan shall assume and be solely
responsible for all liabilities for or relating to eFunds Employees (excluding
eFunds Terminated Employees) under the Deluxe PSP; and (ii) Deluxe shall cause
the accounts of the eFunds Employees (excluding eFunds Terminated Employees)
under the Deluxe PSP and assets attributable thereto that are held by its
related trust as of the Distribution Date to be transferred to the eFunds 401(k)
Plan and its related trust, and eFunds shall cause such transferred accounts and
assets to be accepted by such plan and its related trust.
3.4. Transfer of Deluxe MPP Assets and Liabilities. Effective as of the
Distribution Date: (i) the eFunds 401(k) Plan shall assume and be solely
responsible for all pension liabilities (excluding any benefit liabilities
funded through the Code section 401(h) account) for or relating to eFunds and
iDLX Employees (excluding eFunds Terminated Employees and iDLX Terminated
Employees) under the Deluxe MPP; and (ii) Deluxe shall cause the pension
accounts (but no portion of the Code section 401(h) account) of the eFunds and
iDLX Employees (excluding eFunds Terminated Employees and iDLX Terminated
Employees) under the Deluxe MPP and assets attributable thereto that are held by
its related trust as of the Distribution Date to be transferred to the eFunds
401(k) and its related trust, and eFunds shall cause such transferred accounts
and assets to be accepted by such plan and its related trust.
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3.5. Deluxe MPP 401(h) Benefits. Effective as of the Distribution Date, eFunds
and iDLX Employees who have satisfied the age, service and/or other requirements
necessary to become a Qualified Retiree (as defined under the Deluxe MPP) shall
be eligible to receive retiree medical benefits under the Deluxe MPP after the
Distribution Date. eFunds and iDLX Employees who have not met the age, service
and/or other requirements as of the Distribution Date shall not be eligible to
receive retiree medical benefits under the Deluxe MPP after the Distribution
Date.
3.6. No Distribution to eFunds and iDLX Employees. The Deluxe PSP, the Deluxe
MPP, the Deluxe 401(k) Plan and the eFunds 401(k) Plan shall provide that no
distribution of account balances shall be made to any eFunds Employee or iDLX
Employee on account of eFunds or iDLX ceasing to be a Participating Employer
under the Deluxe Plans.
3.7. Final Year Contribution.
(a) Profit Sharing Contributions. Profit sharing contributions that would
have been made by or on behalf of eFunds to the Deluxe PSP (absent the
event of Distribution) for the plan year ending December 31, 2000 as
determined by Deluxe on any reasonable basis shall be made by eFunds
to the eFunds 401(k) Plan based on compensation earned by eFunds
Employees from January 1, 2000 through, but not after, the
Distribution Date. At the time of such contribution, Deluxe shall
reimburse eFunds in full for all amounts charged eFunds for the cost
of such contributions during the aforesaid period.
(b) Money Purchase Contributions. Money purchase contributions that would
have been made by or on behalf of eFunds and iDLX to the Deluxe MPP
(absent the event of Distribution) for the plan year ending December
31, 2000 shall be made by eFunds and iDLX to the eFunds 401(k) Plan
based on compensation earned by eFunds and iDLX Employees respectively
from January 1, 2000 through, but not after, the Distribution Date. At
the time of such contribution, Deluxe shall reimburse eFunds and iDLX
in full for all amounts charged eFunds and iDLX for the cost of such
contributions during the aforesaid period.
(c) Refunds of Excess Contributions. If Deluxe receives a distribution of
any excess contribution under the Deluxe 401(k) Plan that is
attributable to an employer matching contribution charged eFunds (and
not reimbursed by Deluxe to eFunds), Deluxe shall promptly pay the
amount thereof to eFunds. If eFunds receives a distribution of any
excess contribution under the Deluxe 401(k) Plan that is attributable
to an employer matching contribution paid by Deluxe (and not charged
to eFunds), eFunds shall promptly pay the amount thereof to Deluxe. In
the event that Deluxe, eFunds or iDLX receives a distribution of any
excess employee contribution under any of their 401(k)
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plans, each shall promptly pay over such distribution to the employee
making the excess contribution.
3.8. Qualified 401(k) Plan Loans. Effective as of the Distribution Date, all
outstanding loans of eFunds and iDLX Employees (excluding Terminated Employees)
from the Deluxe 401(k) Plan shall be transferred to the eFunds 401(k) Plan
pursuant to Section 3.2. As of the Distribution Date, eFunds shall be solely
responsible for implementing its own payroll system and making payroll
deductions for eFunds Employees with loans outstanding from the eFunds 401(k)
Plan. As of the Distribution Date, iDLX shall continue making and be solely
responsible for payroll deductions under its existing payroll system for iDLX
Employees with loans outstanding from the eFunds 401(k) Plan.
3.9. Qualified Domestic Relations Orders. Effective as of the Distribution Date,
all QDROs pertaining to accounts of eFunds and iDLX Employees (excluding
Terminated Employees) under the Deluxe 401(k) Plan, the Deluxe PSP or the Deluxe
MPP shall be the sole responsibility of eFunds.
3.10. Minimum Required Distributions. With respect to any eFunds or iDLX
Employee who, as of the Distribution Date, is employed past the "required
beginning date" (as defined in section 401(a)(9) of the Code) as applied to such
Employee, eFunds shall be solely responsible for ensuring that distributions
continue to be made from such Employee's account under the eFunds 401(k) Plan in
accordance with the relevant method of distribution selected under the Deluxe
401(k) Plan, the Deluxe PSP or the Deluxe MPP, as the case may be. With respect
to any eFunds or iDLX Employee who has attained age seventy and one-half
(70-1/2) and has elected to defer distribution until retirement pursuant to
Section 1.5 of the Deluxe 401(k) Plan, Section 1.4 of the Deluxe PSP or Section
1.4 of the Deluxe MPP, as the case may be, eFunds shall be solely responsible
for ensuring that distributions commence as of such Employee's required
beginning date.
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ARTICLE IV
NON-QUALIFIED RETIREMENT PLANS
4.1. Establishment of Plans Discretionary. After the Distribution Date, eFunds
may, but shall not be required to, establish any supplemental benefit, deferred
compensation or other non-qualified retirement plan for the benefit of eFunds
Employees. eFunds shall determine the Material Features of any such
non-qualified retirement plans.
4.2. No Transfer of Liabilities. All liabilities for or relating to eFunds
Employees under the Deluxe Supplemental Benefit Plan and the Deluxe Deferred
Compensation Plan shall remain with each respective Deluxe Plan following the
Distribution Date.
4.3. Final Year Credits. Any and all pay credits for eFunds Employees under the
Deluxe Supplemental Benefit Plan or the Deluxe Deferred Compensation Plan,
respectively, for the plan year beginning January 1, 2000 shall be made based on
compensation earned by eFunds Employees from January 1, 2000 through, but not
after, the Distribution Date.
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ARTICLE V
HEALTH AND WELFARE PLANS
5.1. Establishment of Health and Welfare Plans. Except as provided otherwise in
this Article V, effective as of the Distribution Date or such other date(s) as
Deluxe and eFunds may mutually agree, eFunds shall adopt the eFunds Health and
Welfare Plans. The foregoing eFunds Plans as in effect as of the Distribution
Date shall be substantially identical in all Material Features to the comparable
Deluxe Plans as in effect on the Distribution Date.
5.2. No Transfer of VEBA Assets. All assets under the Deluxe VEBA shall remain
with the Deluxe VEBA.
5.3. Assumption of Health and Welfare Plan Liabilities.
(a) General. Except as specified otherwise in this Agreement, as of the
Distribution Date, all liabilities for or relating to eFunds Employees
under the Deluxe Health and Welfare Plans shall cease to be
liabilities of the Deluxe Health and Welfare Plans and shall be
assumed by the corresponding eFunds Health and Welfare Plans.
(b) Pending Treatments. Notwithstanding Section 5.3(a) above, all
treatments which have been pre-certified for or are being provided to
an eFunds Employee as of the Distribution Date shall be provided
without interruption under the appropriate Deluxe Health and Welfare
Plan until such treatment is concluded or discontinued pursuant to
applicable Plan rules and limitations, but eFunds shall continue to be
responsible for all liabilities relating to, arising out of, or
resulting from such on-going treatments as of the Distribution Date
and shall reimburse Deluxe or the Deluxe Health and Welfare Plan for
the costs of such treatment to the extent that the cost of such
treatments have been paid by Deluxe or the Deluxe Health and Welfare
Plan.
(c) Pending Commitments. eFunds shall assume, effective as of the
Distribution Date, all liabilities relating to, arising out of or
resulting from special commitments made by Deluxe before the
Distribution Date to provide benefits to or with respect to eFunds
Employees for care or services not covered by any Deluxe Health and
Welfare Plans, but only if such special commitments were made with
prior written consent of the eFunds Vice President, Human Resources or
his or her authorized delegate, to the extent such commitments are
made after the Distribution Date. Before the Distribution Date, Deluxe
shall transfer to eFunds copies of all documentation, and a complete
written description, of the terms of all such special commitments to
eFunds Employees.
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5.4. Claims for Health and Welfare Plans.
(a) Administration of Deluxe Claims. Deluxe shall administer claims
incurred under the Deluxe Health and Welfare Plans by eFunds Employees
before the Distribution Date but only to the extent that eFunds has
not, before the Distribution Date, established and assumed
administrative responsibility for a comparable Plan. Any determination
made or settlements entered into by Deluxe with respect to such claims
shall be final and binding. Deluxe shall transfer to eFunds, effective
as of the Distribution Date, responsibility for administering all
claims incurred by eFunds Employees before the Distribution Date
(including any claims that were administered by Deluxe as of, on, or
after the Distribution Date). eFunds shall administer such claims in a
substantially similar manner, using substantially similar methods and
procedures, as Deluxe used in administering such claims. eFunds shall
have sole and absolute discretionary authority to make any necessary
determinations with respect to such claims, including entering into
settlements with respect to such claims.
(b) Outsourcing of Claims by Deluxe. Deluxe shall have the right to engage
a third party administrator, vendor, or insurance company to
administer ("Outsource") claims incurred under the Deluxe Health and
Welfare Plans, including claims incurred by eFunds Employees before
the Distribution Date. Deluxe may determine the manner and extent of
such Outsourcing, including the selection of one or more third party
administrators, vendors, or insurance companies and the ability to
transfer the liability for such claims to one or more independent
insurance companies. Deluxe has Outsourced administration of several
Deluxe Health and Welfare Plans, as set forth in Section 5.6 and the
Schedule thereto. To the extent not otherwise set forth in Section 5.6
and the Schedule thereto, Deluxe shall promptly notify eFunds of its
intent to further Outsource such claims, and the material terms and
conditions of the Outsourcing, before the effective date thereof.
(c) Outsourcing of Claims by eFunds. Deluxe shall use its commercially
reasonable best efforts for and on behalf of eFunds to procure
Outsourcing arrangements with its third party administrators, vendors,
or insurance companies with the Material Features of each of Deluxe's
current Outsourcing arrangements. eFunds agrees, as of the
Distribution Date or such other date as eFunds and Deluxe may mutually
agree upon, to Outsource claims under the eFunds Health and Welfare
Plans pursuant to arrangements procured by Deluxe.
5.5. Post-Distribution Transitional Arrangements.
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(a) Continuance of Elections, Co-Payments and Maximum Benefits.
(i) As of the Distribution Date or such other date as Deluxe and
eFunds may mutually agree, eFunds shall cause the eFunds Health
and Welfare Plans to recognize and maintain all coverage and
contribution elections made by eFunds Employees under the Deluxe
Health and Welfare Plans and apply such elections under the
eFunds Health and Welfare Plans for the remainder of the period
or periods for which such elections are by their terms
applicable. The transfer or other movement of employment between
Deluxe to eFunds at any time upon or before the Distribution Date
shall neither constitute nor be treated as a "status change" or
termination of employment under the Deluxe Health and Welfare
Plans or the eFunds Health and Welfare Plans.
(ii) On and after the Distribution Date, eFunds shall cause the eFunds
Health Plans to recognize and give credit for (A) all amounts
applied to deductibles, out-of-pocket maximums, co-payments and
other applicable benefit coverage limits with respect to which
such expenses have been incurred by eFunds Employees under the
Deluxe Health Plans for the remainder of the calendar year in
which the Distribution Date occurs, and (B) all benefits paid to
eFunds Employees under the Deluxe Health Plans for purposes of
determining when such persons have reached their lifetime maximum
benefits under, the eFunds Health Plans.
(b) HCFA Administration. As of the Distribution Date, eFunds shall assume
all liabilities relating to, arising out of or resulting from claims
verified by Deluxe or eFunds under the HCFA data match reports that
relate to eFunds Employees.
5.6. Vendor Arrangements. Deluxe shall use its commercially reasonable best
efforts for and on behalf of eFunds to procure, effective as of the Distribution
Date or such other date as Deluxe and eFunds mutually agree upon: (a) third
party ASO Contracts with the Material Features of the ASO Contracts entered into
by Deluxe, as set forth in Schedule 2 (the "ASO Contracts"); (b) Insurance
Policies, with the Material Features of the Insurance Policies entered into by
Deluxe, as set forth in Schedule 3 (the "Insurance Policies"); and (c) HMO
Agreements with the Material Features of the HMO Agreements entered into by
Deluxe, as set forth in Schedule 4 (the "HMO Agreements"). In each case, eFunds
shall, as of the Distribution Date or such other date as Deluxe and eFunds
mutually agree upon, establish, adopt and/or implement such contracts,
agreements or arrangements.
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5.7. COBRA. Deluxe shall be responsible through the Distribution Date, for
compliance with the health care continuation coverage requirements of COBRA and
the Deluxe Health and Welfare Plans with respect to eFunds Employees and
qualified beneficiaries (as such term is defined under COBRA). eFunds shall be
responsible for providing Deluxe with all necessary employee change notices and
related information for covered dependents, spouses, qualified beneficiaries (as
such term is defined under COBRA), and alternate recipients pursuant to QMCSO,
in accordance with applicable Deluxe COBRA policies and procedures. Effective as
of the Distribution Date, eFunds shall be solely responsible for compliance with
the health care continuation coverage requirements of COBRA and the eFunds
Health and Welfare Plans for eFunds Employees and their qualified beneficiaries
(as such term is defined under COBRA who terminate their employment with eFunds
after the Distribution Date).
5.8. Dependent and Health Care Reimbursement Accounts. Effective as of the
Distribution Date or such other date as Deluxe and eFunds may agree, eFunds
shall adopt and offer to eFunds Employees a dependent and health care
reimbursement plan substantially identical in all material respects to the
comparable Deluxe plan. All liabilities for or relating to eFund Employees under
the Deluxe dependent and health care reimbursement accounts shall remain
liabilities of the Deluxe Corporation Employee Health and Reimbursement Plan for
the period of January 1, 2000 through, but not after, the Distribution Date.
5.9. Long-Term Disability. Effective as of the Distribution Date, eFunds
Employees shall no longer be covered under the Deluxe Corporation Employee Group
Long-Term Disability Plan; provided, however, that eFunds Employees on long-term
disability as of the Distribution Date shall continue to be covered under the
Deluxe Corporation Employee Group Long-Term Disability Plan. Notwithstanding
anything to the contrary in this Article V, eFunds shall be under no obligation
to establish or maintain a long-term disability program.
5.10. Deluxe Workers' Compensation Program.
(a) Administration of Claims.
(i) After the Distribution Date, Deluxe shall continue to be
responsible for the administration and payment of all claims that
(A) have occurred under the Deluxe WCP before the Distribution
Date by eFunds Employees, regardless of whether or not such
claims are reported before the Distribution Date, and (B) have
been historically administered by Deluxe or its third party
administrator.
(ii) Effective as of the Distribution Date or such other date as
Deluxe and eFunds may mutually agree, eFunds shall be responsible
for the administration and payment of all claims that occur on or
after the Distribution Date by eFunds Employees.
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(iii) Each party shall fully cooperate with the other with respect to
the administration and reporting of claims for which each party
is responsible. Either party shall have the right to "Outsource"
(i.e., transfer the administration of claims to a third party
administrator or cause claims to be paid through insurance) any
and all claims for which it is administratively responsible.
(b) Insurance Policy.
(i) Effective as of the Distribution Date, Deluxe shall use its
commercially reasonable best efforts to procure workers
compensation insurance policies on behalf of eFunds from the
issuing insurance companies or different insurance companies
which are substantially identical in all Material Features to the
policies previously maintained by Deluxe; provided that the
retention under such eFunds policies shall be as determined by
eFunds.
(ii) Deluxe shall use its commercially reasonable best efforts to
maintain the premium rates for all workers' compensation
insurance policies for both Deluxe and eFunds in effect for
periods through the Distribution Date to be based on the
aggregate number of employees covered under the workers'
compensation insurance policies of both Deluxe and eFunds. Any
premiums due under the separate workers' compensation insurance
issued to eFunds shall be payable by eFunds.
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ARTICLE VI
EQUITY AND OTHER COMPENSATION
6.1. Deluxe Stock Purchase Plan. Effective as of the Distribution Date, eFunds
Employees shall be treated as terminated employees under the Deluxe Corporation
2000 Employee Stock Purchase Plan, and shall no longer be eligible to
participate in such plan. eFunds shall be under no obligation to establish or
maintain an employee stock purchase plan after the Distribution Date.
6.2. Deluxe Option Plans. Effective immediately prior to the Distribution,
Deluxe shall make the applicable adjustments to all Deluxe Options outstanding
under the Deluxe Option Plans in accordance with the stock option conversion
equation set forth in Exhibit A to the Conversion Plan, and eFunds shall grant
all eFunds Options in accordance with the Conversion Plan as a result of such
adjustments and take such other actions to effectuate and administer the
Conversion Plan, including without limitation the reservation of shares to be
issued upon exercise of the eFunds Options and the filing of any applicable
listing notices or applications relating to the shares. Prior to the
Distribution, eFunds shall register on a Form S-8 Registration Statement filed
with the Securities and Exchange Commission all shares which may be issued
pursuant to the Conversion Plan. Following the grant of the eFunds Options under
the Conversion Plan, eFunds shall deliver to each person receiving an eFunds
Option a prospectus and such other documents that are required to be delivered
pursuant to the applicable rules and regulations under the Securities Act of
1933, as amended.
6.3. Administrative Matters. Deluxe and eFunds shall adopt such procedures and
information sharing practices necessary or appropriate to permit Deluxe to
administer and maintain the Deluxe Option Plans and eFunds to administer and
maintain the Conversion Plan (including, for example, timely informing the other
of any termination of employment that affects the exercise period of a Deluxe
Option or eFunds Option). In addition, eFunds shall deliver to eFunds Employees
any prospectuses, notices or other documents provided by Deluxe relating to the
Deluxe Option Plans and Deluxe shall deliver to its employees any prospectuses,
notices or other documents provided by eFunds relating to the Conversion Plan.
6.4. Fees and Expenses. Deluxe shall be responsible for all fees and expenses
relating to the Deluxe Option Plans and eFunds shall be responsible for all fees
and expenses relating to the Conversion Plan.
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ARTICLE VII
FRINGE AND OTHER BENEFITS
7.1. Auto/HomeownerInsurance Program. Effective as of the Distribution Date,
eFunds Employees shall no longer be eligible to participate in the Deluxe
auto/homeowner insurance program. Deluxe shall offer eFunds Employees
participating in the program as of the Distribution Date the option to apply for
conversion to an individual policy. After the Distribution Date, eFunds shall be
solely responsible for implementing and maintaining auto/homeowner insurance or
similar programs for the eFunds Group. eFunds shall reimburse Deluxe for any and
all actual costs and expenses incurred by Deluxe related to its participation in
the Deluxe auto/homeowner insurance program and Deluxe's procurement of any and
all contracts and/or arrangements on behalf of eFunds and eFunds Employees.
7.2. Adoption Assistance. Effective as of the Distribution Date, eFunds
Employees shall no longer be eligible to participate in the Deluxe adoption
assistance program. eFunds shall be under no obligation to establish or maintain
an adoption assistance program after the Distribution Date.
7.3. Employee Student Loan Program. Effective as of the Distribution Date,
eFunds Employees shall no longer be eligible to participate in the Deluxe
student loan program. eFunds shall be under no obligation to establish or
maintain a student loan program after the Distribution Date.
7.4. Other Deluxe Benefit Programs. To the extent that Deluxe maintains,
sponsors or provides other benefits to eFunds Employees, then eFunds and Deluxe
shall agree to make commercially reasonable best efforts to mutually agree on
whether, when, and on what terms any member of the eFunds Group shall maintain,
sponsor or offer such benefits.
7.5. eFunds Benefit Programs. Except as provided otherwise in this Agreement, to
the extent that eFunds maintains, sponsors or provides fringe and other benefits
to eFunds Employees, including but not limited to, any short-term disability
program, tuition assistance program, business travel accident insurance, and
vacation, holiday and sick pay programs, then eFunds shall continue to have sole
responsibility with respect to such programs after the Distribution Date.
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ARTICLE VIII
ADMINISTRATIVE MATTERS
8.1. Reporting and Disclosure Communications to Participants. While eFunds is a
Participating Employer in the Deluxe Plans, eFunds shall take, or cause to be
taken, all actions necessary or appropriate to facilitate the distribution of
all Deluxe Plan-related communications and materials to employees, participants
and beneficiaries, including (without limitation) summary plan descriptions and
related summaries of material modification(s), summary annual reports,
investment information, prospectuses, notices and enrollment material for the
Deluxe Plans and eFunds Plans. eFunds shall reimburse Deluxe for any and all
actual costs and expenses relating to the copies of all such documents provided
to eFunds, except to the extent such costs are otherwise addressed in this
Agreement or pursuant to an Ancillary Agreement. eFunds shall assist, and eFunds
shall cause each other applicable member of the eFunds Group to assist, Deluxe
in complying with all reporting and disclosure requirements of ERISA, including
the preparation of Form Series 5500 annual reports for the Deluxe Plans, where
applicable.
8.2. Audits Regarding Vendor Contracts. From the period beginning as of the
Distribution Date and ending on such date as Deluxe and eFunds may mutually
agree, Deluxe and eFunds and their duly authorized representatives shall have
the right to conduct joint audits with respect to any vendor contracts that
relate to both the Deluxe Health and Welfare Plans and the eFunds Health and
Welfare Plans. The scope of such audits shall encompass the review of all
correspondence, account records, claim forms, canceled drafts (unless retained
by the bank), provider bills, medical records submitted with claims, billing
corrections, vendor's internal corrections of previous errors and any other
documents or instruments relating to the services performed by the vendor under
the applicable vendor contracts. Deluxe and eFunds shall agree on the
performance standards, audit methodology, auditing policy and quality measures,
reporting requirements, and the manner in which costs incurred in connection
with such audits will be shared.
8.3. Employee Identification Numbers. Until the Distribution Date, Deluxe and
eFunds shall not change any employee identification numbers assigned by Deluxe.
Deluxe and eFunds mutually agree to establish a policy pursuant to which
employee identification numbers assigned to either employees of Deluxe or eFunds
shall not be duplicated between Deluxe and eFunds.
8.4. Beneficiary Designations. All life insurance beneficiary designations made
by eFunds Employees for the Deluxe Plans shall be transferred to and be in full
force and effect under the corresponding eFunds Plans until such beneficiary
designations are replaced or revoked by the eFunds Employee who made the
beneficiary designation; provided, however, that any eFunds Plan may provide
otherwise. All beneficiary designations made by eFunds Employees and iDLX
Employees under the Deluxe 401(k) Plan, the Deluxe PSP or the Deluxe MPP shall
be void as of the Distribution Date. eFunds and iDLX Employees with accounts
transferred to the eFunds 401(k) Plan under Article III shall designate new
beneficiaries pursuant to the terms of the eFunds 401(k) Plan. If
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the event that an eFunds or iDLX Employee fails to designate a new beneficiary,
the employee's account shall be payable pursuant to the automatic beneficiary
rules under the eFunds 401(k) Plan.
8.5. Requests for IRS and DOL Opinions. Deluxe and eFunds shall make such
applications to regulatory agencies, including the IRS and DOL, as may be
necessary or appropriate. eFunds and Deluxe shall cooperate fully with one
another on any issue relating to the transactions contemplated by this Agreement
for which Deluxe and/or eFunds elects to seek a determination letter or private
letter ruling from the IRS or an advisory opinion from the DOL. eFunds shall
reimburse Deluxe for all out-of-pocket costs and expenses incurred by Deluxe in
connection with any such applications made on behalf of eFunds.
8.6. Fiduciary Matters. Deluxe and eFunds each acknowledge that actions
contemplated to be taken pursuant to this Agreement may be subject to fiduciary
duties or standards of conduct under ERISA or other applicable law, and no party
shall be deemed to be in violation of this Agreement if such party fails to
comply with any provisions hereof based upon such party's good faith
determination that to do so would violate such a fiduciary duty or standard.
8.7. Consent of Third Parties. If any provision of this Agreement is dependent
on the consent of any third party (such as a vendor) and such consent is
withheld, Deluxe and eFunds shall use their commercially reasonable best efforts
to implement the applicable provisions of this Agreement. If any provision of
this Agreement cannot be implemented due to the failure of such third party to
consent, Deluxe and eFunds shall negotiate in good faith to implement the
provision in a mutually satisfactory manner.
8.8. World Wide Web. Through the Distribution Date or such other date as eFunds
and Deluxe may mutually agree, Deluxe shall make its internet site available to
eFunds Employees and iDLX Employees on substantially the same terms as such
internet site is made available to Deluxe employees. eFunds shall reimburse
Deluxe for any and all actual costs and expenses related thereto. eFunds shall
reimburse Deluxe for any and all costs and expenses related thereto.
8.9. Tax Cooperation. In connection with the interpretation and administration
of this Agreement, Deluxe and eFunds shall take into account the agreements and
policies established pursuant to the Distribution Agreement and the parties'
intent to qualify the Distribution as a tax-free reorganization under the Code.
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ARTICLE IX
EMPLOYMENT-RELATED MATTERS
9.1. Terms of eFunds Employment. Except as otherwise provided in this Agreement,
eFunds shall have sole responsibility for determining all basic terms and
conditions of employment for eFunds Employees and iDLX Employees including,
without limitation, their pay and benefits in the aggregate. eFunds shall be
responsible, in its discretion, for securing the agreement of eFunds Employees
and iDLX Employees to any new agreements regarding confidential information and
proprietary developments and establishing all other terms and conditions of
employment. In addition, nothing in this Agreement or the Distribution Agreement
or any Ancillary Agreement should be construed to change the at-will status of
any of the employees of the Deluxe Group or the eFunds Group or iDLX.
9.2. Human Resources Data Support Systems. Deluxe shall provide human resources
data support for eFunds Employees and iDLX Employees for a period mutually
agreed upon between Deluxe and eFunds. Deluxe and eFunds each reserves the right
to discontinue eFunds' access to any Deluxe human resources data support systems
with reasonable notice. eFunds agrees to fully reimburse Deluxe for any and all
associated actual costs and expenses relating to its use of the Deluxe human
resources data support systems.
9.3. Confidentiality and Proprietary Information. No provision of this Agreement
or the Distribution Agreement or any Ancillary Agreement shall be deemed to
release any individual for any violation of the Deluxe, eFunds or iDLX
non-competition guideline or any agreement or policy pertaining to confidential
or proprietary information of any member of the Deluxe Group, eFunds Group or
iDLX, as the case may be, or otherwise relieve any individual of his or her
obligations under such non-competition guideline, agreement, or policy.
9.4. Personnel and Pay Records. For the period beginning on the Distribution
Date and ending on such date as Deluxe and eFunds may mutually agree, Deluxe
shall make reasonably available to eFunds, subject to applicable laws on
confidentiality and data protection, all current and historic forms, documents
or information, no matter in what format stored, relating to pre-Distribution
Date personnel, medical records, and payroll information for eFunds Employees
and iDLX Employees. Such forms, documents or information may include, but is not
limited to: (a) information regarding an eFunds Employee's or iDLX Employee's
ranking or promotions; (b) the existence and nature of garnishment orders or
other judicial or administrative actions or orders affecting an employee's or
service provider's compensation; and (c) performance evaluations. eFunds shall
fully reimburse Deluxe for the cost associated with such availability and
access.
9.5. Non-Termination of Employment; No Third-Party Beneficiaries. No provision
of this Agreement or the Distribution Agreement or any Ancillary Agreement shall
be construed to create any right, or accelerate entitlement, to any compensation
or benefit whatsoever on the part of any eFunds Employee, iDLX Employee, Deluxe
Employee or other future, present or former employee of
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eFunds, iDLX or Deluxe under any eFunds Plan, iDLX Plan, Deluxe Plan or
otherwise. Without limiting the generality of the foregoing, except as provided
in this Agreement or under any agreement relating to a Deluxe Option or eFunds
Option in accordance with the terms of the Conversion Plan, neither the
Distribution nor the termination of the Participating Employer status of eFunds
or any member of the eFunds Group or iDLX shall cause any employee to be deemed
to have incurred a termination of employment.
9.6. Employment Litigation.
(a) Claims to be Transferred to eFunds. As of the date of this Agreement,
the legal responsibility for claims identified in Schedule 5(a) filed
by or relating to eFunds Employees shall be transferred in their
entirety from Deluxe to eFunds. Thereafter, eFunds shall assume the
defense of these claims. eFunds hereby indemnifies, defends and holds
harmless Deluxe against these claims. eFunds shall reimburse Deluxe
for any reasonable attorneys' fees and other out-of-pocket expenses
reasonably incurred by Deluxe subsequent to the date of this Agreement
in connection with investigating and/or defending against any such
claim and after the Distribution Date a reasonable reimbursement for
any services provided by members of the Deluxe legal staff.
(b) Claims to be Jointly Defended by Deluxe and eFunds. Deluxe and eFunds
shall jointly defend the claims identified in Schedule 5(b); provided,
however, that (i) eFunds shall indemnify and hold harmless Deluxe
against any judgments entered against Deluxe on the claims identified
in Schedule 5(b) or settlements of the claims identified in Schedule
5(b), provided, however, that Deluxe shall not compromise or settle
any such claim regarding eFunds Employees without the prior consent of
eFunds, which such consent shall not be unreasonably withheld or
delayed, and provided further, however, that such compromise or
settlement shall be without any admission of fault or liability and
shall release eFunds in full from any further liability with respect
to such claim; and (ii) eFunds and Deluxe shall share pro rata the
attorneys' fees and all other expenses reasonably incurred subsequent
to the date of this Agreement in connection with defending against the
unemployment claims identified in Schedule 5(b) based on the number of
employees of each organization that are claimants in the litigation.
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<PAGE>
(c) Unscheduled Claims. After the date of this Agreement, eFunds and
Deluxe shall supplement Schedules 9.6(a) and 9.6(b) for additional
employment-related claims which will be subject to the provisions of
such Sections. eFunds shall have the sole responsibility for all
employment-related claims regarding eFunds Employees and iDLX
Employees that exist, or come into existence, on or after the
Distribution Date arising out of or relating to their employment in
the eFunds Group or iDLX.
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<PAGE>
ARTICLE X
GENERAL PROVISIONS
10.1. Effect if Distribution Does Not Occur. Subject to Section 10.8, if the
Distribution does not occur, then all actions and events that are, under this
Agreement, to be taken or occur effective as of the Distribution Date, or
otherwise in connection with the Distribution, shall not be taken or occur
except to the extent specifically agreed by eFunds and Deluxe.
10.2. Relationship of Parties. Nothing in this Agreement shall be deemed or
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, the
understanding and agreement being that no provision contained herein, and no act
of the parties, shall be deemed to create any relationship between the parties
other than the relationship set forth herein.
10.3. Affiliates. Each of Deluxe and eFunds shall cause to be performed, and
hereby guarantee the performance of, any and all actions of the Deluxe Group or
the eFunds Group and iDLX, respectively.
10.4. Incorporation of Certain Distribution Agreement Provisions. The following
provisions of the Distribution Agreement are hereby incorporated herein by
reference, and unless otherwise expressly specified herein, such provisions
shall apply as if fully set forth herein: Section 9.01 (Limitation of
Liability); Section 9.02 (Further Assurances); Section 9.03 (Waiver); Section
9.04 (Remedies); Section 9.05 (Performance); Section 9.06 (References;
Construction); excepting the last sentence thereof, and Section 9.08 (Successors
and Assignment).
10.5. Governing Law. To the extent not preempted by applicable federal law, this
Agreement shall be governed by, construed and interpreted in accordance with the
laws of the State of Minnesota, irrespective of the choice of law principles of
the State of Minnesota, as to all matters, including matters of validity,
construction, effect, performance and remedies.
10.6. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to either party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible and in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the fullest possible extent.
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<PAGE>
10.7. Amendment. eFunds and Deluxe, acting through their respective Vice
Presidents of Human Resources, may mutually agree to amend the provisions of
this Agreement at any time or times, either prospectively or retroactively, to
such extent and in such manner as they mutually deem advisable (subject to each
of their authority and procedures required to amend Plans).
10.8. Termination. This Agreement may be terminated at any time prior to the
Distribution Date by and in the sole discretion of Deluxe without the approval
of eFunds. In the event of termination pursuant to this Section, no party shall
have any liability to the other party hereunder.
10.9. Conflict. In the event of any conflict between the provisions of this
Agreement and the Distribution Agreement, any Ancillary Agreement, or Plan, the
provisions of this Agreement shall control.
10.10. Counterparts. This Agreement may be executed in two or more counterparts
each of which shall be deemed to be an original, but all of which together shall
constitute but one and the same Agreement.
IN WITNESS WHEREOF, each of the parties have caused this Employee Matters
Agreement to be executed on its behalf by its officers thereunto duly authorized
on the day and year first above written.
DELUXE CORPORATION
By: _____________________________________
Name: ___________________________________
Title: __________________________________
eFUNDS CORPORATION
By: _____________________________________
Name: ___________________________________
Title: __________________________________
(Signature Page to Employee Matters Agreement)
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<PAGE>
EXHIBIT 10.6
SUBLEASE
--------
THIS SUBLEASE ("Sublease") is made as of May , 2000, by DELUXE FINANCIAL
SERVICES, INC., a Minnesota corporation ("Sublandlord") and eFUNDS CORPORATION,
a Delaware corporation ("Subtenant").
BACKGROUND:
A. Shoreview Associates LLC, a Delaware limited liability company, as
Landlord ("Prime Landlord"), and Sublandlord, as Tenant, have entered into that
certain Lease dated as of September 30, 1999, attached hereto as Exhibit A (the
"Prime Lease"), regarding certain premises (the "Prime Lease Premises") in the
building known as Shoreview Corporate Center, 1050 and 1080 West County Road F,
Shoreview, Minnesota, all as described in the Prime Lease.
B. Sublandlord and Subtenant have agreed to enter into a sublease as to the
portion of the Prime Lease Premises shown on the attached Exhibit B, containing
approximately 45,956 rentable square feet (as defined in the Standard Method for
Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-1996) in the Building,
together with the non-exclusive rights to use the Common Area (collectively, the
"Sublease Premises"), upon the terms and conditions set forth below.
C. All capitalized terms used in this Sublease but not defined shall have
the meanings ascribed to them in the Prime Lease.
AGREEMENT:
1. Sublease. Subtenant agrees to sublease from Sublandlord, and Sublandlord
agrees to sublease to Subtenant, the Sublease Premises upon the terms and
conditions set forth below.
2. Sublease Term. The term of this Sublease as the same may be extended
("Sublease Term") will commence on the date of the initial offering of shares of
Subtenant to the public (the "Commencement Date") and will expire on September
30, 2001. Subtenant has two extension options to extend the Sublease Term for
six months each, if Subtenant notifies Sublandlord in writing at least six
months prior to the expiration of the Sublease Term, as the same may have been
previously extended. Subtenant may not exercise its second extension option for
the second extension term if it has not exercised its first extension option for
the first extension term. If Subtenant exercises any of its extension options,
this Sublease will be in full force and effect during the Sublease Term, as so
extended, subject to all of the terms and conditions of this Sublease.
3. Use. Subtenant shall use the Sublease Premises for any use permitted by
the Prime Lease, and for no other purpose.
<PAGE>
4. "As Is" Sublease; Alterations. Subtenant agrees to accept the Sublease
Premises in "as is" condition, "with all faults". Subtenant shall be responsible
for the installation and cost of any and all improvements, alterations or other
work required on or to the Sublease Premises (excluding any allocable portion or
right to the use of the Common Area included within the definition of "Sublease
Premises") required to comply with the Americans with Disabilities Act (the
"ADA") and all other applicable laws, rules and regulations (collectively, the
"Laws"). Sublandlord shall be responsible for the installation and cost of any
and all improvements, alterations or other work required on or to the Common
Area required to comply with the Laws, except to the extent modifications to the
Common Area are required under the ADA to accommodate one or more of Subtenant's
actual employees, the cost of which shall be borne by Subtenant. Subtenant shall
make or install no other improvements, alterations or work on or to the Sublease
Premises or on or to the property and/or Building of which the Sublease Premises
are a part without the prior written consent of Sublandlord (which may not be
unreasonably withheld by Sublandlord, provided Prime Landlord consents thereto).
5. Rent. Subtenant will pay monthly gross rent (the "Rent") for the
Sublease Premises in advance, without abatement, deduction or setoff, on the
first day of the first month following the Commencement Date and on the first
day of each calendar month thereafter during the Sublease Term, in the amount of
$57,445.00 per month (i.e. $15.00 per rentable square foot per year). The Rent
is a "gross" rent inclusive of all operating expenses and Subtenant shall have
no further monetary obligations to Sublandlord under this Sublease, including,
without limitation, insurance, real estate taxes and special assessments, or
operating expenses of the Building and/or the Common Area, or costs for
utilities, except as specifically provided herein.
6. Parking. Subtenant may, during the Sublease Term, use up to 133 of the
unreserved parking spaces located in the Common Area on a non-exclusive basis,
upon the same terms and conditions as are set forth in the Prime Lease.
Subtenant may use the designated visitors parking spaces located on the north
side of the facility for tenant's visitors, along with all other tenants of the
facility, on a non-exclusive basis.
7. Performance of Prime Lease. Except as otherwise set forth in this
Sublease, for the duration of the Sublease Term, Subtenant assumes and agrees to
keep, obey and perform all of the terms, covenants and conditions of Sublandlord
as tenant under the Prime Lease with respect to the Sublease Premises.
Sublandlord agrees to pay all rent and other expenses required to be paid by it
under the Prime Lease, including utilities.
8. Subtenant's Rights as to Prime Landlord. Sublandlord shall not be liable
for any nonperformance of or noncompliance with or breach or failure to observe
any term, covenant or condition of the Prime Lease upon Prime Landlord's part to
be kept, observed, performed or complied with, or for any delay or interruption
in Prime Landlord's performing its obligations thereunder, provided that
Sublandlord shall cooperate with Subtenant in assisting Subtenant in enforcing
the terms of the Prime Lease, to the extent provided below. Sublandlord
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<PAGE>
hereby assigns unto Subtenant, for so long as this Sublease shall be in force
and effect, any and all assignable rights and causes of action which Sublandlord
may have against Prime Landlord with respect to the Sublease Premises due to
defaults by Prime Landlord under the Prime Lease. Sublandlord agrees to
cooperate with and join with Subtenant in any claims or suits brought by
Subtenant against Prime Landlord under the Prime Lease, provided that such
participation shall be without cost or expense to Sublandlord.
9. Insurance; Waivers. Subtenant will, during the Sublease Term,
continuously maintain commercial general liability insurance to the same extent
as required of Sublandlord as tenant under the Prime Lease, which insurance
policy shall name Sublandlord as an additional insured party, and a certificate
thereof acceptable to Sublandlord shall be delivered to Sublandlord prior to the
delivery of the Sublease Premises to Subtenant. Subtenant hereby agrees to
indemnify and hold harmless Sublandlord from, and shall reimburse Sublandlord
for, all costs and expenses, including reasonable attorneys' fees, incurred by
Sublandlord in connection with the defense of all claims and demands of third
persons, including but not limited to those for death, personal injuries, or
property damage, arising out of any default of Subtenant in performing or
observing any term, covenant, condition or provision of this Sublease, or out of
the use or occupancy of the Sublease Premises by Subtenant, or out of any of the
acts or omissions of the Subtenant, its agents, representatives, employees,
customers, guests, invitees or other persons who are doing business with
Subtenant or who are at the Sublease Premises with Subtenant's consent.
Notwithstanding anything contained in this Sublease to the contrary, Sublandlord
and Subtenant release each other and the other's agents and employees from any
liability for loss or damage by fire or other casualty coverable by the
Insurance Services Office Special Cause of Loss Form or a standard form of "all
risks" insurance policy, whether or not the loss or damage resulted from the
negligence of the other, its agents or employees. Each party will use reasonable
efforts to obtain policies of insurance which provide that this release will not
adversely affect the rights of the insureds under the policies. The releases in
this Section 9 will be effective whether or not the loss was actually covered by
insurance.
10. Assignment and Subletting. Except as provided in Section 18 below and
provided Prime Landlord consents thereto, Subtenant may, with the prior written
consent of Sublandlord (which consent may not be unreasonably withheld by
Sublandlord), assign or pledge this Sublease, sublet all or any part of the
Sublease Premises. Subtenant may not allow any liens to be placed on this
Sublease or the Sublease Premises, or suffer this Sublease or the Sublease
Premises or any portion thereof to be attached or taken upon execution.
Notwithstanding the foregoing, no consent shall be required from Sublandlord or
Prime Landlord for an assignment or sublease to a party controlling, controlled
by or under common control with Subtenant.
11. Expiration. Except as provided in Sections 17 and 18 below, this
Sublease shall expire and Subtenant's obligations will terminate at the end of
the Sublease Term hereof. Subtenant will peacefully and quietly vacate and
surrender the Sublease Premises to Sublandlord at the expiration of the Sublease
Term, in the same condition as on the
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<PAGE>
Commencement Date, reasonable wear and tear and damage by casualty excepted. The
existence of this Sublease is dependent and conditioned upon the continued
existence of the Prime Lease, and in the event of the termination of the Prime
Lease, this Sublease automatically shall be terminated; provided, however, that
this provision shall not be deemed to release Sublandlord of liability if the
Prime Lease is cancelled or terminated due to a default by Sublandlord as Tenant
under the Prime Lease, which default did not result, in whole or in part, from a
default by Subtenant under this Sublease. Sublandlord agrees not to amend, alter
or modify any of the provisions of the Prime Lease affecting Subtenant, or to
surrender the Prime Lease, without Subtenant's written consent, which consent
will not be unreasonably withheld or delayed. Sublandlord shall have no
liability to Subtenant due to the termination of the Prime Lease by reason of
any default by Subtenant under this Sublease, or by reason of any condemnation
or destruction of the Prime Lease Premises.
12. Default. If Subtenant defaults in its obligations under this Sublease,
Sublandlord shall have all of the same rights and remedies against Subtenant as
would be available to Prime Landlord against Sublandlord if Sublandlord were in
default under the Prime Lease, as fully as if such rights and remedies were set
forth in this Sublease. If Sublandlord defaults in its obligations under this
Sublease, Subtenant may pursue all remedies available at law or in equity.
13. Notices. Any notice or demand permitted or required hereunder shall be
deemed given or made if, and shall not be deemed to have been given or made
unless, it is in writing and deposited in the United States certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to Sublandlord: Real Estate Department
Attn: Jim Peters
Deluxe PPS
1005 Gramsie Road
Shoreview, MN 55126
Phone: 651.483.7948
Fax: 651.481.4345
Legal Department
Attn: Sharon Maylath
Deluxe PPS
3680 North Victoria Street
Shoreview, MN 55126
Phone: 651.483.7320
Fax: 651.787.2749
-4-
<PAGE>
If to Subtenant: Real Estate Department
Attn: Kath Steuer
eFunds Corporation
400 West Deluxe Parkway
Glendale, WI 53212-0536
Phone: 414.341.5800
Fax: 414.341.5075
Legal Department
Anita Jansson
eFunds Corporation
400 West Deluxe Parkway
Glendale, WI 53212-0536
Phone: 414.341.5656
Fax: 414.341.5075
The foregoing addresses may be changed from time to time by notice as above
provided, which change shall be effective 10 days after notice is given.
14. Entire Agreement. This Sublease contains the entire agreement between
Sublandlord and Subtenant regarding the Sublease Premises. Subtenant agrees that
it has not relied on any statement, representation or warranty of any person
except as set out in this Sublease. This Sublease may be modified only by an
agreement in writing signed by Sublandlord and Subtenant. No surrender of the
Sublease Premises, or of the remainder of the Sublease Term, will be valid
unless accepted by Sublandlord in writing.
15. Successors and Assigns. All provisions of this Sublease will be binding
on and for the benefit of the successors and assigns of Sublandlord and
Subtenant, except that no person or entity holding under or through Subtenant in
violation of any provision of this Sublease will have any right or interest in
this Sublease or the Sublease Premises.
16. Commissions. There are no commissions due regarding this Sublease.
Sublandlord and Subtenant shall each indemnify and hold the other harmless from
and against any claims, losses, costs or liability arising from any other
parties who may claim a brokerage commission as a result of the indemnifying
party's actions or agreements in connection with this Sublease.
17. Early Termination. This Lease may be terminated by Tenant prior to
September 30, 2001 upon at least six (6) month's prior written notice from
Tenant to Landlord specifying the desired termination date, which shall be the
last day of a calendar month.
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<PAGE>
18. Subtenant's Continuing Monetary Obligation. Notwithstanding anything
contained in this Sublease to the contrary, as additional consideration for this
Sublease, Subtenant agrees to pay to Sublandlord, on or before the first day of
each month, the amount of $28,722.50 per calendar month ($7.50 per square foot
per year) ("Subtenant's Share") for the period beginning immediately after the
expiration of the Sublease Term or earlier termination date pursuant to Section
17 above, through and including September 30, 2006, until Sublandlord and
Subtenant find a Replacement (as defined below), at which time Subtenant's
liability under this Section 18 shall be partially or totally eliminated as
provided below. On the earlier of the date 30 days after Subtenant gives notice
of early termination under Section 17 above or the date 180 days prior to the
expiration of the Sublease Term, as the same may have been extended, Sublandlord
and Subtenant shall retain a real estate broker and agree to work in good faith
to find a suitable replacement subtenant or subtenants ("Replacement," whether
one or more) as soon as possible thereafter for a term beginning as soon as
possible after the early termination date or the expiration of the Sublease
Term, as the same may have been extended, as applicable, and ending September
30, 2006. If a Replacement, which must be approved by both Sublandlord and
Subtenant, which approval shall not be unreasonably withheld, is found:
(a) whose sublease gross rental obligation equals or exceeds
$57,445.00 per month, then Subtenant shall pay Subtenant's Share until the
date the Replacement begins paying rent, and any excess shall first be
applied to reimburse Sublandlord and Subtenant for the fees paid to the
real estate broker retained to find the Replacement; or
(b) whose sublease gross rental obligation is less than $57,445.00 per
month, then Subtenant shall pay Subtenant's Share until the date the
Replacement begins paying rent, and thereafter shall pay, on or before the
first day of each month, an amount equal to one-half the difference between
$57,445.00 per month and the gross rent owed by the Replacement each month
for the period ending September 30, 2006.
All fees owed to any agreed upon real estate broker shall be evenly shared
by Sublandlord and Subtenant. Subtenant's obligations under this Section 18
shall cease on the same day that Sublandlord's obligations under the Prime Lease
cease, if Sublandlord's obligations cease prior to September 30, 2006.
19. Signage. Subtenant shall be allowed to place its own signage on the
Prime Lease Premises in accordance with the provisions of the Prime Lease.
20. Estoppel Certificates. Within 20 days after written request from either
party, the other party will execute, acknowledge and deliver a document
furnished by the requesting party, which statement may be relied upon by the
requesting party and third parties, stating (a) that this Sublease is unmodified
and in full force and effect (or if modified that this
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<PAGE>
Sublease is in full force and effect as modified and stating the modifications),
(b) the dates to which Rent has been paid, (c) the current Rent, (d) the dates
on which the Term begins and ends, (e) the existence of any unexpired extension
options, (f) that Subtenant has accepted the Sublease Premises and is in
possession, (g) that neither Sublandlord nor Subtenant is in default under this
Sublease, or specifying any such default, and (h) such other and further
information as may be reasonably requested.
21. Telecommunication Service. Voice telecommunication services shall be
provided by Sublandlord to Subtenant during the Term, and included in the Rent,
as specifically set forth on the attached Exhibit C, and in accordance with the
obligations set forth therein.
EXECUTION:
Sublandlord and Subtenant have executed this Sublease as of the date first
stated above.
Sublandlord
DELUXE FINANCIAL SERVICES, INC.
By________________________________
Its______________________________
Subtenant
eFUNDS CORPORATION
By________________________________
Its______________________________
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<PAGE>
EXHIBIT 10.7
LEASE
eFUNDS CORPORATION
(Landlord)
DELUXE FINANCIAL SERVICES, INC.
(Tenant)
3050 South 35th Street, Suite D
Phoenix, AZ 85034
(Location)
Execution Date:
May , 2000
<PAGE>
TABLE OF CONTENTS
Page
----
LEASE.....................................................................1
ARTICLE I. BASIC LEASE PROVISIONS AND EXHIBITS..............................1
1.1. Basic Lease Provisions..............................................1
Landlord: Attn: Kath Steuer...........................................1
1.2 Exhibits............................................................2
ARTICLE II. DEFINITIONS.....................................................2
2.1. Definitions.........................................................2
ARTICLE III. TERM...........................................................5
3.1. Initial Term........................................................5
3.2. Extension Options...................................................5
3.3 Early Termination Option...........................................5
ARTICLE IV. MONETARY OBLIGATIONS............................................5
4.1. Monthly Gross Rent..................................................5
4.2. Taxes, Insurance, Operating Expenses and Utilities..................5
ARTICLE V. USE; QUIET ENJOYMENT.............................................6
5.1. Use.................................................................6
5.2. Quiet Enjoyment.....................................................6
ARTICLE VI. OPERATIONAL MATTERS.............................................6
6.1. Operation, Repairs and Maintenance..................................6
6.2. Common Areas........................................................6
6.3. Cafeteria...........................................................6
6.4. No Waste; Maintenance of Tenant's Personal Property.................7
6.5. Compliance with Laws................................................7
6.6. Signs...............................................................7
6.7. Alterations.........................................................7
6.8. Utilities...........................................................7
6.9. Entry by Landlord...................................................8
6.10. Communication Equipment.............................................8
6.11. Interruption of Business............................................8
6.12. Parking.............................................................8
ARTICLE VII. TRANSACTIONS...................................................8
7.1. Assignment and Subletting...........................................8
7.2. Subordination and Nondisturbance....................................9
7.3. Estoppel Certificates...............................................9
ARTICLE VIII. RISK SHIFTING.................................................9
8.1. Indemnification.....................................................9
8.2. Liability Insurance.................................................9
8.3. Landlord's Property Insurance......................................10
8.4. Tenant's Property Insurance........................................10
8.5. Waiver of Insurable Claims.........................................10
ARTICLE IX. CASUALTY.......................................................11
9.1. Damage or Destruction..............................................11
ARTICLE X. EMINENT DOMAIN..................................................11
10.1. Eminent Domain.....................................................11
ARTICLE XI. DEFAULTS.......................................................12
11.1. Tenant Defaults....................................................12
11.2. Landlord Defaults..................................................12
<PAGE>
ARTICLE XII. MISCELLANEOUS.................................................13
12.1. Waiver of Lease Provisions.........................................13
12.2. Surrender..........................................................13
12.3. Holding Over.......................................................13
12.4. Notices............................................................13
12.5. Governing Law......................................................14
12.6. Entire Agreement...................................................14
12.7. Successors and Assigns.............................................14
12.8. Consent Not Unreasonably Withheld..................................14
12.9. Short Form Lease...................................................14
12.10.Attorneys' Fees....................................................14
EXHIBITS
Exhibit A Legal Description of the Premises
Exhibit B Site Plan Showing the Location of the Premises, the Building and
the Project
Exhibit C Floor Plan of Premises
<PAGE>
LEASE
-----
ARTICLE I.
BASIC LEASE PROVISIONS AND EXHIBITS
THIS LEASE is entered into as of May , 2000, between eFUNDS CORPORATION, a
Delaware corporation ("Landlord") and Deluxe Financial Services, Inc., a
Delaware corporation ("Tenant").
1.1. Basic Lease Provisions.
----------------------
Address of Real Estate Department
Landlord: Attn: Kath Steuer
eFunds Corporation
400 West Deluxe Parkway
Glendale, WI 53212-0536
Phone: 414.341.5800
Fax: . 414.341.5075
Legal Department
Attn: Anita Jansson
EFunds Corporation
400 West Deluxe Parkway
Glendale, WI 53212-0536
Phone: 414.341.5656
Fax: 414.341.5075
Address of Real Estate Department
Tenant: Attn: Jim Peters
Deluxe PPS
1005 Gramsie Road
Shoreview, MN 55126
Phone: 651.483.7948
Fax : 651.481.4345
Legal Department
Attn: Sharon Maylath
Deluxe PPS
3680 North Victoria Street
Shoreview, MN 55126
Phone: 651.483.7120
Fax: 651.787.2749
<PAGE>
Customer Care Center
Attn: Tracy Geiger
Deluxe PPS
3050 South 35th Street; Suite B
Phoenix, AZ 85034
Phone: 602.431.2502
Fax: 602.431.2514
Address of 3050 South 35th Street; Suite B
Premises: Phoenix, AZ 85034
Premises: The space crosshatched on Exhibit C, containing
approximately 50,337 Rentable Square Feet.
Initial Term: The term shall commence on the date of the
initial offering of shares in the Landlord to the
public (the "IPO Date"), and shall expire on the date
which is one (1) day prior to the date which is three
(3) years after the Rent Commencement Date.
Extension Two (2) options of One (1) year each, as described in
Options: Section 3.2.
Annual Gross
Rent Per Initial Term - $ 27.75/RSF
Rentable Square First Extension Term - $ 29.30/RSF
Foot: Second Extension Term - $ 30.15/RSF
1.2. Exhibits. The exhibits enumerated in the Table of Contents and
attached to this Lease are incorporated in this Lease by this reference.
ARTICLE II.
DEFINITIONS
2.1. Definitions. In this Lease:
(a) "Annual Gross Rent" means the amount set forth in the following
schedule:
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<PAGE>
<TABLE>
<CAPTION>
Annual Gross Rent
Rent per Square Annual Gross
From and After: Until and including: Foot: Rent:
-------------- -------------------- ------------------ ------------
<S> <C> <C> <C>
Rent Commencement The last day of the $27.75/RSF $1,396,852
Date Initial Term
The first day of the The last day of the first $29.30/RSF $1,474,874
first Extension Term Extension Term
The first day of the The last day of the $30.15/RSF $1,517,660
second Extension second Extension Term
Term
</TABLE>
(b) "Article" means an article of this Lease.
(c) "Basic Lease Provisions" means those essential lease provisions
defined in Section 1.1.
(d) "Building" means the building in which the Premises are located.
(e) "Casualty" means a fire, explosion, tornado or other cause of
damage to or destruction of the Project or the Premises.
(f) "City" means the City of Phoenix, Arizona.
(g) "Common Areas" means those areas of the Building and the Project
intended for the common use and enjoyment of Landlord, Tenant and
Landlord's other tenants, including, without limitation, the cafeteria,
sidewalks, driveways and parking areas shown on Exhibit B and Exhibit C.
(h) "Excusable Delays" means a delay occasioned by a strike, lockout,
riot, act of God, or any other cause or causes, whether similar or
dissimilar to those enumerated, beyond Landlord's reasonable control. When
this Lease extends a deadline by reason of an Excusable Delay, the deadline
will be extended by a period of time equal to the duration of the Excusable
Delay, unless specified otherwise.
(i) "Extension Option" means either of the two (2) options to extend
this Lease for one (1) year each, as described in Section 3.2.
(j) "Extension Term" means either of the two (2) periods for which the
Initial Term may be extended, as described in Section 3.2.
(k) "Initial Term" means the Term without taking into account the
exercise of any Extension Option for any Extension Term, as specifically
defined in Section 1.1.
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(l) "Interest Rate" means the per annum reference rate, as publicly
announced from time to time by U.S. Bank National Association, plus two
percent (2%) per annum.
(m) "Laws" means all Federal, state and local laws, ordinances, rules
and regulations.
(n) "Monthly Gross Rent" means the Annual Gross Rent divided by
twelve.
(o) "Normal Business Hours" means 5:00 a.m. to 9:00 p.m. Monday
through Friday, and 5 a.m. to 7 p.m. on Saturday, excepting New Years Day,
Easter, Thanksgiving and Christmas. Landlord and Tenant hereby acknowledge
that Arizona does not recognize daylight savings time.
(p) "Project" means the Building and the land described on the
attached Exhibit A on which the Building is located.
(q) "Rent Commencement Date" means the first day of the first month
following the IPO Date.
(r) "Rentable Square Foot" means a unit of one square foot of a
Rentable Square Foot Area.
(s) "Rentable Square Foot Area" means that number of enclosed square
feet of the pertinent space actually available for occupancy by a tenant or
occupant, measured as of the Rent Commencement Date using the most current
BOMA standard (Standard Method for Measuring Floor Area in Office
Buildings, ANSI/BOMA Z65.1-1996).
(t) "Section" means a section of this Lease.
(u) "Taking" means acquisition by a public authority having the power
of eminent domain of all or part of the Project by condemnation or
conveyance in lieu of condemnation.
(v) "Term" means the Initial Term, as the same may be extended
pursuant to Section 3.2. The Term will include any Extension Term with
respect to which an Extension Option has been exercised.
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ARTICLE III.
TERM
3.1. Initial Term. Landlord leases the Premises to Tenant, and Tenant
leases the Premises from Landlord, for the Initial Term, under the terms and
conditions of this Lease. Tenant accepts the Premises in their "as is"
condition.
3.2. Extension Options. Tenant has two (2) Extension Options to extend the
Term for one (1) year each, if Tenant notifies Landlord in writing at least six
(6) months prior to the expiration of the Term, as the same may have been
previously extended. Tenant may not exercise its second Extension Option for the
second Extension Term if it has not exercised its first Extension Option for the
first Extension Term. If Tenant exercises any of its Extension Options, this
Lease will be in full force and effect during the Term, as so extended, subject
to all of the terms and conditions of this Lease, except that the Annual Gross
Rent per Rentable Square Foot will be as set forth in the Basic Lease
Provisions.
3.3 Early Termination Option. Notwithstanding any other provision in this
Lease to the contrary, Tenant may terminate this Lease upon twelve (12) months'
written notice to Landlord. If this Lease is terminated pursuant to this Section
3.3, Monthly Gross Rent shall be paid by Tenant on a pro rata basis for any
partial calendar month preceding and including the termination date.
ARTICLE IV.
MONETARY OBLIGATIONS
4.1. Monthly Gross Rent. Tenant will pay the Monthly Gross Rent to Landlord
at the Address of Landlord, or such other place as Landlord may designate, in
advance on the first day of each month during the Term, commencing on the Rent
Commencement Date, without demand, deduction or setoff, except as provided
otherwise in this Lease. All amounts to be paid by Tenant to Landlord under this
Lease will be deemed to be rent for purposes of payment and collection.
4.2. Taxes, Insurance, Operating Expenses and Utilities . Landlord agrees
to pay all real estate taxes, special assessments, insurance costs (except for
the insurance Tenant is required to carry under this Lease), operating expenses
and utilities related to the Project, the Building and the Premises (except
expenses related to telecommunications). The Monthly Gross Rent is a "gross"
rent inclusive of all operating expenses and Tenant shall have no further
monetary obligation to Landlord under this Lease, except as specifically
provided herein. Notwithstanding the foregoing, if a special assessment is
levied in excess of $10,000 against the Project, Tenant shall be responsible for
and shall pay Landlord an amount equal to the amount of the special assessment
due each year during the Term with respect to the Building, multiplied by
Tenant's proportionate square footage share of the Building, at the time any
such special assessment
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payments are due. Tenant shall have no responsibility to pay for special
assessments levied against the Project by reason of Landlord's further
construction of improvements on the Project or special assessments levied at
Landlord's request. If special assessments are levied and some portion are
Tenant's responsibility, and such payments may be paid, at Landlord's election,
in one lump sum or over a period of years, Tenant shall only be required to pay
for such special assessments in an amount and on such schedule as it would have
been required to pay if Landlord had elected to payment over a period of time.
ARTICLE V.
USE; QUIET ENJOYMENT
5.1. Use. The Premises shall be used and occupied by Tenant solely for
operation of an office or call center facility, and for no other purpose, and
such use and occupancy shall be in compliance with all Laws. The Premises shall
not be used in such manner that, in accordance with any requirement of Law,
Landlord shall be obligated to make any addition or alteration to the Project or
the Building.
5.2. Quiet Enjoyment. If Tenant pays the Monthly Gross Rent and performs
all of Tenant's obligations under this Lease, Landlord promises that Tenant may
peaceably and quietly possess and enjoy the Premises under this Lease.
ARTICLE VI.
OPERATIONAL MATTERS
6.1. Operation, Repairs and Maintenance. Throughout the Term, Landlord
shall, at Landlord's sole cost and expense, take good care of the Project, the
Building and the Premises, including the roof of the Building, and shall put and
keep the same in good order, condition and repair, and shall make all repairs
thereto, interior and exterior, structural and non-structural, ordinary and
extraordinary, and foreseen and unforeseen, all as may be necessary to keep the
Project, the Building and the Premises and the fixtures, appurtenances, and
installations therein contained in good order and condition and in compliance
with all Laws. When used in this Lease, the term "repairs" shall include all
replacements, renewals, alterations, additions and betterments, when necessary
and appropriate. Landlord shall also provide daily janitorial service to the
Premises and the Common Areas.
6.2. Common Areas. Landlord shall not restrict Tenant's rights to make use
of the Common Areas, except pursuant to such reasonable rules promulgated from
time to time by Landlord and applicable to all parties using the Building.
6.3. Cafeteria. Tenant acknowledges that although there is currently a
cafeteria in the Building, there is no obligation on the part of Landlord to
expend any funds to continue food
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service therein, except for the provision of tables, chairs and vending
machines, and other duties imposed on Landlord by virtue of its obligations to
maintain, repair and clean the Common Areas.
6.4. No Waste; Maintenance of Tenant's Personal Property. Tenant shall not
do, permit or suffer to be committed any waste or damage, disfigurement or
injury to the Premises, or any part or portion thereof. Tenant shall maintain
its furniture, trade fixtures and equipment located within the Premises at
Tenant's sole cost and expense.
6.5. Compliance with Laws. Tenant will, at its expense, promptly comply
with all Laws, now or subsequently pertaining to Tenant's particular use (as
opposed to mere occupancy) of the Premises.
6.6. Signs. Landlord agrees that Tenant may add Tenant's lettering/type
face to the existing monument sign on the north side of the Building (at the
35th Street entry), which sign may be the maximum size permitted by the City.
Tenant will specify the size, specifications and colors of the sign, subject to
approval by the City. Landlord will not unreasonably withhold its consent to any
changes in Tenant's sign or other signs requested by Tenant.
6.6.1 Temporary Signs. Landlord acknowledges that the Tenant currently
has a temporary "Now Hiring" sign affixed at the east end of the north face
of the Building. Tenant will be required to comply with all applicable
codes of the business park and governing boards as to the size, design and
duration such sign may be displayed.
6.7. Alterations. Tenant will not make any alterations, additions or
improvements in or to the Premises without first obtaining the written consent
of Landlord, which consent will not be unreasonably withheld or delayed. Tenant
will pay for any labor, services, materials, supplies or equipment furnished to
Tenant in or about the Premises, and will pay and discharge any mechanic's,
materialmen's or other lien against the Premises resulting from Tenant's failure
to make such payment, or will contest the lien and deposit with Landlord, or an
escrow agent or title insurance company, cash equal to 125% of the amount of the
lien, or otherwise post security sufficient to release the Project from such
lien. If the lien is reduced to final judgment and all appeals are exhausted or
waived, Tenant will discharge the judgment and may use any cash deposited with
Landlord for such purpose, and Landlord will return all remaining cash deposited
by Tenant. Landlord may post notices of nonresponsibility on the Premises as
provided by law.
6.8. Utilities. Landlord agrees to provide, at Landlord's sole expense,
during the Term all services currently being furnished to the Premises,
including heating, cooling and ventilating to keep the Premises comfortable for
office purposes during Normal Business Hours, water, sanitary sewer, and
electricity for normal office uses. Tenant shall pay provider directly for any
internet connection, telephone connection, and future add on internet services.
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6.9. Entry by Landlord. Landlord and its agents and contractors will have
the right to enter the Premises at reasonable times for inspecting or repairing
the Premises, upon not less than 24 hours' prior written notice to Tenant
(except in an emergency) and, at Tenant's election, if accompanied by an escort
provided by Tenant (except in an emergency), but Landlord will have no
obligation to make repairs, alterations or improvements except as expressly
provided in this Lease. During the last 180 days of the Term, Landlord will have
the right to enter the Premises at reasonable times, subject to the same prior
notice requirements set forth in the preceding sentence, for the purpose of
exhibiting the Premises for leasing, provided such entry does not unreasonably
interfere with Tenant's use of the Premises.
6.10. Communication Equipment. Tenant will be entitled to place, at
Tenant's expense, a satellite dish or dishes and other communication equipment
on the roof of the building as needed for the conduct of Tenant's business.
Tenant agrees to comply with any screening requirements of the City and any
reasonable screening requirements of Landlord in connection with the
installation of any such communication equipment. Tenant agrees to use
Landlord's roofing contractor if Tenant penetrates the roof in connection with
the installation of any such communication equipment. Placement of such
communication equipment shall be subject to Landlord's approval, which approval
shall not be unreasonably withheld. Upon expiration of the Term, or at any
earlier time upon any removal of such communication equipment, Tenant agrees to
pay all costs related to removal of such communication equipment and repair of
the roof, if such removal damages the roof.
6.11. Interruption of Business. Notwithstanding any Excusable Delay, if an
interruption or impairment of utilities or services provided by Landlord
materially impairs Tenant's ability to conduct its business and Tenant closes
its business in the Premises by reason thereof and such impairment and closure
continues for three (3) consecutive days, beginning after the end of such 3-day
period, all rent will abate until such utilities or services are reasonably
restored to an extent to render the Premises tenantable. Landlord will use
reasonable efforts to cause such utilities or services to be restored as soon as
possible.
6.12. Parking. Tenant may, during the Term, use up to 200 of the unreserved
parking spaces located in the Common Areas shown on Exhibit B on a non-exclusive
basis, and 15 visitor parking spaces at the Suite B entrance to the Building,
upon the same terms and conditions as Landlord and Landlord's other tenants may
use such parking spaces.
ARTICLE VII.
TRANSACTIONS
7.1. Assignment and Subletting. With Landlord's prior written consent,
which consent will not be unreasonably withheld or delayed, Tenant may assign or
sublet all or any part of the Premises for any permitted use at any time during
the Term. Tenant acknowledges that it
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would be reasonable for Landlord to withhold such consent if the proposed
assignee or subtenant were a competitor of Landlord.
7.2. Subordination and Nondisturbance. At the request of any mortgagee or
ground lessor, this Lease will be subject and subordinate to any mortgage or
ground lease which may now or in the future encumber the Project, and Tenant
will execute, acknowledge and deliver to Landlord any document requested by
Landlord to evidence the subordination. Any such future subordination by Tenant
will be subject to Tenant receiving a nondisturbance agreement from the party to
whom it is subordinating, which nondisturbance agreement will recognize the
rights of Tenant under this Lease so long as Tenant is not in default.
7.3. Estoppel Certificates. Within 20 days after written request from
either party, the other party will execute, acknowledge and deliver a document
furnished by the requesting party, which statement may be relied upon by the
requesting party and third parties, stating (a) that this Lease is unmodified
and in full force and effect (or if modified, that this Lease is in full force
and effect as modified and stating the modifications), (b) the dates to which
rent and other charges have been paid, (c) the current Monthly Gross Rent, (d)
the dates on which the Term begins and ends, (e) the existence of any unexpired
Extension Options, (f) that Tenant has accepted the Premises and is in
possession, (g) that neither Landlord nor Tenant is in default under this Lease,
or specifying any such default, and (h) such other and further information as
may be reasonably requested.
ARTICLE VIII.
RISK SHIFTING
8.1. Indemnification. Tenant agrees to indemnify, defend, and hold harmless
Landlord and its officers, directors, shareholders, partners, employees and
agents from and against all third party claims of whatever nature to the extent
arising from the negligent acts or willful misconduct of Tenant, or Tenant's
contractors, licensees, officers, partners, agents or employees, including
reasonable attorneys' fees. Landlord agrees to indemnify, defend, and hold
harmless Tenant and its officers, directors, shareholders, partners, employees
and agents from and against all third party claims of whatever nature to the
extent arising from the negligent acts or willful misconduct of Landlord or
Landlord's contractors, licensees, officers, partners, agents or employees,
including reasonable attorneys' fees.
8.2. Liability Insurance. Landlord and Tenant each agree during the Term to
maintain adequate liability and other insurance with duly qualified, reputable
insurers authorized to do business in the state in which the Premises are
located and, upon request, to furnish the other with certificates of insurance
properly executed by their respective insurance companies evidencing the
insurance policies in effect, which certificates will agree to provide thirty
(30) days' notice to the other party in the event of cancellation of such
coverage. The minimum insurance coverages to be maintained by both parties will
be as follows:
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(a) Commercial general liability insurance, including coverage against
claims for bodily injury, death and property damage or personal injury
occurring in or about the Project, affording minimum limits of Two Million
Dollars ($2,000,000.00) with respect to bodily injury, personal injury,
death or property damage occurring or resulting from one occurrence and
aggregate limits of not less than $3,000,000; and
(b) Workers' compensation insurance in accordance with the statutory
requirements of the state where the Project is located and employer's
liability insurance with limits not less than as follows:
Bodily injury by accident: $1,000,000 each accident
Bodily injury by disease: $1,000,000 policy limit
Bodily injury by disease: $1,000,000 each employee
8.3. Landlord's Property Insurance. Landlord agrees that it will keep the
Project insured against loss or damage by those perils covered by the Insurance
Services Office Special Cause of Loss Form or with "all risks" coverage,
including, malicious mischief and vandalism, and boiler and machinery coverage,
in an amount sufficient to prevent Landlord from being a co-insurer under the
terms of the applicable policies, but in any event, in an amount not less than
one-hundred percent (100%) of the full replacement value of the Project, as
determined from time to time. Such insurance will be issued by financially
responsible insurers duly authorized to do business in the state where the
Project is located.
8.4. Tenant's Property Insurance. Tenant agrees to maintain, at its own
expense, insurance against loss or damage by those perils covered by the
Insurance Services Office Special Cause of Loss Form or with all risk coverage,
including malicious mischief and vandalism, on Tenant's personal property
located at the Premises. Nothing contained in this Section 8.4 will be construed
as creating any liability or responsibility on the part of Landlord for the
adequacy of insurance coverage on Tenant's personal property.
8.5. Waiver of Insurable Claims. Notwithstanding anything contained in this
Lease to the contrary, Landlord and Tenant release each other and the other's
agents and employees from any liability for loss or damage by fire or other
casualty coverable by the Insurance Services Office Special Cause of Loss Form
or a standard form of "all risks" insurance policy, whether or not the loss or
damage resulted from the negligence of the other, its agents or employees. Each
party will use reasonable efforts to obtain policies of insurance which provide
that this release will not adversely affect the rights of the insureds under the
policies. The releases in this Section 8.5 will be effective whether or not the
loss was actually covered by insurance.
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ARTICLE IX.
CASUALTY
9.1. Damage or Destruction. If the Premises or Project are damaged by
Casualty, the damage (excluding damage to Tenant's personal property) will be
repaired by Landlord at its expense to a condition as near as reasonably
possible to the condition prior to the Casualty. Landlord will begin repairs
within 30 days after the Casualty and complete the repairs within 120 days after
the Casualty, subject to Excusable Delays. If Landlord fails to begin or
complete the repairs as required, Tenant may give Landlord notice to do so. If
Landlord has not begun the repairs or completed the repairs, as applicable,
within 30 days after Tenant's notice, Tenant may terminate this Lease by written
notice to Landlord given within 30 days after expiration of the 30-day period.
If this Lease is terminated because of the Casualty, rents and other payments
will be prorated as of the later of the date of such Casualty or the date when
Tenant ceased doing business in the Premises and will be proportionately
refunded to Tenant or paid to Landlord, as the case may be. During any period in
which the Premises or any portion of the Premises are made untenantable as a
result of the Casualty (whether or not the Premises themselves were damaged by
the Casualty), all rent will be abated for the period of time untenantable, plus
thirty (30) days for Tenant to reopen all of the Premises after the completion
of Landlord's repairs, in proportion to the Rentable Square Foot Area made
untenantable as a result of the Casualty. In addition, if the Casualty occurs
less than twelve (12) months prior to the end of the Term, as the same may have
been extended, Tenant may terminate this Lease as of the Casualty if the
Premises may not reasonably be made tenantable within 30 days after the
Casualty.
ARTICLE X.
EMINENT DOMAIN
10.1. Eminent Domain. If there is a Taking of 25% or more of the Premises,
25% or more of the total Rentable Square Foot Area of the Project, 25% or more
of the parking spaces in the Project, either party may terminate this Lease as
of the date the public authority takes possession, by written notice to the
other party within 30 days after the Taking. If this Lease is so terminated, any
rents and other payments will be prorated as of the termination and will be
proportionately refunded to Tenant, or paid to Landlord, as the case may be. All
damages, awards and payments for the Taking will belong to Landlord regardless
of the basis upon which they were made or awarded, except that Tenant will be
entitled to any amounts specifically awarded by the condemning authority to
Tenant for relocation, damage to Tenant's property or business loss. If this
Lease is not terminated as a result of the Taking, Landlord will restore the
remainder of the Premises to a condition as near as reasonably possible to the
condition prior to the Taking (excluding Tenant's personal property) and all
rent will be abated for the period of time the space is untenantable in
proportion to the square foot area untenantable.
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ARTICLE XI.
DEFAULTS
11.1. Tenant Defaults. If (a) Tenant defaults in the payment of rent or
other amounts under this Lease and the default continues for 10 days after
written notice by Landlord to Tenant, (b) Tenant defaults in any other
obligation under this Lease and the default continues for 30 days after written
notice by Landlord to Tenant (unless such default is of a nature that cannot be
cured within such 30 day period, in which case Tenant will have such time to
cure the default as is reasonably necessary, provided Tenant commences to cure
such default within the original 30 day period and continues to diligently and
continuously pursue the cure thereof to completion), (c) any proceeding is begun
by or against Tenant to subject the assets of Tenant to any bankruptcy or
insolvency law or for an appointment of a receiver of Tenant or for any of
Tenant's assets and with respect to a proceeding against Tenant is not
discharged within 60 days, or (d) Tenant makes a general assignment of Tenant's
assets for the benefit of creditors, then Landlord may, with or without
terminating this Lease, cure the default and charge Tenant all costs and
expenses of doing so, and Landlord also may, by process of law, re-enter the
Premises, remove all persons and property, and regain possession of the
Premises, without waiver or loss of any of Landlord's rights under this Lease,
including Landlord's right to payment of Monthly Gross Rent. Landlord also may
terminate this Lease as to all future rights of Tenant. Tenant waives any right
of restoration to possession of the Premises after re-entry, notice of
termination, or judgment for possession. If this Lease is terminated under this
Section 11.1, Tenant will indemnify Landlord against all loss of rents and other
costs and damages which Landlord may incur as a result of the termination for
the remainder of the Term, and against all related reasonable attorneys' fees,
brokerage fees and other expenses, including, without limitation, the cost of
preparing the Premises for re-letting. If Tenant defaults in any of its
obligations under this Lease, it will promptly reimburse Landlord for all costs
(including, without limitation, reasonable attorneys' fees) incurred by Landlord
in enforcing Tenant's obligations, whether or not this Lease is terminated and
whether or not suit is brought. No right or remedy will preclude any other right
or remedy, no right or remedy will be exclusive of or dependent upon any other
right or remedy, and any right or remedy may be exercised independently or in
combination.
11.2. Landlord Defaults. If Landlord fails or neglects to keep and perform
any of the covenants or agreements in this Lease on the part of Landlord to be
kept and performed, Tenant may notify Landlord thereof and if Landlord does not
cure such default within thirty (30) days (or such shorter period as may be
reasonable under the circumstances, in the event of an emergency) after the date
of receiving such notice (or if the default is of such a character as to require
more than thirty (30) days to cure, Landlord does not commence to cure such
default within thirty (30) days and proceed with the cure with reasonable
diligence), Tenant may, in addition to all other remedies now or hereafter
afforded or provided by law, perform such covenant or agreement for or on behalf
of Landlord or make good any such default, and any amount or amounts which
Tenant advances on Landlord's behalf will be repaid by Landlord to Tenant on
demand, together with interest thereon at the Interest Rate from the date of
such advance to the repayment thereof in full, and if Landlord does not repay
any such amount or
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amounts upon demand, Tenant may, without forfeiture of its rights under this
Lease, deduct the same, together with interest thereon as provided above, from
the next installment or installments of rent to accrue under this Lease.
ARTICLE XII.
MISCELLANEOUS
12.1. Waiver of Lease Provisions. No waiver of any provision of this Lease
will be deemed a waiver of any other provision or a waiver of that same
provision on a subsequent occasion. The receipt of rent by Landlord with
knowledge of a default under this Lease by Tenant will not be deemed a waiver of
the default. Landlord will not be deemed to have waived any provision of this
Lease unless it is done by express written agreement of Landlord. Any payment by
Tenant and acceptance by Landlord of a lesser amount than the full amount of all
rent then due will be applied to the earliest rent due. No endorsement or
statement on any check or letter for payment of rent or other amount will be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to its right to recover the balance of any rent or other
payment or to pursue any other remedy provided in this Lease.
12.2. Surrender. On expiration of the Term or sooner termination of this
Lease, Tenant will return possession of the Premises to Landlord, without notice
from Landlord, in good order and condition, except for ordinary wear and damage,
Casualty or conditions Tenant is not required to remedy under this Lease. If
Tenant does not so return possession of the Premises to Landlord, Tenant will
pay Landlord all resulting damages Landlord may suffer and will indemnify
Landlord against all claims made by any new tenant of all or any part of the
Premises. Any property left in the Premises after expiration or termination of
this Lease will be deemed abandoned by Tenant and will be the property of
Landlord to dispose of as Landlord chooses, at Tenant's sole cost and expense.
12.3. Holding Over. If Tenant remains in possession of the Premises after
expiration of the Term without a new lease, it may do so only with the consent
of Landlord, and any such holding over will be from month-to-month, subject to
all the same provisions of this Lease, except that the rental rate will be 125%
of the then Monthly Gross Rent. The month-to-month occupancy may be terminated
by Landlord or Tenant on the last day of any month by at least 30 days prior
written notice to the other.
12.4. Notices. Any notice under this Lease will be in writing, and will be
sent by prepaid certified mail or reputable overnight courier or by facsimile
confirmed by certified mail or reputable overnight courier, addressed to Tenant
at the Address of Tenant, and to Landlord at the Address of Landlord, or to such
other address as is designated in a notice given under this Section 12.4, which
change of address will be effective 10 days after the giving of notice of such
change. A notice will be deemed given on the date of first attempted delivery
(if sent by
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certified mail or overnight courier) or upon completed facsimile transmission to
the proper fax number. Routine mailings by either party may be sent by regular
mail.
12.5. Governing Law. This Lease will be construed under and governed by the
laws of state in which the Premises are located. If any provision of this Lease
is illegal or unenforceable, it will be severable and all other provisions will
remain in force as though the severable provision had never been included.
12.6. Entire Agreement. This Lease contains the entire agreement between
Landlord and Tenant regarding the Premises. This Lease may be modified only by
an agreement in writing signed by Landlord and Tenant. No surrender of the
Premises, or of the remainder of the Term, will be valid unless accepted by
Landlord in writing. This Lease was thoroughly negotiated by Landlord and Tenant
and no inference will be drawn based on which party drafted the original version
of this Lease.
12.7. Successors and Assigns. All provisions of this Lease will be binding
on and for the benefit of the successors and assigns of Landlord and Tenant,
except that no person or entity holding under or through Tenant in violation of
any provision of this Lease will have any right or interest in this Lease or the
Premises.
12.8. Consent Not Unreasonably Withheld. Landlord and Tenant agree that
whenever under this Lease provision is made for securing the consent or approval
of the other, such consent or approval will not be unreasonably withheld or
delayed. If either party believes the other has unreasonably withheld or delayed
its consent or approval, an action for declaratory judgment or specific
performance will be the sole right and remedy in any dispute as to whether the
other has breached such obligation.
12.9. Short Form Lease. Upon the request of either Landlord or Tenant,
Landlord and Tenant will enter into a Short Form Lease, in recordable form,
which will set forth the parties to this Lease, the Premises, the Initial Term
and the Extension Options, but will incorporate the balance of this Lease only
by reference. Either party, at its cost, may record such a Short Form Lease.
12.10. Attorneys' Fees. In any dispute between Landlord and Tenant, the
reasonable attorneys' fees of the prevailing party will be paid by the
non-prevailing party.
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Landlord and Tenant have executed this Lease to be effective as of the date
stated in the first paragraph of this Lease.
Landlord:
eFUNDS CORPORATION
By________________________________
Its______________________________
Tenant:
DELUXE FINANCIAL SERVICES, INC.
By________________________________
Its______________________________
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EXHIBIT 10.8
PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement") is entered into on April 3, 2000
between Deluxe Financial Services, Inc., a Minnesota corporation ("DFSI"), and
eFunds Corporation, a Delaware corporation ("eFunds"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed to such
terms in Article I hereof.
RECITALS
WHEREAS, DFSI and eFunds are wholly owned subsidiaries of Deluxe
Corporation, a Minnesota corporation ("Deluxe");
WHEREAS, the Board of Directors of Deluxe has determined that it would be
appropriate and desirable to completely separate the eFunds Business from
Deluxe;
WHEREAS, the Boards of Directors of Deluxe, DFSI and eFunds have each
determined that it would be appropriate and desirable for DFSI to sell to eFunds
and for eFunds to purchase from DFSI certain real property located in Phoenix,
Arizona and personal property attached to such real property; and
WHEREAS, DSFI and eFunds intend in this Agreement, including the Exhibits
and Schedules attached hereto, to set forth the principal arrangements between
them regarding the sale of the real property located in Phoenix, Arizona and
personal property attached to such real property.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Defined Terms. The following terms, as used herein, shall have
the following meanings:
"Affiliates" means, with respect to any specified Person, any Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with such specified Person;
provided, however, that for purposes of this Agreement, (i) Deluxe and its
Subsidiaries (other than eFunds and its Subsidiaries) shall not be
considered Affiliates of eFunds and (ii) eFunds and its Subsidiaries shall
not be considered Affiliates of Deluxe;
"eFunds Business" means the business and operations of eFunds as currently
conducted by eFunds, iDLX Corporation, eFunds Holding Ltd., Connex Europe
SRL, Deluxe Overseas, Inc., eFunds Corporation, Deluxe Payment Protection
Systems,Inc., Chex Systems, Inc. and Deluxe Analytic Research Technologies,
Inc., and as such business and operations will continue following the
Contribution Date.
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"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Subsidiary" means, with respect to any Person, any corporation, any
limited liability company, any partnership or other legal entity of which
such Person or its Subsidiaries owns, directly or indirectly, more than 50%
of the stock or other equity interest entitled to vote on the election of
members of the board of directors or similar governing body. Unless the
context otherwise requires, with reference to Deluxe and its Subsidiaries,
the term "Subsidiary" shall not include eFunds or any Subsidiary of Deluxe
that will be transferred to eFunds after giving effect to the Separation.
ARTICLE II
PURCHASE AND SALE OF ASSETS
Section 2.1 Purchase and Sale of Assets. At the Closing, on and subject to
the terms and conditions of this Agreement, DFSI agrees to sell, convey,
transfer, assign and deliver to eFunds, and eFunds agrees to purchase and accept
from DFSI, all of the right, title and interest of DFSI in and to the following
assets (all of such assets, properties and rights being sometimes collectively
called the "Purchased Assets"):
(a) the real property located at Lots 20, 22, 23 and 34 and the South
half of Lot 19, SOUTHBANK, according to Book 306 of Maps, page 44, records
of Maricopa County, Arizona (the "Real Property"); and
(b) the personal property owned by DFSI described on Schedule 2.1(b)
attached hereto, and situated in or about the Real Property (the "Personal
Property").
Section 2.2 Assumption of Liabilities. In partial payment of the Purchase
Price (as defined in Section 2.4 hereof), subject to the terms and conditions
set forth in this Agreement, at Closing, eFunds hereby assumes and agrees on a
timely basis to pay, perform, satisfy and discharge, or will cause the eFunds
Subsidiaries to pay, perform, satisfy and discharge all debts, liabilities,
guarantees, assurances, commitments and obligations of DFSI or its Affiliates
primarily associated with the Purchased Assets (whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, and due or to become due) (collectively, the "Assumed
Liabilities").
Section 2.3 Methods of Transfer and Assumption.
(a) eFunds and DFSI agree that transfers of Purchased Assets set forth
in Section 2.1 hereof shall be effected by delivery by DFSI to eFunds of
(a) with respect to any real property interest or any improvements thereon,
a quit claim deed in accordance with local practice, and (b) with respect
to all other Purchased Assets owned by DFSI, such good and sufficient
instruments of contribution, conveyance, assignment and transfer, in form
and substance reasonably
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satisfactory to DFSI and eFunds, as shall be necessary to vest in eFunds
all of DFSI's title and ownership interest in and to any such Purchased
Asset. Notwithstanding the quit claim nature of the conveyances herein
contemplated, DFSI hereby agrees to cooperate in all reasonable respects
with eFunds with respect to any third party ownership or lien claims on any
of the Purchased Assets. DFSI shall, among other things, provide eFunds
with such records, access to employees, officers and directors, and other
assistance as it may reasonably request with respect thereto, but shall not
be liable for any damages, payments, or claims related to the Purchased
Assets.
(b) To the extent necessary, the assumption of the Assumed Liabilities
contemplated pursuant to Section 2.2 hereof shall be effected by delivery
by eFunds to DFSI of such good and sufficient instruments of assumption, in
form and substance reasonably satisfactory to DFSI and eFunds as shall be
necessary for the assumption by eFunds of the Assumed Liabilities.
(c) Each of the parties hereto also agrees to deliver to any other
party hereto such other documents, instruments and writings as may be
reasonably requested by such other party hereto in connection with the
transactions contemplated hereby.
(d) NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT TO THE
CONTRARY, THE TRANSFERS AND ASSUMPTIONS REFERRED TO IN THIS ARTICLE II ARE
BEING MADE WITHOUT ANY REPRESENTATION OR WARRANTY OF ANY NATURE (I) AS TO
THE VALUE OR FREEDOM FROM ENCUMBRANCE OF ANY OF THE PURCHSAED ASSETS, (II)
AS TO ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE OR OF ANY OTHER MATTER CONCERNING ANY OF THE PURCHASED
ASSETS, OR (III) AS TO THE LEGAL SUFFICIENCY TO CONVEY TITLE TO ANY OF THE
PURCHASED ASSETS. The instruments of transfer or assumption referred to in
this Section 2.3 shall not include any separate representations and
warranties. Deluxe and eFunds hereby acknowledge and agree that all
Purchased Assets are being transferred "AS IS, WHERE IS." eFunds shall bear
the economic and legal risks that any conveyances of the Purchased Assets
to eFunds shall prove to be insufficient or that eFunds's title to any of
the Purchased Assets which they currently own (or, after giving effect to
the transfers contemplated by this Agreement, will own) shall be other than
good and marketable and free from encumbrances.
(e) DFSI and eFunds hereby further acknowledge and agree that in the
event and to the extent that there is any conflict between the provisions
of this Agreement and the provisions of any of the instruments of transfer
or assumption referred to in this Section 2.3, the provisions of this
Agreement shall control except where a specific conveyancing instrument
specifically provides that such instrument shall control over this Section
2.3 and refers to this specific Section 2.3 by number.
(f) The parties intend to complete the transfer of all Purchased
Assets and the assumption of all eFunds Liabilities effective on or prior
to the Closing Date but, to the extent that any such transfers and
assumptions are not completed prior to the Closing Date, the parties shall
take all actions reasonably necessary or appropriate to complete such
transactions as promptly thereafter as possible. In addition to those
transfers and assumptions accurately
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identified and designated by the parties to take place but which the
parties are not able to effect prior to the Closing Date, there may exist
(i) Purchased Assets that the parties discover were, contrary to the
agreements between the parties, by mistake or omission, transferred to
eFunds or retained by Deluxe or (ii) liabilities that the parties discover
were, contrary to the agreements between the parties, by mistake or
omission, assumed by eFunds or not assumed by eFunds. The parties shall,
between the Closing Date and the date the Distribution occurs, cooperate in
good faith to effect the transfer or re-transfer of such Purchased Assets,
and/or the assumption or re-assumption of such Assumed Liabilities, to or
by the appropriate party and shall not use the determination of remedial
actions contemplated herein to alter the original intent of the parties
hereto with respect to Purchased Assets to be transferred to or the Assumed
Liabilities to be assumed by eFunds. Each party shall reimburse the other
or make other financial adjustments (e.g., without limitation, cash
reserves) or other adjustments to remedy any mistakes or omissions relating
to any of the Purchased Assets transferred hereby or Assumed Liabilities
assumed hereby.
Section 2.4 Consideration and Payment.
(a) Purchase Price. The aggregate purchase price for the Purchased
Assets shall be an amount equal to the $10,007,049.51 (the "Purchase
Price") plus the assumption of the Assumed Liabilities. The Purchase Price
shall be allocated as follows: $9,753,524.32 towards the Real Property, and
$343,525.19 towards the Personal Property.
(b) Payment of Purchase Price. At the Closing, eFunds shall pay the
Purchase Price in cash or by certified or bank cashier's check.
Section 2.5 Closing. The closing of the sale and purchase of the Purchased
Assets contemplated by this Agreement (the "Closing") shall take place on the
date hereof (the "Closing Date") at the offices of DFSI at 3680 Victoria Street
North, Shoreview, Minnesota 55126. For accounting purposes, the parties hereto
covenant and agree the Closing will be deemed to have occurred as of 5:00 p.m.
on March 31, 2000.
ARTICLE III
INDEMNIFICATION
Section 3.1. Indemnification by eFunds. eFunds shall jointly and severally
indemnify in full DFSI and each of its Affiliates and their respective officers,
directors, employees, agents and representatives (the "Deluxe Indemnitees") and
hold them harmless against any and all losses, liabilities, deficiencies,
damages, expenses or costs (including reasonable legal and other external
advisors fees and expenses) (each an "Indemnifiable Loss"), resulting from,
relating to or arising, whether prior to or following the Closing Date, out of
or in connection with the Purchased Assets and the Assumed eFunds. Any
indemnification payment made under this Agreement shall be characterized for tax
purposes as if such payment were made immediately prior to the Closing Date.
Section 3.2. Indemnification Procedures.
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(a) If a claim or demand for an Indemnifiable Loss is made against a
Deluxe Indemnitee by any Person who is not a party to the this Agreement (a
"Third Party Claim") as to which such Deluxe Indemnitee is entitled to
indemnification pursuant to Section 1 hereof, such Deluxe Indemnitee shall
give eFunds notice of such Third Party Claim, as promptly as practicable,
but in any event no later than 15 days after the receipt by the Deluxe
Indemnitee of such notice; provided, however, that the failure to provide
such notice shall not release eFunds from any of its obligations under this
Agreement except to the extent eFunds is materially prejudiced by such
failure and shall not relieve eFunds from any other obligation or liability
that it may have to any Deluxe Indemnitee otherwise than under this
Agreement. If eFunds acknowledges in writing its obligations to indemnify
the Deluxe Indemnitee hereunder against any Indemnifiable Losses that may
result from such Third Party Claim, then eFunds shall be entitled to assume
and control the defense of such Third Party Claim at its expense and
through counsel of its choice, subject to the approval of the Deluxe
Indemnitee (which approval shall not be unreasonably withheld or delayed),
if it gives notice of its intention to do so to the Deluxe Indemnitee
within 15 days of the receipt of such notice from the Deluxe Indemnitee (or
such shorter period as may be required to avoid a default in responding to
the assertion of the Third Party Claim in any tribunal before which such
claim has been brought); provided, however, that if there exists or is
reasonably likely to exist a conflict of interest that would make it
inappropriate in the reasonable judgment of the Deluxe Indemnitee for the
same counsel to represent both the Deluxe Indemnitee and eFunds, then the
Deluxe Indemnitee shall be entitled to retain its own counsel, in each
jurisdiction for which the Deluxe Indemnitee determines counsel is required
to participate in such defense, at the expense of eFunds. In the event
eFunds exercises the right to undertake any such defense against any such
Third Party Claim as provided above, the Deluxe Indemnitee shall cooperate
with eFunds in such defense and make available to eFunds, at the eFunds's
expense, all witnesses, pertinent records, materials and information in the
Deluxe Indemnitee's possession or under the Deluxe Indemnitee`s control
relating thereto as is reasonably required by eFunds, subject to
reimbursement of reasonable out-of-pocket expenses. Similarly, in the event
the Deluxe Indemnitee is, directly or indirectly, conducting the defense
against any such Third Party Claim, eFunds shall cooperate with the Deluxe
Indemnitee in such defense and make available to the Deluxe Indemnitee all
such witnesses, records, materials and information in eFunds's possession
or under eFunds's control relating thereto as is reasonably required by the
Deluxe Indemnitee, subject to reimbursement of reasonable out-of-pocket
expenses. No such Third Party Claim may be settled by eFunds without the
prior written consent of the Deluxe Indemnitee (which shall not be
unreasonably withheld or delayed) unless such settlement is solely for
money and includes an unconditional release of each Deluxe Indemnitee from
any and all Indemnifiable Losses arising out of such action, claim, suit or
proceeding and would not otherwise adversely affect the Deluxe Indemnitee.
No such Third Party Claim may be settled by the Deluxe Indemnitee without
the prior written consent of eFunds which shall not be unreasonably
withheld or delayed.
(b) All Deluxe Indemnitees (other than DFSI) shall, as a condition of
their rights to indemnification hereunder, be deemed to have granted Deluxe
an irrevocable power of attorney, coupled with an interest, with respect to
all matters for which any determination may be made, action may be taken or
consent may be given or withheld under this Section 2, including, without
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limitation, any determination regarding selection of counsel and any
consent regarding settlement, and any such determination, action or consent
made, taken, given or withheld by such party shall be binding up such
Deluxe Indemnitee as if made, taken, given or withheld by such Deluxe
Indemnitee personally.
(c) Notwithstanding the foregoing, eFunds shall not be entitled to
assume the defense of any Third Party Claim and shall be liable for the
fees and expenses of counsel incurred by the Deluxe Indemnitee in defending
such Third Party Claim if the Third Party Claim seeks an order, injunction
or other equitable relief or relief for other than money damages against
the Deluxe Indemnitee which the Deluxe Indemnitee reasonably determines,
after conferring with its counsel, cannot be separated from any related
claim for money damages. If such equitable relief or other relief portion
of the Third Party Claim can be so separated from that for money damages,
eFunds shall be entitled to assume the defense of the portion relating to
money damages.
(d) In the event any Deluxe Indemnitee should have a claim against
eFunds that does not involve a Third Party Claim, the Deluxe Indemnitee
shall deliver a notice of such claim with reasonable promptness to eFunds.
If eFunds notifies the Deluxe Indemnitee that it does not dispute the claim
described in such notice or fails to notify the Deluxe Indemnitee within 20
business days after delivery of such notice by the Deluxe Indemnitee
whether eFunds disputes the claim described in such notice, the
Indemnifiable Loss in the amount specified in the Deluxe Indemnitee's
notice will be conclusively deemed a liability of eFunds and eFunds shall
pay the amount of such Indemnifiable Loss to the Deluxe Indemnitee on
demand. If eFunds has timely disputed the liability with respect to such
claim, the Chief Financial Officer of eFunds and the Chief Financial
Officer of DFSI will proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through the negotiations of such
individuals within 20 days after the delivery of the Deluxe Indemnitee's
notice of such claim, such dispute shall be resolved fully and finally in
Minneapolis, Minnesota, by an arbitrator selected pursuant to and an
arbitration governed by Commercial Arbitration Rules of the American
Arbitration Association, as modified herein. The parties will jointly
appoint a mutually acceptable independent arbitrator, seeking assistance in
such regard from the American Arbitration Association. The arbitrator shall
resolve the dispute within 30 days after selection and judgment upon the
award rendered by such arbitrator may be entered in any court of competent
jurisdiction. Each of DFSI, on the one hand, and eFunds, on the other,
shall bear its own fees and expenses in connection with such arbitration
and shall bear 50% of the fees and expenses of the arbitrator.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Entire Agreement. This Agreement and the documents referenced
herein, constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof.
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Section 4.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota without regard
to its conflicts of laws principles.
Section 4.3 Notices. All notices, consents, requests, approvals, and other
communications provided for or required herein, and all legal process in regard
thereto, must be in writing and shall be deemed validly given, made or served,
(a) when delivered personally or sent by telecopy to the facsimile number
indicated below with a required confirmation copy sent in accordance with
subsection (c) below; or (b) on the next business day after delivery to a
nationally recognized express delivery service with instructions and payment for
overnight delivery; or (c) on the fifth (5th) day after deposited in any
depository regularly maintained by the United States postal service, postage
prepaid, certified or registered mail, return receipt requested, addressed to
the following addresses or to such other address as the party to be notified
shall have specified to the other party in accordance with this section:
If to DFSI:
Deluxe Financial Services, Inc.
c/o Deluxe Corporation
3680 Victoria Street North
Shoreview, Minnesota 55126
Attn: Chief Financial Officer
Facsimile:________________
Copy to: General Counsel
Facsimile:________________
If to eFunds:
eFunds Corporation
400 West Deluxe Parkway
P.O. Box 12536
Milwaukee, Wisconsin 53212
Attn: Chief Financial Officer
Facsimile:________________
Copy to: General Counsel
Facsimile:________________
Section 4.4 Parties in Interest. This Agreement, including the Schedules
and Exhibits hereto, and the other documents referred to herein, shall be
binding upon and inure solely to the benefit of each party hereto and their
legal representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 4.5 Counterparts. This Agreement, including the Schedules and
Exhibits hereto, and the other documents referred to herein, may be executed in
counterparts, each of
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which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
Section 4.6 Assignment. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective legal representatives and
successors. This Agreement may not be assigned by any party hereto.
Section 4.7 Severability. If any term or other provision of this Agreement
or the Schedules or Exhibits attached hereto is determined by a nonappealable
decision by a court, administrative agency or arbitrator to be invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 4.8 No Waiver; Remedies Cumulative. No failure or delay on the part
of any party hereto in the exercise of any right hereunder shall impair such
right or be construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or partial
exercise of any such right preclude other or further exercise thereof or of any
other right. All rights and remedies existing under this Agreement or the
Schedules or Exhibits attached hereto are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
Section 4.9 Amendment. No change or amendment will be made to this
Agreement except by an instrument in writing signed on behalf of each of the
parties to such agreement.
Section 4.10 Authority. Each of the parties hereto represents to the other
that (a) it has the corporate or other requisite power and authority to execute,
deliver and perform this Agreement, (b) the execution, delivery and performance
of this Agreement by it have been duly authorized by all necessary corporate or
other action, (c) it has duly and validly executed and delivered this Agreement,
and (d) this Agreement is a legal, valid and binding obligation, enforceable
against it in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors, rights generally and general equity principles.
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Section 4.11 Interpretation. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Schedule or
Exhibit but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
Section 4.12 Survival. All of the terms of this Agreement and the
obligations, warranties and representations herein contained, shall survive and
be enforceable after the Closing.
SIGNATURES ON FOLLOWING PAGE
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IN WITNESS WHEREOF, each of the parties has caused the Assignment and
Assumption Agreement to be executed on its behalf by its officers thereunto duly
authorized on the day and year first above written.
DELUXE FINANCIAL SERVICES, INC.
By:
Name: ________________________
Title:________________________
By:
Name: ________________________
Title:________________________
EFUNDS CORPORATION
By: ___________________________
Name: _________________________
Title:___________________
By:
Name: ________________________
Title:________________________
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EXHIBIT 10.9
TRANSITIONAL SERVICES AGREEMENT
This Agreement is entered into and effective as of the day of ____________,
2000 (the "Effective Date"), by and between Deluxe Corporation, a Minnesota
corporation ("Deluxe"), and eFunds Corporation, a Delaware corporation
("eFunds") (eFunds and Deluxe are at times referred to herein individually as a
"Party" and collectively as the "Parties").
Whereas, prior to the initial public offering ("IPO") of eFunds, Deluxe has
provided certain Transitional Services (as defined below) to eFunds and eFunds
has provided certain Transitional Services to Deluxe; and
Whereas, Deluxe and eFunds have both requested from each that certain of
such services continue pursuant to this Agreement; and
Whereas, Deluxe and eFunds agree to provide or cause to be provided these
services on terms and conditions set forth herein.
Subject to the terms, conditions, covenants and provisions of this
Agreement, Deluxe and eFunds mutually covenant and agree as follows:
Capitalized terms used and not otherwise defined herein have the meaning
given to them in the IPO and Distribution Agreement dated as of March 31, 2000
between Deluxe and eFunds (the "IPO and Distribution Agreement").
ARTICLE 1
SERVICES PROVIDED
1.01 Transitional Services.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, Deluxe or eFunds, as the case may be, (the "Service Provider")
will provide to eFunds or Deluxe, as the case may be, (the "Service
Receiver") those administrative and support services listed in Appendix A
and B attached hereto (individually a "Transitional Service," and
collectively the "Transitional Services"), during the time period for each
Transitional Service set forth on Appendix A or B, (the "Time Periods" for
all of the Transitional Services, and the "Time Period" for each
Transitional Service).
(b) Service Provider shall perform the Transitional Services
exercising the same degree of care as it exercises in performing the same
or similar services for its own account. Nothing in this Agreement shall
require Service Provider to favor Service Receiver over Service Provider's
businesses or those of any of its affiliates, subsidiaries or divisions.
(c) In no event shall Service Receiver be entitled to any new service
or to increase its use of any of the Transitional Services above that level
of use specified in the Appendices without the prior written consent of
Service Provider, which consent may be
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withheld by Service Provider for any or no reason in its sole and absolute
discretion. Service Provider shall not be required to provide Service
Receiver (i) extraordinary levels of Transitional Services that are above
the ordinary levels which existed prior to the Effective Date, (ii) special
studies, (iii) training, or (iv) the advantage of systems, equipment,
facilities, training, or improvements procured, obtained or made after the
Effective Date by Service Provider.
(d) In addition to being subject to the terms and conditions of this
Agreement for the provision of the Transitional Services, Service Receiver
agrees that the Transitional Services provided by third parties, as
permitted by Section 1.03 hereof, shall be subject to the terms and
conditions of any agreements between Service Provider and such third
parties.
(e) The Parties acknowledge and agree that in respect of Transitional
Services performed outside the United States the Service Provider and
Service Receiver will in most cases not be Deluxe or eFunds but one of
their respective subsidiary corporations (after implementation of the
Assignment and Assumption Agreement). The obligations of Deluxe and eFunds
hereunder in such situations will not be to provide or receive such
Transitional Services themselves but rather to use their best efforts to
require such subsidiaries to (i) provide or receive such services, as the
case may be, on the same terms and conditions as set out in this
Transitional Services Agreement and (ii) if necessary, enter into
agreements to provide or receive such services, as the case may be, mutatis
mutandis in form and substance the same as this Transitional Services
Agreement except to the extent it is necessary or appropriate to modify
such agreements to comply with local laws.
1.02 Representatives. Deluxe and eFunds shall each nominate a
representative to act as the primary contact person for the provision of all of
the Transitional Services (collectively, the "Primary Coordinators"). The
initial Primary Coordinators shall be the Controller of eFunds and the Chief
Financial Officer of Deluxe. The initial coordinators for each Party for each
Transitional Service shall be the individuals named in the description of such
Transitional Service in Appendix A or B (the "Service Coordinators"). Each Party
shall advise the other Party in writing of any change in the Primary
Coordinators and any Service Coordinator. Deluxe and eFunds agree that all
communications relating to the provision of the Transitional Services shall be
directed to both the respective Service Coordinators and Primary Coordinators
for such Transitional Service.
1.03 Personnel. In providing the Transitional Services, Service Provider,
as it deems necessary or appropriate in its sole discretion, may (i) use its
personnel or that of its affiliates, and (ii) employ the services of third
parties to the extent such third party services are routinely utilized to
provide similar services to other Service Provider businesses or are reasonably
necessary for the efficient performance of any of the Transitional Services.
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1.04 No Obligation to Continue to Use Transitional Services.
(a) Service Receiver shall have no obligation to continue to use any
of the Transitional Services and may delete any Transitional Service by
providing to Service Provider the written notice described in subsection
(b) below. If any Transitional Service is terminated by Service Receiver,
Service Provider shall have the option, in its sole and absolute
discretion, to discontinue any related Transitional Services by providing
45 days prior written notice to Service Receiver.
(b) For the purposes of this Section, unless otherwise specifically
set forth in Appendix A or B as the case may be, sixty (60) days prior
written notice of the termination of a Transitional Service must be
provided by Service Receiver with such notice to be effective as of the
sixtieth day..
(c) If any Transitional Service is terminated by Service Receiver as
described herein, Service Receiver does not have the right to unilaterally
reinstitute such Transitional Service.
1.05 Service Provider Access. To the extent reasonably required for Service
Provider's personnel to perform the Transitional Services, Service Receiver
shall provide Service Provider's personnel with access to its equipment, office
space, plants, and any other areas and equipment necessary for the provision of
the Transitional Services; provided that such access shall not unreasonably
interfere with Service Receiver's conduct of its business and Service Receiver's
facility and data security rules.
ARTICLE 2
COMPENSATION
2.01 Consideration. As consideration for the Transitional Services, Service
Receiver shall pay to Service Provider the amount specified for each
Transitional Service as set forth in Appendix A or B as the case may be. Upon
the termination of any Transitional Service in accordance with Section 1.04
above, the compensation to be paid under this Section 2.01 shall be reduced by
the amount specified for such terminated Transitional Service.
2.02 Taxes.
(a) General. Except as otherwise provided in Section 2.02 hereof,
Service Provider shall pay all taxes, including any charges, fees, duties,
levies, imposts, rates or other assessments imposed by any federal, state,
local or foreign taxing authority, including, but not limited to, income,
profits, gross receipts, excise, property, license, capital stock,
franchise, transfer, sales, use, payroll, withholding, social security,
value added or other taxes, and any interest, penalties or additions
attributable thereto assessed or levied against Service Provider in respect
of the Transitional Services performed under this Agreement.
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(b) Sales and Use Taxes. All applicable sales or use taxes assessed on
the provision of Transitional Services shall be paid by Service Receiver.
2.03 Invoicing and Payment.
(a) Service Provider shall invoice Service Receiver for all services
provided on a quarterly basis in arrears within 30 days of the end of the
applicable quarter. In the event Service Receiver disputes an item billed,
Service Receiver shall, within 60 days of receipt of Service Provider's
invoice, notify Service Provider of the item in dispute, specifying Service
Receiver's complaint. Service Receiver may withhold payment of items in
dispute without interest until the dispute is resolved. Each party shall be
entitled to offset amounts owing under this Agreement against amounts owing
under the Professional Services Agreement, ONE channel management
agreement, data sharing agreement or processor agreement to be entered into
between the parties by providing notice to the Primary Coordinator of the
other party. Payments of amounts owing pursuant to this Agreement, which
are not offset against amounts owed by Service Receiver, as set forth in
the preceding sentence, shall be made twice per year on the 30th day of
June and 31st day of December.
(b) If any payment is not paid when due or notice of dispute given as
provided above, Service Provider shall have the right, without any
liability to Service Receiver, or anyone claiming by or through Service
Receiver, to immediately cease providing the Transitional Service(s) for
which payment has not been made until the payment in full of all such
payments is made, which right may be exercised by Service Provider in its
sole and absolute discretion and shall not affect Service Provider's right
or ability to terminate this Agreement as set forth in Article 5 below.
2.04 Audits. Each Party, at its sole cost and expense, shall have the right
to audit the other Party's books of account and other records pertaining to the
cost of Transitional Services (including invoiced and reimbursed costs) pursuant
to this Agreement for a period of twenty-four (24) months following the end of
the calendar year in which such Transitional Services were rendered.
ARTICLE 3
LIMITATION OF LIABILITY AND WARRANTY
3.01 Transitional Services.
(a) Service Provider's liability for any claims, liabilities, damages,
losses, costs, expenses (including, but not limited to, settlements,
judgments, court costs and reasonable attorneys' fees), fines and penalties
(collectively, "Losses"), arising out of any actual or alleged injury, loss
or damage of any nature whatsoever in providing or failing to provide the
Transitional Services to Service Receiver shall be limited to an amount
equal to the total fees payable to Service Provider during the fiscal
quarter in which the Loss occurs, and in no event shall the aggregate
liability of Service Provider exceed the aggregate fees payable to Service
Provider under this Agreement. Notwithstanding
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anything to the contrary contained herein, in the event Service Provider
commits an error with respect to or incorrectly performs or fails to
perform any Transitional Service, at Service Receiver's request, Service
Provider shall use its best efforts to correct such error, re-perform or
perform such Transitional Service.
(b) Service Provider will not be liable to Service Receiver for any
act or omission of any other entity (other than due to a default by Service
Provider in any agreement between Service Provider and such other entity
and then, only in accordance with the provisions and subject to the
limitations contained in this Agreement) furnishing any Transitional
Service.
(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR AT
LAW OR IN EQUITY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR PUNITIVE,
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION OR
ANY OTHER LOSS) ARISING FROM OR RELATING TO ANY CLAIM MADE UNDER THIS
AGREEMENT OR REGARDING THE PROVISION OF OR THE FAILURE TO PROVIDE THE
TRANSITIONAL SERVICES.
ARTICLE 4
TERM AND TERMINATION
4.01 Term. This Agreement shall become effective on the Effective Date and
shall remain in force until the expiration of the longest Time Period (plus any
extension in accordance with the provisions of Section 4.02 below) unless all of
the Transitional Services are terminated by Service Receiver in accordance with
Section 1.04 above, or this Agreement is terminated under Section 4.03, 6.06 or
6.10 below prior to the end of such period.
4.02 Extension. Subject to the earlier termination of this Agreement in
accordance with Section 4.03, 6.06 or 6.10 below and except as otherwise
provided with respect to any specific Transitional Service in Annex A hereto,
Service Receiver may extend each Time Period for one (1) additional sixty (60)
day period by providing Service Provider with at least forty-five (45) days'
prior written notice before the end of the Time Period in question.
4.03 Termination.
(a) If a Party (hereafter called the "Defaulting Party") shall fail to
perform or default in the performance of any of its obligations under any
applicable Transitional Service (other than as described in subsection (b)
below), the other Party (hereinafter called the "Non-Defaulting Party") may
give written notice to the Defaulting Party specifying the nature of such
failure or default and stating that the Non-Defaulting Party intends to
terminate any affected Transitional Service if such failure or default is
not cured within forty five (45) days of such written notice. If any
failure or default so specified is not cured within such forty five (45)
day period, the Non-Defaulting Party may elect to immediately terminate the
affected Transitional Services; provided, however,
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that if the failure or default relates to a good faith dispute by the
Defaulting Party, the Non-Defaulting Party may not terminate any such
Transitional Service pending the resolution of such dispute. Such
termination shall be effective upon giving a written notice of termination
from the Non-Defaulting Party to the Defaulting Party and shall be without
prejudice to any other remedy which may be available to the Non-Defaulting
Party against the Defaulting Party. Nothing herein shall be construed to
limit either Party's right to terminate any Transitional Service for
convenience as provided in Section 1.04 or the Service Provider's right to
suspend performance under Section 2.03(b) as a result of the Service
Receiver's failure to pay, as provided in those Sections.
(b) Either Party may immediately terminate this Agreement by written
notice to the other Party without any prior notice upon the occurrence of
any of the following events:
(i) the other Party enters into proceedings in bankruptcy or
insolvency;
(ii) the other Party shall make an assignment for benefit of
creditors;
(iii) a petition shall be filed against the other Party under a
bankruptcy law, a corporate reorganization law, or any other law for
relief as a debtor (or similar law in purpose or effect); or
(iv) the other Party enters into liquidation or dissolution
proceedings.
4.04 Administrative and Support Services. Service Receiver acknowledges
that Service Provider is providing the Transitional Services as an accommodation
to Service Receiver to allow Service Receiver a period of time to obtain its own
administrative and support services for its businesses. During the term of this
Agreement, Service Receiver agrees that it shall take all steps necessary to
obtain its own administrative and support services prior to the expiration of
the Time Period for each Transitional Service.
4.05 Survival of Certain Obligations. Without prejudice to the survival of
the other agreements of the Parties, the following rights and obligations shall
survive the termination of this Agreement: (a) for the period set forth therein,
the rights and obligations of each Party under Articles 4 and 5, and (b) Service
Provider's right to receive the compensation for the Transitional Services
provided, and reimbursement of the costs and expenditures described in Section
2.01 above incurred, prior to the effective date of termination.
ARTICLE 5
INDEMNITIES
5.01 Indemnity by the Parties for Claims by Employees. Service Provider and
Service Receiver mutually agree to defend, indemnify and hold harmless each
other from and against any and all claims or causes of action for injury to or
death of their respective employees which may arise in connection with the
performance of this Agreement, regardless of the cause or reason thereof, and
regardless of the negligence of the other.
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5.02 Term of Indemnity and Filing of Actions. The indemnities contained in
this Article shall survive for a period of three (3) years after the termination
of this Agreement for any reason, and any claim for indemnity under this Article
must be made by written notice to the indemnifying Party within one (1) year
after the discovery thereof.
5.03 Indemnification Procedures. With respect to any claims for
indemnification which involve a claim by a third party, the indemnification
procedures set forth in Section 7.01of the IPO and Distribution Agreement are
incorporated herein and made a part hereof for all purposes as if fully set
forth herein and shall govern the parties, rights and obligations with respect
thereto. With respect to any claims for indemnification which do not involve a
claim by a third party, the procedures set forth in Article 8 hereof shall
govern the parties, rights and obligations with respect thereto.
ARTICLE 6
MISCELLANEOUS
6.01 Amendments. This Agreement shall not be supplemented, amended or
modified in any manner whatsoever (including by course of dealing or of
performance or usage of trade) except in writing signed by the Parties.
6.02 Successors and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and
permitted assigns. No Party shall assign this Agreement or any rights herein
without the prior written consent of the other Party, which may be withheld for
any or no reason.
6.03 Notices. All notices, consents, requests, approvals, and other
communications provided for or required herein, and all legal process in regard
thereto, must be in writing and shall be deemed validly given, made or served,
(a) when delivered personally or sent by telecopy to the facsimile number
indicated below with a required confirmation copy sent in accordance with
subsection (c) below; or (b) on the next business day after delivery to a
nationally-recognized express delivery service with instructions and payment for
overnight delivery; or (c) on the fifth (5th) day after deposited in any
depository regularly maintained by the United States postal service, postage
prepaid, certified or registered mail, return receipt requested, addressed to
the Primary Coordinators as set forth below and to the respective Service
Coordinators as identified in the applicable Appendix at the following addresses
or to such other address as the Party to be notified shall have specified to the
other Party in accordance with this section:
If to Deluxe:
Deluxe Corporation
3680 Victoria
Shoreview, Minnesota
Attn: Chief Financial Officer
Fax Number: (651) 481-4477
Copy to: General Counsel
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Fax Number: (651) 787-2749
If to eFunds:
eFunds Corporation
400 West Deluxe Parkway
P.O. Box 12536
Milwaukee, Wisconsin 53212
Attn: Controller
Fax Number: (414) 341-5075
Copy to: General Counsel
Fax Number: (651) 787-2749
6.04 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America and the State of
Minnesota without regard to its conflicts of laws provisions.
6.05 Headings. The various headings used in this Agreement are for
convenience only and are not to be used in interpreting the text of the Articles
or Sections in which they appear or to which they relate.
6.06 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law. If any portion of this Agreement is declared invalid for any
reason in any jurisdiction, such declaration shall have no effect upon the
remaining portions of this Agreement, which shall continue in full force and
effect as if this Agreement had been executed with the invalid portions thereof
deleted; provided, that the entirety of this Agreement shall continue in full
force and effect in all other jurisdictions. Notwithstanding the foregoing, if
the portion of this Agreement which is declared invalid has the effect of
reducing the compensation due hereunder or preventing the reimbursement of the
costs and expenditures described in Section 2.01(b) above, Service Provider, at
its sole discretion, may terminate this Agreement by providing thirty (30) days
written notice to Service Receiver.
6.07 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
6.08 Rights of the Parties; No Third Party Beneficiaries. Nothing expressed
or implied in this Agreement is intended or will be construed to confer upon or
give any person or entity, other than the Parties and their respective
subsidiaries and affiliates, as the case my be, any rights or remedies under or
by reason of this Agreement or any transaction contemplated thereby.
6.09 Reservation of Rights. Either Party's waiver of any of its rights or
remedies afforded hereunder or at law is without prejudice and shall not operate
to waive any other rights or remedies which that Party shall have available to
it, nor shall such waiver operate to waive the Party's rights to any remedies
due to a future breach, whether of a similar or different nature. The failure or
delay of a Party in exercising any rights granted to it hereunder shall not
constitute a waiver of any such right and that Party may exercise that right at
any time. Any single or
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partial exercise of any particular right by Service Provider shall not exhaust
the same or constitute a waiver of any other right.
6.10 Force Majeure. Any failure or omission by a Party in the performance
of any obligation under this Agreement shall not be deemed a breach of this
Agreement or create any liability, if the same arises from any cause or causes
beyond the control of such Party, including, but not limited to, the following,
which, for purposes of this Agreement shall be regarded as beyond the control of
each of the Parties hereto: acts of God, fire, storm, flood, earthquake,
governmental regulation or direction, acts of the public enemy, war, rebellion,
insurrection riot, invasion, strike or lockout; provided, however, that such
Party shall resume the performance whenever such causes are removed.
Notwithstanding the foregoing, if such Party cannot perform under this Agreement
for a period of forty-five (45) days due to such cause or causes, either Party
may terminate this Agreement by providing written notice to the other Party,
provided that nothing herein shall be construed as precluding either Party from
terminating a Transitional Service for convenience in accordance with the
provisions of Section 1.04.
6.11 Relationship of the Parties. It is expressly understood and agreed
that in rendering the Transitional Services hereunder, Service Provider is
acting as an independent contractor and that this Agreement does not constitute
either Party as an employee, agent or other representative of the other Party
for any purpose whatsoever. Neither Party has the right or authority to enter
into any contract, warranty, guarantee or other undertaking in the name or for
the account of the other Party, or to assume or create any obligation or
liability of any kind, express or implied, on behalf of the other Party, or to
bind the other Party in any manner whatsoever, or to hold itself out as having
any right, power or authority to create any such obligation or liability on
behalf of the other or to bind the other Party in any manner whatsoever (except
as to any actions taken by either Party at the express written request and
direction of the other Party).
6.12 Conflict. In case of conflict between the terms and conditions of this
Agreement and any Appendix, the terms and conditions of such Appendix shall
control and govern as it relates to the Transitional Service to which those
terms and conditions apply.
6.13 Entire Agreement. All understandings, representations, warranties and
agreements, if any, heretofore existing between the Parties regarding the
Transitional Services are merged into this Agreement, including the Appendices
attached hereto, which fully and completely express the agreement of the Parties
with respect to the subject matter hereof.
6.14 Waiver of Jury Trial and Consent to Jurisdiction. EACH PARTY HEREBY
(a) WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY
MATTER OR RIGHT ARISING UNDER THIS AGREEMENT OR RELATING TO THE TRANSITIONAL
SERVICES, (b) CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT WITHIN THE STATE OF MINNESOTA AND IRREVOCABLY AGREES THAT ALL ACTIONS OR
PROCEEDINGS ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE TRANSITIONAL
SERVICES SHALL BE LITIGATED IN ANY SUCH COURT, AND (c) WAIVES ANY OBJECTION
WHICH IT MAY HAVE BASED UPON IMPROPER VENUE
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OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDINGS IN ANY SUCH COURT.
ARTICLE 7
MONITORING COMMITTEE
7.01 Establishment. Both Primary Coordinators of the Parties shall
constitute the Monitoring Committee.
7.02 Purpose. The purpose of the Monitoring Committee is to review the
implementation of this Agreement and to use all reasonable efforts to resolve
issues in an effort to ensure the smooth and efficient operation of this
Agreement.
7.03 Frequency of Meetings. The Monitoring Committee shall meet once a
month or as necessary throughout the duration of this Agreement (other than
where the Parties agree that such a periodic meeting is not necessary) and as
otherwise reasonably requested by either Party.
7.04 Meeting Procedure. The Monitoring Committee shall keep minutes of its
meetings and develop a reasonable procedure if needed.
ARTICLE 8
DISPUTE RESOLUTION
8.01 Alternative Dispute Resolution
(a) Any material dispute between the Parties, either with respect to
the interpretation of any provision of this Agreement or with respect to
the performance or non-performance by a Party shall be resolved as provided
in this Article 8. The Parties understand and appreciate that their mutual
interests will be best served by effecting a rapid and fair resolution of
any claims or disputes which may arise out of this Agreement or from any
dispute concerning this Agreement's terms. Therefore, each Party agrees, to
use its best efforts to resolve all such disputes as rapidly as possible on
a fair and equitable basis.
(b) Upon the written request of either party, the Service Coordinators
shall promptly meet to resolve and negotiate in good faith to resolve a
dispute informally in accordance with the procedures set forth in Section
8.02 hereof. If the Service Coordinators cannot resolve the dispute within
fifteen (15) days of the initial notice of dispute, the Monitoring
Committee shall meet to resolve the dispute. The Monitoring Committee shall
promptly meet and negotiate in good faith to resolve the dispute informally
in accordance with the procedures set forth in Section 8.02 hereof.
(c) If any dispute or claim arising under this Agreement cannot be
resolved by the Monitoring Committee pursuant to Section 8.01(b), the
Parties agree to refer the matter to a panel consisting of one (1) senior
executive from each Party (the "New Representatives") for review and
resolution. The senior executive shall not have been
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directly involved in the claim or dispute. The senior executives shall meet
and resolve the dispute within thirty (30) days of their appointment. Any
dispute that is not resolved through negotiation pursuant to this Section
8.01 shall be settled exclusively by final and binding arbitration in
accordance with Section 7.01 of the IPO and Distribution Agreement.
8.02 Dispute Resolution Procedures.
(a) During the course of negotiations between the Service
Coordinators, the Monitoring Committee, or the New Representatives, as the
case may be, all reasonable requests made by one party to the other for
nonprivileged information reasonably related to this Agreement (as
determined by the disclosing party in its sole discretion) shall be honored
in order that each of the parties may be fully advised of the other's
position.
(b) The specific format for the negotiations shall be left to the
discretion of the Service Coordinators, the Monitoring Committee or the New
Representatives, as the case may be, including the preparation of
agreed-upon statements of fact or written statements of position. At the
option of either party, legal counsel for such party may be present at any
such discussions.
8.03 Continued Performance. Each party shall continue performing its
respective obligations under this Agreement in good faith while any dispute is
being resolved under this Article 8 unless and until such obligations are
terminated as provided in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Transitional
Services Agreement to be executed the day and year first above written.
DELUXE CORPORATION
By: _____________________________
Title:___________________________
EFUNDS CORPORATION
By:______________________________
Title:___________________________
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
PROFESSIONAL SERVICES AGREEMENT
THIS PROFESSIONAL SERVICES AGREEMENT ("Agreement") is dated as of April
1, 2000 (the "Effective Date") by and between Deluxe Corporation
("Deluxe"), a Minnesota corporation having its principal place of
business at 3680 Victoria Street North, Shoreview, MN 55126 and eFunds
Corporation ("eFunds"), a Delaware corporation having its principal
place of business at 400 West Deluxe Parkway, Milwaukee, WI 53212.
1.0 PURPOSE.
This Agreement (with its attached exhibits and schedules) provides the
terms and conditions under which eFunds shall provide Application
Development, Application Support and Repair, Financial Shared Services,
CI Order Entry Services and similar professional information
technology, business process and related (collectively, "IT")
outsourcing services to Deluxe and its Affiliates on a non-exclusive
basis.
2.0 DEFINITIONS.
The following capitalized terms used in the Contract Documents shall
have the meanings given below or in the context in which such terms are
used, as the case may be.
"Affiliate" means any entity that controls, is controlled by or is
under common control with a party hereto, with control meaning the
ownership of more than fifty percent (50%) of the equity or the right
to direct the management of such entity provided, however, that Deluxe
and its subsidiaries (other than eFunds and its subsidiaries) shall not
be considered Affiliates of eFunds and eFunds and its subsidiaries
shall not be considered Affiliates of Deluxe.
"Application Development" means the provision of professional services
related to the development of new application software and
enhancements.
"Application Support and Repair" means the provision of professional
services related to identifying and repairing application software
defects necessary to keep application systems operating at their
released functionality.
"CI Order Entry Services" means the provision of professional services
related to Deluxe's Customer Interface production systems.
Confidential and Proprietary 1
May 15, 2000
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
"Confidential Information" means the provisions of this Agreement and
other Contract Documents to the extent that such provisions or other
Contract Documents are not filed with the Securities and Exchange
Commission ("SEC") by either Deluxe or eFunds or, if filed, are granted
confidential treatment by the SEC and all proprietary information of a
party that such party treats as confidential, including, without
limitation, specifications, software, diagrams, information, data,
materials, markets, customers, suppliers, inventions, products,
procedures, designs, research and development, business plans,
financial projections, organizations, employees or consultants or any
other similar aspects of or information related to the present or
future business of either party.
"Contract Documents" mean this Agreement, its Statements of Work,
exhibits and schedules, if any, and Work Orders, as each may be amended
from time to time.
"Fees" means fees for the Services to be paid by Deluxe to eFunds under
the Contract Documents.
"Financial Shared Services" mean the provision of professional services
related to the finance functions of Accounts Payable, Accounts
Receivable, and General Accounting.
"Key Deliverables" mean any technology, software, capability, solution,
process or tangible materials to be developed by eFunds and delivered
to Deluxe that are designated in a Statement of Work or Work Order as
being subject to a formal acceptance process. Key Deliverables may be
either Written Deliverables or Software Deliverables.
"Key Employees" mean any eFunds employees listed on Exhibit A of this
Agreement or as so designated in any other Contract Document.
"Labor Category" means the labor categories in the master management
plan specified in Section 4.1, as amended from time to time by mutual
agreement, to enable proper tracking of activities as they relate to
capitalization versus expense.
"Project Plan" means a mutually agreed upon document that lists all
activities, tasks and Key Deliverables for a particular project
involving Services to be provided under a particular Work Order. The
Project Plan may include time/duration estimates, cost estimates,
acceptance test procedures for Key Deliverables and resource
assignments for each activity/task that makes up the applicable
project. The Project Plan forms the baseline parameters for that
project, which parameters may subsequently be amended only by the
written agreement of the parties.
Confidential and Proprietary 2
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
"Reimbursable Expenses" mean incidental expenses reasonably incurred by
eFunds in performing its obligations under the Contract Documents.
eFunds shall observe Deluxe's Travel & Entertainment policies when such
activities are required for provision of Services under any Contract
Document.
"Services" means the Application Development, Application Support and
Repair, CI Order Entry Services, Financial Shared Services and any
other IT services performed hereunder by eFunds or an Affiliate of
eFunds pursuant to a Contract Document.
"Software Deliverables" mean Key Deliverables that are operational
software (either a completed system or any module, subsystem or
release) as designated in a Work Order.
"Specifications" mean a mutually agreed upon document which describes
the functional and technical specifications for a Key Deliverable and
which are designated in a Work Order as the specifications upon which
development of the Key Deliverable shall be based.
"Standard Operating Procedures ("SOP")" means Deluxe's documentation,
guidelines, procedures, standards and like work listed in Exhibit B of
this Agreement. Such work may be updated by Deluxe from time to time
during the term of this Agreement.
"Statement of Work" means a mutually agreed upon document which
describes generally a particular class or type of Service to be
provided by eFunds hereunder.
"Term" means the term of this Agreement as stated in Article 13.0.
"Work Order" means a document substantially in the form attached as
Exhibit C and signed by authorized representatives of both parties or,
as applicable, one of their respective Affiliates, referencing the
applicable Statement of Work under which Deluxe or an Affiliate
requests certain Services from eFunds and eFunds agrees to perform such
Services hereunder upon the terms specified therein.
"Written Deliverables" are documents, such as reports, system designs
or documentation as designated in a Project Plan or Work Order.
Confidential and Proprietary 3
May 15, 2000
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
3.0 SCOPE OF WORK.
3.1 Statements of Work.
Each separate professional service category under this Agreement shall
be generally described in a Statement of Work. The initial Statements
of Work for each of the following types of Services are attached to
this Agreement: Application Development (01), Application Support and
Repair (02), Financial Shared Services (03) and CI Order Entry Services
(04). Subject to Deluxe's fixed minimum annual obligations to eFunds
under Section 5.1 and the applicable Statements of Work, each party
acknowledges that a Statement of Work does not, in and of itself,
constitute authorization for the performance of any specific Services
or the commitment by Deluxe to pay any particular Fees for such
specific Services, which authorization will be contained in an
applicable Work Order.
3.2 Authorization to Perform Services.
Deluxe or an Affiliate of Deluxe may order Services from eFunds under
any current Statement of Work by executing a Work Order. Within one
hundred twenty (120) days of the Effective Date, Deluxe and eFunds
shall establish a mutually acceptable written procedure for the
preparation and appropriate approval and execution of Work Orders for
such ordered Services, including procedures for Work Orders issued by
Affilates of Deluxe. Until such time as such written procedure has been
approved by both parties, eFunds shall perform such Services as are
approved in writing by Deluxe's Relationship Manager (as defined in
Section 4.3). For the purposes of this Agreement, each such written
directive or approval shall be treated as a Work Order. Deluxe shall be
obligated to pay for Services and eFunds shall be obligated to perform
such Services only pursuant to such a duly approved and executed Work
Order. No accepted Work Order shall be deemed amended or modified
except upon the express written approval of the parties.
3.3 Authority and Responsibility of Deluxe.
Deluxe shall be entitled to enforce the terms and conditions of any
Work Order from an Affiliate as if such Work Order had been issued
directly by Deluxe. Deluxe shall be exclusively responsible for payment
of any Services performed under any Work Order issued by an Affiliate
hereunder. All invoices from eFunds for any Services performed under
any Work Order issued by Deluxe or an Affiliate shall be submitted
centrally for payment pursuant to Section 4.2.
Confidential and Proprietary 4
May 15, 2000
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
3.4 Work Orders Under Protest.
If Deluxe issues a proposed Work Order that Deluxe declares in writing
to be for critical Services, in its reasonable judgment, and eFunds is
unable to agree with Deluxe about the nature or amount of compensation
to be paid to eFunds for the Services under such proposed Work Order,
eFunds shall proceed with such Services as a Work Order under protest,
and the parties shall then continue to negotiate in good faith about
such compensation terms. If the parties have not resolved their
differences on such terms within fifteen (15) days of commencement of
the relevant Services, either party may refer the matter to dispute
resolution under Article 15.0.
4.0 MANAGEMENT AND STAFFING.
4.1 Management Plan.
Within one hundred twenty (120) days after the Effective Date, after
consultation with Deluxe, eFunds shall provide Deluxe a proposed master
management plan for delivery of all Services, describing the following
management and control processes: (a) operating processes and
procedures relating to the performance of the Services, (b) periodic
reporting and measurement of actual levels of performance versus the
applicable performance standards and service levels described elsewhere
in this Agreement; and (c) descriptions of the management and control
structures and audit procedures recommended by eFunds within Deluxe and
eFunds to optimize delivery, monitoring, auditing and performance of
the Services in a timely, efficient and cost-effective manner. The
parties shall meet and confer about such master management plan and
shall adopt such plan in good faith to provide overall guidance for
their relationship. Notwithstanding the foregoing, the management plan
shall be subject to Deluxe's reasonable approval.
4.2 eFunds Account Manager.
eFunds shall appoint and notify Deluxe of the individual who shall be
the primary point of contact for eFunds under the Contract Documents
and who shall be the central manager for performance of the Services on
a full-time basis (the "eFunds Account Manager"). The eFunds Account
Manager shall receive all communications or notices directed to eFunds
and shall have authority to make binding commitments for eFunds under
the Contract Documents. Any eFunds Account Manager or replacement
manager shall be subject to Deluxe's approval, which approval shall not
be unreasonably withheld.
Confidential and Proprietary 5
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
4.3 Deluxe Relationship Manager.
Deluxe shall appoint and notify eFunds of the individual who shall be
the primary point of contact for Deluxe under the Contract Documents
and who shall be the central manager of Work Orders for the Services on
a full-time basis (the "Deluxe Relationship Manager"). The Deluxe
Relationship Manager shall receive all communications or notices
directed to Deluxe and shall have authority to make binding commitments
for Deluxe under the Contract Documents.
4.4 Management Committee.
The Management Committee shall consist of the Deluxe Relationship
Manager and the eFunds Account Manager with advisory members from each
party or its Affiliates as deemed appropriate. The responsibilities of
the Management Committee include the following: (a) ensure sufficient
and continued communications between Deluxe and eFunds; (b) attempt to
resolve disputes by mutual agreement, with escalation to the Executive
Committee as necessary; (c) review price changes and amendments to the
Contract Documents; (d) review Deluxe and eFunds responsibilities under
the Contract Documents; (e) review performance reports, including
service level reports; (f) review and analyze workload trends and
variances from plan; (g) analyze and review credits or bonuses, as
appropriate, between Deluxe and eFunds under the appropriate Statements
of Work and in light of actual payments made under invoices pursuant to
Work Orders; and (h) undertake such other responsibilities as Deluxe
and eFunds may agree from time to time. The Management Committee shall
meet monthly within fifteen (15) days following the close of the prior
month, unless Deluxe and eFunds agree to a different schedule.
4.5 Executive Committee.
The Executive Committee shall consist of senior-level executives of
Deluxe and eFunds with advisory members from each company as deemed
appropriate. The responsibilities of the Executive Committee include
the following: (a) perform a semi-annual review of Deluxe business
planning initiatives and expected changes as they relate to the
Services provided by eFunds; (b) perform a semi-annual review of eFunds
plans to support Deluxe's business; (c) review semi-annual performance
evaluation reports (d) attempt to resolve by mutual agreement any
disputes escalated by the Management Committee; and (e) undertake such
other responsibilities as Deluxe and eFunds may agree from time to
time. The Executive Committee shall meet quarterly within thirty (30)
days following the close of the prior quarter, unless Deluxe and eFunds
agree to a different schedule.
Confidential and Proprietary 6
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
4.6 Reporting.
eFunds shall provide Deluxe with such documentation and other
information as may be reasonably requested by Deluxe from time to time
to verify that eFunds' performance of the Services is in compliance
with the terms and conditions of the Contract Documents. The content
and format of these reports shall be recommended by the Management
Committee and approved by the Executive Committee. eFunds shall provide
at least monthly reports to Deluxe according to the requirements and
provisions of the applicable Statements of Work and Work Orders.
4.7 Key Employees
Exhibit A is a list of individuals who shall be deemed Key Employees
under the Contract Documents. By mutual agreement, the parties may
modify or amend such list from time to time. The parties may also
designate other individuals as Key Employees from time to time under
any Statement of Work or Work Order. eFunds shall not reassign to
another account any Key Employee without (a) providing at least
forty-five (45) days prior written notice thereof to Deluxe for all Key
Employees who are identified as managers and at least ten (10) days
prior written notice thereof to Deluxe for all other Key Employees and
(b) nominating replacement personnel of at least equal competence and
experience reasonably acceptable to Deluxe. eFunds shall also promptly
replace any Key Employee who terminate their employment with eFunds or
its Affiliates or to whom Deluxe reasonably objects with another
individual with competence and experience reasonably acceptable to
Deluxe. If eFunds requests Deluxe to permit any Key Employee to take a
temporary assignment to another site or account for less than five (5)
days and if such temporary assignment will not materially and adversely
affect any Services, in Deluxe's reasonable judgment, Deluxe shall
reasonably cooperate with such request.
Confidential and Proprietary 7
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
4.8 Nonsolicitation
During the Term and for a period of six (6) months thereafter, neither
party shall, either directly or indirectly, solicit for employment by
itself (or any of its Affiliates) any employee of the other party (or
any of its Affiliates) who, at the time of the solicitation is an
employee of such party, and has been involved in the performance of the
party's obligations under the Contract Documents, unless the hiring
party obtains the written consent of the other party. Notwithstanding
the foregoing, if there is a termination of this Agreement for any
reason and the entry into a period of termination assistance under
Section 13.6, Deluxe or its designee may, directly or indirectly,
solicit for employment any eFunds employees (including, without
limitation, Key Employees) who have performed Services for Deluxe
within one (1) year of the effective date of the termination notice.
For the purposes of this Section 4.8, a notice of a job listing or
opening, advertisement or similar general publication of a job search
or availability shall not be construed as a solicitation, and the
hiring of any such employee who responds thereto shall not be a breach
of this Section 4.8.
Confidential and Proprietary 8
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
4.9 Subcontractors.
eFunds shall not subcontract all or any part of the Services provided
to Deluxe hereunder without the express prior written consent of
Deluxe, which consent shall not be unreasonably withheld, provided,
however, eFunds may delegate the performance of any Services to its
wholly-owned subsidiares upon written notice thereof to Deluxe. Any
work performed or to be performed by an eFunds' Affiliate which is not
a wholly-owned subsidiary shall be specifically subject to Deluxe's
approval which may be given or withheld in Deluxe's reasonable
discretion. Deluxe's approval of a subcontractor shall not relieve
eFunds of its obligations under the Contract Documents, and eFunds
shall remain responsible for the performance of each such subcontractor
and its employees and for their compliance with all Contract Documents
as though they were eFunds' own employees. eFunds shall specifically
require each subcontractor performing Services under any Contract
Document who has access to Deluxe's Confidential Information in the
course of performing such Services to be bound by the confidentiality
and intellectual property assignment or license provisions of this
Agreement, and, at Deluxe's direction, to execute a non-disclosure or
intellectual property assignment or license agreement that is
reasonably satisfactory to Deluxe. Deluxe may request that a particular
subcontractor be replaced if it reasonably believes that the Services
being provided by such subcontractor are not adequate, and eFunds shall
do so in a timely and commercially reasonable manner. Nothing contained
in any Contract Document shall create any contractual relationship
between Deluxe and any eFunds subcontractor or supplier. eFunds shall
bind each of its subcontractors and suppliers by the terms and
conditions of the Contract Documents, as far as appropriate and
applicable, to the work to be performed by the subcontractor or
supplier. eFunds shall be fully responsible to Deluxe for the acts and
omissions of any eFunds subcontractors and suppliers and of persons
directly or indirectly employed or contracted by any of them.
Confidential and Proprietary 9
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
5.0 COMPENSATION.
5.1 Aggregate Minimum Annual Fees.
In each year or prorated part of each year during the Term, Deluxe
shall pay eFunds the following aggregate minimum annual Fees (as
prorated for any part years in the Term), subject to the specific terms
and conditions set forth in each then-current Statement of Work for the
relevant services: Application Development Services and Application
Support and Repair Services (collectively, approximately U.S.
$43,000,000 per calendar year); Financial Shared Services
(approximately U.S. $2,200,000 in calendar 2000 and declining gradually
to approximately U.S. $1,800,000 in calendar 2004); and CI Order Entry
Services (approximately U.S. $5,900,000 in calendar 2000 and declining
gradually to approximately U.S. $2,400,000 in calendar 2004).
Such payments of Fees shall be comprised of the individual monthly or
other payments made by Deluxe to eFunds under the specific Work Orders
in effect during such periods. If Deluxe exceeds its aggregate minimum
annual Fees under any Statement of Work during any calendar year or
prorated part thereof during the Term, eFunds shall pay to Deluxe the
rebates as specified in such Statement of Work. If Deluxe falls short
of its aggregate minimum annual Fees under any Statement of Work during
any calendar year or prorated part thereof during the Term, in full
satisfaction of such commitment, Deluxe shall pay to eFunds the
compensatory payments as specified in such Statement of Work.
5.2 Bonuses and Credits.
A Statement of Work or Work Order may provide for Deluxe to pay bonuses
to eFunds if eFunds exceeds its specified service levels as and when
specified therein and may also provide for eFunds to give credits to
Deluxe if eFunds falls short of its specified service levels as and
when specified therein. Such bonuses or credits shall be in addition
to, and not in lieu of, any other remedies that either party may have
under such Contract Documents, at law or in equity. When applicable,
the measurement and monitoring methods in Section 7.1 shall be used to
determine the allocation of such bonuses and credits.
5.3 Invoices.
eFunds shall submit all invoices for Services performed for Deluxe or
any Affiliate to Deluxe at the following address:
Deluxe Corporation
Attention: Accounts Payable
3680 Victoria Street North
Shoreview, MN 55126
Confidential and Proprietary 10
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
Unless the Statement of Work or Work Order provides otherwise, invoices
for Fees and Reimbursable Expenses shall be submitted to Deluxe monthly
by the tenth (10th) day following the end of the month in which the
Services were performed. Non-monthly invoices for any other
extraordinary items shall be submitted to Deluxe as the amounts come
due. Each invoice shall identify the Work Order to which it relates and
shall reasonably substantiate the basis for the amounts invoiced. For
any Services being invoiced on a "time and materials" basis, the
invoice shall also state the total number of hours worked by Labor
Category. Upon Deluxe's request, eFunds shall provide copies of any
third party statements or invoices to substantiate claims for
Reimbursable Expenses.
5.4 Payment Terms.
Deluxe shall pay all Fees and Reimbursable Expenses to eFunds in United
States Dollars, by wire transfer of funds to an account designated by
eFunds. eFunds' invoices are due and payable within thirty (30) days
from receipt thereof. If there are any good faith disputes related to
an invoice, Deluxe shall pay the undisputed portion of the invoice on a
timely basis and notify eFunds in writing of Deluxe's basis for
withholding payment of the disputed amount. Disputes with respect to
invoiced amounts shall be deemed waived if not raised in writing within
such thirty (30) day period. Upon receipt of Deluxe's dispute notice,
eFunds and Deluxe shall work together in good faith to resolve such
dispute in a prompt and mutually acceptable manner. If the dispute is
not resolved within thirty (30) days after eFunds' receipt of Deluxe's
dispute notice, the parties shall resolve the issue pursuant to the
provisions of Article 15.0. Deluxe shall pay any disputed amounts
within five (5) days after all questions have been resolved.
Notwithstanding, the foregoing, if Deluxe terminates a Work Order,
Statement of Work or this Agreement under Section 13.2, 13.3 or 13.5,
Deluxe shall be entitled to set off any Fees and Reimbursable Expense
otherwise payable by Deluxe to eFunds against Direct Damages or
Consequential or Incidental Damages experienced by Deluxe or its
Affiliates to the extent permitted by this Agreement.
Confidential and Proprietary 11
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
5.5 Taxes.
Except as otherwise provided in this Section 5.5, eFunds shall pay all
taxes, including, without limitation, any charges, fees, duties,
levies, imposts, rates or other assessments imposed by any federal,
state, local or foreign taxing authority, including, but not limited
to, income, profits, gross receipts, excise, property, license, capital
stock, franchise, transfer, payroll, withholding, social security,
other employment tax or other taxes, and any interest, penalties or
additions attributable thereto assessed or levied against eFunds or its
Affiliates in respect of the Services performed under this Agreement
("Taxes"). eFunds shall hold Deluxe, its officers, directors, employees
and agents harmless from any non-payment or underpayment of such Taxes.
Deluxe shall pay any applicable sales, use or value added tax, however
designated or levied, import or export duty or other similar tax or
charge on the Services or materials provided with the Services.
5.6 Late Payment Interest.
For any undisputed amounts not paid by Deluxe within thirty (30) days
after its receipt of the invoice therefore and for any amounts disputed
by Deluxe that are ultimately resolved in favor of eFunds, eFunds may
collect the "prime rate" as published in The Wall Street Journal
(currently defined as the base rate on corporate loans posted by at
least 75% of the nation's 30 largest banks, but however the same may be
from time to time defined; the "Prime Rate") plus 2.5%, or the maximum
rate allowed by law, whichever is less. Such interest shall begin to
accrue on the thirty-first (31st) day after Deluxe's receipt of eFunds'
invoice and shall accumulate on the outstanding balance on a daily
basis until paid in full.
Confidential and Proprietary 12
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
5.7 Gain Sharing.
eFunds shall work with Deluxe to identify potential savings in the
Services and shall make recommended changes to the methods and
processing used by Deluxe. Upon mutual agreement, the identified
potential savings or improved processing techniques shall be researched
and a proposal shall be presented to Deluxe. eFunds' proposal shall
include the estimated current costs, the recommended changes and the
projected savings or service improvements to Deluxe and a proposed Work
Order setting forth each party's responsibilities to achieve the
savings or improvements. In the case of improved Services, a mutually
agreed to value shall be assigned to such improved Services and shall
be used as the basis for any gain sharing. Upon the parties' execution
of a Work Order, a Project Plan shall be developed by eFunds to
accomplish the change. Deluxe shall compensate eFunds for such savings
or service improvements upon successful implementation as follows, as
the parties may elect in writing at the time of the relevant Work
Order's execution: (a) for any change initiated by eFunds resulting in
the savings or improved Services benefiting Deluxe, eFunds shall retain
fifty percent (50%) of the savings or value in improved Services for a
period of twelve (12) months, after which all further savings or
enhanced value shall be realized by Deluxe; and (b) for any change
initiated by Deluxe but as to which eFunds has substantially assisted,
either (i) Deluxe shall retain one hundred percent (100%) of the
savings or enhanced value and eFunds will be compensated directly
through Fees for its implementation Services or (ii) eFunds shall
retain thirty-five percent (35%) of the savings or enhanced value for a
period of twelve (12) months, after which all further savings or
enhanced value shall be realized by Deluxe.
Confidential and Proprietary 13
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
6.0 DELUXE RESPONSIBILITIES
6.1 Deluxe Facilities.
Deluxe shall permit eFunds personnel to have reasonable access to
Deluxe's facilities and systems solely as needed to provide the
Services hereunder, subject to the following conditions: (a) eFunds
personnel shall obey all generally applicable rules and procedures at
such Deluxe facilities and as provided in the SOP, including, without
limitation, facility, data and computer security rules and procedures;
(b) eFunds shall not make any structural, mechanical or electrical
alterations to Deluxe's facilities without Deluxe's prior written
approval; and (c) when such space is no longer occupied by eFunds
personnel, eFunds shall return such space to Deluxe in substantially
the same conditions as when eFunds began use of such space, reasonable
wear and tear excepted. All such Deluxe facilites shall be reasonably
safe and sanitary; shall have normal and customary utilities and office
support services suitable for an IT office environment; shall have
normal and adequate office furniture and cubicles; and shall be subject
to janitorial service furnished by Deluxe. Except as otherwise
specified by Deluxe, in any such Deluxe facility, eFunds personnel
shall observe Deluxe's normal working hours and holiday schedule as
reasonably required by Deluxe. eFunds personnel shall display any
identification cards furnished by Deluxe or otherwise establish their
identity to the reasonable satisfaction of Deluxe security personnel as
a condition to access to such Deluxe facilities.
6.2 Deluxe Personnel and Equipment.
Deluxe shall make reasonably available to eFunds and on a timely basis
the Deluxe personnel, computer or other office equipment, products and
other items, if any, as specified in any applicable Statement of Work
or Work Order. Subject to Deluxe's prior written approval, eFunds may
use such Deluxe equipment (including software) away from Deluxe's
facilities to perform the Services. In such event, eFunds shall:
a. exercise at least reasonable care in the equipment's use
and storage;
b. use such equipment solely for the performance of the
Services and not for any other account or customer of eFunds;
c. upon the end of the Term, or at such earlier time as
Deluxe shall demand, return the equipment to Deluxe in as good order
and condition as when eFunds received same, reasonable wear and tear
excepted;
Confidential and Proprietary 14
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
d. not surrender possession of the equipment or permit the
use of the equipment by anyone other than eFunds without Deluxe's prior
written approval;
e. not permit any lien or encumbrance to be levied upon the
equipment; and
f. assume all risk of loss or damage of the equipment during
the time that it is in eFund's possession and control, and, as between
the parties, Deluxe shall at all times retain title to such equipment.
6.3 Third Party Consents.
Using reasonable efforts and subject to the right any third party to
give or withhold consent, Deluxe shall obtain any third party consents,
if any, that are necessary for eFunds to access and use any third party
software or hardware identified in a Statement of Work or Work Order as
reasonably needed for eFunds to perform the Services. eFunds shall
reasonably cooperate with Deluxe in obtaining such consents. Deluxe
shall remain solely liable to pay, and shall pay, any reasonable and
applicable license, transfer or access fees to enable eFunds to access
and use such third party software or hardware. If and to the extent
that Deluxe, together with eFunds' reasonable cooperation, is unable to
obtain any such third party consent, eFunds shall be excused from
performance of the Services requiring such third party consent until
such time as a reasonable alternative is secured and approved by
Deluxe.
6.4 Back-ups.
Deluxe shall maintain its own back-up or duplicate copies of any Deluxe
Data, Deluxe Software or Third Party Software (as defined in Article
9.0) furnished to eFunds for performance of the Services and shall not
transfer such materials to eFunds unless and until it has made such
back-up or duplicate copies. In addition, upon receipt thereof, eFunds
shall also make appropriate back-up or duplicate copies of such
materials prior to any other use or processing thereof. In
circumstances in which eFunds provides processing or similar Services,
eFunds shall at all times observe professional standards with respect
to back-up of Deluxe Data, Deluxe Software or Third Party Software used
in or produced as a result of such Services.
Confidential and Proprietary 15
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
7.0 PERFORMANCE STANDARDS
7.1 Service Level Requirements and Measurement.
All Services shall comply with the applicable performance standards set
forth in each Statement of Work and Work Order. eFunds shall use all
reasonably necessary measurements and monitoring tools and procedures
required to measure and report eFunds' performance of the Services
against the applicable performance standards. Such measurements and
monitoring shall permit reporting at a level of detail sufficient to
verify compliance with such performance standards and shall be subject
to audit by Deluxe. Each party shall also provide the other party and
its auditors with information and access to its respective tools and
procedures upon a reasonable request for purposes of verification. Such
measurements and monitoring (a) may be used by Deluxe to observe and
assess the performance by eFunds of its obligations under the Contract
Documents and (b) shall be used to allocate the bonuses and credits, if
any, specified in any applicable Statement of Work or Work Order under
Section 5.2.
7.2 User Satisfaction Surveys.
eFunds and Deluxe shall develop jointly a Deluxe user satisfaction
survey. Within ninety (90) days after the Effective Date, eFunds shall
commence such user satisfaction interviews, provide a report to
identify any part of the Services that needs to be improved, and
subsequently to follow up on any user concerns. Upon Deluxe's request,
Deluxe may examine the original interview user score sheets,
questionnaires or other survey materials upon which any such eFunds
report is based. eFunds shall repeat such user satisfaction surveys at
least once per calendar year during the Term and more often as Deluxe
may reasonably request, based on the prior surveys' results. Deluxe may
consider such survey results in evaluating eFunds' performance of its
obligations under the Contract Documents and qualifications to be
awarded additional business. eFunds covenants that measured Deluxe user
satisfaction in such surveys shall be a material performance criterion
for eFunds' compensation of its management.
Confidential and Proprietary 16
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
8.0 AUDITS
8.1 Service Level Audit.
At any time during the Term (but not more than once per calendar year)
and at its own expense, Deluxe may engage its internal audit staff or a
third party generally in the business of performing audits of IT
services (a "Service Level Auditor") to perform a review and audit of
eFunds' performance and reporting of the Services in relation to the
required service levels in applicable Statements of Work and Work
Orders (a "Service Level Audit"); provided that the Service Level
Auditor may not be a company or a division of a company that provides
IT outsourcing services ("IT Competitor"), unless eFunds consents
thereto in its sole discretion. The Service Level Auditor shall prepare
and submit to Deluxe a written report of the results of the Service
Level Audit (a "Service Level Audit Report"). Deluxe shall deliver to
eFunds a copy of the Service Level Audit Report within ten (10) days of
Deluxe's receipt thereof. Any dispute or issue related to a Service
Level Audit shall be resolved in accordance with the procedures set
forth in Article 15.0. The Service Level Auditor shall comply with all
reasonable confidentiality, non-solicitation and security requirements
that eFunds may reasonably impose but such auditor may nonetheless
request, copy and examine any books or records which Deluxe itself
could request, copy and examine under this Agreement.
Confidential and Proprietary 17
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
8.2 Fee Audit.
At any time during the Term (but not more than once per calendar year)
and at its own expense, Deluxe may engage its internal audit staff or
an independent third party (a "Fee Auditor") to perform a review and
audit of all records and reports relating to any of the Fees or
Reimbursable Expenses billed to Deluxe by eFunds pursuant to this
Agreement (a "Fee Audit") covering the then-current or the previous
calendar year; provided, however, that any records and reports relating
to costs incurred by eFunds shall not be subject to review or audit in
any Fee Audit except to the extent that such records or reports relate
to pass-through Reimbursable Expenses, and, further provided, such Fee
Auditor may not be an IT Competitor, unless eFunds consents thereto in
its sole discretion. The Fee Auditor shall prepare and submit to Deluxe
a written report of the results of the Fee Audit (a "Fee Audit
Report"). Deluxe shall provide eFunds with a copy of the Fee Audit
Report within thirty (30) business days of Deluxe's receipt thereof. In
the event that the Fee Audit Report reveals that any Fees or
Reimbursable Expenses have been overbilled, eFunds shall (a) reimburse
Deluxe such sum with interest from the date upon which such sum was
first paid by Deluxe (the "Payment Date") until the date on which
eFunds makes such reimbursement, at the Prime Rate plus one percent
(1%) on the Payment Date (or the next prior date on which the Wall
Street Journal was published if not published on the Payment Date), and
(2) if the overbilled Fees or Reimbursable Expenses exceed by more than
five percent (5%) the amount which the Fee Auditor determines to have
been proper, pay the reasonable fees, costs and expenses incurred by
Deluxe in connection with the Fee Audit. Any dispute or issue related
to a Fee Audit shall be resolved in accordance with the procedures set
forth in Article 15.0. The Fee Auditor shall comply with all reasonable
confidentiality, non-solicitation and security requirements that eFunds
may reasonably impose but such auditor may nonetheless request, copy
and examine any books or records which Deluxe itself could request,
copy and examine under this Agreement.
Confidential and Proprietary 18
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
8.3 Service Audit.
At any time during the Term and at its own expense, Deluxe may engage
its internal audit staff or an independent third party (a "Service
Auditor") to perform a review and audit ("Service Audit") of the
Services, including, without limitation, (i) the parts of any Deluxe
facility at which eFunds is providing such Services, (ii) eFunds
personnel providing such Services, (iii) data and records relating to
such Services to verify the integrity, security and privacy of Deluxe
Data and to examine the eFunds systems that process, store, support and
transmit such data, and (iv) the provision of any Key Deliverables,
provided, such Service Auditor may not be an IT Competitor, unless
eFunds consents thereto in its sole discretion. The Service Auditor may
examine eFunds' data practices and procedures, management systems,
general controls and security practices and procedures, disaster
recovery and backup procedures, incident or investigative records and
any other aspects of such Services reasonably related to Deluxe. The
Service Auditor shall prepare and submit to Deluxe a written report of
the results of the Service Audit (a "Service Audit Report"). Deluxe
shall provide eFunds with a copy of the Service Audit Report within
thirty (30) business days of Deluxe's receipt thereof. Any dispute or
issue related to a Service Audit shall be resolved in accordance with
the procedures set forth in Article 15.0. The Service Auditor shall
comply with all reasonable confidentiality, non-solicitation and
security requirements that eFunds may reasonably impose but such
auditor may nonetheless request, copy and examine any books or records
which Deluxe itself could request, copy and examine under this
Agreement.
Confidential and Proprietary 19
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
8.4 Benchmark Audit.
At any time after the first anniversary of the Effective Date (but not
more than once per calendar year) and at its own expense, Deluxe may
engage its internal audit staff or a third party generally in the
business of performing audits of IT services (a "Benchmark Auditor") to
perform a review and audit of eFunds' performance under any specific
Statement of Work or for any Work Order (a "Benchmark Audit"); provided
that such Benchmark Auditor may not be an IT Competitor, unless eFunds
consents thereto in its sole discretion. A Benchmark Audit shall
measure eFunds' performance against other nationally or internationally
recognized outsourcing services providers that regularly provide the
full range of Services provided by eFunds to Deluxe under this
Agreement and on similar outsourcing engagements of those providers for
substantially similar services in substantially similar quantities and
shall consider productivity and resource cost changes. The Benchmark
Auditor shall prepare and submit to Deluxe a written report of the
results of the Benchmark Audit (a "Benchmark Audit Report"). Deluxe
shall deliver to eFunds a copy of the Benchmark Audit Report within ten
(10) days of Deluxe's receipt thereof. Any dispute or issue related to
a Benchmark Audit shall be resolved in accordance with the procedures
set forth in Article 15.0. The Benchmark Auditor shall comply with all
reasonable confidentiality, non-solicitation and security requirements
that eFunds may reasonably impose but such auditor may nonetheless
request, copy and examine any books or records which Deluxe itself
could request, copy and examine under this Agreement.
8.5 eFunds Internal or External Audits.
During the Term, eFunds shall conduct its own internal or external
audits required to test the adequacy of eFunds' internal control
environments. Such audits may include but shall not be limited to
audits in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement on Auditing Standards Number 70,
"Reports on the Processing Transactions by Service Organizations", as
the AICPA may amend the same from time to time ("SAS 70"). In addition,
eFunds may substitute, at its own expense, an SAS 70 audit performed by
an independent "Big 5" accounting firm for any applicable audit under
Sections 8.1 - 8.4 above if Deluxe agrees to such substitution.
Confidential and Proprietary 20
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
8.6 Cooperation with Audits; Follow-Up.
eFunds shall cooperate with any audit conducted by Deluxe pursuant to
this Article 8.0 without cost to Deluxe, except eFunds' normally
billable resources or as otherwise set forth in the Contract Documents.
The results and reports of each audit under this Article 8.0 shall be
submitted to the Deluxe Relationship Manager and the eFunds Account
Manager and, if appropriate, to the Management Committee and to the
Executive Committee for their review and consideration. If any audit
report indicates that eFunds' performance of the Services is not
materially unsatisfactory but could nonetheless be improved in specific
ways, the Deluxe Relationship Manager and the eFunds Account Manager
shall implement such recommendations as soon as commercially feasible.
If any audit report indicates that eFunds' performance of the Services
is materially unsatisfactory in any respect, eFunds shall submit to
Deluxe within thirty (30) days of its receipt of the relevant audit
report a plan to improve eFunds' performance to the level deemed
acceptable by such audit. Upon review and approval of such plan by the
Deluxe Relationship Manager and eFunds Account Manager, Management
Committee or Executive Committees, as appropriate, eFunds shall
implement such plan within the agreed-upon time frame.
8.7 Books and Records.
eFunds shall maintain all normal and customary books and records
("Books and Records") to document its performance of the Services and
to justify all Fees and Reimbursable Expenses that are invoiced to
Deluxe hereunder. At Deluxe's request, eFunds shall deliver to Deluxe
or its auditors one copy of such Books and Records in an electronic
format approved by Deluxe, provided that such electronic copies are
reasonably available to eFunds. eFunds shall maintain any such Books
and Records not delivered to Deluxe or demanded by Deluxe for at least
three (3) years after the final payment made in connection with this
Agreement. Notwithstanding any other provision herein, eFunds may not
dispose of any material Books and Records following the expiration of
such three-year period without written notification to and written
approval from Deluxe. eFunds shall assist Deluxe in meeting Deluxe's
legal obligations with respect to the retention of any Books and
Records in eFunds' possession or control, and Deluxe shall reimburse
eFunds for the reasonable costs incurred by eFunds while providing such
assistance or storage.
Confidential and Proprietary 21
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
9.0 OWNERSHIP AND LICENSES
9.1 Deluxe Data and Databases.
From time to time, Deluxe, its Affiliates and their customers,
suppliers or licensers may provide to eFunds certain of their
respective data or databases or eFunds may create such data or
databases for those parties as a result of the Services hereunder
(regardless of the media on which such data or databases are stored or
transmitted) (collectively, "Deluxe Data"). Deluxe, its Affiliates and
their customers, suppliers or licensers shall own all right, title and
interest in and to the Deluxe Data, and eFunds hereby releases,
transfers and assigns to such respective owners of the Deluxe Data all
of eFunds' right, title and interest (including without limitation all
present and future copyrights or database rights under the European
Copyright Directive or Database Directive or other similar legislation
in any other jurisdictions), if any, in and to such Deluxe Data. Deluxe
hereby grants to eFunds a worldwide, royalty-free, non-exclusive,
non-transferable, limited right and license during the Term to use,
copy, maintain, modify, enhance, and create derivative works of such
Deluxe Data solely as necessary for the provision of the Services
pursuant to this Agreement. Such authorization includes, without
limitation, storage, processing and transmission of the Deluxe Data for
Deluxe; maintenance, development, and modification of derivative works
as authorized by the Contract Documents; and the duplication of the
Deluxe Data for operational, developmental, and archival purposes. The
foregoing license does not give eFunds the right, and eFunds is not
authorized, to sublicense such Deluxe Data. At any time during the
Term, Deluxe may receive one or more copies of any or all such Deluxe
Data from eFunds upon Deluxe's written request, provided in or on such
media and transmitted by such means as Deluxe may reasonably specify.
Except as otherwise requested or approved by Deluxe, eFunds shall cease
all use of the Deluxe Data upon expiration or termination of this
Agreement, and shall immediately return or destroy the same at Deluxe's
direction.
Confidential and Proprietary 22
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
9.2 Deluxe Software.
From time to time, Deluxe, its Affiliates and their customers,
suppliers or licensers may provide to eFunds certain of their
respective software or eFunds may develop such software for those
parties as a result of the Services hereunder (regardless of the media
on which such software is stored or transmitted) (collectively, "Deluxe
Software"). Deluxe, its Affiliates and their customers, suppliers or
licensers shall own all right, title and interest in and to the Deluxe
Software, and eFunds hereby releases, transfers and assigns to such
respective owners of the Deluxe Software all of eFunds' right, title
and interest (including without limitation all present and future
copyrights or database rights under the European Union directives or
regulations or other similar legislation in any other jurisdictions),
if any, in and to such Deluxe Software. Deluxe hereby grants to eFunds
a worldwide, royalty-free, non-exclusive, non-transferable, limited
right and license during the Term to use, copy, maintain, modify,
enhance, and create derivative works of such Deluxe Software solely as
necessary for the provision of the Services pursuant to this Agreement.
Such authorization includes, without limitation, operation of the
Deluxe Software for Deluxe; maintenance, development, and modification
of derivative works as authorized by the Contract Documents; and the
duplication of the Deluxe Software for operational, developmental, and
archival purposes. The foregoing license does not give eFunds the
right, and eFunds is not authorized, to sublicense such Deluxe
Software. Except as otherwise requested or approved by Deluxe, eFunds
shall cease all use of the Deluxe Software upon expiration or
termination of this Agreement, and shall immediately return or destroy
the same at Deluxe's direction.
Confidential and Proprietary 23
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
9.3 Third Party Software.
If and to the extent that Deluxe or its Affiliates reasonably requires
eFunds to access or use any third party software ("Third Party
Software") to perform the Services under any Contract Document, and,
subject to Deluxe's compliance with Section 6.3, if applicable, Deluxe
hereby grants to eFunds a worldwide, royalty-free, non-exclusive,
non-transferable, limited right and sublicense or other right to use
during the Term to use, copy, maintain, modify, enhance, and create
derivative works of such Third Party Software solely as necessary for
the provision of the Services pursuant to this Agreement. Such
authorization includes, without limitation, operation of the Third
Party Software for Deluxe; maintenance, development, and modification
of derivative works as authorized by the Contract Documents; and the
duplication of the Third Party Software for operational, developmental,
and archival purposes. The foregoing sublicense does not give eFunds
the right, and eFunds is not authorized, to further sublicense such
Third Party Software. Except as otherwise requested or approved by
Deluxe, eFunds shall cease all use of the Third Party Software upon
expiration or termination of this Agreement, and shall immediately
return or destroy the same at Deluxe's direction.
Confidential and Proprietary 24
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
9.4 eFunds Materials.
If and to the extent that Deluxe or its Affiliates reasonably requires
access to or use of any preexisting or later developed eFunds data,
databases or software (collectively, "eFunds Materials") to enjoy the
benefits of the Services under any Contract Document or if any such
eFunds Materials are incorporated by eFunds in any Key Deliverables,
eFunds hereby grants to Deluxe and its Affiliates a worldwide,
royalty-free, non-exclusive, transferable, perpetual license to use,
copy, maintain, modify, enhance, and create derivative works of such
eFunds Materials solely for their internal use as herein provided or
otherwise authorized under the Contract Documents. Such authorization
includes, without limitation, operation of the eFunds Materials by or
for Deluxe; maintenance, development, and modification of derivative
works for solely for the benefit of Deluxe or its Affiliates and their
successors and assigns but not for any other parties or otherwise as
authorized by the Contract Documents; and the duplication of the eFunds
Materials for reasonable operational, developmental, and archival
purposes. The foregoing sublicense includes the right, and Deluxe and
its Affiliates are hereby authorized, to sublicense such eFunds
Materials to any other IT or other business process services
outsourcing provider serving Deluxe or its Affiliates, provided, such
sublicense may only be for the benefit of Deluxe and Affiliates and
their successors and assigns but not for any other parties unless
further sublicensing is authorized by the Contract Documents. Deluxe
and its Affiliates and their successors and assigns may continue their
use of and access to such eFunds Materials under this Section 9.4 upon
expiration or termination of this Agreement.
9.5 Key Deliverables.
Unless otherwise specified in any Statement of Work or Work Order,
eFunds shall deliver to Deluxe source and any other reasonably
necessary documentation or components for any Key Deliverables to
enable Deluxe to use, service and repair such materials with its own
internal IT resources or with another IT and business process
outsourcing services provider.
Confidential and Proprietary 25
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
9.6 Inventions.
During the Term, either of the parties or the parties jointly may
conceive of an enhancement, improvement or invention (collectively,
"Invention") which may be capable of protection under the copyright or
patent laws of the United States of America, India or another country.
In such event, Deluxe shall be the sole and exclusive owner of any
Invention, whether made by eFunds alone, by Deluxe alone or by eFunds
and Deluxe jointly. eFunds hereby assigns all right, title and interest
it has or may have in and to any such Invention under the laws of any
nation, including, without limitation, the laws of the United States
and India. Deluxe shall solely determine the manner and means for
patent or other intellectual property protection for such Invention,
shall select and control the patent counsel to seek such protection,
shall be responsible for the enforcement of any such patents obtained
and shall retain the proceeds from any such enforcement. If and only to
the extent reasonably necessary to perform the Services during the
Term, Deluxe shall be deemed to have granted to eFunds a limited,
worldwide, royalty-free and non-transferable license to use and
practice any Invention for the benefit of Deluxe under the Contract
Documents. Notwithstanding this Section 9.6, eFunds grants no rights to
Deluxe, and Deluxe acquires no rights from eFunds, as to any other
intellectual property of eFunds that are outside the scope of the
Services and that are not incorporated into any deliverables under the
Contract Documents.
10.0 CONFIDENTIALITY
10.1 Deluxe and eFunds Responsibilities.
All Confidential Information shall be deemed confidential and
proprietary to the party disclosing such information hereunder. Each
party may use the Confidential Information of the other party during
the Term only as permitted or required for the receiving party's
performance hereunder. The receiving party shall not disclose or
provide any Confidential Information to any third party and shall take
reasonable measures (including, without limitation, the use of
nondisclosure agreements consistent with and not less restrictive than
this Article 10.0) to prevent any unauthorized disclosure by its
employees, agents, contractors or consultants. The foregoing duty shall
survive any termination or expiration of this Agreement for a period of
ten (10) years from the effective date of such termination or
expiration. Notwithstanding the foregoing, with respect to any Deluxe
Data of any kind, the foregoing duty shall be perpetual.
Confidential and Proprietary 26
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
10.2 Exceptions.
Notwithstanding Section 10.1, the following information shall not be
deemed Confidential Information for purposes of this Article 10:
a. information required to be disclosed in public under a
subpoena, request for documents, or other validly issued judicial or
administrative process, provided that the party so required promptly
notifies the other party of the receipt of process and permits the
other party a reasonable opportunity to respond to such process (and,
if the other party secures a protective order, such information shall
remain Confidential Information to the extent therein specified);
b. information which is or becomes generally available to
the public other than as a result of any unauthorized disclosure by the
receiving party;
c. information available to the receiving party from a third
party who received such information on a non-confidential basis and
without obligation to the disclosing party;
d. information already known to the receiving party prior to
its disclosure by the other party;
e. information independently developed by the receiving
party without any use of or reliance on the disclosing party's
Confidential Information; or
f. information as the parties may mutually agree in writing
can be disclosed publicly.
11.0 WARRANTIES AND COVENANTS
11.1 Deluxe Warranties to eFunds.
Deluxe hereby warrants to eFunds that;
a. the execution and delivery of this Agreement by Deluxe
has been duly authorized and performance by Deluxe hereunder shall not
result in the breach of any material term or provision of any charter,
bylaw or agreement to which Deluxe is a party or by which it is bound;
b. this Agreement constitutes a valid and binding agreement;
and
c. Deluxe owns or otherwise has the right to grant herein
the licenses or sublicenses or other rights of use for the Deluxe Data,
the Deluxe Software and the Third Party Software.
Confidential and Proprietary 27
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
11.2 EFUNDS Warranties to Deluxe.
eFunds hereby warrants to Deluxe that:
a. the execution and delivery of this Agreement by eFunds
has been duly authorized and performance by eFunds hereunder shall not
result in the breach of any material term or provision of any charter,
bylaw or agreement to which eFunds is a party or by which it is bound;
b. this Agreement constitutes a valid and binding agreement;
c. eFunds owns or otherwise has the right to grant the
licenses or sublicenses herein for the eFunds Materials;
d. all Services rendered hereunder shall be performed in a
professional, workmanlike manner in accordance with the applicable
Contract Documents;
e. all Key Deliverables and other items provided as a result
of the Services shall materially conform with the applicable Contract
Documents;
f. all Software Deliverables shall be free of any virus or
other surreptitious code and of any disabling or shut down code or
features;
g. all Software Deliverables shall be "Year 2000 Compliant"
as defined in the coding standards referred to in Exhibit B hereto; and
h. the performances of the Services and all Key Deliverables
and other items provided as a result of the Services shall not infringe
the intellectual property rights (including, without limitation, any
patents, copyrights, trademarks or trade secrets) of any third party
anywhere in the world.
11.3 Deluxe's Remedies.
Deluxe shall give reasonable written notice to eFunds of any Services,
Key Deliverables or other items provided as the result of or related to
the sufficiency of the Services which Deluxe believes to be deficient,
defective or non-conforming to the foregoing warranties in Section
11.2. In such case, the parties shall have the following duties and
rights, respectively:
a. eFunds' sole initial obligation and Deluxe's sole initial
remedy hereunder shall be for eFunds to remedy such deficiency, defect
or non-conformity within a reasonable time at no charge to Deluxe;
Confidential and Proprietary 28
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
b. if eFunds is unable to remedy such deficiency, defect or
non-conformity within a reasonable time period, then Deluxe's exclusive
final remedy and eFunds' entire liability for Direct Damages (as
defined in Article 14.0) in contract, tort or otherwise shall be a
refund of the amount paid hereunder as Fees or Reimbursable Expenses
for the deficient, defective or non-conforming Services or
deliverables; and
c. notwithstanding clauses (a) or (b) above, if and to the extent
that there are any Consequential or Incidental Damages (as defined in
Article 14.0) in such case, then Deluxe's exclusive final remedy and
eFunds' entire liability for such Consequential or Incidental Damages
shall be the payment of same to Deluxe by eFunds, subject to the
applicable limitation established in Section 14.1.
11.4 Warranty Disclaimer.
THE LIMITED EXPRESS WARRANTIES OF THE PARTIES SET FORTH RESPECTIVELY IN
SECTION 11.1 AND 11.2 ARE IN LIEU OF ALL OTHER WARRANTIES BY EITHER
PARTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
11.5 Certain Covenants.
eFunds shall obtain all applicable permits and licenses in any such
jurisdiction generally applicable to entities in the IT services
business as required in connection with its obligations hereunder.
eFunds shall comply in all material respects with any applicable
federal, state and local laws and regulations in the United States of
America, India or any other jurisdiction where it may operate and
perform the Services hereunder. Without limiting the foregoing, if and
to the extent that any U.S. or other national export licenses may be
required for the export of any software or other materials or equipment
hereunder or for eFunds to perform the Services, the exporting party
shall obtain such licenses and shall otherwise comply with such
applicable export control laws and regulations. eFunds shall pay its
subcontractors all sums due and owning to such entities in accordance
with the terms of its agreements with such subcontractors.
Confidential and Proprietary 29
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
12.0 INDEMNITIES
12.1 Indemnity by eFunds.
eFunds shall indemnify, hold harmless and defend Deluxe and its
Affiliates and their respective directors, officers, agents and
employees from and against any loss, costs (including reasonable
attorney's fees) damages, injury, liability, claims, demands, or causes
of action arising out of or resulting from the Services for:
a. personal injury or death;
b. any material and uncured breach of eFunds' warranties in
Section 11.2, subject to the limitation in Section 11.3;
c. property damage;
d. claims of infringement of any third party's proprietary,
privacy or other rights, including, but not limited to, patent,
copyrights, trademarks, or trade secret (collectively, "Third Party
Right");
e. any act or omission of eFunds as an employer; or
f. any debt or other duty of any kind or amount owed to an
eFunds subcontractor
except and to the extent such loss, cost, damage, injury, liability,
claim, demand or action is due to Deluxe's negligence or misconduct.
If the use of any Key Deliverable or other item or Service delivered or
provided by eFunds hereunder is found to infringe or misappropriate a
Third Party Right, eFunds shall, at its own option and expense, replace
the infringing or misappropriated materials or Services with a
substitute free of the infringement or misappropriation, or shall
procure for Deluxe's benefit a license or other right to use the same;
or shall remove the enjoined materials or Services and reimburse Deluxe
for all amounts paid or expenses incurred with respect thereto.
Notwithstanding the foregoing, eFunds shall have no obligation or
liability under this Section 12.1 to the extent any claim(s) is based
solely upon any changes or modifications made independently by Deluxe
to such materials or arising from specifications or design requirements
required by Deluxe as contained in any applicable Work Order.
Confidential and Proprietary 30
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
12.2 Indemnity by Deluxe.
Deluxe shall indemnify, hold harmless and defend eFunds and its
Affiliates and their respective directors, officers, agents and
employees from and against any loss, costs (including reasonable
attorney's fees) damages, injury, liability, claims, demands, or causes
of action arising out of or resulting from its performance under this
Agreement for:
a. personal injury or death;
b. any material and uncured breach of Deluxe's warranties in
Section 11.1;
c. property damage;
d. claims of infringement of any Third Party Right;
e. any act or omission of Deluxe as an employer; or
f. any debt or other duty of any kind or amount owed to any
other Deluxe vendor or supplier,
except and to the extent such loss, cost, damage, injury, liability,
claim, demand or action is due to eFunds' negligence or misconduct.
If the use of any Deluxe Data, Deluxe Software or Third Party Software
delivered or provided by Deluxe hereunder is found to infringe or
misappropriate a Third Party Right, Deluxe shall, at its own option and
expense, replace the infringing or misappropriated materials with a
substitute free of the infringement or misappropriation, or shall
procure for eFunds' benefit a license or other right to use the same;
or shall remove the enjoined materials and reimburse eFunds for all
amounts paid or expenses incurred with respect thereto. Notwithstanding
the foregoing, Deluxe shall have no obligation or liability under this
Section 12.2 to the extent any claim(s) is based solely upon any
changes or modifications made independently by eFunds to such
materials.
Confidential and Proprietary 31
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<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
12.3 Indemnification Procedures.
With respect to any third party claims for which a party seeks
indemnification under this Article 12.0, the indemnification procedures
set forth in Section 7.01(d)-(f) of the IPO and Distribution Agreement
between eFunds and Deluxe Corporation dated as of March 31, 2000 shall
apply, and are hereby incorporated herein and made a part hereof for
all purposes as if fully set forth herein. With respect to any claims
for indemnification which do not involve a claim by a third party, the
procedures set forth in Article 15.0 hereof shall govern the parties,
rights and obligations with respect thereto.
13.0 TERM AND TERMINATION
13.1 Term.
This Agreement shall commence as of the Effective Date and shall expire
on the fifth (5th) anniversary of that date unless sooner terminated as
provided in this Article 13.0. Thereafter, this Agreement shall
automatically be renewed for successive one (1) year periods, unless a
party provides the other party with written notice at least one
hundred-eighty (180) days prior to the next scheduled renewal date
stating that it does not wish for this Agreement to be renewed. If this
Agreement expires or is otherwise terminated under this Article 13.0,
its terms and conditions shall continue to apply to any Statements of
Work and Work Orders then in effect until such Statements of Work or
Work Orders expire or are terminated.
13.2 Termination of a Statement of Work or Work Order for Cause.
If there is a material breach of any Statement of Work or Work Order,
the non-breaching party shall give written notice thereof to the
breaching party. If the breaching party does not, within thirty (30)
calendar days after receiving such written notice, either (a) cure the
material failure or (b) if the breach is not one that can reasonably be
cured within thirty (30) days, develop a mutually agreed to plan to
cure the failure and diligently proceed according to the plan until the
material failure has been cured, then the non-breaching party may
terminate the affected Statement of Work or Work Order, in whole or in
part, for cause by written notice to the breaching party. Prior to
giving notice of termination of a Statement of Work or Work Order for
cause, the purported breaching party shall be afforded an opportunity
to meet with a senior management representative of the non-breaching
party to explain its position.
Confidential and Proprietary 32
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
13.3 Termination of Agreement for Cause.
If there is a material breach of this Agreement, including, without
limitation, due to repeated or chronic breaches of individual
Statements of Work or Work Orders, the non-breaching party shall give
written notice thereof to the breaching party. If the breaching party
does not, within thirty (30) calendar days after receiving such written
notice, either (a) cure the material failure or (b) if the breach is
not one that can reasonably be cured within thirty (30) days, develop a
mutually agreed to plan to cure the failure and diligently proceed
according to the plan until the material failure has been cured, then
the non-breaching party may terminate this Agreement for cause by
written notice to the breaching party. Prior to giving notice of
termination of this Agreement for cause, the purported breaching party
shall be afforded an opportunity to meet with a senior management
representative of the non-breaching party to explain its position.
Confidential and Proprietary 33
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
13.4 Termination For eFunds' Change of Control.
If control of eFunds is to be acquired, directly or indirectly, in a
single transaction or series of related transactions, or all or
substantially all of the assets or business of eFunds are to be
acquired by any organization that is not affiliated with eFunds, then,
within five (5) days of eFunds' execution of any letter fo intent,
memorandum of understanding or similar document or, in the absence of
same, upon eFunds' execution of a definitive transaction agreement,
eFunds shall give written notice thereof to Deluxe in confidence with
sufficient detail about the proposed transaction and the proposed
acquiring party to enable Deluxe to determine if continuation of this
Agreement would be in Deluxe's best interest. If control of any
Affiliate of eFunds providing Services under a specific Statement of
Work or Work Order is to be acquired, directly or indirectly, in a
single transaction or series of related transactions, or all or
substantially all of the assets or business of such Affiliate of eFunds
are to be acquired by any organization that is not affiliated with
eFunds, then, within five (5) days of eFunds' execution of any letter
of intent, memorandum of understanding or similar document or, in the
absence of same, upon eFunds' execution of a definitive transaction
agreement, eFunds shall give written notice thereof to Deluxe in
confidence with sufficient detail about the proposed transaction and
the proposed acquiring party to enable Deluxe to determine if
continuation of such Statement of Work or Work Order by such Affiliate
of eFunds would be in Deluxe's best interest. In either case, Deluxe
shall have fifteen (15) days from the receipt of such notice to make
such determination and, upon written notice to eFunds given within such
15-day period, may terminate this Agreement or such Statement of Work
or Work Order, as applicable, upon consummation of the transaction
decribed in the aforesaid notice, provided such termination notice
shall designate an actual termination date that is not less than three
(3) months nor more than twelve (12) months after the date of such
termination notice and, provided further, the parties shall pay each
other all sums owed as specified in open Work Orders, net of all
outstanding rebates, compensatory payments, bonuses or credits. If
Deluxe does not give such termination notice within such 15-day period
or does not respond to such eFunds' notice of the proposed transaction,
Deluxe shall be deemed to have consented to the transaction described
therein and Deluxe shall have no further termination rights as to this
Agreement or such Statement Work or Work Order, as the case may be,
under this Section 13.4. In any event, upon the occurrence of any such
acquisition transaction, Deluxe may direct eFunds to implement
additional and commercially reasonable security measures to prevent the
disclosure of any Deluxe Confidential Information to the acquiring
entity.
Confidential and Proprietary 34
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
13.5 Termination Through Insolvency
Either party may immediately terminate this Agreement upon written
notice in the event that (a) the other party becomes insolvent, enters
into receivership, is the subject of a voluntary or involuntary
bankruptcy proceeding, or makes an assignment for the benefit of
creditors; or (b) a substantial part of the other party's property is
or becomes subject to any levy, seizure, assignment or sale for or by
any creditor or governmental agency. If a party's Affiliate is bound
under the terms of any Statement of Work or Work Order, the other party
may immediately terminate such Statement of Work or Work Order upon
written notice in the event that (a) such Affiliate becomes insolvent,
enters into receivership, is the subject of a voluntary or involuntary
bankruptcy proceeding, or makes an assignment for the benefit of
creditors; or (b) a substantial part of such Affiliate's property is or
becomes subject to any levy, seizure, assignment or sale for or by any
creditor or governmental agency, provided, however, such termination
may not occur if such Affiliate's performance thereunder is guaranteed
or otherwise covered by the party (eFunds or Deluxe) responsible for
such Affiliate. Notwithstanding the foregoing, as reasonably required
for Deluxe to enjoy the benefits of the Services under the Contract
Documents, any licenses of Deluxe Data, Deluxe Software or Third Party
Software from Deluxe to eFunds or any licenses of eFunds Materials to
Deluxe hereunder shall be deemed within the meaning of Section 365(n)
of the U.S. Bankruptcy Code and shall remain in full force and effect
in such event.
13.6 Termination Assistance.
If this Agreement is to expire or be terminated in accordance with this
Article 13.0, the parties shall do the following for the resulting
transition of the Services:
a. eFunds shall continue to perform the Services then being
performed by eFunds;
b. eFunds shall develop, with the assistance of Deluxe or
its designee, a plan for the transition of the Services from eFunds to
Deluxe or its designee;
c. eFunds shall provide training for personnel of Deluxe or
its designee in the performance of the Services then being transitioned
to Deluxe;
d. if Deluxe has terminated eFunds under Section 13.2, 13.3,
13.4 or 13.5, eFunds shall waive, and hereby does waive, Section 4.8
and eFunds's contractual right, if any, under any employment agreement
to prohibit (i) any eFunds employee engaged principally in performing
the Services from accepting
Confidential and Proprietary 35
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
an offer of employment from Deluxe or its designee or (ii) any eFunds
subcontractor or consultant performing any portion of the Services from
entering into a contractual relationship with Deluxe or its designee.
In addition, eFunds shall allow Deluxe reasonable access to such
personnel for interviews and recruitment;
e. eFunds shall use reasonable commercial efforts to grant,
subject to reasonable terms and conditions, or to assist Deluxe or its
designee to obtain, a sublicense or other right to use any software
owned or licensed by eFunds that is primarily then used by eFunds to
perform the Services. In addition, eFunds shall use reasonable
commercial efforts to provide Deluxe or its designee with appropriate
interface information for software that is not commercially available,
provided that eFunds has or can reasonably obtain the necessary rights,
and further provided that Deluxe reimburses eFunds for any reasonable
costs that it incurs in connection with obtaining such rights,
provided, however, if Deluxe has terminated eFunds under Section 13.2,
13.3, 13.4 or 13.5, Deluxe may recover such fees as Consequential or
Incidental Damages hereunder;
f. eFunds shall make available to Deluxe or its designee,
pursuant to reasonable terms and conditions of purchase, any hardware
owned or leased by eFunds that is substantially dedicated to the
performance of the Services. If Deluxe or its designee elects to
purchase any such hardware, the purchase price for any such hardware
owned by eFunds shall be eFunds's then-current book value and, if
Deluxe or its designee elects to assume any lease, subject to the terms
of the applicable lease, Deluxe or its designee may assume eFunds's
rights and obligations with respect to any such hardware leased by
eFunds, provided, however, if Deluxe has terminated eFunds under
Section 13.2, 13.3, 13.4 or 13.5, Deluxe may recover such payments as
Consequential or Incidental Damages hereunder;
g. eFunds shall use reasonable commercial efforts to assist
Deluxe or its designee to obtain (on a non-exclusive basis) the
continuation of any third party services then being used by eFunds in
the performance of the Services that Deluxe desires to continue;
h. To the extent any part of Deluxe's data or communications
network services are being provided by eFunds using a proprietary
network, eFunds shall, at Deluxe's request, continue to provide such
network services to Deluxe, subject to reasonable terms and conditions,
for a period not to exceed one (1) year following the effective date of
expiration or termination, provided, however, if Deluxe has terminated
eFunds under Section 13.2, 13.3, 13.4 or 13.5, Deluxe
Confidential and Proprietary 36
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
may recover such payments as Consequential or Incidental Damages
hereunder; and
i. If prior to termination, eFunds has prepaid charges for a
license to use any licensed program, to the extent that Deluxe has the
benefit of such license and prepayment following termination, Deluxe
shall reimburse eFunds an appropriate portion of the prepaid charges,
provided, however, if Deluxe has terminated eFunds under Section 13.2,
13.3, 13.4 or 13.5, Deluxe may recover such payments as Consequential
or Incidental Damages hereunder.
eFunds shall provide the above-described termination assistance for the
Services until the effective date of expiration or termination of this
Agreement and, if commercially necessary, for up to ninety (90)
additional days after the effective date of expiration or termination.
If such termination assistance requires eFunds to incur expenses in
addition to the Fees or Reimbursable Expenses that eFunds would
otherwise incur in the performance of this Agreement, then eFunds shall
notify Deluxe of the nature and extent of such additional expenses and,
upon Deluxe's approval of same, eFunds shall proceed and invoice Deluxe
therefor. Deluxe shall pay eFunds for such additional expenses incurred
within thirty (30) days of the date of such invoice in accordance with
Article 5.0, provided, however, if Deluxe has terminated eFunds under
Section 13.2, 13.3, 13.4 or 13.5, Deluxe may recover such payments as
Consequential or Incidental Damages hereunder.
13.7 Survival.
Articles 5.0 (Compensation), 9.0 (Ownership and Licenses), 10.0
(Confidentiality), 11.0 (Warranties and Covenants), 12.0 (Indemnities),
13.0 (Term and Termination), 14.0 (Limitation of Liability), 15.0 (Law
and Disputes), 17.0 (General) and the applicable portions of Article
16.0 (Insurance) hereof shall survive any termination or expiration of
this Agreement.
Confidential and Proprietary 37
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
14.0 LIMITATION OF LIABILITY
14.1 Damage Limits.
For purposes of the Contract Documents, "Direct Damages" shall mean any
damages categorized as direct damages under the law of the State of
Minnesota and "Consequential or Incidental Damages" shall mean any loss
of anticipated revenues, income, profits or savings; loss of or damage
to business reputation or good will; loss of customers; loss of
business or financial opportunity; or any other indirect or special
damages of any kind categorized as consequential or incidental damages
under the law of the State of Minnesota which is a loss of a kind that
is insured (without application of any deductible amount) by eFunds'
errors and omissions insurance coverage as required under Section
16.2(e). There shall be no limit on Direct Damages arising out of or
resulting from the Services. There shall be a limit on Consequential or
Incidental Damages arising out of or resulting from the Services equal
to the ***.
14.2 Damage Waiver.
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY HEREUNDER
FOR ANY LOST PROFITS OR OTHER CONSEQUENTIAL, INCIDENTAL, INDIRECT,
SPECIAL OR OTHER SIMILAR DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES, IN EXCESS OF THE AMOUNTS SET FORTH
IN SECTION 14.1 AND IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER FOR EXEMPLARY OR PUNITIVE DAMAGES. The limitations of liability
set forth in this Article14.0 shall survive and apply notwithstanding
the failure of any limited or exclusive remedy for breach of warranty
set forth in the Contract Documents.
*** Denotes confidential information that has been omitted from the Exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act, as amended.
Confidential and Proprietary 38
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
15.0 LAW AND DISPUTES
15.1 Governing Law.
The Contract Documents shall be governed by the laws of the State of
Minnesota, without regard to any provision of Minnesota law that would
require or permit the application of the substantive law of any other
jurisdiction.
15.2 Dispute Handling.
eFunds and Deluxe shall endeavor to resolve any dispute, whether
arising during the Term or at any time thereafter which involves the
validity, construction, meaning, performance, termination, expiration
or effect of this Agreement or any Contract Documents, or the rights or
liabilities of the parties, promptly and in an amicable and
professional manner by negotiations between the parties.
Confidential and Proprietary 39
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
15.3 Problem Escalation Procedures.
eFunds through its Account Manager and Deluxe through its Relationship
Manager may refer any dispute to the Management Committee. The
Management Committee shall then meet as soon as reasonable in light of
the nature and impact of the issue under consideration. If a dispute
cannot be resolved by the Management Committee within a time period
that is satisfactory to the party raising the issue under consideration
and, in any event, within thirty (30) days after the initial referral,
the Management Committee shall refer the dispute to the Executive
Committee. The Executive Committee shall then meet as soon as
reasonable in light of the nature and impact of the issue under
consideration. If a dispute cannot be resolved by the Executive
Committee within a time period that is satisfactory to the party
raising the issue under consideration, and, in any event, within thirty
(30) days after such referral, the Executive Committee shall refer the
dispute to the Chief Executive Officer of Deluxe and the Chief
Executive Officer of eFunds. Such Chief Executive Officers shall meet
as soon as reasonable in light of the nature and impact of the issue
under consideration. If a dispute cannot be resolved by the Chief
Executive Officers within a time period that is satisfactory to the
party raising the issue under consideration and, in any event, within
thirty (30) days after such referral, either party may submit the
dispute for final and binding arbitration as provided in Section 15.4.
Notwithstanding the provisions of this Section 15.3, neither party
shall be required to use this dispute escalation procedure if there is
an actual or alleged violation of such party's Confidential Information
or any other intellectual property rights, and, as to such actual or
alleged violation, either party reserves all rights to seek judicial
remedies and relief, including, without limitation, any injunctive
relief that may be granted by any court of competent jurisdiction.
15.4 Arbitration.
Any dispute between the parties arising out of or resulting from this
Agreement that is not resolved through negotiation pursuant to Section
15.3 and not subject to the litigation exception therein, shall be
settled exclusively by final and binding arbitration in accordance with
the following:
a. except as specified below or otherwise agreed in writing,
the arbitration shall be conducted in accordance with the then-current
Commercial Arbitration Rules of the American Arbitration Association
(such organization, the "AAA" and such rules, the "AAA Rules");
Confidential and Proprietary 40
May 15, 2000
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[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
b. the arbitrators shall be three (3) neutral persons
selected by agreement of the parties or, failing such agreement in the
thirty (30) day period after the initial list of available arbitrators
has been provided to both parties by the AAA, in accordance with the
AAA Rules. Unless otherwise agreed in writing by the parties, one
arbitrator shall be an information technology professional with
technical experience; one arbitrator shall be a certified public
accountant with a major international accounting firm that is not then
serving either party and that has experience in long-term project
contracts; and one arbitrator shall be an experienced business attorney
with experience in information technology transactions and contracts.
If the amount in dispute is less than two hundred fifty thousand
dollars ($250,000), the arbitration shall be conducted by one
arbitrator who shall be an experienced business attorney with
experience in information technology transactions and contracts;
c. any demand for arbitration or any counterclaim shall
specify in reasonable detail the facts and legal grounds forming the
basis for the claimant's request for relief, and shall include a
statement of the total amount of damages claimed, if any, and any other
remedy sought by the claimant;
d. the arbitration proceedings shall take place in
Minneapolis or St. Paul, Minnesota;
e. upon the request of either party, and in the arbitration
panel's or sole arbitrator's discretion, the parties shall be entitled
to limited pre-hearing discovery including depositions of testifying
witnesses, exchanges of documents and lists of testifying witnesses,
and written interrogatories. The arbitration panel or sole arbitrator
shall conduct a hearing within thirty (30) days after the end of
discovery and shall issue an award, supported by a written opinion,
within thirty (30) days after the end of the hearing;
f. the arbitration panel or sole arbitrator may render an
award of monetary damages to either party and direct either or both
parties to take or refrain from taking action, or both. However, the
arbitration panel may not award any exemplary or punitive damages or
any monetary damages or order any action whose fair market value would
be in excess of or beyond the damage limits allowed under Article 14.0;
g. the arbitration panel or sole arbitrator may, at its
discretion, require one party to the arbitration to reimburse the other
party to the arbitration for all or any part of the expenses of the
arbitration paid by the other
Confidential and Proprietary 41
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
party and the reasonable attorneys' fees and other expenses reasonably
incurred by the other party in connection with the arbitration in
addition to any other relief granted in the award; and
h. judgment upon the award rendered in the arbitration may
be entered in any court of competent jurisdiction.
15.5 Continued Performance.
Unless and until a termination occurs under Section 13.2, 13.3, 13.4 or
13.5, each party shall continue performing its respective obligations
under the Contract Documents, to the extent any of the same have not
been terminated and are in force, in good faith while any dispute
submitted to arbitration under this Article 15.0 is being resolved and
until such obligations are terminated by the expiration of this
Agreement or by a final and binding arbitral award to the contrary
under this Article 15.0.
15.6 Limitation of Actions.
No proceeding, regardless of form, arising out of or related to the
Contract Documents may be brought by either party more than two (2)
years after the accrual of the cause of action, except that (a)
proceedings related to violation of a party's proprietary rights or any
duty to protect Confidential Information may be brought at any time
within the applicable statute of limitations, and (b) proceedings for
non-payment may be brought up to two (2) years after the date the last
payment was due.
16.0 PROVISION OF INSURANCE
16.1 General.
All insurance policies eFunds is required pursuant to this Article 16.0
shall:
a. be primary as to eFunds' negligence and non-contributing
with respect to any other insurance or self-insurance eFunds may
maintain;
b. be provided by reputable and financially responsible
insurance carries with a Best's minimum rating of "A-" (or equivalent)
and Best's minimum financial performance rating of "VII" (or any other
future equivalent);
c. require the insurer to notify Deluxe in writing by
registered or certified mail at least thirty (30) days in advance of
cancellation or material modification, which shall be deemed approved
by Deluxe unless Deluxe notifies eFunds in writing of its disapproval
within fifteen (15) days of receiving such notice from the insurer. In
the event that Deluxe notifies eFunds of its good faith
Confidential and Proprietary 42
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
disapproval in accordance with this subsection (c), eFunds shall use
commercially reasonable efforts to prevent such cancellation or
modification until eFunds and Deluxe reach a mutual agreement regarding
such change in insurance coverage; and
d. name Deluxe as an Additional Insured on the Commercial
General Liability, Automobile Liability and Professional Liability
policies.
16.2 Coverage.
Commencing on the date that eFunds is no longer a majority owned
subsidiary of Deluxe and during the Term, eFunds shall maintain and
keep in force, at its own expense, the following minimum insurance
coverage and minimum limits:
a. workers' compensation insurance, with statutory limits as
required by the various laws and regulations applicable to the
employees of eFunds performing work hereunder;
b. employer's liability insurance, for employee bodily
injuries and deaths, with a limit of at least US$500,000;
c. comprehensive or commercial general liability insurance,
covering claims for bodily injury, death and property damage, including
premises and operations, independent contractors, products, services
and completed operations (as applicable to the services), personal
injury, contractual, and broad-form property damage liability coverage,
with limits of at least US$5,000,000 per occurrence for bodily injury,
death and property damage and at least US$5,000,000 in aggregate;
d. comprehensive automobile liability insurance, covering
owned, non-owned and hired vehicles, with limits of at least
US$5,000,000;
e. professional liability (errors and omission) insurance
with a single limit of liability of the greater of (i) US$17,500,000 or
(ii) thirty-five percent (35%) of the total Fees and Reimbursable
Expenses paid by Deluxe to eFunds hereunder during the preceding twelve
(12) month period prior to the event causing such damages, net of
rebates, compensatory payments, bonuses and credits, provided, however,
if neither of the foregoing is obtainable by eFunds at commercially
feasible rates and can be so demonstrated in writing to Deluxe's
reasonable satisfaction, such other amount of errors and omission
insurance as the parties may mutually establish in writing, which
insurance policy shall be maintained for the Term and for a period of
not less than three (3) years after termination of the Agreement; and
Confidential and Proprietary 43
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
f. fidelity/crime insurance for the dishonest acts of
eFunds' employees in a minimum amount of US$5,000,000, which insurance
policy shall name Deluxe as a "loss payee, as their interests may
appear" and which shall cover eFunds' responsibility for the loss of
property belonging to Deluxe and its customers, directly or indirectly.
17.0 GENERAL
17.1 Notices.
Any notice or other communication required or permitted to be made or
given by either party pursuant to the Contract Documents shall be in
writing, in English, and shall be deemed to have been duly given: (a)
five (5) business days after the date of mailing if sent by registered
or certified U.S. mail, postage prepaid, with return receipt requested;
(b) when transmitted if sent by facsimile, provided a confirmation of
transmission is produced by the sending machine and a copy of such
facsimile is promptly sent by another means specified in this Section;
or (c) when delivered if delivered personally or sent by express
courier service. All notices shall be sent to the other party at its
address as set forth below or at such other address as such party shall
have specified in a notice given in accordance with this Section:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
In the case of Deluxe: With a copy to:
----------------------------------------------------------------------
<S> <C>
Deluxe Financial Services, Inc. Deluxe Financial Services, Inc.
3680 Victoria Street North 3680 Victoria Street North
Shoreview, Minnesota 55126 Shoreview, Minnesota 55126
Attn: Ron Eilers Attn: Legal Department
Fax: (651)481-4477 Fax: (651)787-2749
----------------------------------------------------------------------
</TABLE>
Confidential and Proprietary 44
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
--------------------------------------------------------------
In the case of eFunds: With a copy to:
--------------------------------------------------------------
eFunds Corporation eFunds Corporation
1080 W County Road F 1080 W County Road F
Shoreview, MN 55126 Shoreview, MN 55126
Attn: Debra Janssen Attn: Legal Department
Fax: (414)341-5141 Fax: (651)787-2749
--------------------------------------------------------------
17.2 Reasonable Behavior.
Each party shall act in good faith in the performance of its respective
responsibilities under the Contract Documents and shall not, except as
otherwise expressly provided in the Contract Documents, unreasonably
delay, condition or withhold the giving of any consent, decision or
approval that is either requested or reasonably required by the other
party in order to perform its responsibilities under the Contract
Documents.
17.3 Assignment.
Neither party may assign or otherwise transfer the Contract Documents
or any of the rights that they grant without the prior written consent
of the other party, provided, however, subject to Section 13.4, no such
consent shall be required if a party makes such assignment or transfer
in the course of a sale or acquisition of all or substantially all of
the assets or business of such party and the surviving or acquiring
entity agrees in writing to be bound by all the terms and conditions of
the Contract Documents. Any purported assignment in violation of the
preceding sentence shall be void and of no effect. The Contract
Documents shall be binding upon the parties' respective successors and
permitted assigns.
Confidential and Proprietary 45
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
17.4 Integration; Amendment.
The Contract Documents constitute the entire agreement between the
parties, and supersede all other prior or contemporaneous
communications between the parties (whether written or oral) relating
to the subject matter of the Contract Documents. The Contract Documents
may be modified or amended solely in a writing signed by both parties
executed by an officer thereof or by the eFunds Account Manager or the
Deluxe Relationship Manager. Each Work Order adopted under this
Agreement shall incorporate the terms and conditions of this Agreement
and shall constitute a separate contract between the parties. A Work
Order may amend the terms and conditions of this Agreement only as they
apply to that particular Work Order and shall not have any general
effect on this Agreement.
17.5 Severability.
The provisions of the Contract Documents shall be deemed severable, and
the unenforceability of any one or more provisions shall not affect the
enforceability of any other provisions. In addition, if any provision
of the Contract Documents, for any reason, is declared to be
unenforceable, the parties shall substitute an enforceable provision
that, to the maximum extent possible in accordance with applicable law,
preserves the original intentions and economic positions of the
parties.
17.6 Order Of Precedence.
In the event of any conflict between or among the provisions contained
in the Contract Documents, the following order of precedence shall
govern: (a) Work Order or applicable Project Plan, (b) Statements of
Work; (c) this Agreement, exclusive of its Exhibits; and (d) Exhibits
to this Agreement.
17.7 No Waiver.
No failure or delay by either party in exercising any right, power or
remedy shall operate as a waiver of such right, power or remedy, and no
waiver shall be effective unless it is in writing and signed by the
waiving party. If either party waives any right, power or remedy, such
waiver shall not waive any successive or other right, power or remedy
the party may have under the Contract Documents.
Confidential and Proprietary 46
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
17.8 Force Majeure.
Neither party shall be liable for any losses arising out of the delay
or interruption of its performance of its obligations under the
Contract Documents due to any act of God, act of governmental
authority, act of public enemy, or due to war, riot, flood, civil
commotion, insurrection, severe weather conditions, or any other cause
beyond the reasonable control of the affected party (collectively, a
"Force Majeure Event").
a. In and during a Force Majeure Event, the affected party
shall be excused from any further performance or observance of its
obligation(s) , provided such party uses commercially reasonable
efforts to recommence performance or observance whenever and to
whatever extent possible without delay. The affected party shall
immediately notify the other party by telephone or by the most timely
means otherwise available (to be confirmed in writing within two (2)
days of the inception of such event) and describe in reasonable detail
the circumstances of such event;
b. If a Force Majeure Event delays or interrupts the
Services more than the time limits specified in any applicable
Statement of Work or Work Order, Deluxe may, at its option and upon
written notice thereof to eFunds, (i) procure such Services from an
alternate source until eFunds is again able to provide such Services,
or (ii), if the delay or interruption exceeds the earlier of one
hundred eighty (180) days or the termination date of the applicable
Statement of Work or Work Order or the other time therein provided for
termination for Force Majeure Events, if any, terminate the same. If
Deluxe elects option (i), Deluxe shall continue to pay eFunds the Fees
established in the applicable Statement of Work or Work Order during
such period, and eFunds shall be liable for all payments made and costs
incurred by Deluxe required to obtain cover Services from an alternate
source until eFunds notifies Deluxe that eFunds is again able to
provide the Services and Deluxe's contractual commitment to such
alternate source has expired. If Deluxe elects option (ii), Deluxe may
make such termination upon ten (10) days prior written notice,
effective as of a date specified therein, and Deluxe shall pay all Fees
and Reimbursable Expenses due and payable through the termination date,
but in no event shall Deluxe be obligated to pay any Compensatory
Payments described in the applicable Statement of Work or Work Order.
c. Notwithstanding any other provision of this Section 17.8,
a Force Majeure Event shall not relieve eFunds of its obligation to
provide disaster recovery services in accordance with plans described
in the applicable Statement of Work.
Confidential and Proprietary 47
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
17.9 Non-Use of Deluxe's Name.
eFunds shall not, in the course of performance of this Agreement, or
thereafter, use Deluxe's name in any advertising or promotional media
without the prior written consent of Deluxe, which consent shall not be
unreasonably withheld. The foregoing shall not be deemed to prohibit
any disclosure by eFunds of the existence of the Deluxe customer
relationship or the material terms and conditions of this Agreement
under any applicable securities laws and regulations or the rules of
any stock exchange where the securities of eFunds may be traded.
Confidential and Proprietary 48
May 15, 2000
<PAGE>
[LOGO OF E FUNDS, INC. APPEARS HERE] [LOGO OF DELUXE CORPORATION APPEARS HERE]
eFunds/Deluxe Corporation
Professional Services Agreement
WHEREFORE, each party has caused its authorized representative to
execute this Agreement as of the Effective Date.
eFunds Corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Deluxe Corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Confidential and Proprietary 49
May 15, 2000
<PAGE>
EXHIBIT 10.11
O N E(R) APPLICATION DEVELOPMENT AND SUPPORT AGREEMENT
This O N E Application Development and Support Agreement ("Agreement") is
dated as of January 1, 2000, (the "Effective Date") by and between DELUXE
Financial Services, Inc. ("Deluxe"), a Minnesota corporation having a place of
business at 3680 Victoria Street North, Shoreview, MN 55126 and eFUNDS
Corporation ("eFunds"), a Delaware corporation having its principal place of
business at 1080 West County Road F, Shoreview, MN 55126.
1.0 PURPOSE.
This Agreement sets forth the terms and conditions under which Deluxe will
provide and support its proprietary O N E (On-line Network Exchange) System
for eFunds, such that eFunds products are made available to its financial
services customers through any available O N E product configuration.
2.0 DEFINITIONS. Capitalized terms used in this Agreement shall have the
meaning given below:
"Confidential Information" means all proprietary information of a party
-------------------------
that such party treats as confidential, including, without limitation,
specifications, diagrams, information, data, materials, markets, customers,
suppliers, inventions, products, procedures, designs, research and
development, business plans, financial projections, organizations,
employees or consultants or any other similar aspects of the present or
future business of either party. The Confidential Information of Deluxe
shall include, without limitation, the O N E System and all information
relating thereto.
"Comm Specs" means the communications specifications for the eFunds
------------
Systems.
"Customers" means the financial services customers of eFunds.
-----------
"Delivery and Operations Support" means the provision of professional
---------------------------------
services for the O N E System related to installations for Customers and
product training, and support of its operations (including first level
support) to be provided to eFunds and its Customers. Delivery and
Operations Support is described more fully in Exhibit A attached hereto.
"Development Support" means the provision of professional services to
---------------------
develop O N E System Enhancements requested by eFunds as described in a
particular Service Request. Development Support is described more fully in
Exhibit B attached hereto.
"eFunds Data" means any data or other information submitted by eFunds or
-------------
its Customers to the O N E System, or created by eFunds or its Customers as
a result of its or their use of the O N E System for the purposes intended
by this Agreement.
"eFunds Interface" means the interface(s) between the eFunds Systems and
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the Presentation Layer of the O N E System. The eFunds Interface will be
defined by and based on the Comm Specs. The particular components of the
eFunds Interface are described more fully on Exhibit C attached hereto.
"eFunds Systems" means the back-end system proprietary to eFunds which
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interfaces with the O N E Presentation Layer and any customer specific
presentation layer. The particular components of the eFunds Interface are
described more fully on Exhibit C attached hereto.
"Enhancements" means any enhancements, improvements, other modifications to
--------------
and/or derivative works of the O N E System.
"Professional Services Agreement" means the Professional Services Agreement
---------------------------------
by and between Deluxe Corporation and eFunds, effective as of April 1,
2000, including all amendments thereto.
"O N E System" means Deluxe's proprietary system known as O N E, including
--------------
the Presentation Layer and all Enhancements, and any other modifications,
improvements and/or derivative works thereof.
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"Presentation Layer" means that portion of the O N E System that is used by
--------------------
a Customer(s) in order for such Customer to access and use all or any
portion of the O N E System. A more detailed description of the currently
available forms of the Presentation Layer is contained in Appendix D of
Exhibit B (which describes Development Support).
"Reimbursable Expenses" means costs and expenses reasonably incurred by
-----------------------
Deluxe in performing the Delivery and Operations Support and Development
Support under this Agreement.
"Services" means the services provided by Deluxe hereunder in order to
----------
provide Delivery and Operations Support and Development Support.
"Service Request" means a document substantially in the form attached as
-----------------
Exhibit D and signed by an authorized representative of both parties, under
which Deluxe agrees to perform or have performed for eFunds the specific
additional Services described in such Service Request. The fees for a
particular Service Request will be agreed to by the parties and stated in
such Service Request.
3.0 SCOPE OF WORK.
3.1 Authorization to Perform Services.
The Services will be authorized and provided in accordance with the terms
of this Agreement, including the Exhibits attached hereto. Also, from time
to time during the term of this Agreement the parties may agree to a
Service Request(s) for specific additional Services to be provided
hereunder.
3.2 Subcontracting.
Deluxe may hire subcontractors to perform Services under this Agreement,
provided that Deluxe shall remain responsible for the performance of each
such subcontractor. Notwithstanding anything to the contrary in this
Agreement, eFunds acknowledges and agrees that some of the Development
Support it requests hereunder will not be provided directly or indirectly
by Deluxe, but rather may be provided by eFunds or its Affiliates (as
defined in the IPO and Distribution Agreement between eFunds and Deluxe
Corporation dated as of March 31, 2000) and its or their subcontractors
pursuant to the Professional Services Agreement, and that Deluxe shall have
no liability hereunder for any such Development Services actually provided
by eFunds or its Affiliates or its or their subcontractors.
4.0 MANAGEMENT AND CHANGE CONTROL.
4.1 Committees.
Deluxe and eFunds shall establish and maintain the Committees set forth
below throughout the term of this Agreement.
4.1.1 Operations Committee.
The Operations Committee shall consist of the Product Managers and Service
Managers of Deluxe and eFunds, and it will be responsible for the parties'
day-to-day performance under this Agreement and the continued operation,
support, enhancement and maintenance of the O N E System pursuant to this
Agreement. In particular, the Operations Committee will be responsible for:
a. Establish processes for implementing and communicating any
changes to the Services, whether eFunds or Deluxe initiated
through a Service Request;
b. Coordinating all proposed changes to the Services and all
proposed changes to eFunds Systems (including the Comm Specs)
and/or eFunds Interface that may affect the O N E System or the
Presentation Layer, which will be implemented and communicated
using the change management procedures approved by the
Operations Committee.
c. Reviewing all Enhancements and other changes to the O N E
System that directly impact the eFunds Systems and/or eFunds
Interface, such as product enhancements, and/or internal
technical upgrades or modifications;
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d. Documentation of any formal agreement upon changes or
Enhancements that directly impact the eFunds Systems and/or
eFunds Interface through sign-off procedures established by the
committee;
e. Sign off by the parties for the implementation of business
requirements and/or specifications for Enhancements contained
in a Service Request, communication of priority and changes to
priority of Service Requests;
f. Shared testing and quality assurance procedures and sign off
for Enhancements and other changes to the O N E System that
directly impact the eFunds Systems and/or eFunds Interface;
g. Participation from eFunds on the approval of each individual
Presentation Layer (i.e., the O N E for Windows needs may
differ from the mainframe needs) that directly impact the
eFunds Systems and/or eFunds Interface;
h. Establishment of notification process for enhancements to the
products offered by eFunds through the O N E System;
i. Other key responsibilities as outlined in the various Exhibits
to this Agreement;
j. If the Operations Committee does not reach agreement on a
particular issue, such issue will be escalated to the
Management Committee for decision;
k. Review of price changes and/or other amendments to the
Agreement.
Notwithstanding any other provision of this Agreement, eFunds shall not
implement any change to the eFunds System or the eFunds Interface or initiate
any new product or service that will use the O N E System or the Presentation
Layer without first notifying Deluxe and securing Deluxe's agreement thereto,
which agreement shall not be unreasonably withheld or delayed. Presentation of
such requests shall be made in the first instance to the Operations Committee.
Further, the provisions of the Exhibits shall be read in a manner consistent
with the provisions of this Section 4.1.1, so that, for instance, Deluxe may
make modifications to the O N E System or the Presentation Layer or Enhancements
that do not directly impact the eFunds Systems and/or eFunds Interface without
observing the procedures prescribed therein or other provisions thereof.
4.1.2 Management Committee.
The Management Committee shall consist of advisory members from each party
as deemed appropriate. The responsibilities of the Management Committee
include the following: 1) ensure sufficient and continued communications
between Deluxe and eFunds under this Agreement, 2) attempt to resolve
disputes by mutual agreement, with escalation to the Executive Committee as
necessary, 3) review and revise Deluxe and eFunds responsibilities, 4)
review and act upon performance reports, including service level reports,
5) review and analyze workload trends and variances from plans, and 6)
undertake such other responsibilities as Deluxe and eFunds agree upon from
time to time.
4.1.3 Executive Committee.
The Executive Committee shall consist of senior-level executives of Deluxe
and eFunds with advisory members from each company as deemed appropriate.
The responsibilities of the Executive Committee include the following: 1)
perform an semi-annual review of eFunds business planning initiatives and
expected changes as they relate to the services provided by Deluxe, 2)
perform an semi-annual review of Deluxe plans to support the O N E System,
3) review semi-annual performance evaluation reports, 4) attempt to resolve
by mutual agreement any disputes escalated by the Management Committee, and
5) undertake such other responsibilities as Deluxe and eFunds agree upon
from time to time.
4.2 Reporting
Deluxe will provide eFunds with such documentation and other information as
may be reasonably requested by eFunds from time to time in order to verify
that Deluxe's performance of Services is in compliance with the terms and
conditions of this Agreement. The content and format of these reports will
be recommended by the Management Committee and approved by the Executive
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Committee, and will be consistent with the service level requirements
documented in Exhibits A and B.
4.3 Meetings
The Operations Committee will meet on a monthly basis, or as required, to
review Deluxe's performance in the prior month regarding, but not limited
to, service level goals and attainment, eFunds satisfaction, workload and
work effort, and billing. These meetings shall be conducted within fifteen
(15) business days following the close of the prior month, unless both
parties agree to a different schedule. The Management Committee will meet
on a quarterly basis, or as required, to review Deluxe's performance in the
prior quarter regarding, but not limited to, service level goals and
attainment, eFunds' satisfaction, workload and work effort, and billing.
These meetings shall be conducted within twenty (20) business days
following the close of the prior quarter, unless both parties agree to a
different schedule. The Executive Committee will meet on a semi-annual
basis, or as required, to review Deluxe's performance in the prior six
months regarding, but not limited to, service level goals and attainment,
eFunds' satisfaction, workload and work effort, and billing. These meetings
shall be conducted within thirty (30) business days following the close of
the prior half-year, unless both parties agree to a different schedule.
5.0 COMPENSATION.
5.1 Services Fees.
As compensation for all Services provided to eFunds hereunder, eFunds will
pay the amounts set forth in the applicable Exhibit.
5.2 Payment Terms.
Deluxe shall invoice eFunds for all Services provided in on a quarterly
basis in arrears within 30 days of the end of the applicable quarter. In
the event eFunds disputes an item billed, eFunds shall, within 60 days of
receipt of Deluxe's invoice, notify Deluxe of the item in dispute,
specifying eFunds' complaint. eFunds may withhold payment of items in
dispute without interest until the dispute is resolved. Each party shall be
entitled to offset amounts owing under this Agreement against amounts owing
under the Professional Services Agreement, Transition Services Agreement or
Processor Agreement by notice to the other party. Payments of amounts owing
pursuant to this Agreement, which are not offset against amounts owed by
eFunds, as set forth in the preceding sentence, shall be made twice per
year on the 30th day of June and 31st day of December.
5.3 Taxes.
a. General. Deluxe shall pay all taxes, including any charges,
fees, duties, levies, imposts, rates or other assessments imposed by any
federal, state, local or foreign taxing authority, including, but not
limited to, income, profits, gross receipts, excise, property, license,
capital stock, franchise, transfer, sales, use, payroll, withholding,
social security, value added or other taxes, and any interest, penalties or
additions attributable thereto assessed or levied against Deluxe and its
Affiliates (as defined in the IPO and Distribution Agreement) and its or
their subcontractors (other than with respect to services performed by
eFunds and its Affiliates and its or their subcontractors in connection
with the Services) and in respect of the Services performed under this
Agreement.
b. Sales and Use Taxes. All applicable sales or use taxes assessed
on the provision of Services shall be paid by eFunds.
6.0 CLIENT RESPONSIBILITIES
6.1 Access to Systems, Resources and Personnel.
eFunds will provide Deluxe with timely access to appropriate eFunds
personnel and will arrange for Deluxe personnel to have suitable and safe
access to Customers' facilities and systems, solely
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4
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as needed in order for Deluxe to perform its obligations hereunder. Each
party agrees to provide the other party's personnel reasonable access to
its systems and facilities solely in order for the parties' to perform
their obligations hereunder.
The parties will agree upon the personnel, products and other items, if
any, which eFunds will provide or make available to Deluxe in order for
Deluxe to provide the Services hereunder. eFunds will assign such personnel
and furnish such products and other items to Deluxe and in a timely manner.
eFunds will be responsible for the availability and performance of such
personnel, products and other items.
6.2 Approvals and Information.
eFunds will respond promptly to any Deluxe request to provide direction,
information, approvals, authorizations or decisions that are reasonably
necessary for Deluxe to perform Services in accordance with the
requirements of this Agreement.
7.0 PERFORMANCE STANDARDS
7.1 Service Level Requirements.
During the term of this Agreement the Services (which shall not include any
Development Support requested by eFunds that is actually provided by eFunds
pursuant to the Professional Services Agreement) shall be provided by
Deluxe in compliance with the performance standards set forth in the
applicable Exhibit. Throughout the term, Deluxe shall use such necessary
measurements and available monitoring tools and procedures as may
reasonably be required to measure and report Deluxe's performance of such
Services against the applicable performance standards. Deluxe shall provide
eFunds and eFunds' auditors with information and access to all such tools
and procedures upon request for purposes of verification.
8.0 OWNERSHIP AND LICENSES
8.1 Data.
All eFunds Data shall be and remain the property of eFunds, and Deluxe
shall have the non-exclusive right and license to use, copy, display and
distribute such eFunds Data as needed in order to provide the Services
hereunder.
8.2 O N E System.
DELUXE shall be the sole and exclusive owner of the O N E System and all
other software, hardware equipment, data and other materials (including,
without limitation, the Presentation Layer and all software, hardware,
equipment and other materials, data and information (excluding the eFunds
Data) that constitute or are included in the O N E System), except that
eFunds will own the eFunds Systems and the eFunds Interface. Subject to the
foregoing, eFunds hereby assigns and transfers to Deluxe all right, title
and interest (including without limitation, all present and future
copyrights) that eFunds has or may have in the O N E System (including all
Enhancements thereto). eFunds is hereby granted a non-exclusive,
non-transferable, limited license to use the O N E System solely as
necessary to use, test, provide quality assurance and otherwise test and
assist in the preparation of Enhancements to the O N E System, or as is
otherwise necessary in order to enable delivery of eFunds products through
the ONE System to Customers. Except as otherwise requested or approved by
Deluxe, eFunds and its Customers shall cease all use of the O N E System
upon any expiration or termination of this Agreement.
8.3 Customer License.
Deluxe shall license Customers the use of the necessary portions of the
Presentation Layer of the O N E System pursuant to the terms of a license
agreement substantially in the form attached hereto as Exhibit D, solely in
order for such Customers to access and use the eFunds Systems. Deluxe shall
have the option to modify the term of Exhibit D as needed in order to
protect its proprietary rights in and to the O N E System. eFunds shall
have no right or license hereunder to distribute, sublicense or other
provide the O N E System directly to any Customers.
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8.4 Trademark License.
Deluxe hereby grants to eFunds a non-exclusive, non-transferable,
royalty-free limited license to use the trademark "O N E", U.S. Reg. No.
1,796,150 (the "Mark"), solely in the advertising and promotion of eFunds'
products that utilize the O N E System. All use of the Mark by eFunds shall
be subject to the prior written approval of Deluxe, and in accordance with
the trademark usage standards, specifications and instructions of Deluxe,
but in no event beyond the term of this Agreement. Deluxe may inspect and
monitor the activities of eFunds to ensure that such use of the Mark is in
accordance with such standards, specifications and instructions. eFunds
shall acquire no right, title or interest in the Mark other than the
foregoing limited license and eFunds shall not use the Mark as part of any
eFunds' trade name or permit any third party to do so. eFunds shall not
adopt, use or register any words, phrases or symbols which are identical to
or confusingly similar to the Mark. Upon termination of this Agreement,
eFunds shall cease and desist from use of the Mark in any manner. Deluxe
shall be solely responsible for the registration and enforcement of the
Mark, and eFunds shall cooperate with Deluxe's reasonable requests for
assistance in any such registration or enforcement proceeding, at Deluxe's
expense.
9.0 CONFIDENTIALITY
9.1 General.
All Confidential Information shall be deemed confidential and proprietary
to the party disclosing such information hereunder. Each party may use the
Confidential Information of the other party during the term of this
Agreement only as permitted or required for the receiving party's
performance hereunder. The receiving party shall not disclose or provide
any Confidential Information to any third party other than its agents,
contractors and consultants performing services in connection with the
Services and shall take reasonable measures to prevent any unauthorized
disclosure by its employees, agents, contractors or consultants during the
term hereof including appropriate individual nondisclosure agreements. The
foregoing duty shall survive any termination or expiration of this
Agreement.
9.2 Exclusions.
The following shall not be considered Confidential Information for purposes
of this Section 9: (a) Information which is or becomes in the public domain
through no fault or act of the receiving party; (b) Information which was
independently developed by the receiving party without the use of or
reliance on the disclosing party's Confidential Information; (c)
Information which was provided to receiving party by a third party under no
duty of confidentiality to the disclosing party; or (d) Information which
is required to be disclosed by law with no further obligation of
confidentiality, provided, however, prompt prior notice thereof shall be
given to the party whose Confidential Information is involved.
10.0 WARRANTIES
10.1 Limited Warranties. Deluxe warrants that all Services its performs
under this Agreement shall be performed in accordance with the provisions
of Section 7.1 as applicable and in a professional and workmanlike manner
in accordance with accepted standard practice by members of the same
profession. Deluxe also warrants to eFunds that the Services to be rendered
hereunder by Deluxe will be performed by qualified personnel and that such
Services will include reasonable diligent efforts to ensure that no defects
occur as a result of such Services. eFunds shall give reasonable
notification of any Services which eFunds believes to be deficient. If such
Services are found to be defective by Deluxe, then Deluxe's sole obligation
and eFunds' sole remedy under this warranty is for Deluxe to use reasonable
commercial efforts to remedy such defect. If Deluxe is unable to remedy
such defect within a reasonable time period, then eFunds' exclusive remedy
and Deluxe's entire liability in contract, tort or otherwise shall be a
refund of the amounts paid by eFunds' hereunder for the defective Services.
Notwithstanding the
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foregoing, Deluxe shall have no liability under this Section 10.1 for any
Services requested by eFunds that are actually performed by eFunds pursuant
to the Professional Services Agreement.
10.2 Disclaimer.
EXCEPT FOR THE LIMITED WARRANTIES IN SECTION 10.1 ABOVE, DELUXE MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO
THE SERVICES OR THE O N E SYSTEM.
11.0 INDEMNIFICATION
11.1 Indemnity by eFUNDS
eFunds shall fully protect, indemnify and hold harmless and defend Deluxe,
its subsidiaries, parent, affiliates, directors, officers, agents and
employees from and against any and all loss, costs (including reasonable
attorney's fees) damages, injury, liability, claims, demands, or causes of
action arising out of, incident to, or in connection with any act or
omission, negligent or otherwise, of eFunds or its officers, agents or
employees in performance of this Agreement, related to (a) claims for
personal injury, including death, or property damage, (b) third party
claims of infringement of such third party's proprietary rights, including,
but not limited to, patent, copyrights or trademarks, or (c) third party
claims related to eFunds provision of its products and services (including
the eFunds Systems) to Customers and other third parties; provided,
however, that eFunds shall have no liability under this Section 11.1 to the
extent such loss, cost, damage, injury, liability, claim, demand or action
is due to the negligence of Deluxe or Deluxe is obligated to indemnify
eFunds pursuant to Section 11.2.
11.2 Indemnity by Deluxe
Deluxe shall fully protect, indemnify and hold harmless and defend eFunds
for all costs, expenses and damages, including reasonable attorney's fees,
associated with any claims and/or suits alleging infringement or
misappropriation (together "infringement") of any patent, trademark,
copyright, trade secret or violation of any other intellectual property or
proprietary rights by reason of the use of the O N E System by eFunds as
permitted hereunder. If the use of the O N E System becomes the subject of
a claim or threatened action with respect to any such alleged infringement,
as Deluxe's sole obligation and eFunds' sole remedy, Deluxe will, at its at
sole election and expense, replace the alleged infringing technology or
system with a substitute free of the infringement, or shall procure for
eFunds' benefit a license or other right to use the same; or shall remove
the allegedly infringing technology or system or portion thereof.
11.3 Indemnification Procedures
With respect to any third party claims for which a party seeks
indemnification under this Section 11, the indemnification procedures set
forth in Section 7.01(d)-(f) of the IPO and Distribution Agreement between
eFunds and Deluxe Corporation dated as of March 31, 2000 shall apply, and
are hereby incorporated herein and made a part hereof for all purposes as
if fully set forth herein. With respect to any claims for indemnification
which do not involve a claim by a third party, the procedures set forth in
Section 14 hereof shall govern the parties' rights and obligations with
respect thereto.
12.0 TERM AND TERMINATION
12.1 Term.
This Agreement will commence as of the Effective Date, and will terminate
as of December 31, 2001.
12.2 Termination for Cause.
If either party believes that the other party has failed in any material
respect to perform its obligations under this Agreement (including any
Exhibit hereto), then that party may provide
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written notice to the other party's members of the Management Committee
describing the alleged failure in reasonable detail. If the alleged failure
relates to a failure to pay any sum due and owing under this Agreement, the
breaching party shall have three business days after notice of such failure
to cure. With respect to all other defaults, if the breaching party does
not, within thirty (30) calendar days after receiving such written notice,
either (a) cure the material failure or (b) if the breach is not one that
can reasonably be cured within thirty (30) calendar days, develop a
mutually agreed to plan to cure the failure and diligently proceed
according to the plan until the material failure has been cured, then the
non-breaching party may terminate this Agreement or the affected Exhibit,
in whole or in part, for cause by written notice to the members of the
Management Committee of the breaching party. Prior to any termination of
this Agreement or a Service Request for cause, the party receiving the
initial notice under the preceding sentence will be afforded an opportunity
to meet with the Management Committee representatives of the non-breaching
party to explain its position.
12.3 Termination for Bankruptcy.
Either party shall have the immediate right to terminate this Agreement
upon written notice in the event that (a) the other party becomes
insolvent, enters into receivership, is the subject of a voluntary or
involuntary bankruptcy proceeding, or makes an assignment for the benefit
of creditors; or (b) a substantial part of the other party's property is or
becomes subject to any levy, seizure, assignment or sale for or by any
creditor or governmental agency.
12.4 Termination Assistance.
It is the intent of the parties that at the expiration or termination of
the scope of Services (other than as a result of termination resulting from
a failure to pay any sum due and owing under this Agreement), Deluxe will
cooperate with eFunds to assist with the orderly transfer of the Services
provided by Deluxe hereunder to eFunds itself or another services provider.
Prior to expiration or such termination of the scope of Services, eFunds
may request through a Service Request that Deluxe perform and, if so
requested, Deluxe shall perform (except in the event of a termination due
to a failure by eFunds to pay any amounts due and payable under this
Agreement when due) services in connection with migrating the work of
eFunds to eFunds itself or another services provider. The parties shall
develop a mutually acceptable Services transition plan, and Deluxe shall
provide Services hereunder as provided in such plan.
12.5 Other Rights and Obligations on Termination.
Upon termination of this Agreement for any reason, the parties shall have
the following rights and obligations:
(a) Termination of this Agreement shall not release either party from
the obligation to make payment of all amounts then or thereafter due and
payable; and
(b) The parties' respective rights and obligation under Sections 5, 7,
8, 9, 10, 11, 12.4, 12.5, 13, 14 and 15 hereof shall survive such
termination of this Agreement.
(c) The parties agree that, subject to the above provisions of Section
12.5(a), and without prejudice to any other remedies at law or in equity
that either party may have in respect of any breach of this Agreement,
neither party shall be entitled to or claim that it is entitled to any
compensation or like payment as a result of or arising out of any
termination in accordance with this Section 12, whether claimed as loss of
good will, lost profits, lost investments, or otherwise.
13.0 LIMITATION OF LIABILITY
In no event will either party be liable to the other party any lost
profits, loss of business, loss of use, lost savings or other
consequential, special, incidental, indirect, exemplary, punitive or other
similar damages, even if such party has been advised of the possibility of
such damages.
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14.0 LAW AND DISPUTES
14.1 Governing Law.
This Agreement will be governed by the laws of the State of Minnesota,
without regard to its choice of law provisions.
14.2 Guiding Principals On Dispute Handling
eFunds and Deluxe agree to utilize all reasonable efforts to resolve any
dispute, whether arising during the term of the Agreement or at any time
after the expiration or termination of this Agreement, which touches upon
the validity, construction, meaning, performance or effect of this
Agreement or the rights and liabilities of the parties, promptly and in an
amiable manner by negotiations between the parties.
14.3 Problem Escalation Procedures
Either party may refer any dispute to the Management Committee. The
Management Committee shall meet as soon as is reasonably possible after a
dispute is referred to it, giving due regard to the nature and impact of
the issue under consideration.
If a dispute cannot be resolved by the Management Committee within a time
period that is satisfactory to the party raising the issue under
consideration, the Management Committee may refer the dispute to the
Executive Committee. The Executive Committee shall meet as soon as is
reasonably possible after a dispute is referred to it, giving due regard to
the nature and impact of the issue under consideration.
If a dispute cannot be resolved by the Executive Committee within a time
period that is satisfactory to the party raising the issue under
consideration, the Executive Committee may refer the dispute to the Chief
Executive Officer of Deluxe and the Chief Executive Officer of eFunds. The
Chief Executive Officers shall meet as soon as is reasonably possible after
a dispute is referred to it, giving due regard to the nature and impact of
the issue under consideration.
If a dispute cannot be resolved by the Chief Executive Officers within a
time period that is satisfactory to the party raising the issue under
consideration, the Chief Executive Officers may submit the dispute for
arbitration as provided in Section 14.4.
14.4 Arbitration
The parties stipulate and agree that if they are unable to resolve any
controversy arising under this Agreement then such controversy shall be
submitted at the election of either party to mandatory and binding
arbitration in lieu of litigation and judgment upon the award rendered by
the arbitrator may be entered in any court of competent jurisdiction in the
State of Minnesota. Such arbitration shall be held in Minneapolis,
Minnesota and shall be conducted in accordance with the Commercial Rules of
the American Arbitration Association ("AAA"). Every matter in the
controversy shall be settled by a single arbitrator reasonably acceptable
to the parties, unless the parties agree upon a panel of three arbitrators.
If the parties are unable to agree upon the single arbitrator within 30
days of the commencement of the arbitration with the AAA, the AAA may
designate an arbitrator to hear the dispute. If a panel of three
arbitrators is agreed upon by the parties, each party shall select O N E
arbitrator and the third to be agreed upon jointly. However, if the parties
are unable to agree upon the third arbitrator within five (5) days after
request of arbitration, either party may request the appointment of an
arbitrator by the AAA. In the event court action is required to enforce
this Agreement to arbitrate, the parties hereby consent to the exclusive
jurisdiction of the courts of Minnesota. This Section shall be interpreted,
construed and governed by and in accordance with the rules of the AAA.
Both parties shall continue performing their respective obligations and
responsibilities under this Agreement while any dispute is being resolved
in accordance with this Section 14.4, unless and
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until such obligations are terminated or expire in accordance with the
provisions of this Agreement.
14.5 Limitation of Actions.
No proceeding, regardless of form, arising out of or related to this
Agreement may be brought by either party more than two (2) years after the
accrual of the cause of action, except that (a) proceedings related to
violation of a party's proprietary rights or any duty to protect
Confidential Information may be brought at any time within the applicable
statute of limitations, and (b) proceedings for non-payment may be brought
up to two (2) years after the date the last payment was due.
15.0 General
15.1 Notices.
Any notice or other communication required or permitted to be made or given
by either party pursuant to the Contract Documents will be in writing, in
English, and will be deemed to have been duly given: (i) five (5) business
days after the date of mailing if sent by registered or certified U.S.
mail, postage prepaid, with return receipt requested; (ii) when transmitted
if sent by facsimile, provided a confirmation of transmission is produced
by the sending machine and a copy of such facsimile is promptly sent by
another means specified in this Section; or (iii) when delivered if
delivered personally or sent by express courier service. All notices will
be sent to the other party at its address as set forth below or at such
other address as such party will have specified in a notice given in
accordance with this Section:
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In the case of DELUXE: With a copy to:
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Deluxe Financial Services, Inc. Deluxe Financial Services, Inc.
3680 Victoria Street North 3660 Victoria Street North
Shoreview, Minnesota 55126 Shoreview, Minnesota 55126
Attn: Ron Eilers Attn: Legal Department
Fax: (651)481-4477 Fax: (651)787-2749
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In the case of eFUNDS: With a copy to:
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eFunds Corporation EFunds Corporation
1080 W County Road F 1080 W County Road F
Shoreview, MN 55126 Shoreview, MN 55126
Attn: Debra Janssen Attn: Legal Department
Fax: (651)787-2749 Fax: (651)787-2749
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15.2 Reasonable Behavior.
Each party will act in good faith in the performance of its respective
responsibilities under this Agreement and will not unreasonably delay,
condition or withhold the giving of any consent, decision or approval that
is either requested or reasonably required by the other party in order to
perform its responsibilities under this Agreement.
15.3 Assignment.
Neither party may assign or otherwise transfer this Agreement or any of the
rights that they grant without the prior written consent of the other
party. Any purported assignment in violation of the preceding sentence will
be void and of no effect. This Agreement will be binding upon the parties'
respective successors and permitted assigns.
15.4 Integration.
This Agreement (including all Exhibits attached hereto which are
incorporated herein by reference) constitutes the entire agreement between
the parties, and supersede all other prior or contemporaneous
communications between the parties (whether written or oral) relating to
the subject matter of this Agreement. This Agreement (including all
Exhibits attached hereto) may be
________________________________________________________________________________
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modified or amended solely in a writing signed by both parties. Any terms
and conditions varying from this Agreement on any purchase order or other
written notification from either party are void.
15.5 Severability.
The provisions of this Agreement shall be deemed severable, and the
unenforceability of any O N E or more provisions shall not affect the
enforceability of any other provisions. In addition, if any provision of
this Agreement, for any reason, is declared to be unenforceable, the
parties shall substitute an enforceable provision that, to the maximum
extent possible in accordance with applicable law, preserves the original
intentions and economic positions of the parties.
15.6 Order Of Precedence.
In the event of any conflict between or among the provisions contained in
this Agreement, the following order of precedence will govern: (a) Service
Requests, (b) Exhibits to the Agreement other than Service Requests; (c)
this Agreement, exclusive of its Exhibits.
15.7 No Waiver.
No failure or delay by either party in exercising any right, power or
remedy will operate as a waiver of such right, power or remedy, and no
waiver will be effective unless it is in writing and signed by the waiving
party. If either party waives any right, power or remedy, such waiver will
not waive any successive or other right, power or remedy the party may have
under this Agreement.
15.8 Force Majeure.
Neither party shall be liable for any losses arising out of the delay or
interruption of its performance of obligations (other than payment
obligations) under the Agreement due to any act of God, act of governmental
authority, act of public enemy, or due to war, riot, flood, civil
commotion, insurrection, severe weather conditions, or any other cause
beyond the reasonable control of the party delayed (a "Force Majeure
Event"). Upon the occurrence of a Force Majeure Event, the non-performing
party shall be excused from any further performance or observance of the
affected obligation(s) for so long as such circumstances prevail and such
party uses commercially reasonable efforts to recommence performance or
observance whenever and to whatever extent possible without delay. Any
party so delayed in its performance will immediately notify the other by
telephone or by the most timely means otherwise available (to be confirmed
in writing within two (2) business days of the inception of such delay) and
describe in reasonable detail the circumstances causing such delay.
Each party has caused its authorized representative to execute this Agreement as
of the Effective Date.
eFunds Corporation Deluxe Financial Services, Inc.
By:________________________________ By:______________________________
Name: _____________________________ Name: ___________________________
Title: ____________________________ Title: __________________________
________________________________________________________________________________
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EXHIBIT 10.12
EBT SUPPORT SERVICES AGREEMENT
This EBT Support Services Agreement, dated April 17, 2000, but effective as
of April 1, 1996 ("Effective Date") is entered into by and between DELUXE
GOVERNMENT SERVICES, a division of eFunds Corporation, ("Contractor"), a
Delaware corporation, having its principal place of business at 400 West Deluxe
Parkway, Milwaukee, Wisconsin 53212-0536 and CITICORP SERVICES INC. ("CSI"), a
New York corporation, having its principal place of business at 8430 West Bryn
Mawr Avenue, Chicago, Illinois 60631.
WHEREAS, in accordance with the U.S. Department of Treasury Invitation for
Expressions of Interest to Acquire Electronic Benefits Transfer Services for the
Southern Alliance of States, Citibank, F.S.B. ("Citibank") was awarded the right
to enter into contracts (each, a "Contract") for the delivery of comprehensive
electronic benefits transfer ("EBT") services (the "Project") to those states
participating in the Southern Alliance of States ("SAS") and the Financial
Management Service of the United States Department of Treasury ("FMS"); and
WHEREAS, Citibank has contracted with CSI to act as its prime contractor
for the provision of EBT services to the SAS; and
WHEREAS, Contractor has been and is providing certain services in
connection with the Project in the States of Alabama (AL), Arkansas (AR),
Kentucky (KY), Missouri (MO), and Tennessee (TN), and in Florida (FL), Georgia
(GA) and North Carolina (NC) (each, a "State") in anticipation of the execution
of an EBT Support Services Agreement between the parties; and
WHEREAS, Contractor is willing to continue to provide, and CSI desires that
Contractor provide, the services on the terms and conditions set forth below.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties agree as follows:
1. Services to be Performed. Contractor will, unless otherwise stated,
provide the services described in Attachment A ("Services"), attached hereto and
made a part hereof, in support of the Project in each of the States. In
performing such services, Contractor will:
(a) Provide all services on a basis consistent with the Contract,
including without limitation, the IEI, amendments to the IEI, applicable
federal and state requirements and those of the question and answer
documents, the Citibank proposal, Citibank's BAFO pricing (for reference
purposes only; Contractor's pricing is as set forth in this Agreement),
Citibank's clarification document dated 1/23/96 and the oral presentations
to the extent any or all are expressly incorporated into the Contract ;
(b) Provide delivery of direct Federal benefits as described in
Attachment A;
(c) Monitor all systems under its control to maintain the level of
system performance and availability required by the Contract;
(d) Maintain a suitable operating environment for all computer and
other equipment in Contractor's possession used in performing the Services;
and
(e) Meet all other requirements associated with the Services as
defined by this Agreement.
Attachment A represents a general statement of work only and includes
references to the Contract for general descriptive purposes only. In the event
of any conflict between Attachment A and Contractor's required scope of work,
the parties shall promptly negotiate and resolve same in accordance with Section
22, Interpretations and Disputes.
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2. Contractor Responsibilities. Contractor agrees to undertake the
following responsibilities in connection with its performance of the Services:
(a) Contractor's employees shall provide the Services on behalf of
Contractor on a scheduled basis, which schedule shall be in accordance with
the project plans and other agreements with the States.
(b) Contractor will assist CSI in problem investigation, as reasonably
necessary for the performance of the Contract, including the preparation of
written reports as may be required by the State and Federal agencies, when
such investigations and reports concern matters that are reasonably within
the scope of Contractor's services hereunder. For purposes hereof,
investigation shall consist of such examinations and inquiries as are
reasonably necessary to determine the substance of any problem brought to
Contractor's attention and the appropriate resolution thereof.
(c) To facilitate and track all deliverables and major communications,
Contractor will utilize a transmittal system that will number and log such
deliverables and major communications.
(d) Contractor will notify the CSI SAS Project Director of all matters
affecting the scope of Contractor's performance of services hereunder,
including, without limitation, any requests for change orders by the State
or any alternatives to the required scope of work that Contractor desires
to offer to the State. Contractor will submit all deliverables and major
communications to CSI for review and approval prior to delivery to the
State. Contractor and CSI shall comply with the procedures set forth in
Section 21 with respect to any change order request from a State or other
change in scope of performance of this Agreement. Contractor will keep CSI
and, where agreed, other subcontractors of CSI informed with regular
reports of Project status. In addition, copies of all correspondence
between Contractor and the States will be provided to CSI.
(e) Any information provided by the States to Contractor from the Food
and Nutrition Service ("FNS") or Administration for Children and Families
("ACF") shall be communicated promptly to the CSI State Project Director.
Contractor shall cooperate with the CSI State Project Director to resolve
issues raised by FNS or ACF.
(f) Contractor will coordinate its delivery of Services with the
delivery of Service by other subcontractors under the Contract. In the
event of any conflict between Contractor and such other subcontractors,
Contractor shall promptly notify CSI of such conflict and will cooperate
with CSI to resolve such conflict and ensure the timely performance of the
Contract at no additional cost to Contractor, other than as may be agreed
by the parties.
(g) Contractor will provide CSI and its other subcontractors with
reasonable access to Contractor's system via Contractor's administrative
application and Contractor's software for PIN selection (where required).
Contractor will provide, as necessary, administrative and POS software to
the other subcontractors at no cost, subject to reasonable and appropriate
intellectual property protection. Such subcontractors will provide PCs, POS
equipment and a telecommunications line to Contractor at such
subcontractors' own expense.
(h) Contractor will ensure that its system will support card issuance,
PIN selection by mail, EBT-only POS processing, and linkage of the card and
PIN as agreed among CSI, Contractor, and the other subcontractors.
Contractor will only support the TRANZ 330 PIN select hardware for the
State.
(i) Contractor is responsible within the States for card support
services, including:
(i) Technical design and interfaces with the States and the card
vendor;
(ii) Selection of PIN encryption equipment and PIN selection
processes;
(iii) System and help desk related card replacement procedures.
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(j) Any card or PIN decisions or changes to core services, other than
ARU PIN issuance, by CSI or the State that impact the benefit recipient
help desk must be approved by Contractor prior to implementation.
(k) Contractor will be responsible for training state and local
personnel in the States as set forth in Attachment A.
(l) To facilitate the interchange of transactions originating within
the Project and transactions that occur outside the Project that require
authorization and/or settlement by Contractor pursuant hereto, Contractor
will connect to, and route all transactions authorized or settled by
Contractor pursuant hereto, to CSI's designated switch; provided that the
cost of authorizing and/or switching and/or settling transactions that are
either initiated within the Project with non-SAS cards or initiated outside
the Project with SAS cards is not subject to this Agreement and such costs
shall be addressed by amendment to this Agreement. The interface to the CSI
designated switch will be ISO 8583 as published by ANSI. Notwithstanding
the foregoing, in Alabama, Arkansas, Kentucky, Missouri and Tennessee,
intra-Project transactions (i.e. transactions initiated within a State
using cards issued by that State or another SAS State) that originate at
EBT-only terminals driven by Contractor do not need to be routed to CSI's
designated switch. For all transactions that are authorized by Contractor
and which are not settled through CSI's designated switch, Contractor shall
be responsible for settlement of such transactions through Contractor's
designated financial institution, subject to any right of approval of the
applicable State. Such settlement shall include, as necessary, the
origination at its expense of a debit(s) to the State(s) in the amount of
authorized transactions and of credits to retailers in the amount of
authorized transactions for such retailer. Contractor shall ensure the
reporting requirements of the States are met if transactions are intercept
processed by Contractor.
(m) With respect to the Services provided by Contractor in States that
have required adherence to the Quest Rules promulgated by the National
Automated Clearing House Association, as amended from time-to-time, (the
"Quest Rules"), the Contractor shall undertake the responsibilities of a
Cardholder Authorization System and a Third Party Service Provider to the
extent the Quest Rules are applicable to its Services hereunder.
(n) The parties acknowledge that they have entered into an Agreement
for Switching Services, dated January 31, 1997 (the "Switch Agreement")
whereby Contractor will provide CSI transaction switch services as CSI's
designated switch. Contractor will provide the EBT switching services as
defined in the Switch Agreement. Should the Switch Agreement be terminated
as provided therein and CSI chooses a designated switch provider other than
Contractor, Contractor agrees:
(i) To the extent Contractor acts as a third party acquirer for
EBT-only POS transactions, provide a line to the CSI designated switch
and certify to the CSI designated switch.
(ii) To route EBT-only transactions initiated in Florida and
Georgia, if acquired by Contractor, to the CSI designated switch.
(iii) To reimburse CSI for switching provided by the CSI
designated switch for Alabama, Arkansas, Kentucky, Missouri and
Tennessee Third Party Processor (TPP) acquired transactions (including
Contractor acting as a TPP) and Network acquired EBT transactions
switched to Contractor based upon the following formula: number of TPP
and Network acquired and switched EBT transactions in the Five States
times the appropriate switch fee from Table A below.
(iv) Unless otherwise agreed, Contractor is not responsible to
acquire non-SAS transactions initiated in any of the States.
(v) Contractor will not be required to route EBT-only
intra-Project transactions (i.e. transactions initiated within a State
using cards issued by that State or another SAS State)
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acquired by Contractor in Alabama, Arkansas, Kentucky, Missouri or
Tennessee to the CSI designated switch.
TABLE A
------------------------------------- -------------------
All Monthly Transaction Volumes* Switch Fee
Through the CSI Designated Switch
------------------------------------- -------------------
0 - 10,000,000 $0.018
------------------------------------- -------------------
10,000,001 - 50,000,000 $0.0175
------------------------------------- -------------------
Any and all over 50,000,000 $0.0165
*Transactions switched regardless of
source
------------------------------------- -------------------
(o) Contractor is responsible for complying with performance standards
set forth in the Contracts applicable to Services of Contractor as set
forth in Attachment A and the payment of liquidated damages attributable to
Contractor as set forth in Attachment B that are collected by the State in
connection therewith under the Contracts. Determination of Contractor's
(and CSI's vis-a-vis Contractor) responsibility for failure to meet a
performance standard shall be in accordance with the applicable Contract.
Contractor will not be responsible for liquidated damages to the extent
that Contractor's failure to meet Contract performance standards is a
result of CSI's acts or omissions. When two or more performance standards
are not met in any one month and the failure to meet one performance
standard (the "preceding standard") is determined to be the preceding cause
of the failure to meet any other performance standard (the "succeeding
standard"), then the party responsible for failing to meet the preceding
standard shall be responsible for any liquidated damages assessed for
failure to meet the succeeding standard, to the extent that the failure to
meet the succeeding standard is attributable to the failure to meet the
preceding standard.
(p) When Contractor serves as CSI's designated switch, CSI shall be
responsible for all costs for switching Florida, Georgia and North Carolina
transactions to CSI for authorization in accordance with the Switch
Agreement for so long as the Switch Agreement remains in effect, and, if at
any time applicable after termination of the Switch Agreement, in
accordance with switching terms and conditions to be agreed upon in writing
by the parties.
(q) Contractor is responsible for all Network Qualifying Expenses, as
defined and as set forth in Attachment B.
(r) Contractor may debit each Federal recipient each month the
appropriate case/month fee as set forth in Attachment B, from Schedule
1(d). For a non-federal recipient, Contractor may debit $0.85 from the
recipient's account for each cash withdrawal at an ATM/POS in excess of the
state-subsidized cash withdrawal transactions for that month. For a federal
recipient, Contractor may debit $0.85 from the recipient's account for each
cash withdrawal at an ATM/POS in excess of one that occurs within a month.
For recipients receiving both Federal and non-Federal benefits, Contractor
may debit $0.85 from the recipient's account for each cash withdrawal at an
ATM/POS in excess of the sum of (i) the State-subsidized cash withdrawal
transactions, and (ii) one cash withdrawal for that month. Upon request by
CSI and subject to Section 21 (a) of this Agreement, Contractor may debit
fees, as determined by CSI, from federal or non-federal recipients for
balance inquiry and denied transactions performed at ATMs or POS locations.
(s) With respect to the Women, Infants and Children Program ("WIC"),
Contractor's responsibilities are set forth in subpart 10 of Attachment A.
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3. The Contract. Contractor acknowledges receipt of each extant Contract
with each State in which it will provide Services under this Agreement, and will
familiarize itself with such Contract. In the event that a Contract has not been
executed as of the date hereof for any State, CSI will consult with Contractor
prior to execution and upon execution of a Contract with such State, such
Contract will be deemed a Contract for the purposes of this Section to the
extent Contractor has not advised CSI that it is unwilling to abide by a
particular term or terms of such Contract. CSI shall deliver to Contractor a
copy of each fully executed Contract immediately after execution by the State
and CSI. Contractor further agrees that this Agreement is subordinate to the
Contract and that any provisions contained herein that conflict with any term of
the Contract is superseded by the Contract, unless Contractor has notified CSI
in writing that it is unwilling to abide by a particular term or terms of the
Contract. Subject to the foregoing, Contractor covenants that it will abide by
all applicable terms of each Contract, including without limitation, any
provisions concerning the audit of Contractor's books and records, access to
Contractor's facilities, confidentiality of information received pursuant to
performance of the Contract, employment practices, indemnification of the
particular State, and termination of the Contract.
4. CSI Responsibilities. CSI agrees to undertake the following
responsibilities to support Contractor's performance of the Services:
(a) Act in the capacity of general contractor under each Contract and
provide overall Project management and responsibility for all other
subcontractors on the Project to ensure their timely delivery of services
as follows:
(i) As general contractor, CSI will be lead negotiator with the
SAS, the States and retailers. CSI will invite support and
participation from Contractor in all negotiations and meetings with
the SAS and the States concerning the Services.
(ii) Except to the extent otherwise provided in this Agreement,
CSI is responsible for the schedule, approach, documentation, and
correspondence to retailers in the States. CSI will be responsible for
its other subcontractors meeting the retail installation schedule
contained in the Work Plan. Contractor will be included, as necessary,
in all retailer meetings with CSI or its other subcontractors.
(iii) CSI is responsible for service planning for retail
installation.
(iv) CSI will develop a retailer agreement, in consultation with
the Contractor and its other subcontractors, for use in the States and
will maintain all retailer contracts for the States.
(v) CSI is responsible for all third party processor and regional
network agreements, which will be developed by CSI, with the
assistance of Contractor, as requested by CSI, and held by CSI.
(vi) CSI is responsible for client training, including approval
of the schedule, approach, documentation and correspondence used for
recipient training, both in-person and mail training, and ensuring
coordination with the retailer installation schedule. Contractor will
acquire from the States the necessary data in form and format to set
up recipients for training, and training of state and local personnel
in the States.
(b) Provide contractual interface with the States. CSI shall confer
with Contractor on all matters which directly and/or materially affect
Contractor's performance or costs and shall formalize in a jointly signed
writing CSI's and Contractor's understanding prior to entering into any
agreement with any State for changes in Project scope, deliverables, due
dates, schedules, fees, costs, or Contractor responsibilities.
(c) Provide and manage all other services to be provided under the
Contract, except as specifically delegated to Contractor hereunder.
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(d) Confer with Contractor and negotiate, as necessary, an amendment
to this Agreement reflecting changes in Project scope, deliverables, due
dates, schedules, fees, costs, or Contractor responsibilities hereunder in
the event that any State desires to effect any changes that affect
Contractor's performance or cost under this Agreement.
(e) With respect to WIC, CSI, for Florida, Georgia and North Carolina,
will develop systems requirements and will manage its own system
development and implementation. CSI will be responsible for WIC retailer
participation unless subcontracted to Contractor in the States where
Contractor's system is utilized.
(f) The interface from CSI to CSI's designated switch will be EBT ISO
8583 as published by ANSI.
(g) With respect to card services:
(i) CSI will produce all cards for the SAS. CSI will be
responsible for the distribution of all cards and PINs, which PINs for
the States will be generated by Contractor in accordance with the
Project Plan.
(ii) Each State will have a separate BIN for state and for
federal programs.
(iii) CSI will assist the States and Contractor in applying for
the BIN numbers.
(iv) CSI will confer with Contractor regarding any Merchant or
State help desk related issues that are outside Contractor's required
scope of work.
(h) Take lead responsibility for conferring with the SAS Management
Council and include Contractor in all such meetings or discussions, as
practicable.
(i) Take lead responsibility for interface with federal agencies (FMS,
FNS, ACF). Problems with federal cooperation will be handled by State
Project Directors and escalated to the CSI SAS Project Director when
necessary. Unless prohibited by the Contract or federal law or law of the
applicable State, the contents of all written or verbal communications from
FMS or the States to CSI that are directly related to or affect the Project
for the States will promptly be made known to Contractor.
(j) CSI will develop, with participation from Contractor, and execute
a strategy to obtain participation from banks, networks, third party
processors, and merchant processors. CSI will negotiate all agreements with
third parties, networks and other parties, as may be required, for
interoperability between projects. In its EFT Network Agreement, CSI will:
(i) Require that all EFT networks bill CSI on a monthly basis by
BIN number for ATM/POS transactions during the prior month.
(ii) Reimburse all EFT networks under contract for ATM/POS
interchange and switch fees for the month.
(iii) Provide Contractor with supporting documentation by BIN for
the expenses.
(k) CSI shall assist Contractor in acquiring authorized retailer
information from FNS for CSI's designated switch data base loading.
(l) Cause its designated switch to be connected with all third party
processors, networks, merchant processors and all other parties desiring
authorization of Project transactions and routing of non-Project
transactions to the appropriate party for authorization in accordance with
the Quest Rules. CSI shall cause its designated switch to route to
Contractor transactions for Alabama, Arkansas, Kentucky, Missouri and
Tennessee for authorization. CSI shall be responsible for the settlement of
all CSI host
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processor transactions processed through its designated switch. The
responsibilities of the parties when CSI chooses a designated switch
provider other than Contractor are contained in Paragraph 2(n) of this
Agreement.
(m) CSI shall comply with the Quest Rules with respect to transactions
routed to Contractor for authorization. CSI shall enter into agreements
with its affiliates to serve as issuer pursuant to the Quest Rules with
respect to transactions processed by Contractor pursuant hereto.
5. Term of Agreement. This Agreement becomes effective upon execution and
delivery by CSI and Contractor as of the Effective Date first written above (the
"Effective Date") and shall continue in effect for the initial term of the
Contract, and, subject to Section 6 (h) below, through the term of any properly
exercised renewal options in the Contract, which shall be limited to those
extensions or renewals of any Contract beyond such Contract's initial term that
are at the sole option of the State and on exactly the same terms and conditions
as in effect during such initial term, except as may be modified by an amendment
to such Contract and agreed to by the Contractor pursuant hereto or as otherwise
agreed by the parties pursuant to this Agreement. Unless expressly agreed by the
parties hereto in writing, this Agreement shall have no force or effect beyond
the term set forth above or with respect to any re-bidding of any Contract and
neither party shall have any obligation to acquire or provide the services
covered by this Agreement with respect to a State beyond such term or on a
re-bid. In the event that the Contract contains an extension or renewal term
upon exercise of a mutual option and Contractor elects not to continue to
perform the services hereunder upon the exercise of such option, Contractor
shall transition such services to CSI upon the expiration of the term of the
Contract and Contractor shall bear at its own expense all of its costs related
to the transition of services to CSI.
6. Payment.
(a) Within ten (10) days of the Execution Date (as defined below) of
this Agreement, Contractor shall pay to CSI in immediately available funds
the amount of $4,000,000. Upon the first and second anniversary of the
Execution Date, Contractor shall pay to CSI on each such date in
immediately available funds the amount of $1,000,000 (two additional
payments of one million dollars each). Upon receipt of the initial
$4,000,000 payment, in accordance with the foregoing, CSI shall recalculate
the fees paid by CSI to Contractor for services performed by Contractor
from the Effective Date through the date of execution of this Agreement by
both parties ("Execution Date"), using the fees set forth in Attachment B
of this Agreement. Within thirty (30) days of the Execution Date, CSI shall
pay to Contractor in immediately available funds the difference between the
fees paid by CSI to Contractor prior to the Execution Date and the fees
payable to the Contractor as calculated in accordance with Attachment B
hereto.
(i) During the period between the Effective Date and the
Execution Date, Contractor and CSI have engaged in a dispute over the
existence and terms of any contract between them related to the
relationship to be encompassed by this Agreement. During the dispute,
Contractor and CSI provided services to the States referred to in this
Agreement. The provision of services to the States caused additional
dispute between Contractor and CSI concerning the basis for and the
amount of compensation to which each party was entitled for the
services provided to the States. Contractor and CSI have agreed to
resolve their differences and settle their disputes by executing this
Agreement. All rights that Contractor and CSI may have had to payment
of money or any other remedy arising from their disputes existing
between the Effective Date and the Execution Date relating to the
services and disputes described in this paragraph are merged into this
Agreement and by the execution of this Agreement and the payments
described in paragraph 6(a) above. Contractor and CSI agree that they
have been fully compensated and paid for these claims and disputes,
except as indicated below. In consideration of and subject to the
complete satisfaction of the respective obligations of the parties
under this Section 6(a), both Contractor and CSI (each, a "Releasing
Party") hereby fully, freely, completely and absolutely releases and
forever discharges the other party and the other party's parents,
subsidiaries and affiliates, the present, former and future officers,
directors, agents, employees and stockholders of those entities, and
such persons' heirs, executors, administrators and assigns
(collectively, the "Released Party"), of and from any and all claims,
suits, charges, demands, causes of action, expenses, injuries, costs,
losses, debts, or damages of any kind, whether known
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or unknown ("Claim"), which the Releasing Party now has, could have,
or ever has had against Released Party arising from or in any way
related to any dispute between the parties described in this paragraph
for the period from the Effective Date through and including the
Execution Date, except for (a) Claims related to ACH transmission
services; (b) Claims to the extent caused by and to the extent
attributable to fraud of the Released Party; or (c) Claims by a State
related to the performance of either party from the Effective Date to
the Execution Date.
(b) From and after the Execution Date, in exchange for its performance
of the Services, Contractor shall be entitled to receive fees as described
in Attachment B. The compensation paid to Contractor shall be adjusted
pursuant to change orders as agreed between the parties in accordance with
Section 21 hereof. Payment shall be made monthly the later of (i) within
thirty (30) days following receipt of an invoice(s) from Contractor with
necessary supporting documentation or (ii) within ten (10) business days
after receipt of payment by CSI from the State. In the event that CSI fails
to timely pay Contractor following receipt of funds from the State or fails
to bill the State within fifteen (15) days following receipt of
Contractor's invoice, Contractor shall be entitled to payment of interest
on the outstanding balance for the period of the delay by CSI (i) in paying
Contractor following receipt of payment from the State or (ii) in
submitting an invoice for payment at an annual rate equal to the reference
rate of Citibank, N.A. (New York) for loans to its large corporate
customers plus one per cent. Delay in submitting an invoice shall be the
period from fifteen days after CSI receives an invoice from Contractor in
the correct format for a State to the date upon which CSI submits the
invoice to the State in the correct format for such State.
(c) Contractor shall ensure that all invoices submitted hereunder are
for the correct amounts in format as agreed by the parties and, in the
event of any error, shall be solely responsible for reimbursing the State
through CSI in the amount of such error and for any penalties incurred
thereby. CSI will bill States within ten (10) working days following
receipt of Contractor's invoice for Services hereunder for the immediately
preceding period or such other period for which payment is then due. Any
late payment penalties incurred by and paid to CSI by the State will be
passed onto Contractor to the extent Contractor's payment is delayed.
(d) CSI may deduct from payment to Contractor amounts reflecting
liquidated damages, costs, penalties or adjustments attributable to
Contractor that are collected by the State after exhaustion of Contractor's
administrative remedies or withheld by the State prior to any
administrative remedy; provided that in the event that the State withholds
from payment any amounts claimed as liquidated damages, penalties or
adjustments attributable to Contractor prior to the exhaustion of
administrative or judicial remedies, CSI will take all necessary steps to
obtain payment from the State in accordance with Section 22 hereof.
(e) Notwithstanding (b) above, if funds are withheld by any State due
to actions by CSI or any subcontractor other than Contractor, Contractor
will be paid in full within thirty (30) days of receipt of the invoice from
Contractor. If a State withholds payment of funds due to a dispute
involving Contractor's service, Contractor will be paid in full for
services not in dispute to the extent payment of funds for those services
are not also withheld by the State, and CSI will take all necessary steps
to obtain payment for Services not in dispute.
(f) In the event of a dispute between CSI and Contractor, CSI will pay
Contractor all amounts and for all Services not in dispute.
(g) Contractor shall be responsible for all sales and use taxes
imposed in connection with the Services.
(h) From and after the Execution Date, CSI agrees that in the event
that (a) CSI initiates a claim with any State for pricing improvements
relative to the Services provided by Deluxe to such State, CSI agrees that
CSI shall seek Deluxe's input for such claim and shall use its best efforts
to obtain pricing improvements for the benefit of Deluxe and (b) for
renewal or extension of a Contract, CSI is offered by a State pricing
improvements relative to the Services provided by Deluxe to such State, CSI
agrees to offer Deluxe a pricing improvement for any such renewal or
extension. Should the State request any change in
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Services for such renewal or extension, pricing improvements offered Deluxe
will conform to Section 21 (b) hereof. Deluxe agrees that it will share the
expense of any such claim (outside counsel fees and costs and CSI's
out-of-pocket expenses) on a proportionate basis.
7. Proprietary Information.
(a) Confidential Information of the Parties. The parties acknowledge
that all information, including software described in paragraph 7(b),
regarding a party or its affiliates (the "Disclosing Party") provided to
the other (the "Receiving Party") and identified by the Disclosing Party to
the Receiving Party as confidential in connection with this Agreement is
commercially valuable, proprietary information of the Disclosing Party.
This expressly includes copyrighted material, such as functional design
documents, and retailer and other training or informational manuals, videos
and other materials. Any such copyrighted information may be used by the
other party for the SAS, NCS (Northeast Coalition of States) EBT project or
WSEA (Western States EBT Alliance) EBT project, provided that the
Disclosing Party's copyright notice be included with any such use and the
Receiving Party identify that such is "used with permission". If portions
of copyrighted information are used in a new document created by the
Receiving Party, the portions used must be identified and acknowledged as
"used with permission". Under no circumstances will any existing
information be "jointly copyrighted" without the express written agreement
of the Disclosing Party. The Receiving Party acquires no ownership rights
to such information under this Agreement. The Receiving Party further
acknowledges that such information is CONFIDENTIAL AND PROPRIETARY
INFORMATION disclosed to the Receiving Party on a confidential basis to be
used only as may be expressly permitted by the terms and conditions of this
Agreement. The Receiving Party further agrees that it shall not, before or
at any time after the termination of this Agreement, disclose or
negligently cause the disclosure of any information to any other person (to
include local, county, state or federal government), firm, organization or
employee. As against any third party, the Receiving Party agrees to
cooperate with the Disclosing Party in the event of any litigation
concerning the Disclosing Party's confidential and proprietary information
provided to the Receiving Party under this Agreement. Neither the Receiving
Party nor a State may obtain rights in CONFIDENTIAL AND PROPRIETARY
INFORMATION under the provisions of Sections 23(f) or 8(a) of this
Agreement or any provision of the Contract. Any such information in the
Receiving Party's possession at the termination of this Agreement shall be
returned or destroyed upon the Disclosing Party's request, which identifies
the information to be returned or destroyed with reasonable specificity and
the Receiving Party's right to use such information shall be terminated
subject to any State's right under its Contract.
(b) Confidential Information of Others. The parties further
acknowledge that in order for Contractor to perform the Services it may be
necessary to disclose certain computer software developed by Contractor or
CSI ("Proprietary Software") or licensed to CSI or Contractor ("Licensed
Software") and printed material in support of the Proprietary Software and
the Licensed Software. Therefore, the parties acknowledge that the
Proprietary Software (specifically including, but not limited to, the
design, architectural programming techniques, source code and documentation
thereof) and the Licensed Software is CONFIDENTIAL AND PROPRIETARY
INFORMATION AND A TRADE SECRET which may be disclosed solely for the
purpose of enabling Contractor to perform the Services under this
Agreement; that the parties shall not reveal to any third party any
information regarding the Proprietary or the Licensed Software; that the
Proprietary Software and the Licensed Software shall be disclosed by the
parties to their respective officers, agents, employees and subcontractors
only on a "need to know" basis, provided that such individuals have agreed
in writing to maintain the confidentiality of the Proprietary Software or
the Licensed Software and other confidential and proprietary information
disclosed or developed hereunder; and that the parties shall secure and
protect the Proprietary Software and the Licensed Software with the same
degree of care as would be appropriate to secure and protect their own
confidential and proprietary information. Upon its discovery of any
unauthorized possession, use or knowledge of the Proprietary Software or
the Licensed Software, the party shall immediately notify the other party
of the same. The parties shall fully cooperate, at their own expense, to
regain possession or prevent further unauthorized use of the Proprietary
Software or the Licensed Software and to obtain redress for injury caused
by any such unauthorized possession or use.
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(c) Confidentiality of Agreement. The parties acknowledge that the
disclosure of the terms and conditions of this Agreement may be required by
a governmental agency or entity in connection with a prospective or actual
government contract. Except as so required or as otherwise required by
order of a court of competent jurisdiction, the parties agree to keep the
terms and conditions of this Agreement confidential.
(d) General Confidentiality Obligations. In addition to the foregoing
confidentiality obligations, Contractor, CSI, Citibank, Citicorp or its
subsidiaries or affiliates, their officers, agents and employees, and
subcontractors, shall treat all information which may be obtained by or
through their performance under this Agreement, as confidential information
to the extent required by the laws of the United States and the laws of the
state wherefrom such information was received, and any regulations
promulgated thereunder. Without limiting the generality of the foregoing,
the parties agree as follows:
(i) Individually identifiable information relating to any
eligible recipients or providers of government benefits shall be held
confidential and shall not be disclosed by Contractor, its officers,
agents and employees or subcontractors, to anyone other than CSI.
(ii) The use of information obtained by Contractor, in the
performance of its duties under this Agreement shall be limited to
purposes directly connected with such duties.
(iii) Contractor shall promptly advise CSI of all requests (other
than from an authorized State agency) for information described in
subsection (i).
(iv) Contractor and CSI shall be responsible for assuring that
any agreement between it and any of its officers, agents and employees
or subcontractors contains a provision which conforms to the
provisions of Section 7(d).
(e) Remedy for Unlawful Disclosure. Each party shall have all rights
at law or in equity (including injunctive relief without the necessity of
posting bond) to enforce the provisions of this Section 7 including the
right to recover reasonable attorney's fees, costs, and necessary
disbursements from the other party in addition to any other relief to which
it may be entitled.
(f) Separate Agreements. The provisions of this Section 7 shall be
construed as an agreement independent of any other provision of this
Agreement, and the provisions of this Section 7 shall be considered a
separate, irrevocable agreement surviving termination of the other terms
and provisions of this Agreement.
8. Ownership of Work Product.
(a) Contractor acknowledges that, subject to Section 7, Proprietary
Information, work prepared by Contractor out of funds authorized and
appropriated by the State or federal government in connection with this
Agreement shall be subject to the terms and conditions of the Contract.
(b) Contractor shall execute and deliver to CSI such instruments of
transfer and take such other action that CSI reasonably requests,
including, without limitation, executing and filing, at CSI's expense,
patent or copyright applications, assignments and other documents required
for the protection of a right of any State to any materials described in
the foregoing paragraph arising under the Contract.
(c) As may be required by the Contract, Contractor shall identify to
CSI all software products, programs, or material to be used in its
performance hereunder. If such identification is not required by the
Contract, all software products, programs and/or materials provided by
Contractor shall be deemed proprietary to Contractor, unless otherwise
agreed in writing. Contractor will be solely responsible for all costs and
expenses incurred in the defense of any claim by the State of ownership or
other interest in Contractor's software products, programs or materials.
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9. Records Retention; Audit.
(a) Contractor and CSI agree (i) to maintain all books, records and
documents relating to this Agreement and the Contracts to support that the
Services are being provided and that fees earned are in accordance herewith
and the Contracts and (ii) to preserve such records during the course of
this Agreement and for a period of six (6) years following termination of
this Agreement or the Contracts, whichever is later, or for such additional
period as applicable regulations may require. Records involving matters in
litigation will be kept for a period of not less than three (3) years
following the termination of the litigation. Copies of any documents in
media other than paper (e.g. microfilm, etc.) related to this Agreement may
be substituted for the originals to the extent permitted under applicable
law and provided that legible paper copies can be reproduced within a
reasonable time following written notice.
(b) Contractor agrees to promptly make such records available for
audit upon request by representatives of a State, or other authorized State
or Federal government agency during normal business hours for the
performance of financial or performance audits, if deemed necessary. To
assure compliance with this Agreement, CSI, the State, or other authorized
State or Federal governmental agency, will at all times, upon reasonable
advance notice, except in the case of suspected fraud or other criminal
activity, have the right to enter, during normal business hours,
Contractor's premises to inspect or evaluate any work performed under this
Agreement, or to obtain any other information required to be provided by
Contractor or otherwise related to this Agreement.
(c) In addition to the foregoing, Contractor shall ensure that audits
are regularly performed, but in any event, not less than annually, by an
independent auditor and conducted in accordance with the American Institute
of Certified Public Accountants' Statement on Auditing Standards No. 70 and
shall be of a scope reasonably acceptable to CSI. Contractor shall make
such reports available to CSI within thirty (30) days of its receipt. In
the event that any audit is other than unqualified, Contractor shall submit
to CSI a plan describing what actions Contractor will undertake to correct
the situation that caused the auditor to submit a qualified report, a
timetable for correcting the situation, and a process for monitoring
compliance with the timetable.
(d) Contractor and CSI agree to promptly make relevant records
available for audit upon reasonable prior request to verify performance of
obligations hereunder.
10. Independent Contractor Relationship.
(a) Contractor shall perform all Services hereunder as an independent
contractor, and nothing contained herein shall be deemed to create any
association, partnership, joint venture, or relationship of principal and
agent or employer and employee between the parties hereto or any parents,
affiliates or subsidiaries thereof, or to provide either party with the
right, power or authority, whether express or implied, to create any such
duty or obligation on behalf of the other party. Each party agrees that it
will not hold itself out as an affiliate of or partner, joint venturer,
co-principal or co-employer of the other, or any of its parents,
subsidiaries or affiliates by reason of this Agreement and that the party
will not knowingly permit any of its employees, agents or representatives
to hold themselves out as, or claim to be, officers or employees of the
other, or any of its parents, subsidiaries or affiliates by reason of this
Agreement.
(b) Apart from the payment of the agreed-upon fees described in
Attachment B, CSI is not responsible for any other compensation, nor for
employee benefits and/or matters relating thereto respecting Contractor or
Contractor employees or Contractor's subcontractors providing Services
hereunder (including but not limited to the withholding and/or payment of
all federal, state and local income and other payroll taxes), nor for
worker's compensation, disability benefits and all such additional legal
requirements of like nature. CSI shall have no obligation to secure or
maintain applicable worker's compensation insurance or employer's liability
and disability insurance with regard to Contractor employees or
Contractor's subcontractors providing Services hereunder.
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11. Limitation of Liability.
(a) Force Majeure. The performance by either party of any obligation
hereunder shall be excused if such failure to perform is caused by any
event or circumstance beyond such party's reasonable control or not
reasonably foreseeable, and such party will not be deemed to be in default
and will not be responsible or liable for any loss or other damages,
liquidated or unliquidated, for the delay or failure in performance under
this Agreement directly or indirectly due to any such excused performance.
Notwithstanding the foregoing, such party shall use its best efforts to
perform during the period of such event or circumstance, and in any event
shall promptly perform upon the cessation of such event or circumstance.
Notwithstanding anything herein to the contrary, this Section shall be
interpreted in a manner consistent with the provisions of any force majeure
or similar clause in the Contract.
(b) EXCLUSION OF DAMAGES. NEITHER PARTY SHALL BE LIABLE FOR ANY
INCIDENTAL, SPECIAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
12. Warranties and Indemnification.
(a) Contractor warrants that it will perform the Services in a
professional and workmanlike manner. Contractor further warrants that any
data, information or materials that Contractor prepares for or delivers to
CSI or State shall not infringe the trademark, copyright, patent or trade
secret rights of any third parties, except to the extent such data,
information or materials are based upon data, information or materials
supplied by CSI or the State. THERE ARE NO OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, IN FACT, WITH RESPECT TO
THE SERVICES ARISING BY OPERATION OF LAW OR OTHERWISE.
(b) Contractor hereby certifies that neither it nor its principals is
presently debarred, suspended, proposed for debarment, declared ineligible,
or voluntarily excluded from participation in this transaction by any
Federal or State agency.
(c) Each party shall indemnify and hold the other harmless from all
claims, defense costs and judgments, and defaults under agreements with
governmental entities or agencies for the providing of benefit processing
services arising out of, or on account of, a contention that any materials
delivered by such party to the other or State (except for materials based
primarily on data or information provided by such party) infringes the
trademark, copyright, patent or trade secret rights of such third parties.
(d) Each party shall indemnify and hold the other harmless from all
claims, defense costs and judgments arising out of, or in connection with
its provision of Services under this Agreement, to the extent arising out
of, or in connection with, the acts or omissions of its employees, agents
or subcontractors, including without limitation, any claims arising from
such party's acts or omissions in the authorization of benefits issuance,
except to the extent arising out of the other party's gross negligence or
willful misconduct.
(e) Each party shall indemnify and hold the other harmless from all
material increases in costs and expenses arising out of, or in connection
with its performance under this Agreement to the extent arising out of, or
in connection with the indemnifying party's failure to promptly perform any
of its obligations hereunder when such failure to promptly perform is not
excused by reason of force majeure.
(f) CSI and Contractor each represent and warrant that it has full
right, power and authority to execute, deliver and perform its obligations
under this Agreement, and that its rights and obligations under this
Agreement are not in conflict with its rights and obligations under any
other pre-existing agreement(s) or instrument(s) nor do the parties
undertaking and acceptance of the rights and obligations herein cause the
parties to breach any obligations it may have under any other agreement(s)
or instrument(s) to which it is a party.
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13. Insurance. Contractor shall maintain, throughout the performance of its
obligations under this Agreement, a policy of worker's compensation insurance
with coverage limits in the amount as may be required by the law of the State in
which the Services are to be performed. Contractor further agrees to maintain
general liability insurance, naming CSI as an additional party insured,
providing coverage against liability for bodily injury, death and property
damage in the amount of $1,000,000, which may arise out of or is based upon any
act or omission of Contractor or any of its employee(s), agent(s) or
subcontractor(s) under this Agreement. Upon written request, Contractor shall
promptly provide certificate(s) from its insurers indicating the amount of
insurance coverage, nature of such coverage and expiration date(s) of each
applicable policy.
14. Staff and Facilities.
(a) Contractor represents, warrants and covenants that all persons
assigned by Contractor to provide Services are and shall be at all relevant
times employees of Contractor or independent contractors who have
effectively assigned all intellectual property rights in work product to
Contractor, and that it maintain sufficient personnel to perform all
Services required hereunder in a timely and professional manner. Contractor
may substitute key Project personnel, only upon prior approval of CSI.
Prior approval may not be unreasonably withheld, and prior approval must be
consistent with the procedures for substitution in the Contract.
(b) Contractor will designate one or more managers of the Project who
will be responsible for managing and coordinating all Contractor activities
with CSI. The Contractor Project Director(s) or other Contractor designated
representative(s) will participate in the Project status meetings of the
States or other related State meetings.
(c) CSI will select a state project manager for each state after
consultation with Contractor. The state project managers will be CSI
employees or subcontractors and will be the single point of contact with
the State. Contractor shall keep the CSI state project manager advised of
ongoing Project implementation and management.
(d) CSI will provide office space, including telephone, utilities,
supplies, furniture, and equipment, and an office manager or clerical staff
in each State, if required by the Contract.
15. Right to Hire. CSI and Contractor shall not, directly or indirectly,
hire or solicit for employment, for itself or for any other affiliated or
related person or entity engaged in providing services similar to those
contemplated under this Agreement, personnel employed by the other or any
subcontractor engaged under the Contract in connection with the provision of EBT
services within one (1) year of the date on which such person's employment was
terminated for any reason; provided that, in the event that this Agreement has
been terminated as it pertains to a State for Contractor's default, CSI shall be
permitted to offer employment to any person on the staff of Contractor provided
such person was delivering services under this Agreement only for the State in
which Contractor is in default and is to perform Services for the State in which
Contractor is in default.
16. Non-Discrimination. Contractor agrees that this Agreement is subject to
applicable laws, regulations and executive orders relating to equal opportunity
and nondiscrimination in employment. Neither Contractor nor its agents(s) and/or
subcontractor(s) shall discriminate in its employment practices against any
person by reason of race, religion, color, sex or national origin or other
classification prohibited by law. Contractor agrees to comply and to cause its
agent(s) and/or subcontractors to comply with the provisions of said laws,
orders and regulations, as well as other laws, orders and regulations relating
to the employment of the handicapped, the employment of veterans, and the use of
minority business enterprises, to the extent any such laws, orders and
regulations are applicable in the performance of their work or furnishing of
Services hereunder. For the purpose of this Agreement, the provisions of such
laws, orders and regulations shall be deemed an integral part of this Agreement
to the same extent as if they were written at length herein.
17. Compliance with Applicable Law. Each party agrees that it will comply
with all applicable federal, state, county and local laws, ordinances,
regulations and codes in the performance of its obligations under this
Agreement, including the procurement of permits and certificates where required.
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18. Non-Subornation. Each party agrees that in the performance of its
obligations under this Agreement, it will not make or offer to make any payment
to, or confer or offer any benefit upon, any employee, agent or fiduciary of any
third party, with the intent to influence the conduct of such employee, agent or
fiduciary in relation to the business of such third party, in connection with
this Agreement.
19. Publicity. During the term of this Agreement and prior to publication,
Contractor will provide CSI an opportunity to review and comment on any sales or
marketing publication or advertisement that publicizes or otherwise promotes
Contractor's delivery of services under this Agreement. CSI agrees to promptly
review such material upon submission and provide its comments to Contractor.
This Section shall not apply to any documents or oral responses provided in
response to a Request for Proposal or other solicitation issued by a government
agency or commercial concern. Notwithstanding the foregoing, Contractor shall
not use, and shall keep its employee(s), agent(s) and/or subcontractor(s) from
using, the name of CSI, Citibank, Citicorp or its subsidiaries or affiliates in
any such response, without the prior written consent of CSI other than
identification of any of them in their capacity with respect to a project and
CSI, Citibank, Citicorp and its subsidiaries and affiliates shall not use, and
shall keep its employees, agents and subcontractors from using the name of
Contractor, Deluxe Corporation or its subsidiaries or affiliates in any such
response, without the prior written consent of Contractor other than
identification of any of them in their capacity with respect to a project.
20. Notice. All notices and other communications hereunder shall be in
writing, except as herein specifically provided, and shall be deemed to have
been given when mailed by first class, registered or certified mail, return
receipt requested, postage prepaid, or recognized overnight courier, to the
intended recipient thereof at its address shown hereinabove or to such other
address as the intended recipient may specify in a notice pursuant to this
Section 20.
21. Changes.
(a) CSI may, at any time, by notice to Contractor, request changes in
the scope of this Agreement. If any such change causes an increase or
decrease in the cost of performance of this Agreement, the costs for such
changes will be negotiated with Contractor on an individual task basis. For
all change orders requested under this Section 21, the Contractor will
respond to all such requests on a formal basis, including in its response,
a recitation of the services to be provided (including all services
reasonably necessary to properly perform the services), and a pricing
proposal consistent with Contractor's commercial practices. Contractor has
the right to decline any request for change that Contractor determines in
its reasonable opinion is not technically or commercially feasible. Upon
CSI's written request, Contractor shall provide reasonable evidence that
any service proposed by Contractor pursuant to this Section is being
offered on a basis consistent with Contractor's commercial practices.
(b) In the event that a State requests a change or change order
affecting the scope of Contractor's performance of services hereunder,
Contractor shall prepare all necessary documentation, including pricing, to
support the change or change order requested by the State for approval and
submission by the CSI SAS Project Director, which approval will not be
unreasonably withheld. Prior to submission to the State, CSI and Contractor
shall agree to the change or change order, including performance and
payment terms, in accordance with this Section 21. In the event that the
change or change order is accepted by the State, the Contractor shall
perform the required services and be compensated therefor as agreed between
CSI and Contractor. Unless otherwise expressly agreed upon in writing by
Contractor, in no event shall CSI present to a State any change order
information provided by Contractor to CSI hereunder in the format provided
by Contractor to CSI or in any form, format or context that would suggest
to the State that the information was provided by Contractor.
(c) Should Federal, State or County laws or regulations, including
amendments to Title 7 of the Code of Federal Regulations, or the Quest
Operating Rules represent a change in scope of performance, the parties
will negotiate an amendment to this Agreement providing for an equitable
adjustment of the Agreement. If the parties cannot agree to an equitable
adjustment of this Agreement, then the Contractor may, at its option, and
with one hundred eighty (180) days prior notice to CSI, terminate this
Agreement.
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(d) Nothing in this Agreement shall be deemed to require Contractor to
bear the cost of changes in scope of performance without an equitable
adjustment of this Agreement.
22. Interpretations and Disputes.
(a) Interpretations. Contractor shall promptly notify the CSI SAS
Project Director in the event of any conflict or any event that could
detrimentally affect Contractor's ability to perform as contemplated
hereby. In the absence of any State interpretation, the CSI SAS Project
Director's reasonable interpretation of the scope of work shall govern. In
the event that any portion of the Contractor's work is the subject of a
State interpretation, the State interpretation shall control, subject to
rights of appeal. CSI shall negotiate in good faith with the State on
behalf of the Contractor. Contractor may use the dispute process described
in Section 22(b)-(d) to resolve Contractor disagreements with a CSI
interpretation of the Contract.
(b) Disputes. The parties will act in good faith and in the best
interests of the Project as it is defined in the Contract in attempting to
resolve any disputes or differences of opinion that may arise during the
term of this Agreement. Should the parties not be able to resolve a
conflict through informal discussions, either party may by notice to the
other request resolution of the dispute by reference to the procedure as
follows. Within fifteen (15) business days of the notice one representative
from CSI and Contractor with management-level authority to bind the
respective parties shall meet to consider the dispute. The representatives
shall complete their consideration of the dispute within ten (10) business
days or such further time as is mutually agreed. In the event that the
dispute cannot be resolved at this level within such period, the parties
may present the dispute to a committee comprised of one representative of
each party at the next senior level for resolution within five business
days. In the event that the dispute cannot be resolved at the next senior
level in such period, the parties may seek resolution through arbitration
as hereinafter provided.
(c) Arbitration. Any controversy or claim, whether such claim sounds
in contract, tort or otherwise, arising out of or relating to this
Agreement, after good-faith negotiations in an attempt to resolve any such
controversy or claim and, if necessary reference to the higher management
of the parties as provided in subsection (b) hereof, shall at the request
of either party be resolved by a de novo review of the dispute in
accordance with Title 9 of the United States Code and the then-current
Commercial Arbitration Rules of the American Arbitration Association, by a
sole arbitrator. In the event of any inconsistency between such rules and
the arbitration provisions of this Agreement, these provisions shall
supersede such rules. Judgment upon any award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. Any such
arbitration shall be conducted in Chicago, Illinois. The arbitrator shall
give effect to all statutes of limitation which would otherwise be
applicable under this Agreement. At any time prior to arbitration, the
parties may, without waiving or otherwise affecting their rights to request
arbitration as provided above, agree to submit any controversy to
mediation. Such mediation shall be governed by the then-current American
Arbitration Association's Commercial Mediation Rules. All expenses and
American Arbitration Association fees for any arbitration or mediation
shall be borne by the parties equally. Each party shall bear the expenses
of its own counsel, experts, witnesses, and preparation and presentation of
proof. Notwithstanding the foregoing, the arbitrator, at his sole and
absolute discretion, shall have the authority to award the prevailing party
expenses and reasonable attorneys' fees. In any and all arbitration
proceedings, the arbitrator shall not have the power or authority to award
punitive damages to any party.
(d) Appeal of Dispute with State. Disputes between Contractor and the
State will be resolved, to the extent permitted thereby, by the disputes
process in the Contract. If State law or the Contract preclude Contractor
from filing a dispute directly with the State, CSI will file such dispute
in CSI's name on behalf of Contractor without cost to CSI.
23. Termination.
(a) Termination for Convenience of the State. In the event that a
State elects to terminate at its convenience or for reasons other than
cause permitted by the Contract under the provisions therein, CSI and
Contractor shall determine Contractor's reasonable costs resulting from
such termination. CSI shall
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seek to ensure a complete recovery for Contractor of Contractor's
reasonable costs or other entitlements under the provisions of the
Contract; provided, however, that in the event that the amount recovered
from the State is less than that estimated by CSI and Contractor, then CSI
and Contractor shall negotiate an equitable allocation of the amount paid
by the State for termination.
(b) Termination for Default: Contractor. CSI may terminate this
Agreement as it pertains to a State if at any time Contractor defaults in
the performance of the Services for such State and fails to remedy such
default as provided hereunder. In the event that the State notifies CSI
that CSI is in default under the Contract, and CSI believes that such
default is attributable to Contractor's performance, CSI shall provide
written notice to Contractor specifying in reasonable detail why the
Services performed by Contractor are not satisfactory to CSI. Contractor
shall have eighty per cent (80%) of the cure period provided to CSI under
the Contract to effect a cure in which to remedy Contractor's performance.
In the event that the default is such that it cannot reasonably be cured
within the set period contained in the Contract and the State allows CSI a
reasonable period in which to cure such default so long as it promptly
commences and diligently proceeds to effect such cure, then so long as
Contractor promptly commences and diligently proceeds to effect such cure,
then this Agreement shall continue in full force and effect. If Contractor
disputes that it is in default, or disputes that it has not cured its
performance within the period allotted, such dispute may be referred for
resolution in accordance with the procedures in Section 22. CSI may
terminate the Agreement as it pertains to the State only after Contractor
and CSI have exhausted their administrative remedies within the State and
as provided by Section 22 hereof, and the State has determined that
Contractor and CSI are in default. The Agreement shall remain in effect for
Contractor to provide the Services to any State in which Contractor is not
in default. Nothing in this Agreement shall preclude Contractor from
pursuing judicial or other legal remedies available to it under State or
federal law.
(c) Termination for Change in Control of Contractor. CSI may also
terminate this Agreement for cause upon the acquisition of a controlling
interest in the Contractor by an unrelated third party or the sale or
transfer of the assets to an unrelated third party of Contractor's business
necessary to provide the Services hereunder and (i) the acquirer thereof is
unable to provide CSI with reasonably satisfactory assurances of its
financial, professional and management ability to continue performance of
this Agreement in a manner equivalent to or better than the performance of
Contractor prior to the date of the intended change in control, or (ii) the
acquirer is a parent, subsidiary or affiliate of any of the following:
GTech Corporation or Transactive Corporation. In the event of any such
acquisition, sale or transfer and CSI elects to terminate this Agreement,
CSI shall provide not less than one hundred and eighty (180) days prior
written notice of such termination to Contractor. Prior to the effective
date of such termination, Contractor shall assist in the transition of
delivery of Services from Contractor to CSI to the extent and in the manner
as agreed by the parties prior to the commencement of such transition, but
in any event Contractor shall comply with subsection 23(f) hereof.
Contractor shall be compensated for such transition services at its actual
and reasonable costs for providing such transition services, as agreed by
the parties prior to the commencement of any such service.
(d) Termination for Default: CSI. In the event that CSI fails to
perform its obligations under this Agreement and such failure materially
affects Contractor's ability to comply with its performance obligations
hereunder, Contractor may declare CSI in default of this Agreement.
Contractor shall provide written notice to CSI specifying the default in
reasonable detail and CSI shall have thirty (30) days in which to effect a
cure of its default other than for failure to make a payment hereunder
(which must be cured within ten (10) days); provided that if a cure cannot
reasonably be effected within such thirty (30) day period, then so long as
CSI promptly commences, and diligently proceeds, to effect such cure, then
this Agreement shall continue in full force and effect. If CSI fails to
cure a default within a reasonable period of time, Contractor may terminate
this Agreement on thirty (30) days' written notice to CSI. In addition to
the foregoing, a termination of the Contract by the State for reason of
default by CSI through no fault of Contractor shall constitute a material
breach of this Agreement. In the event of a breach of this Agreement by CSI
that does not give rise to termination, Contractor shall be entitled to
claim indemnification pursuant to Section 12 hereof.
16
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(e) Effect of Termination by a State. Termination of the Contract by
any State for other than default will not terminate this Agreement.
Termination of the Contract by any State for reason of default by
Contractor will not terminate this Agreement as to any other State except
as hereinafter provided. In the event that a State terminates its Contract
for other than default, Contractor will continue to perform the Services
for the remainder of the States. In the event of the termination of a
Contract by a State for reason of default by Contractor, CSI may terminate
this Agreement for cause upon its determination that Contractor is unable
to provide reasonably satisfactory assurances of its financial,
professional and management ability to continue performance of this
Agreement in remaining states in a manner substantially in accordance with
the terms of this Agreement.
(f) Return of State Materials. To the extent required by the Contract,
and subject to Sections 7 and 8 of this Agreement, upon expiration or
termination of this Agreement, all unfinished and unprocessable work,
together with all finished or unfinished original documents or copies,
reports or other materials, prepared by Contractor under this Agreement in
performance of the Contractor's obligations arising under the Contract
shall, at the option of CSI or the States, become CSI's or a State's
exclusive property, whether or not in either of their possession, free from
any claim or retention of right thereto on the part of Contractor, except
as specifically provided herein, and shall be promptly delivered by
Contractor to the requesting party. Each party shall promptly return to the
other all of its property not covered by the foregoing.
24. Miscellaneous Provisions.
(a) Complete Agreement. This Agreement, together with any attachments
hereto, constitutes the entire agreement between the parties with respect
to the subject matter hereof and supersedes in all respects all prior
proposals, negotiations, conversations, discussions and agreements between
the parties, including but not limited to that certain letter agreement
between the parties hereto regarding EBT Support Services, dated August 16,
1995 and accepted by Contractor on August 23, 1995. Each Attachment revised
and attached to the terms of this Agreement subsequent to the Execution
Date shall supersede the existing versions of such Attachment and become a
part of this Agreement.
(b) Further Assurances. Contractor and CSI each acknowledge that this
Agreement may be subject to the review and approval of the State in
accordance with the Contract. Contractor and CSI shall negotiate in good
faith any changes in this Agreement that may be required by the State under
the approval provision of the Contract or necessitated by a conflict
between the terms of this Agreement and the Contract. In addition, this
Agreement shall be subject to any order, decree or similar directive issued
by any court of competent jurisdiction, or any agreement among the parties
and any agency or instrumentality of the federal or any state government to
which the parties are bound, and the failure of either party to comply with
any provision of the Agreement due to compliance with any such order,
decree or agreement shall not constitute a breach of this Agreement,
provided that should a party to this Agreement not be a party to such
order, decree or agreement, the party subject to such order, decree or
agreement shall notify the other party of such order, decree or agreement
as soon as practicable (including advising the other party prior to the
entry of an order or decree or execution of an agreement of the substance
of the proposed order, decree or agreement).
(c) Modification. No modification, waiver or amendment of any term or
condition of this Agreement shall be effective unless and until it shall be
reduced to writing and signed by both of the parties hereto or their legal
representatives.
(d) Assignment. This Agreement may not be assigned in whole or in
part, by either party without prior written consent of the other, which
consent may not be unreasonably withheld consistent with the standards set
forth in Section 23(c), and the State, if so provided in the Contract. To
the extent that State approval is required, consent by the State shall be
deemed approval by CSI. CSI hereby reserves the right to assign this
Agreement to any of its subsidiaries or affiliates. Contractor hereby
reserves the right to assign this Agreement to its parent, a subsidiary or
an affiliate as a part of a general assignment of the assets which comprise
Contractor's government benefits business and with the consent or approval
of such States as may be required.
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(e) Severability . If any term or provision of this Agreement should
be declared invalid by a court of competent jurisdiction, the remaining
terms and provisions of this Agreement shall be unimpaired.
(f) Waiver. Failure by either party at any time to require performance
by the other party or to claim a breach of any term of this Agreement will
not be construed as a waiver of any right under this Agreement, will not
affect any subsequent breach, will not affect the effectiveness of this
Agreement or any part thereof, and will not prejudice either party as
regards any subsequent action.
(g) Survival of Provisions. The terms and provisions of this Agreement
that by their sense and context are intended to survive the performance or
termination of this Agreement shall so survive, including without
limitation the making of any and all payments due hereunder. As provided in
Section 23, termination of the Contract by the State does not terminate the
terms and provisions of this Agreement.
(h) Section Headings. Section headings are for convenience only and
shall not be considered a part of the Terms and Conditions of this
Agreement.
(i) References to States and Contract. Any reference to "State" shall
mean the State of Alabama, Arkansas, Kentucky, Missouri, or Tennessee
acting in its individual capacity. Any reference to "States" shall mean any
or all of the five States of Kentucky, Missouri, Alabama, Tennessee and
Arkansas (the "Five States"), as the context may reasonably require. Any
reference to a Contact shall mean any Contract between one of the Five
States and Citibank.
(j) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
(k) Effective Date. This Agreement shall be effective upon its
acceptance and due execution and delivery by Contractor and CSI.
IN WITNESS WHEREOF, the parties hereto have executed this EBT Support
Services Agreement on the day and year shown below in each instance.
DELUXE GOVERNMENT SERVICES, A CITICORP SERVICES INC.
DIVISION OF EFUNDS CORPORATION
By: /s/ Lawrence J. Mosner By: /s/ Mark E. MacKenzie
------------------------------------- ----------------------------------
(Authorized Signature) (Authorized Signature)
Printed Printed
Name: Lawrence J. Mosner Name: Mark E. MacKenzie
----------------------------------- --------------------------------
Title: Vice Chairman, Deluxe Corporation Title: President
--------------------------------- -------------------------------
Date: April 17, 2000 Date: April 18, 2000
--------------------------------- --------------------------------
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EXHIBIT 10.13
DATA CONTRIBUTION AGREEMENT
This Data Contribution Agreement ("Agreement") is made this 1st day of May,
2000, between Direct Checks Unlimited, Inc. ("Check Printer") and eFunds
Corporation ("eFunds").
WHEREAS, eFunds owns and operates a consumer reporting agency as defined by
the federal Fair Credit Reporting Act, as amended 15 U.S.C. Section 1681 et seq.
("Debit Bureau"); and
WHEREAS, Check Printer is a direct marketer of checks; and
WHEREAS, Check Printer has agreed to contribute certain mutually agreed
upon customer account records ("Account Records") to Debit Bureau, subject to
the terms and conditions of this Agreement.
NOW, THEREFORE, for consideration exchanged between the parties, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Data Contribution. Check Printer agrees to make available to Debit
Bureau at mutually agreeable times, but not less often than weekly, and in a
mutually agreeable format, the Account Records. Check Printer shall deliver the
Account Records through Deluxe Financial Services, Inc., as described in that
certain Processor Agreement of even date herewith by and between eFunds and
Deluxe Financial Services, Inc., and pursuant to the terms of a technical
specification document to be agreed upon by Check Printer and eFunds and
attached as an Exhibit hereto. eFunds will provide assistance to Check Printer
in preparing and delivering the Account Records to Debit Bureau at Check
Printer's request.
2. Deletion/Blocking. If an individual requests that his/her Account
Record(s) be deleted and/or blocked by Check Printer or eFunds, (a) eFunds'
right (as described in Section 3 below) to use such Account Records(s) will
immediately terminate upon its receipt of the applicable request for deletion
and/or blocking from Check Printer or the individual, and (b) eFunds will delete
and/or block such Account Record(s) in accordance with a process agreed to by
the parties.
3. Permitted Use. Debit Bureau agrees that it will only use the Account
Records for any purpose that is both (a) consistent with applicable federal,
state and local laws, rules and regulations (including, without limitation, the
Fair Credit Reporting Act, 15 U.S.C. Section 1681 et seq. (the "FCRA")), and (b)
involves the provision of fraud prevention and risk management services either
directly by Debit Bureau or through eFunds or any of its Affiliates (as defined
in the IPO and Distribution Agreement between eFunds and Deluxe Corporation
dated as of March 31, 2000) to financial institutions and others (i.e., to
protect consumers from identity theft as well as reduce losses due to fraud). In
no event shall Debit Bureau release any list or otherwise specifically identify
the Account Records (or the individuals associated with such Account Records) as
being Check Printer's customers. Except as expressly permitted hereunder, Debit
Bureau shall not copy, display, distribute or otherwise use in any manner or
means the Account Records, in whole or in part.
4. Audits. At any time during the term of this Agreement and thereafter,
Check Printer and/or its agent(s) shall have the right to audit and verify Debit
Bureau's use of the Account Records. Any such audit(s) shall be conducted during
normal business hours with at least three (3) days prior written notice. Debit
Bureau shall cooperate and provide Check Printer and/or its agents with
reasonable assistance during any such audit(s).
<PAGE>
5. Customer Assistance. eFunds will cooperate and help support Check
Printer in connection with any inquiries from a customer(s) that are received
regarding the validity or correctness of the data for such customer(s) included
in the Account Records.
6. Notice to Furnishers of Information. By signing this Agreement, Check
Printer acknowledges its receipt of the attached "Notice to Furnishers of
Information: Obligations of Furnishers Under the FCRA", as required by the FCRA.
7. Term and Termination. This Agreement shall be in effect until July 1,
2001, unless earlier terminated as provided in this Section 7. In addition, the
term of this Agreement may be extended upon the written agreement of the
parties. This Agreement may be terminated by either party at any time with
written notice to the other party if the other party fails to cure its material
breach hereof within fifteen (15) days after its receipt of such notice. Upon
any termination of this Agreement, Check Printer shall immediately discontinue
the provision of the Account Records to Debit Bureau, and Debit Bureau may, at
its option, continue to use all Account Records delivered prior to termination
as expressly permitted under Section 3 hereof. The following Sections of this
Agreement shall survive any termination hereof: 2, 3, 4, 5, 8, 9, 10, 11 and 12.
8. Expenses. Each party shall bear its own costs and expenses in connection
with the performance of its obligations under this Agreement.
9. Limited Warranty and Warranty Disclaimer.
9.1 Limited Warranty. Check Printer warrants to eFunds that it will
use commercially reasonable efforts to ensure that the Account Records
provided to eFunds hereunder are the same as the version of such Account
Records contained in Check Printer's own files. For any breach of the
foregoing warranty, as Check Printer's exclusive liability and eFunds sole
remedy, Check Printer will provide updates to the Account Records promptly
after it learns of any errors, or is notified of any errors by eFunds, in
such Account Records such that the version delivered to eFunds hereunder is
the same as the version of such Account Records contained in Check
Printer's own files.
9.2 Disclaimer. Except for the limited warranty in Section 9.1, The
Account Records are provided "AS IS" with no warranties of any kind,
express or implied, including, without limitation, the warranties of
performance, merchantability and fitness for a particular purpose.
10. Indemnification. eFunds shall indemnify and hold harmless Check Printer
and its affiliated companies from and against all direct damages suffered and
expenses incurred (including reasonable attorneys' fees) by Check Printer and
its affiliated companies as a result of any third party claim related to any use
by eFunds and its Affiliates of the Account Records delivered to Debit Bureau
hereunder. With respect to any third party claims for which a party seeks
indemnification under this Section 10, the indemnification procedures set forth
in Section 7.01(d)-(f) of the IPO and Distribution Agreement shall apply, and
are hereby incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
11. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER PARTY HEREUNDER FOR ANY LOST PROFITS OR OTHER CONSEQUENTIAL,
EXEMPLARY, INCIDENTAL, INDIRECT, SPECIAL OR OTHER SIMILAR DAMAGES, EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
12. General Provisions.
12.1 Notices. Any notice or other communication required or permitted
to be made or given by either party pursuant to this Agreement will be in
writing, in English, and will be deemed to have been duly given: (a) five
(5) business days after the date of mailing if sent by registered or
certified U.S. mail, postage prepaid, with return receipt requested; (b)
when transmitted if sent by facsimile, provided a confirmation of
transmission is produced by the sending machine and a copy of such
facsimile is promptly sent by another means specified in this Section; or
(c) when delivered if delivered personally or sent by express courier
service. All notices will be sent to the other party at its address as set
forth below or at such other address as such party will have specified in a
notice given in accordance with this Section:
---------------------------------------- -----------------------------
In the case of Check Printer: With a copy to:
---------------------------------------- -----------------------------
Direct Checks Unlimited, Inc. Deluxe Corporation
8245 North Union Blvd. 3680 Victoria Street North
Colorado Springs, CO 80920 Shoreview, Minnesota 55126
Attn: Steve Berry Attn: General Counsel
Fax: 719-548-9604 Fax: (651) 787-2749
---------------------------------------- -----------------------------
In the case of eFUNDS: With a copy to:
---------------------------------------- -----------------------------
eFunds Corporation eFunds Corporation
400 West Deluxe Parkway 1080 W County Road F
P.O. Box 12536 Shoreview, MN 55126
Milwaukee, Wisconsin 53212 Attn: General Counsel
Attn: Controller Fax: (651)787-2749
Fax Number: (414) 341-5075
---------------------------------------- -----------------------------
12.2 Reasonableness. Each party will act in good faith in the
performance of its respective responsibilities under this Agreement and
will not unreasonably delay, condition or withhold the giving of any
consent, decision or approval that is either requested or reasonably
required by the other party in order to perform its responsibilities under
this Agreement.
12.3 Assignment. Neither party may assign or otherwise transfer this
Agreement, in whole or in part, without the prior written consent of the
other party. Any purported assignment in violation of the preceding
sentence will be void and of no effect. This Agreement will be binding upon
the parties' respective successors and permitted assigns.
12.4 Complete Agreement; Amendment. This Agreement, including the
Exhibit attached hereto, constitutes the entire agreement between the
parties, and supersedes all other prior or contemporaneous communications
between the parties (whether written or oral) relating to the subject
matter hereof. This Agreement may be modified or amended solely in a
writing signed by both parties.
12.5 Severability. This Agreement shall be deemed severable, and the
unenforceability of any one or more provisions shall not affect the
enforceability of any other provisions. In addition, if any provision of
this Agreement, for any reason, is declared to be unenforceable, the
parties shall substitute an enforceable provision that, to the maximum
extent possible in accordance with applicable law, preserves the original
intentions and economic positions of the parties.
12.6 Waiver. No failure or delay by either party in exercising any
right, power or remedy will operate as a waiver of such right, power or
remedy, and no waiver will be effective unless it is in writing
<PAGE>
and signed by the waiving party. If either party waives any right, power or
remedy, such waiver will not waive any successive or other right, power or
remedy the party may have under this Agreement.
12.7 Force Majeure. Neither party shall be liable for any losses
arising out of the delay or interruption of its performance of obligations
under the Agreement due to any act of God, act of governmental authority,
act of public enemy, or due to war, riot, flood, civil commotion,
insurrection, severe weather conditions, or any other cause beyond the
reasonable control of the party delayed.
IN WITNESS WHEREOF, the parties have executed this Agreement through their
duly authorized representatives.
DIRECT CHECKS UNLIMITED, INC. eFUNDS CORPORATION
By: _____________________ By: _______________________
Title: ____________________ Title: ______________________
<PAGE>
EXHIBIT 10.14
PROCESSOR AGREEMENT
This Processor Agreement ("Agreement") is made this __ day of ______, 2000
(the "Effective Date"), between Deluxe Financial Services, Inc. ("Deluxe") and
eFunds Corporation ("eFunds").
WHEREAS, eFunds owns and operates a consumer reporting agency as defined by
the federal Fair Credit Reporting Act, as amended, 15 U.S.C. Section 1681 et
seq. ("FCRA")(referred to herein as "Debit Bureau"), which among other things
compiles consumer data for use by their Customers (defined below) in their
account opening and other business decision making; and
WHEREAS, Debit Bureau and each of its Customers are parties to a certain
agreement (the "Customer Agreement") under which each such Customer is agreeing
to contribute certain information about consumers to Debit Bureau (the "Customer
Data");
WHEREAS, eFunds desires to gain access to certain data and obtain certain
data processing services related to the Customer Data and eFunds Data from
Deluxe in order for Debit Bureau to carry out its obligations under the Customer
Agreements, subject to the terms and conditions of this Agreement;
WHEREAS, Direct Checks Unlimited, Inc., an Affiliate (defined below) of
Deluxe, has agreed to provide certain customer data ("CU Data") to Debit Bureau
for use as described in that certain Data Contribution Agreement between Direct
Checks Unlimited, Inc. and eFunds effective as of May 1, 2000 (the "DCA"), and
Deluxe will be providing data processing services to make the CU Data available
to Debit Bureau under this Agreement;
WHEREAS, except as provided in this Agreement, the DCA governs the
relationship of Deluxe and eFunds in connection with the CU Data;
WHEREAS, Deluxe has provided and will provide certain data to the Debit
Bureau (collectively, the "LOA Data") prior to the Distribution Date (defined
below), which data Deluxe obtains from its financial institution customers
pursuant to Letters of Agreement entered into between Deluxe and such customers;
and
WHEREAS, eFunds' is currently using the LOA Data in its business operations
and the parties desire to provide for eFunds' continued use thereof after the
Distribution Date, as described in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the capitalized terms set forth below
shall have the following meanings:
"Affiliate" has the meaning given in the IPO and Distribution Agreement.
"Confidential Information" means all proprietary information of a party
that such party treats as confidential, including, without limitation,
specifications, diagrams, information, data, materials, markets, customers,
suppliers, inventions, products, procedures, designs, research and
development, business plans, financial projections, organizations,
employees or consultants or any other similar aspects of or information
related to the present or future business of either party.
"Distribution Date" has the meaning given in the IPO and Distribution
Agreement.
"eFunds Data" means the data provided by eFunds to Deluxe hereunder and
data provided by a Customer of eFunds to Deluxe as a result of a an
agreement between the Customer and eFunds
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under which such Customer agrees to provide such data to Deluxe, as
described in a particular Statement of Work, provided that eFunds Data
shall in not include data provided by a Customer to Deluxe directly or
pursuant to arrangements between Deluxe and such Customer.
"Fees" means the fees and charges payable by eFunds for the Services
provided hereunder, which are set forth in each Statement of Work.
"IPO and Distribution Agreement" means that certain IPO and Distribution
Agreement between eFunds and Deluxe Corporation dated as of March 31, 2000.
"Services" means the data processing services provided by Deluxe hereunder,
which will be described in each Statement of Work.
"Statement of Work" means a document describing the particular Services to
be performed by Deluxe for eFunds, the term of which will be negotiated in
good faith by the parties and attached hereto as an Exhibit. Each Statement
of Work will contain all information relating to the Services described
therein, such as the specific Customer Data and/or eFunds Data needed to be
delivered by eFunds to Deluxe in order for the Services to be provided, the
timetable for completion, pricing, any programming/development work that
eFunds is required to do in order for Deluxe to provide such Services, and
any other terms applicable to such Services.
2. Use of eFunds Data and Customer Data. Subject to the restrictions set forth
in this Agreement, eFunds hereby grants to Deluxe a non-exclusive license to
use, copy, display and distribute the particular eFunds Data described in each
Statement of Work, only as necessary to perform the Services described in such
Statement of Work. In no event shall Deluxe distribute or permit any third party
(including its Affiliates) to access or use the eFunds Data or the Customer Data
when combined with the eFunds Data, except that Deluxe may provide specific
eFunds Data and/or Customer Data in combination with the eFunds Data to the
Customer to which such data relates as part of the Services. Deluxe shall not
analyze or otherwise use the eFunds Data or the Customer Data in combination
with the eFunds Data to familiarize itself with the nature, character or quality
of the eFunds Data or the Customer Data in combination with the eFunds Data nor
shall Deluxe use any information it obtains as a result of its handling,
processing or possession of the eFunds Data and/or the Customer Data in
combination with the eFunds Data for its benefit, for the benefit of any
Affiliate or for the benefit of any third party other than the Customer to which
such eFunds Data or Customer Data in combination with the eFunds Data relates.
Without limiting the generality of the foregoing, Deluxe shall not use the
eFunds Data, the Customer Data in combination with the eFunds Data or
information obtained as a result of its handling, processing or possession of
the eFunds Data or Customer Data in combination with the eFunds Data in
connection with the creation, testing, enhancement, promotion, marketing,
selling and/or licensing of products or services offered by Deluxe or any of its
Affiliates or any third party other than the Customer to which the eFunds Data
and/or Customer Data in combination with the eFunds Data relates. Deluxe
acknowledges and agrees that it shall have no right or license to integrate all
or any portion of the eFunds Data and/or Customer Data in combination with the
eFunds Data into Deluxe's or its Affiliates' own databases. Notwithstanding any
provision in this Agreement to the contrary, however, Deluxe shall not be
prohibited under the provisions of this Agreement from using the Customer Data
or the CU Data for any purpose, provided that such use is not in combination
with the eFunds Data..
3. Delivery. eFunds agrees to deliver to Deluxe the applicable eFunds Data,
including requests for CU Data, as described in each Statement of Work in
accordance with the applicable timeline, and in accordance with the terms of a
technical specification agreed upon by the parties in the applicable Statement
of Work. eFunds shall only submit requests for CU Data as permitted by the DCA,
and eFunds acknowledges that the CU Data will only be provided by Deluxe
hereunder during the term of the DCA and in accordance with the DCA. All eFunds
Data will be delivered to Deluxe directly by the Customer in accordance with the
terms of a technical specification agreed upon by Deluxe and eFunds in the
applicable Statement of Work. All Customer Data, CU Data and eFunds Data in
combination with the
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<PAGE>
Customer Data and/orthe CU Data delivered by Deluxe hereunder as a result of the
Services shall be delivered to eFunds (or its designee) in accordance with the
technical specification in the applicable Statement of Work. If such a technical
specification(s) calls for the delivery to eFunds of a "superset" of Customer
Data, CU Data ,r eFunds Data or a combination of the eFunds Data and the
Customer Data and/or the CU Data (i.e., a set of data that includes more data
elements than is required by eFunds), eFunds warrants that it will process such
delivered data such that only the required data elements (as defined in the
applicable technical specification) are used by eFunds, and that it shall not
use, nor permit any third party (including Affiliates) to use in any manner, any
data elements that are delivered and not required (as defined in the applicable
technical specification).
4. Provision of Services. Deluxe shall provide the Services described in each
Statement of Work pursuant to the time line and specifications contained in such
Statement of Work. Deluxe shall have no liability for any delay in performing
the Services hereunder due to any delays caused by eFunds or any third party,
including, without limitation, any delays in the delivery of the Customer Data,
CU Data or eFunds Data, or completion of necessary programming and other system
changes by eFunds as described in a Statement of Work. Both parties agree to
make the ongoing maintenance and development of the processing files used in the
provision of the Services a business priority.
5. Continued Use of LOA Data. Subject to Sections 6 and 7 below, eFunds agrees
that it will have a royalty-free right to only use the LOA Data for any purpose
that (a) is consistent with the applicable Letter of Agreement as well as
federal, state and local laws, rules and regulations (including, without
limitation, the Financial Services Modernization Act of 1999 and the FCRA); (b)
does not involve the selling or renting of lists of names complied from such
data for marketing lists or marketing purposes. In no event shall eFunds release
any list that identifies the LOA Data (or the individuals or entities associated
with such LOA Data) as being customers of Deluxe or its Affiliates. eFunds
agrees to give Deluxe at least sixty (60) days' written notice before offering
any new service or application that would include any LOA Data. eFunds shall not
submit hereunder a processing request for any LOA Data that originated with
Deluxe's Business Forms business division unless eFunds and Deluxe have entered
into a separate written agreement expressly provided for access to such data by
eFunds. Except as expressly permitted hereunder, eFunds shall not copy, display,
distribute or otherwise use in any manner or means the LOA Data, in whole or in
part. eFunds acknowledges and agrees that nothing in this Agreement permits it
to obtain any additional LOA Data on or after the Distribution Date.
6. Deletion/Blocking of LOA Data. If a customer of Deluxe or its Affiliates
objects to eFunds' use of LOA Data originating from such customer's files,
eFunds will delete and/or block usage of such LOA Data in accordance with a
process agreed to by the parties.
7. Assistance. Deluxe and eFunds will cooperate and help support the other party
in connection with any inquiries from a consumer or other third party that are
received regarding the validity or correctness of any data included in the LOA
Data or Customer Data. Each party must provide such cooperation and assistance
within twenty (20) days of a request from the other party.
8. Fees and Charges.
8.1 Fees and Charges. Deluxe shall invoice eFunds for all Fees for the
Services (as described in each Statement of Work) on a quarterly basis in
arrears within 30 days of the end of the applicable quarter. In the event
eFunds disputes an item billed, eFunds shall, within 60 days of receipt of
Deluxe's invoice, notify Deluxe of the item in dispute, specifying eFunds'
complaint. eFunds may withhold payment of items in dispute without interest
until the dispute is resolved. Each party shall be entitled to offset
amounts owing under this Agreement against amounts owing under the
Professional Services
3
<PAGE>
Agreement, Transition Services Agreement or ONE(R) Application Development
and Support Agreement by notice to the other party. Payments of amounts
owing pursuant to this Agreement, which are not offset against amounts owed
by eFunds, as set forth in the preceding sentence, shall be made twice per
year on the 30th day of June and 31st day of December.
8.2 Taxes. Deluxe shall pay all taxes, including any charges, fees,
duties, levies, imposts, rates or other assessments imposed by any federal,
state, local or foreign taxing authority, including, but not limited to,
income, profits, gross receipts, excise, property, license, capital stock,
franchise, transfer, sales, use, payroll, withholding, social security,
value added or other taxes, and any interest, penalties or additions
attributable thereto assessed or levied against Deluxe and its Affiliates
(as defined in the IPO and Distribution Agreement) and in respect of the
Services performed under this Agreement; provided, however, that all
applicable sales or use taxes assessed on the provision of Services shall
be paid by eFunds.
9. Audits. At any time during the term of this Agreement, eFunds and/or its
agent(s) shall have the right to audit and verify Deluxe's use of the eFunds
Data and the Customer Data in combination with the eFunds Data, and Deluxe
and/or its agent(s) shall have the right to audit and verify eFunds' use of the
LOA Data and Customer Data. Any such audit(s) shall be conducted during normal
business hours with at least three (3) days prior written notice, and neither
party may conduct more than one (1) audit in any calendar year. Each party shall
cooperate and provide the other party and/or its agents with reasonable
assistance during any such audit(s). Any information obtained as a result of
such audit(s) (including without limitation any pricing information) shall be
considered Confidential Information of the party being audited and shall be used
only in connection with determining compliance by the party being audited with
the applicable terms of this Agreement.
10. eFunds Warranties. eFunds warrants that (a) it has collected the Customer
Data (to the extent that such data is collected by eFunds) and eFunds Data in
compliance with all applicable laws, rules, regulations; (b) it owns or has the
right pursuant to the Customer Agreements to supply and license the Customer
Data (to the extent that it is supplying such data to Deluxe) and eFunds Data to
Deluxe as required by this Agreement in order for Deluxe to provide the
Services; (c) use and provision of the Customer Data and eFunds Data as
contemplated by this Agreement will not infringe upon any intellectual property,
privacy or other rights of any third party; (d) it has obtained a Customer
Agreement for each Customer for which Services are requested by eFunds hereunder
that permits eFunds to use the Customer Data as contemplated by this Agreement,
and that such Customer Agreement is in full force and effect as of the time the
applicable Services are requested by eFunds and provided by Deluxe hereunder;
(e) neither it nor any of its Affiliates will use the Customer Data or the LOA
Data processed under this Agreement for the purposes of providing a check
printing conversion file or other blank or mass production MICR-printed
product(s) for financial institutions; and (f) it will only use and permit the
use of the LOA Data as permitted by Section 5 hereof.
11. Deluxe Services Warranties. Deluxe warrants to eFunds that all Services it
performs under this Agreement (a) shall be performed in a professional and
workmanlike manner in accordance with accepted standard practice by members of
the same profession, (b) shall be performed by qualified personnel, and (c)
shall include reasonable diligent efforts to ensure that no defects occur as a
result of such Services. Reasonable notification of any Services which are
deficient shall be given by one party to another hereunder, and Deluxe's sole
obligation and eFunds' sole remedy under this Section 11 is for Deluxe to use
reasonable commercial efforts to remedy such defect. If Deluxe is unable to
remedy such defect within a reasonable time period, then eFunds' exclusive
remedy and Deluxe's entire liability in contract, tort or otherwise shall be a
refunds of the amounts paid by eFunds' hereunder for the defective Services.
Notwithstanding the foregoing, Deluxe shall have no liability under this Section
11 for any defect in the
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Services due to (a) errors or omissions in the Customer
Data and/or eFunds Data, or (b) any specifications or requirements for such
Services provided by eFunds.
12. Warranty Disclaimer. THE WARRANTIES SET FORTH IN SECTIONS 10 AND 11 ARE IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OF IMPLIED, INCLUDING, WITHOUT LIMITATION,
THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, BY BOTH
PARTIES IN CONNECTION WITH THE CUSTOMER DATA, EFUNDS DATA, LOA DATA, SERVICES
AND THE PARTIES' RESPECTIVE PERFORMANCES HEREUNDER.
13. Term and Termination. This Agreement shall become effective as of the
Effective Date, and shall remain in effect for a period of three (3) years. This
Agreement may be terminated by either party with written notice to the other
party if the other party fails to cure its material breach hereof within thirty
(30) days after its receipt of such notice. Upon any termination of this
Agreement, Deluxe shall promptly return and/or destroy the eFunds Data as
reasonably directed by eFunds and eFunds may, at its option, continue to use all
LOA Data as expressly permitted under Section 5 hereof. The following Sections
of this Agreement shall survive any termination hereof: 5, 6, 7, 8, 9, 10, 11,
12, 14, 15, 16, 17 and 18.
14. Expenses. Each party shall bear its own costs and expenses in connection
with the performance of its obligations under this Agreement.
15. Indemnification. eFunds shall indemnify and hold harmless Deluxe and its
Affiliates from and against all direct damages suffered and expenses incurred
(including reasonable attorneys' fees) by Deluxe and its Affiliates as a result
of any third party claim related to any use of the LOA Data by eFunds and its
Affiliates, or the use of the eFunds Data, Customer Data and Customer Data in
combination with the eFunds Data by Deluxe as permitted hereunder. With respect
to any third party claims for which a party seeks indemnification under this
Section 10, the indemnification procedures set forth in Section 7.01(d)-(f) of
the IPO and Distribution Agreement shall apply, and are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein.
16. Limitation of Liability. Excepting claims by third parties that may include
any of the following kinds of damages, IN NO EVENT SHALL EITHER PARTY BE LIABLE
TO THE OTHER PARTY HEREUNDER FOR ANY LOST PROFITS OR OTHER CONSEQUENTIAL,
EXEMPLARY, INCIDENTAL, INDIRECT, SPECIAL OR OTHER SIMILAR DAMAGES, EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
17. Confidentiality.
17.1 General. All Confidential Information shall be deemed
confidential and proprietary to the party disclosing such information
hereunder. Each party may use the Confidential Information of the other
party during the term of this Agreement only as permitted or required for
the receiving party's performance hereunder. The receiving party shall not
disclose or provide any Confidential Information to any third party and
shall take reasonable measures to prevent any unauthorized disclosure by
its employees, agents, contractors or consultants during the term hereof
including appropriate individual nondisclosure agreements. The foregoing
duty shall survive any termination or expiration of this Agreement.
17.2 Exclusions. The following shall not be considered Confidential
Information for purposes of this Section 17: (a) Information which is or
becomes in the public domain through no fault or act of the receiving
party; (b) Information which was independently developed by the receiving
party without the use of or reliance on the disclosing party's Confidential
Information; (c) Information which was provided
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to receiving party by a third party under no duty of confidentiality to the
disclosing party; or (d) Information which is required to be disclosed by
law, provided, however, prompt prior notice thereof shall be given to the
party whose Confidential Information is involved.
18. General Provisions.
18.1 Notices. Any notice or other communication required or permitted
to be made or given by either party pursuant to this Agreement will be in
writing, in English, and will be deemed to have been duly given: (a) five
(5) business days after the date of mailing if sent by registered or
certified U.S. mail, postage prepaid, with return receipt requested; (b)
when transmitted if sent by facsimile, provided a confirmation of
transmission is produced by the sending machine and a copy of such
facsimile is promptly sent by another means specified in this Section; or
(c) when delivered if delivered personally or sent by express courier
service. All notices will be sent to the other party at its address as set
forth below or at such other address as such party will have specified in a
notice given in accordance with this Section:
----------------------------------- --------------------------------
In the case of Deluxe: With a copy to:
----------------------------------- --------------------------------
Deluxe Financial Services, Inc. Deluxe Financial Services, Inc.
3680 Victoria Street North 3680 Victoria Street North
Shoreview, Minnesota 55126 Shoreview, Minnesota 55126
Attn: Warner Schlais Attn: Hank Koch
Fax: (414) 341-5141 Fax: (651) 483-7621
Copy to: General Counsel
----------------------------------- --------------------------------
In the case of eFUNDS: With a copy to:
----------------------------------- --------------------------------
eFunds Corporation eFunds Corporation
1080 W County Road F 1080 W County Road F
Shoreview, MN 55126 Shoreview, MN 55126
Attn: Debra Janssen Attn: General Counsel
Fax: (651)787-2749 Fax: (651)787-2749
----------------------------------- --------------------------------
18.2 Reasonableness. Each party will act in good faith in the
performance of its respective responsibilities under this Agreement and
will not unreasonably delay, condition or withhold the giving of any
consent, decision or approval that is either requested or reasonably
required by the other party in order to perform its responsibilities under
this Agreement.
18.3 Assignment. Neither party may assign or otherwise transfer this
Agreement, in whole or in part, without the prior written consent of the
other party. Any purported assignment in violation of the preceding
sentence will be void and of no effect. This Agreement will be binding upon
the parties' respective successors and permitted assigns.
18.4 Complete Agreement; Amendment. This Agreement, including the
Exhibits attached hereto, constitutes the entire agreement between the
parties, and supersedes all other prior or contemporaneous communications
between the parties (whether written or oral) relating to the subject
matter hereof. This Agreement may be modified or amended solely in a
writing signed by both parties.
18.5 Severability. This Agreement shall be deemed severable, and the
unenforceability of any one or more provisions shall not affect the
enforceability of any other provisions. In addition, if any provision of
this Agreement, for any reason, is declared to be unenforceable, the
parties shall substitute an
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enforceable provision that, to the maximum extent possible in accordance
with applicable law, preserves the original intentions and economic
positions of the parties.
18.6 Waiver. No failure or delay by either party in exercising any
right, power or remedy will operate as a waiver of such right, power or
remedy, and no waiver will be effective unless it is in writing and signed
by the waiving party. If either party waives any right, power or remedy,
such waiver will not waive any successive or other right, power or remedy
the party may have under this Agreement.
18.7 Force Majeure. Neither party shall be liable for any losses
arising out of the delay or interruption of its performance of obligations
under the Agreement due to any act of God, act of governmental authority,
act of public enemy, or due to war, riot, flood, civil commotion,
insurrection, severe weather conditions, or any other cause beyond the
reasonable control of the party delayed.
IN WITNESS WHEREOF, the parties have executed this Agreement through their
duly authorized representatives.
Deluxe Financial Services, Inc. eFUNDS CORPORATION
By: By:
------------------------------- -------------------------------------
Title: Title:
---------------------------- ----------------------------------
<PAGE>
EXHIBIT 10.15
EXECUTION COPY 2/28/2000
AMENDMENT TO ATM CASH AGREEMENTS
--------------------------------
This amendment ("Amendment") is made effective as of the 20th day of February,
2000, by and between eFunds Corporation (f/k/a Deluxe Electronic Payment
Systems, Inc.), 400 West Deluxe Parkway, Milwaukee, Wisconsin 53212 ("eFunds")
*** (" *** ").
WHEREAS, eFunds and *** are parties to the ATM Cash Agreements (as defined
below) and the Currency Control Agreement (as defined below); and
WHEREAS, eFunds and *** desire to modify certain provisions of the ATM Cash
Agreements as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual promises set forth below and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. Definitions.
------------
Except as otherwise specifically indicated or where the context clearly requires
otherwise, the following terms shall have the meanings ascribed to them below
for purposes of this Amendment.
1.1 Certain Defined Terms
"Currency Control Agreement" shall mean the Currency Control Agreement
dated November 15, 1999 and entered into by and between eFunds and ***
and effective as of June 24, 1998, as the same may from time-to-time
be amended, supplemented, or otherwise modified.
1.2 Other Defined Terms
For purposes of this Amendment, the following terms shall have the
respective meanings given them in the Currency Control Agreement: ATM;
ATM Cash Agreements; and ATM Currency.
2. Amending Provisions.
--------------------
2.1 Notwithstanding any provision of any ATM Cash Agreement to
the contrary, the total amount of ATM Currency outstanding in all
ATMs under the ATM Cash Agreements at any point in time, and the total
amount of ATM Currency that eFunds shall be obligated to make
available for all ATMs under the ATM Cash Agreements, shall not exceed
thirty-five million dollars ($35,000,000); provided, however, that
there shall be no commingling of ATM Currency between or among the
respective ATM Cash Agreements under any circumstances.
2.2 Unless otherwise agreed by the parties, total ATM Currency outstanding
in ATMs under each ATM Cash Agreement, and the total amount that
eFunds shall
*** Denotes confidential information that has been omitted from the Exhibit and
filed separately, accompanied by a confidential treatment request, with
the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act, as amended.
1
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be obligated to make available for ATMs under each ATM Cash Agreement,
shall not exceed the following respective amounts: (a) for the June
24, 1998 ATM Cash Agreement relating to ATMs located at *** and ***
branded convenience store locations: $3,000,000; (b) for the March 19,
1999 ATM Cash Agreement relating to ATMs located in *** locations:
$6,000,000; (c) for the August 23, 1999 ATM Cash Agreement relating to
ATMs located at *** locations: $12,000,000; and (d) for the November
15, 1999 ATM Cash Agreement relating to ATMs located at *** and ***
locations: $14,000,000. *** may, from time-to-time during the term of
the Currency Control Agreement, request in writing to change the
foregoing ATM Currency amounts under the respective ATM Cash
Agreements, subject to Section 2.1 of this Amendment, eFunds agrees
not to unreasonably withhold its consent to any such written request
by ACI, subject to Section 2.1 of this Amendment.
2.3 *** shall at all times manage ATM Currency requirements under the ATM
Cash Agreements to optimize the amount of cash in ATMs with the
express purpose of keeping no more ATM Currency in individual ATMs
than is reasonably necessary to keep sufficient funds in the ATMs
between replenishment dates.
3. No Other Modifications; Order of Preference.
--------------------------------------------
3.1 Except as modified hereby, the terms and conditions of the ATM Cash
Agreements shall remain in full force and effect without modification.
3.2 In the event of any conflict or inconsistency between the provisions
of this Amendment, any ATM Cash Agreement, and/or the Currency
Control Agreement, the following order of precedence shall apply: (a)
in all cases, the provisions of the Currency Control Agreement shall
prevail; (b) second, the provisions of this Amendment; and (c)
finally, the provisions of the applicable ATM Cash Agreement(s).
IN WITNESS WHEREOF, *** and eFunds have caused this Amendment to be duly
executed and delivered as of the date first above written.
*** EFUNDS CORPORATION
By: *** By: ***
------------------------------- -------------------------------------
Name: *** Name: ***
---------------------------- -----------------------------------
Title: *** Title: ***
--------------------------- ----------------------------------
Date: Date:
---------------------------- -----------------------------------
*** Denotes confidential information that has been omitted from the Exhibit and
filed separately, accompanied by a confidential treatment request, with
the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act, as amended.
2
<PAGE>
EXHIBIT 10.16
CREDIT AGREEMENT
BY AND BETWEEN
eFUNDS CORPORATION
AND
DELUXE CORPORATION
DATED AS OF APRIL __, 2000
<PAGE>
i
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS 1
Section 1.1 Defined Terms 1
Section 1.2 Accounting Terms and Calculations 8
Section 1.3 Other Definitional Terms, Terms of Construction 8
ARTICLE II. TERMS OF LENDING 8
Section 2.1 The Revolving Commitment 8
Section 2.2 Procedure for Advances and Continuations 9
Section 2.3 The Note 9
Section 2.4 Interest Rates, Interest Payments and Default Interest 9
Section 2.5 Repayment and Prepayment 10
Section 2.6 Optional Reduction of Commitment Amount or
Termination of Commitment 10
Section 2.7 Computation 10
Section 2.8 Reimbursement of Lender 10
ARTICLE III CONDITIONS PRECEDENT 11
Section 3.1 Conditions of Initial Advance 11
Section 3.2 Conditions Precedent to all Advances 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES 12
Section 4.1 Organization, Standing, Etc. 12
Section 4.2 Litigation 13
Section 4.3 Taxes 13
Section 4.4 Subsidiaries 13
Section 4.5 ERISA Compliance 13
Section 4.6 Use of Proceeds, Margin Regulations 14
Section 4.7 Title to Properties 14
Section 4.8 Financial Condition 14
Section 4.9 Copyrights, Patents, Trademarks and Licenses, Etc. 14
Section 4.10 Insurance 15
ARTICLE V AFFIRMATIVE COVENANTS 15
Section 5.1 Financial Statements and Reports 15
Section 5.2 Corporate Existence 15
Section 5.3 Insurance 16
<PAGE>
ii
Section 5.4 Payment of Taxes and Claims. 16
Section 5.5 Inspection 16
Section 5.6 Maintenance of Properties 16
Section 5.7 Books and Records 16
Section 5.8 Compliance 16
Section 5.9 Notice of Litigation 16
Section 5.10 Compliance with ERISA 16
Section 5.11 Use of Proceeds 17
ARTICLE VI NEGATIVE COVENANTS 17
Section 6.1 Merger or Consolidation 17
Section 6.2 Sale of Assets 18
Section 6.3 Restricted Payments 18
Section 6.4 ERISA 18
Section 6.5 Investments 18
Section 6.6 Indebtedness 19
Section 6.7 Liens 20
Section 6.8 Contingent Obligations 20
Section 6.9 Interest Coverage 21
Section 6.10 Leverage 21
Section 6.11 Additional Restrictions on Indebtedness 21
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES 21
Section 7.1 Events of Default 21
Section 7.2 Remedies 23
Section 7.3 Offset 24
ARTICLE VIII
MISCELLANEOUS 24
Section 8.1 Modifications 24
Section 8.2 Costs and Expenses 24
Section 8.3 Waivers, Etc. 24
Section 8.4 Notices 24
Section 8.5 Successors and Assigns; Disposition of Loans 25
Section 8.6 Governing Law and Construction 25
Section 8.7 Consent to Jurisdiction 25
Section 8.8 Waiver of Jury Trial 25
Section 8.9 Captions 25
<PAGE>
iii
Section 8.10 Entire Agreement 26
Section 8.11 Counterparts 26
<PAGE>
iv
List of Exhibits and Schedules:
- ------------------------------
Exhibit A - Revolving Note
Schedule 4.4 - Subsidiaries
Schedule 4.5 - ERISA
Schedule 4.9 - Copyrights, Patents, Trademarks and Licenses, Etc.
Schedule 6.7 - Existing Liens
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of April ___, 2000 ("Agreement"), is by and
between eFunds Corporation, a corporation organized under the laws of the State
of Delaware (the "Borrower"), and Deluxe Corporation, a corporation organized
under the laws of the Delaware (the "Lender").
ARTICLE I.
----------
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms . As used in this Agreement the following terms
shall have the following respective meanings:
"Acquisition": Any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or of any material
part of the business and operations or division of a Person, (b) the
acquisition of in excess of 50% of the capital stock, partnership interests
or equity of any Person, or otherwise causing any Person to become a
Subsidiary, or (c) a merger or consolidation or any other combination with
another Person (other than a Person that is a Subsidiary) provided that the
Borrower or a Subsidiary is the surviving entity.
"Advance": As defined in Section 2.1.
"Agent": The "Agent" under the Deluxe Credit Agreement.
"Applicable Margin": With respect to each Advance, the amount set
forth opposite the indicated Level Status below the heading "Applicable
Margin" based on the credit rating of the Lender. The Applicable Margin
shall automatically change in respect of all Advances then outstanding or
as to which a request for borrowing has been delivered to the Lender by the
Borrower as of the date of any public announcement by S&P or Moody's
resulting in a change in the credit rating of the Lender.
<PAGE>
Level Status Applicable Margin
------------ -----------------
Level I .25%
Level II .275%
Level III .37%
Level IV .5%
Level V .625%
Level VI .85%
Level VII 1.3%
"Level I Status" exists at any date if, at such date, Lender's senior
unsecured long-term debt ratings are rated either A+ or higher (or the
equivalent) as publicly announced by S&P or A1 or higher (or the
equivalent) as publicly announced by Moody's.
"Level II Status" exists at any date if, at such date (i) Lender's
senior unsecured long-term debt ratings are rated either A or higher (or
the equivalent) as publicly announced by S&P or A2 or higher (or the
equivalent) as publicly announced by Moody's and (ii) Level I Status does
not exist.
"Level III Status" exists at any date if, at such date (i) Lender's
senior unsecured long-term date ratings are rated either A- or higher (or
the equivalent) as publicly announced by S&P or A3 or higher (or the
equivalent) as publicly announced by Moody's and (ii) Level I Status and
Level II Status do not exist.
"Level IV Status" exists at any date if, at such date (i) Lender's
senior unsecured long-term date ratings are rated either BBB+ or higher (or
the equivalent) as publicly announced by S&P or Baa1 or higher (or the
equivalent) as publicly announced by Moody's and (ii) Level I Status, Level
II Status and Level III Status do not exist.
"Level V Status" exists at any date if, at such date (i) Lender's
senior unsecured long-term date ratings are rated either BBB or higher (or
the equivalent) as publicly announced by S&P or Baa2 or higher (or the
equivalent) as publicly announced by Moody's and (ii) Level I Status, Level
II Status, Level Status III and Level IV Status do not exist.
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<PAGE>
"Level VI Status" exists at any date if, at such date (i) Lender's
senior unsecured long-term date ratings are rated either BBB- or higher (or
the equivalent) as publicly announced by S&P or Baa3 or higher (or the
equivalent) as publicly announced by Moody's and (ii) Level I Status, Level
II Status, Level III Status, Level IV Status and Level V Status do not
exist.
"Level VII Status" exists at any date if, at such date (i) Lender's
senior unsecured long-term date ratings are rated lower than BBB- (or the
equivalent) as publicly announced by S&P or lower than Baa3 (or the
equivalent) as publicly announced by Moody's or (ii) the Lender's senior
unsecured long-term debt is unrated by both S&P and Moody's.
"Base Rate": The "Prime Rate" as published in The Wall Street Journal
(currently defined as the base rate on corporate loans posted by at least
75% of the nation's 30 largest banks, but however the same may be from time
to time defined).
"Business Day": Any day other than a Saturday, Sunday or day on which
commercial banks in New York City or San Francisco are authorized or
required by law to close and, if the applicable Business Day relates to the
making or continuation of an Advance, means such a day on which dealings
are carried on in the applicable offshore dollar interbank.
"Closing Date": The date on which all conditions precedent set forth
in Section May 20, 2000 are satisfied, or waived by the Lender.
"Code": The Internal Revenue Code of 1986, and regulations promulgated
thereunder.
"Commitment": The obligation of the Lender to make Advances to the
Borrower in an aggregate principal amount outstanding at any time not to
exceed the Commitment Amount upon the terms and subject to the conditions
and limitations of this Agreement.
"Commitment Amount": As defined in Section 2.1.
"Contingent Obligation": As applied to any Person, any material direct
or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, Surety Instrument or other obligation (the "primary
obligations") of another Person
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(the "primary obligor"), including any obligation of that Person, whether
or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect
security therefor, or (b) to advance or provide funds (i) for the payment
or discharge of any such primary obligation, or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain
the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in respect
thereof, in each case (a), (b), (c) or (d), including arrangements wherein
the rights and remedies of the holder of the primary obligation are limited
to repossession or sale of certain property of such Person. The amount of
any Contingent Obligation shall be deemed equal to the lesser of (x) the
stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or if indeterminable,
the maximum reasonably anticipated liability in respect thereof, or (y) any
limitation of such Contingent Obligation contained in the instrument or
agreement creating such Contingent Obligation.
"Continuation Date": Any date on which an Interest Period ends with
respect to an Advance and a new Interest Period is established for such
Advance.
"Default": Any event which, with the giving of notice (whether such
notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an
Event of Default.
"Deluxe Credit Agreement": That certain Credit Agreement dated as of
August 30, 1999 among Deluxe Corporation, the several financial
institutions party thereto from time to time and Bank of America, N.A., as
administrative agent, as the same may be amended from time to time.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, and regulations promulgated thereunder.
"Event of Default": Any event described in Section 7.1.
"Funded Debt": As of the date of any determination all outstanding
Indebtedness of the Borrower and its consolidated Subsidiaries which
matures
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more than one (1) year after the incurrence thereof or is extendable,
renewable or refundable, at the option of the obligor, to a date more than
one (1) year after the incurrence thereof.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession, which are applicable to the circumstances as
of any date of determination.
"Indebtedness": Without duplication, (a) all indebtedness for borrowed
money; (b) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (other than trade payables entered
into in the ordinary course of business on ordinary terms); (c) all
non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses; (e) all
recourse indebtedness created or arising under any conditional sale or
other title retention agreement, or incurred as financing, in either case
with respect to property acquired by the Person; and (f) all obligations
with respect to capital leases; provided, however, that the term
"Indebtedness" shall not include non-recourse obligations or indebtedness
of any kind, and provided further, however, that the term "Indebtedness"
shall not include any such obligations or indebtedness owing by the
Borrower or any Subsidiary to the Borrower or any Subsidiary.
"Interest Period": The period commencing on the Business Day an
Advance is disbursed, or on the Continuation Date of such Advance, and
ending on the date one, two or three months thereafter, as selected by the
Borrower in a written request for Advance or Continuation thereof, as the
case may be;
provided that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such
5
<PAGE>
Interest Period into another calendar month, in which event such
Interest Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period; and
(iii) no Interest Period for Advances shall extend beyond the
Maturity Date.
"LIBO Rate": For any Interest Period selected by the Borrower,
(i) the rate of interest per annum determined by the Lender to be
the rate of interest on Dow Jones Page 3750 (as defined below) for
U.S. dollar deposits in the approximate amount of each Advance being
requested to be made or continued by Borrower, and having a maturity
comparable to the applicable Interest Period two Business Days prior
to the commencement of such Interest Period, subject to clause (ii)
below; or
(ii) if for any reason the rate is not available as provided in
the preceding clause (i) of this definition, the "LIBO Rate" instead
means the rate of interest per annum determined by the Lender based on
any other commercially reasonable basis two Business Days prior to the
commencement of such Interest Period, including, without limitation,
by reference to any other rate quoting service selected by the Lender
in its sole discretion. As used in this definition, "Dow Jones Page
3750 means the display designated as "3750" on the Dow Jones Market
Service (also known as the Telerate Service) or any replacement page
thereof or successor thereto.
"Lien": With respect to any Person, any security interest, mortgage,
deed of trust, pledge, hypothecation, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of any
kind or nature whatsoever in respect of any property (including those
created by, arising under or evidenced by any conditional sale or other
title retention agreement, the interest of a lessor under a capital lease,
any financing lease having substantially the same economic effect as any of
the foregoing, or the filing of any financing statement signed by and
naming the owner of the asset to which such lien relates as debtor, under
the
6
<PAGE>
Uniform Commercial Code or any comparable law), but not including the
interest of a lessor under an operating lease.
"Loan Documents": This Agreement and the Note and any and all other
agreements, instruments and documents heretofore, herewith or hereafter
executed and delivered by the Borrower or any other Person pursuant to, or
in connection with this Agreement, including, without limitation, any
subordination agreements, reimbursement agreements, assignments of rents
and leases, powers of attorney, consents, assignments, contracts, notices,
financing statements, certificates of title and any and all other writings
pursuant to or in aid of any of the foregoing.
"Margin Stock": As the term "margin stock" is defined in Regulation T,
U or X of the Board of Governors of the Federal Reserve System.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the financial condition of the Borrower and
its Subsidiaries taken as a whole; or (b) a material adverse effect upon
the legality, validity, binding effect or enforceability against the
Borrower of this Agreement or the Note.
"Maturity Date": The earlier of (a) December 31, 2000 or (b) the date
upon which consummation of the Split-Off occurs.
"Moody's": Moody's Investors Service, a division of Dun & Bradstreet
Corporation.
"Multiemployer Plan": A "multiemployer plan", within the meaning of
Section 4001(a)(3) of ERISA, to which the Company or any Subsidiary makes,
is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.
"Note": As defined in Section 2.3.
"Pension Plan": A pension plan (as defined in Section 3(2) of ERISA)
that is a defined benefit plan subject to Title IV of ERISA which the
Borrower or any Subsidiary sponsors, maintains, or to which it makes, is
making, or is obligated to make contributions.
"Permitted Liens": As defined in Section 6.7.
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"Person": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or
any other entity, whether acting in an individual, fiduciary or other
capacity.
"Plan": An employee benefit plan (as defined in Section 3(3) of ERISA)
which the Borrower or any Subsidiary sponsors or maintains or to which the
Borrower or any Subsidiary makes, is making, or is obligated to make
contributions and includes any Pension Plan, but excluding any such plan
that is sponsored by the Lender.
"Responsible Officer": Any of the following officers of the Borrower:
the chief executive officer, the chief operating officer, the president,
the chief financial officer, the treasurer, the assistant treasurer, or any
other officer of the Borrower having similar authority and responsibility
to any of the foregoing.
"S&P": Standard & Poor's Ratings Services, a division of McGraw-Hill
Companies, Inc.
"Split-Off": The sale to the public as part of an initial public
offering of less than 20% of the stock of Borrower and the subsequent
exchange of shares of the Borrower for shares of the Lender.
"Subsidiary": Any corporation or other entity of which securities or
other ownership interests having ordinary voting power for the election of
a majority of the board of directors or other Persons performing similar
functions are owned by the Borrower either directly or through one or more
Subsidiaries.
"Surety Interest": All letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety
bonds and similar instruments.
"Total Capitalization": As of any date of determination, the sum of
(i) Funded Debt, and (ii) the sum of the amounts set forth on the
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as shareholders' equity as determined in accordance with GAAP.
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Section 1.2 Accounting Terms and Calculations . Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP.
Section 1.3 Other Definitional Terms, Terms of Construction . The words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to Sections, Exhibits, Schedules and the
like references are to Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise expressly provided. The words "include," "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation." Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or."
ARTICLE II.
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TERMS OF LENDING
Section 2.1 The Revolving Commitment . On the terms and subject to the
conditions hereof, the Lender agrees to make advances (each an "Advance") to the
Borrower on a revolving basis at any time and from time to time from the Closing
Date to, but not including, the "Maturity Date", during which period the
Borrower may borrow, repay and reborrow in accordance with the provisions
hereof, provided, that the unpaid principal amount of outstanding Advances shall
not at any time exceed $75,000,000 (the "Commitment Amount").
Section 2.2 Procedure for Advances and Continuations.
(a) Any request by the Borrower for an Advance shall be in writing or
by telephone and must be given so as to be received by the Lender not later
than 9:00 a.m. (local time of the Lender) five Business Days prior to the
requested Advance date. Each request for an Advance shall be irrevocable
and shall be deemed a representation by the Borrower that on the requested
Advance date and after giving effect to such Advance the applicable
conditions specified in Article III have been and will continue to be
satisfied. Each request for an Advance shall specify (i) the requested
Advance date (which must be a Business Day), (ii) the amount of such
Advance, which shall be in a minimum amount of $5,000,000, and (iii) the
duration of the Interest Period applicable to such Advance. Subject to
satisfaction of the applicable conditions specified in Article III, the
Lender will make the Advance available to the Borrower by causing
immediately available funds in the amount of the requested Advance to be
deposited in the Borrower's
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general operating account not later than 12:00 noon (local time of the
Lender) on the requested Advance date.
(b) Unless the Borrower pays an Advance in full, not later than 12:00
noon (local time of the Lender) four Business Days prior to the end of the
Interest Period applicable to such Advance, the Borrower shall deliver a
written notice to the Lender specifying the duration of the Interest Period
applicable to the continued Advance, and, if any portion of the Advance is
to be paid, the amount of the continued Advance.
Section 2.3 The Note . The Advances shall be evidenced by a single
promissory note of the Borrower (the "Note"), substantially in the form of
Exhibit A hereto, in the amount of the Commitment Amount originally in effect.
The Lender shall enter in its ledgers and records the amount of each Advance
made and the payments made thereon, and the Lender is authorized by the Borrower
to enter on a schedule attached to the Note a record of such Advances and
payments, provided, however that the failure by the Lender to make any such
entry shall not limit or otherwise affect the obligations of the Borrower
hereunder and on the Note. Each entry recording an Advance shall be prima facia
evidence that the Advance has been made and as to the amount and terms thereof.
Section 2.4 Interest Rates, Interest Payments and Default Interest .
Interest shall accrue and be payable on the unpaid balance of the Note at a
floating rate per annum equal to the sum of the LIBO Rate plus the Applicable
Margin. Interest shall be paid in arrears at the end of each Interest Period,
but in no event no less frequently than the end of each calendar quarter and
upon final payment of the Note. Upon the occurrence and during the continuance
of any Event of Default, the unpaid principal balance of the Note shall bear
interest at the Base Rate plus the Applicable Margin plus two percent. Unless as
otherwise provided in the preceding sentence, all Advances shall bear per annum
interest based on the LIBO Rate as provided in this Agreement, unless the Lender
is unable to borrow funds under the Deluxe Credit Agreement at a per annum
interest rate based on the LIBO Rate, in which event all Advances made to the
Borrower after the Lender provides notice to the Borrower of such event shall
bear interest at the Base Rate plus the Applicable Margin.
Section 2.5 Repayment and Prepayment . Principal of the Note shall be
payable in full on the Maturity Date. The Borrower may prepay the Note, in whole
or in part, at any time, subject to reimbursement by the Borrower of the Lender
for any direct loss or expense incurred by the Lender as a result of any payment
of an Advance made on a day that is not the last day of the relevant Interest
Period for such Advance. Any such
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prepayment must be accompanied by accrued and unpaid interest on the amount
prepaid. Each partial prepayment shall be in a minimum amount of $5,000,000 or,
if less, the remaining outstanding balance of principal plus accrued interest
and other amounts payable upon prepayment as herein provided. Amounts prepaid
under this Section may be reborrowed upon the terms and subject to the
conditions and limitations of this Agreement.
Section 2.6 Optional Reduction of Commitment Amount or Termination of
Commitment . The Borrower may, at any time, upon not less than 3 Business Days
prior written notice to the Lender, reduce the Commitment Amount, with any such
reduction in a minimum amount of $5,000,000 . Upon any reduction in the
Commitment Amount pursuant to this Section, the Borrower shall pay to the Lender
the amount, if any, by which the aggregate unpaid principal amount of the Note
exceeds the Commitment Amount as so reduced, plus all interest and other amounts
payable upon prepayment as provided in Section 2.5. Amounts so paid cannot be
reborrowed. The Borrower may, at any time, upon not less than 3 Business Days
prior written notice to the Lender, terminate the Commitment in its entirety.
Upon termination of the Commitment pursuant to this Section, the Borrower shall
pay to the Lender all unpaid obligations of the Borrower to the Lender
hereunder.
Section 2.7 Computation . Interest on the Note shall be computed on the
basis of actual days elapsed and a year of 360 days, except interest based on
the Base Rate shall be computed on the basis of a year of 365 days.
Section 2.8 Reimbursement of Lender . To the extent that the Lender is
obligated to pay or reimburse any of the lenders under the Deluxe Credit
Agreement pursuant to any of the provisions of Sections 3.03 or 3.06 of the
Deluxe Credit Agreement on account of loans made to the Lender or commitments
extended to the Lender, the Borrower shall reimburse the Lender for the
Borrower's allocable share of any such payments on account of Advances made to
the Borrower or on account of the Commitment. The Borrower shall reimburse the
Lender for all funding losses pursuant to Section 3.04 of the Deluxe Credit
Agreement that the Lender is required to pay as a result of actions or inactions
of the Borrower.
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ARTICLE III
-----------
CONDITIONS PRECEDENT
Section 3.1 Conditions of Initial Advance . The obligation of the Lender to
make the initial Advance hereunder shall be subject to the prior or simultaneous
fulfillment of each of the following conditions:
3.1(a) Documents. The Lender shall have received the following:
(i) The Note executed by a duly authorized officer of the
Borrower and dated the Closing Date.
(ii) A certificate in form acceptable to the Lender indicating to
the satisfaction of the Lender that the execution, delivery and
performance of this Agreement and the Note have been duly authorized
by all necessary corporate action, and containing an incumbency
certificate showing the names and offices, and bearing the signatures
of, the Persons authorized to execute this Agreement and the Note,
certified as of the Closing Date by the Secretary or an Assistant
Secretary of the Borrower.
(iii) A copy of the Articles of Incorporation of the Borrower
with all amendments thereto, certified by the appropriate governmental
official of the jurisdiction of its incorporation as of a date
satisfactory to the Lender.
(iv) A certificate of good standing for the Borrower in the
jurisdiction of its incorporation, certified by the appropriate
governmental officials as of a date satisfactory to the Lender.
(v) A copy of the bylaws of the Borrower, certified as of a date
satisfactory to the Lender by the Secretary or an Assistant Secretary
of such Borrower.
(vi) A certificate dated the Closing Date (or as of any later
date specified by the Lender) of the chief executive officer or chief
financial officer of the Borrower certifying (A) as to the matters set
forth in Sections 3.2 (a) and 3.2 (b) below.
3.1(b) Other Matters. All organizational and legal proceedings
relating to the Borrower and all instruments and agreements in connection
with the
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transactions contemplated by this Agreement shall be satisfactory in scope,
form and substance to the Lender and its counsel, and the Lender shall have
received all information and copies of all documents, including records of
corporate proceedings, which it may reasonably have requested in connection
therewith, such documents where appropriate to be certified by proper
Borrower or governmental authorities.
3.1(c) Fees and Expenses. The Lender shall have received all fees and
other amounts due and payable by the Borrower or the Lender on or prior to
the Closing Date.
3.2 Conditions Precedent to all Advances . The Lender shall not have any
obligation to make any Advance (including Advances after the initial Advance)
hereunder unless the following conditions have been satisfied as of the date of
the requested Advance:
3.2(a) Representations and Warranties. The representations and
warranties contained in Article IV shall be true and correct on and as of
the Closing Date and on the date of each Advance, with the same force and
effect as if made on such date.
3.2(b) No Default . No Default or Event of Default shall have occurred
and be continuing on the Closing Date and on the date of each Advance will
exist after giving effect to the Advances made on such date.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 Organization, Standing, Etc. The Borrower is a corporation duly
organized and validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite power and authority to
carry on its business as now conducted, to enter into this Agreement and to
issue the Note and to perform its obligations hereunder and thereunder. Each
Subsidiary of the Borrower is a corporation duly organized and validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite power and authority to carry on its business as now conducted.
This Agreement and the Note have been duly authorized by all necessary corporate
action and when executed and delivered will be the legal and
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binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally or by equitable principles relating to
enforceability. The execution and delivery of this Agreement and the Note will
not violate the Borrower's Certificate of Incorporation or any law applicable to
the Borrower. No governmental consent or exemption is required in connection
with the Borrower's execution and delivery of this Agreement and the Note.
Section 4.2 Litigation . There are no actions, suits or proceedings pending
or, to the knowledge of the Borrower, threatened against or affecting the
Borrower or any Subsidiary which, if determined adversely to the Borrower or any
Subsidiary, would have a Material Adverse Effect. Neither the Borrower nor any
Subsidiary is in violation of any law or regulation (including environmental
laws and regulations and laws relating to employee benefit plans) where such
violation could reasonably be expected to impose a material liability on the
Borrower or such Subsidiary.
Section 4.3 Taxes . On and after May , 2000, the Borrower and its
Subsidiaries are in compliance with all obligations imposed on them under the
Tax Sharing Agreement entered into by the Borrower and the Lender dated May ,
2000 ("Tax Sharing Agreement").
Section 4.4 Subsidiaries . The Borrower has no Subsidiaries other than the
Subsidiaries listed on Schedule 4.4 hereto.
Section 4.5 ERISA Compliance . Except as specifically disclosed in Schedule
4.5:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law
except where non-compliance would not reasonably be expected to result in a
Material Adverse Effect. The Borrower and each Subsidiary has made all
required contributions to any Plan.
(b) Neither the Borrower nor any Subsidiary sponsors or contributes to
any Pension Plan, including any Multiemployer Plan.
(c) There are no pending or, to the best knowledge of the Borrower,
threatened claims, actions or lawsuits, or action by any governmental
authority,
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with respect to any Plan which has resulted or would reasonably be expected
to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect
to any Plan which has resulted or would reasonably be expected to result in
a Material Adverse Effect.
Section 4.6 Use of Proceeds, Margin Regulations . The proceeds of the Loans
are to be used solely for the general corporate purposes of the Borrower
consistent with the provisions of this Agreement. Neither the Borrower nor any
Subsidiary is generally engaged in the business of purchasing or selling Margin
Stock or extending credit for the purpose of purchasing or carrying Margin
Stock.
Section 4.7 Title to Properties . The Borrower and each Subsidiary have
good record and marketable title in fee simple to, or to the Borrower's
knowledge, valid leasehold interests in, all real property necessary for the
ordinary conduct of businesses, except for such defects in title as would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. As of the Closing Date, the properties of the Borrower and its
Subsidiaries are subject to no Liens, except for Permitted Liens.
Section 4.8 Financial Condition . There has been no material adverse change
in the business or financial condition of Borrower since its financial
statements dated as of March 31, 2000.
Section 4.9 Copyrights, Patents, Trademarks and Licenses, Etc. Except as
disclosed in Schedule 4.9, the Borrower or one of its Subsidiaries owns or is
licensed or otherwise has the right to use all of the patents, trademarks,
service marks, trade names, copyrights, contractual franchises, authorizations
and other rights that are reasonably necessary for the operation of its
businesses, without conflict with the rights of any other Person except where
the failure to own, be licensed to or otherwise have the right to use the same
would not have a Material Adverse Effect. Except as disclosed in Schedule 4.9,
to the best knowledge of the Borrower, no material slogan or other advertising
device, product, process, method, substance, part or other material now
employed, or now contemplated to be employed, by the Borrower or any Subsidiary
infringes upon any rights held by any other Person where any such infringement
would reasonably be expected to have a Material Adverse Effect. Except as
specifically disclosed in Schedule 4.9, no claim or litigation regarding any of
the foregoing is pending or to the knowledge of the Borrower threatened, which
would reasonably be expected to have a Material Adverse Effect.
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Section 4.10 Insurance . To the extent that insurance is not provided under
insurance policies maintained by the Lender insuring the properties of Borrower
and its subsidiaries, the properties of the Borrower and its Subsidiaries are
insured with financially sound and reputable insurance or reinsurance companies,
in such amounts, with such deductibles and covering such risks as are believed
by the Borrower to be adequate in the exercise of its reasonable business
judgment.
ARTICLE V
---------
AFFIRMATIVE COVENANTS
Until the Maturity Date and the Note and all of the Borrower's other
obligations to the Lender under this Agreement shall have been paid in full,
unless the Lender shall otherwise consent in writing:
Section 5.1 Financial Statements and Reports . The Borrower will furnish to
the Lender:
5.1(a) As soon as available and in any event within 30 days after the
end of each month, unaudited consolidated financial statements for the
Borrower and its consolidated Subsidiaries for such month and for the
period from the beginning of such fiscal year to the end of such month,
substantially similar to the Borrower's annual audited statements, together
with a certificate of a Responsible Officer of the Borrower certifying that
no Default or Event of Default has occurred and is continuing (except as
described therein).
5.1(b) Immediately upon any Responsible Officer of the Borrower
becoming aware of any Default or Event of Default, a notice describing the
nature thereof and what action the Borrower proposes to take with respect
thereto.
5.1(c) Promptly, copies of all financial statements and reports that
the Borrower sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms 10K,
10Q and 8K) that the Borrower may make to, or file with, the SEC.
5.1(d) From time to time, such other information regarding the
business, operations and financial condition of the Borrower and its
Subsidiaries as the Lender may reasonably request.
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Section 5.2 Corporate Existence . The Borrower shall, and shall cause each
Subsidiary to, maintain its corporate existence in good standing under the laws
of its jurisdiction of organization and its qualification to transact business
in each jurisdiction where failure so to qualify would permanently preclude the
Borrower or any Subsidiary from enforcing its rights with respect to any
material asset or would expose the Borrower or any Subsidiary to any material
liability, provided that nothing herein shall be construed to prevent any
transaction described in Section 6.1.
Section 5.3 Insurance . To the extent that insurance is not provided under
insurance policies maintained by the Lender insuring the properties of Borrower
and its subsidiaries,the Borrower shall, and shall cause each Subsidiary to,
maintain with financially sound and reputable insurance companies such insurance
as may be required by law and such other insurance in such amounts and against
such hazards as is customary in the case of reputable corporations engaged in
the same or similar business and similarly situated.
Section 5.4 Payment of Taxes and Claims. The Borrower shall, and shall
cause each Subsidiary to, comply with Borrower's covenants and obligations under
the Tax Sharing Agreement.
Section 5.5 Inspection . The Borrower shall permit any Person designated by
the Lender to visit and inspect any of the properties, books and financial
records of the Borrower, to examine and to make copies of the books of accounts
and other financial records of the Borrower, and to discuss the affairs,
finances and accounts of the Borrower with its partners at such reasonable times
and intervals as the Lender may designate.
Section 5.6 Maintenance of Properties . The Borrower shall, and shall cause
each Subsidiary to, maintain its properties in good condition, repair and
working order, and supplied with all necessary equipment, and make all necessary
repairs, renewals, replacements, betterments and improvements thereto, all as
may be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
Section 5.7 Books and Records . The Borrower will keep adequate and proper
records and books of account in which full and correct entries will be made of
its dealings, business and affairs.
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Section 5.8 Compliance . The Borrower shall, and shall cause each
Subsidiary to, comply in all material respects with all laws, rules and
regulations to which it may be subject.
Section 5.9 Notice of Litigation . The Borrower will give prompt written
notice to the Lender of the commencement of any action, suit or proceeding
affecting the Borrower or any Subsidiary wherein the claim or relief exceeds or
would reasonably be expected to exceed $100,000 or in which injunctive,
declaratory or similar relief is sought that would have reasonably be expected
to have a Material Adverse Effect.
Section 5.10 Compliance with ERISA . The Borrower shall, and shall cause
each Subsidiary to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law except where non-compliance would not reasonably be expected to result
in a Material Adverse Effect; and (b) make all required contributions to any
Plan except where failure to make any contribution would not reasonably be
expected to result in a Material Adverse Effect.
Section 5.11 Use of Proceeds . The Borrower shall use the proceeds of the
Advances for general corporate purposes not in contravention of any requirement
of law or any provision of this Agreement.
ARTICLE VI
----------
NEGATIVE COVENANTS
Until the Maturity Date and the Note and all of the Borrower's other
obligations to the Lender under this Agreement shall have been paid in full,
and, in the case of Section 6.11, so long as the Borrower is a "Material
Subsidiary" (as such term is defined in the Deluxe Credit Agreement)
(irrespective of termination of the Commitment and payment in full of all
obligations hereunder) unless the Lender shall otherwise consent in writing:
Section 6.1 Merger or Consolidation . The Borrower shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, except:
(a) any Person may merge with the Borrower or any wholly-owned
Subsidiary, provided that, in the case of Borrower, the Borrower shall be
the
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continuing or surviving corporation, and in the case of such Subsidiary,
such Subsidiary or Person remains or become a wholly-owned Subsidiary of
Borrower immediately following the merger;
(b) any Subsidiary may merge with the Borrower, provided that the
Borrower shall be the continuing or surviving corporation, or with any one
or more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a wholly-owned Subsidiary, the wholly-owned Subsidiary shall
be the continuing or surviving corporation; and
(c) the Borrower or any Subsidiary may convey, transfer, lease or
otherwise dispose of all or substantially all of its assets (upon voluntary
liquidation or otherwise), to the Borrower or another wholly-owned
Subsidiary, as the case may be.
Section 6.2 Sale of Assets . Except as permitted by Section 6.1(c), the
Borrower shall not, and shall not suffer or permit any Subsidiary to, sell,
transfer, lease or otherwise convey all or any substantial part of its assets.
Section 6.3 Restricted Payments . The Borrower shall not, and shall not
suffer or permit any Subsidiary (other than a wholly-owned Subsidiary) to,
declare or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any shares of
any class of its capital stock, or purchase, redeem or otherwise acquire for
value any shares of its capital stock or any warrants, rights or options to
acquire such shares, now or hereafter outstanding; except that the Borrower or
any non-wholly-owned Subsidiary may:
(a) declare and make dividend payments or other distributions payable
solely in its common stock;
(b) purchase, redeem or otherwise acquire shares of its common stock
or warrants or options to acquire any such shares with the proceeds
received from the substantially concurrent issue of new shares of its
common stock; and
(c) declare or pay cash dividends to its stockholders and purchase,
redeem or otherwise acquire shares of its capital stock or warrants, rights
or options to acquire any such shares for cash provided that, before and
immediately after giving effect to such proposed action, no Default or
Event of Default exists or would exist.
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Section 6.4 ERISA . The Borrower shall not, and shall not suffer or permit
any Subsidiary to: (a) engage in a prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted or
would reasonably be expected to result in a Material Adverse Effect; or (b)
adopt, sponsor, contribute to or otherwise incur any obligation with respect to
any Pension Plan, including any Multiemployer Plan (unless Borrower has obtained
the prior written consent of the Lender).
Section 6.5 Investments . The Borrower shall not, and shall not suffer or
permit any Subsidiary to, make any loans, advances or extensions of credit to
any other Person (except for trade and customer accounts receivable for
inventory sold or services rendered in the ordinary course of business and
payable in accordance with customary trade terms) or purchase or acquire any
stock or other debt or equity securities of or any interest in any other Person
or any integral part of any business or the assets comprising such business or
part thereof, except for:
6.5(a) Investments in readily marketable direct obligations issued or
unconditionally guaranteed by the United States government or any agency
thereof and supported by the full faith and credit of the United States.
6.5(b) Certificates of deposit or bankers' acceptances issued by any
commercial bank organized under the laws of the United States or any State
thereof which has (i) combined capital and surplus of at least
$100,000,000, and (ii) a credit rating with respect to its unsecured
indebtedness from a nationally recognized rating service that is
satisfactory to the Lender.
6.5(c) Commercial paper given the highest rating by a nationally
recognized rating service.
6.5(d) Repurchase agreements relating to securities of the kind
described in subsection (a) of this Section.
6.5(e) Other readily marketable investments in debt securities which
are reasonably acceptable to the Lender.
6.5(f) Travel advances to officers and employees in the ordinary
course of business.
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6.5(g) Acquisitions or investments in Subsidiaries to effectuate
Acquisitions
6.5(h) Investments in minority ownership interests in other Persons
that are strategic to the business of Borrower or its Subsidiaries and
which taken together with all other similar investments of Borrower and its
Subsidiaries would not reasonably be expected to have a Material Adverse
Effect.
6.5(i) Loans, advances and extensions of credit that are already
committed by the Borrower or any of its Subsidiaries as of the date of this
Agreement.
Any investments under clauses (a), (b), (c) or (d) above must mature within one
year of the acquisition thereof by the Borrower or any Subsidiary.
Section 6.6 Indebtedness . The Borrower shall not, and shall not suffer or
permit any Subsidiary to, borrow any money or issue any bonds, debentures or
other debt securities or otherwise become obligated on any interest-bearing
indebtedness except:
6.6(a) The Advances under this Agreement.
6.6(b) Indebtedness by way of purchase money mortgage, conditional
sale or other title retention agreement, capital lease or other deferred
payment contract in connection with the acquisition of equipment not to
exceed $25,000,000 in aggregate outstanding at any time.
Section 6.7 Liens . The Borrower shall not, and shall not suffer or permit
any Subsidiary to, create, incur, assume or suffer to exist any Lien, or enter
into any arrangement for the acquisition of any property through conditional
sale, lease-purchase or other title retention agreements except the following
Liens ("Permitted Liens"):
6.7(a) Liens granted to the Lender or any affiliate of the Lender.
6.7(b) Liens existing on the date of this Agreement.
6.7(c) Deposits or pledges to secure payment of workers' compensation,
unemployment insurance, old age pensions or other social security
obligations arising in the ordinary course of business of the Borrower or
any Subsidiary.
21
<PAGE>
6.7(d) Liens for taxes, fees, assessments and governmental charges not
delinquent.
6.7(e) Liens of carriers, warehousemen, mechanics and materialmen, and
other like Liens arising in the ordinary course of business, for sums not
due.
6.7(f) Liens incurred or deposits or pledges made or given in
connection with, or to secure payment of, indemnity, performance or other
similar bonds.
6.7(g) Encumbrances in the nature of zoning restrictions, easements
and rights or restrictions of record on the use of real property and
landlord's Liens under leases on the premises rented, which do not
materially detract from the value of such property or impair the use
thereof in the business of the Borrower or any Subsidiary.
6.7(h) Liens securing the indebtedness permitted pursuant to Section
6.6(b); provided that such Liens are limited to the equipment acquired and
do not secure indebtedness other than that permitted under Section 6.6(b)
or the purchase price of such property.
Section 6.8 Contingent Obligations . Except for obligations incurred prior
to the date of this Agreement and for guarantees and similar obligations given
by the Borrower for any of its wholly owned Subsidiaries, the Borrower shall
not, and shall not suffer or permit any Subsidiary to, guarantee or otherwise
become liable on the indebtedness of any other Person where the aggregate total
liability would reasonably be expected to exceed $25,000,000.
Section 6.9 Interest Coverage . The Borrower shall not permit as of the
last day of any fiscal quarter (commencing with the period ending June 30,
2000), on a consolidated basis, the ratio of (i) Earnings Before Interest and
Taxes to (ii) Interest Expense, to be less than 2.5 to 1.0. For purposes of this
section, "Earnings Before Interest and Taxes" means as at the end of any fiscal
quarter of the Borrower for the period of four consecutive fiscal quarters ended
as at such date, the sum of (a) the consolidated net income (or net loss) of the
Borrower and its Subsidiaries for such period as determined in accordance with
GAAP, plus (b) all amounts treated as interest expense for such period to the
extent included in the determination of such consolidated net income (or loss);
plus (c) all taxes accrued for such period on or measured by income to the
extent included in the determination of such consolidated net income (or loss);
provided, however, that consolidated net income (or loss) shall be computed for
the purposes of this definition
22
<PAGE>
without giving effect to extraordinary losses or extraordinary gains for such
period; and "Interest Expense" means as at the end of any fiscal quarter of the
Borrower for the period of four consecutive fiscal quarters ended as at such
date, all amounts treated as interest expense for such period to the extent
included in the determination of the Borrower's consolidated net income (or net
loss) for such period as determined in accordance with GAAP.
Section 6.10 Leverage . The Borrower shall not permit as of the last day of
any fiscal quarter (commencing with the period ending June 30, 2000), on a
consolidated basis, the ratio of (i) Funded Debt to (ii) Total Capitalization,
to be greater than 0.60 to 1.0.
Section 6.11 Additional Restrictions on Indebtedness . The Borrower shall
not, and shall not permit any Subsidiary to, incur or suffer to exist any
Indebtedness unless prior notice of the same has been given to the Lender and
such Indebtedness has been approved by the majority of all members of the board
of directors of the Borrower.
ARTICLE VII
-----------
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default . The occurrence of any one or more of the
following events shall constitute an Event of Default:
7.1(a) The Borrower shall fail to make when due, whether by
acceleration or otherwise, any payment of principal of or interest on the
Note or any other obligations of the Borrower to the Lender pursuant to
this Agreement and such failure shall continue more than two Business Days
after the payment due date.
7.1(b) Any representation or warranty made by or on behalf of the
Borrower in this Agreement or by or on behalf of the Borrower in any
certificate, statement, report or document herewith or hereafter furnished
to the Lender pursuant to this Agreement shall prove to have been false or
misleading in any material respect on the date as of which the facts set
forth are stated or certified.
7.1(c) The Borrower shall fail to comply with Sections 5.2 or 5.11 or
any Section of Article VI.
23
<PAGE>
7.1(d) The Borrower shall fail to comply with Section 5.3 and such
failure shall continue uncured for three days after notice from Seller or
such time when Borrower otherwise became aware of such failure, whichever
is earlier.
7.1(e) The Borrower shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement (other
than those hereinabove set forth in this Section 7.1) and such failure to
comply shall continue for 30 calendar days after whichever of the following
dates is the earliest: (i) the date the Borrower gives notice of such
failure to the Lender, (ii) the date the Borrower should have given notice
of such failure to the Lender pursuant to Section 5.1(b), or (iii) the date
the Lender gives notice of such failure to the Borrower.
7.1(f) The Borrower or any Subsidiary shall become insolvent or shall
generally not pay its debts as they mature or shall apply for, shall
consent to, or shall acquiesce in the appointment of a custodian, trustee
or receiver of the Borrower or any Subsidiary or for a substantial part of
the property thereof or, in the absence of such application, consent or
acquiescence, a custodian, trustee or receiver shall be appointed for the
Borrower or any Subsidiary or for a substantial part of the property
thereof and shall not be discharged within 45 days, or the Borrower or any
Subsidiary shall make an assignment for the benefit of creditors.
7.1(g) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by
or against the Borrower or any Subsidiary and, if instituted against the
Borrower or any Subsidiary, shall have been consented to or acquiesced in
by the Borrower or any Subsidiary or shall remain undismissed for 60 days,
or an order for relief shall have been entered against the Borrower or any
Subsidiary.
7.1(h) Any dissolution or liquidation proceeding shall be instituted
by or against the Borrower or any Subsidiary and, if instituted against the
Borrower or any Subsidiary, shall be consented to or acquiesced in by the
Borrower or any Subsidiary or shall remain for 45 days undismissed.
7.1(i) A judgment or judgments for the payment of money in excess of
the sum of $25,000,000 in the aggregate shall be rendered against the
Borrower or any Subsidiary and either (i) the judgment creditor executes on
such judgment or (ii) such judgment remains unpaid or undischarged for more
than 60 days from the
24
<PAGE>
date of entry thereof or such longer period during which execution of such
judgment shall be stayed during an appeal from such judgment.
7.1(j) The maturity of any material Indebtedness of the Borrower
(other than Indebtedness under this Agreement) or any Subsidiary shall be
accelerated, or the Borrower or any Subsidiary shall fail to pay any such
material indebtedness when due (after the lapse of any applicable grace
period) or any event shall occur or condition shall exist and shall
continue for more than the period of grace, if any, applicable thereto and
shall have the effect of causing, or permitting the holder of any such
indebtedness to cause, such material indebtedness to become due prior to
its stated maturity or to realize upon any collateral given as security
therefor. For purposes of this Section, Indebtedness of the Borrower or of
any Subsidiary shall be deemed "material" if it exceeds $25,000,000 as to
any item of indebtedness or in the aggregate for all items of indebtedness
with respect to which any of the events described in this Section has
occurred.
7.1(k) Any execution or attachment shall be issued whereby any
substantial part of the property of the Borrower or any Subsidiary shall be
taken or attempted to be taken and the same shall not have been vacated or
stayed within 30 days after the issuance thereof.
7.1(l) Any default shall occur under any other Loan Document.
Section 7.2 Remedies . If (a) any Event of Default described in Sections
7.1(f), (g) or (h) shall occur with respect to the Borrower or any Subsidiary,
the Commitment shall automatically terminate and the Note and all other
obligations of the Borrower to the Lender under this Agreement shall
automatically become immediately due and payable, or (b) any other Event of
Default shall occur and be continuing, then the Lender may (i) declare the
Commitment terminated, whereupon the Commitment shall terminate, and (ii)
declare the Note and all other obligations of the Borrower to the Lender under
this Agreement to be forthwith due and payable, whereupon the same shall
immediately become due and payable, in each case without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything in this Agreement or in the Note to the contrary notwithstanding. Upon
the occurrence of any of the events described in clauses (a) or (b) of the
preceding sentence the Lender may exercise all rights and remedies under this
Agreement, the Note and any related agreements and under any applicable law.
Upon any acceleration in payment of any Advance, the Borrower shall reimburse
the Lender for any direct loss or expenses incurred by the Lender as a result of
25
<PAGE>
payment of an Advance made on a day that is not the last day of the relevant
Interest Period.
Section 7.3 Offset . In addition to the remedies set forth in Section 7.2,
upon the occurrence of any Event of Default and thereafter while the same be
continuing, the Borrower hereby irrevocably authorizes the Lender to set off all
sums owing by the Borrower to the Lender against all deposits and credits of the
Borrower with, and any and all claims of the Borrower against, the Lender.
ARTICLE VIII
------------
MISCELLANEOUS
Section 8.1 Modifications . Notwithstanding any provisions to the contrary
herein, any term of this Agreement may be amended with the written consent of
the Borrower; provided that no amendment, modification or waiver of any
provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modifications, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
Section 8.2 Costs and Expenses . Whether or not the transactions
contemplated hereby are consummated, the Borrower agrees to reimburse the Lender
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Lender (including filing and recording costs and fees and expenses of counsel to
the Lender) in connection with the collection and enforcement of this Agreement
and the Note. The obligations of the Borrower under this Section shall survive
any termination of this Agreement.
Section 8.3 Waivers, Etc. No failure on the part of the Lender or the
holder of the Note to exercise and no delay in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof or
the exercise of any other power or right. The rights and remedies of the Lender
hereunder are cumulative and not exclusive of any right or remedy the Lender
otherwise has.
Section 8.4 Notices . Except when telephonic notice is expressly authorized
by this Agreement, any notice or other communication to any party in connection
with this Agreement shall be in writing and shall be sent by manual delivery,
telegram, telex, facsimile transmission, overnight courier or United States mail
(postage prepaid) addressed to such party at the address specified on the
signature page hereof, or at such
26
<PAGE>
other address as such party shall have specified to the other party hereto in
writing. All periods of notice shall be measured from the date of delivery
thereof if manually delivered, from the date of sending thereof if sent by
telegram, telex or facsimile transmission, from the first Business Day after the
date of sending if sent by overnight courier, or from four days after the date
of mailing if mailed; provided, however, that any notice to the Lender under
Article II hereof shall be deemed to have been given only when received by the
Lender.
Section 8.5 Successors and Assigns; Disposition of Loans . This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign its
rights or delegate its obligations hereunder without the prior written consent
of the Lender. The Lender may at any time sell, assign, transfer, grant
participations in, or otherwise dispose of any portion of the Commitment and/or
Advances to banks or other financial institutions. The Lender may disclose any
information regarding the Borrower in the Lender's possession to any prospective
buyer or participant.
Section 8.6 Governing Law and Construction . THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF.
Section 8.7 Consent to Jurisdiction . AT THE OPTION OF THE LENDER, THIS
AGREEMENT AND THE NOTE MAY BE ENFORCED IN ANY FEDERAL OR MINNESOTA STATE COURT
SITTING IN HENNEPIN OR RAMSEY COUNTY, MINNESOTA; AND THE BORROWER CONSENTS TO
THE JURISDICTION AND VENUE OF SUCH COURT, CONSENTS TO BE SUED BY THE LENDER IN
SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUM IS NOT CONVENIENT.
IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE
UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS OPTION SHALL BE
ENTITLED TO HAVE THE CASE TRANSFERRED TO THE JURISDICTION AND VENUE
ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
27
<PAGE>
Section 8.8 Waiver of Jury Trial . EACH OF THE BORROWER AND THE LENDER
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE AND ANY OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 8.9 Captions . The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 8.10 Entire Agreement . This Agreement and the other Loan Documents
embody the entire agreement and understanding between the Borrower and the
Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
Section 8.11 Counterparts . This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
eFUNDS CORPORATION
By
Print Name
Title
Borrower's Address:
DELUXE CORPORATION
By
-------------------------------------
Print Name
-----------------------------
Title
----------------------------------
Lender's Address:
28
<PAGE>
EXHIBIT A TO
CREDIT AGREEMENT
REVOLVING NOTE
$_________ April __, 2000
FOR VALUE RECEIVED, ___________________, a ________________ _________
organized under the laws of the State of ________, hereby promises to pay to the
order of ______________ (the "Lender") at its main office in _________,
________, in lawful money of the United States of America in immediately
available funds on the Maturity Date (as such term and each other capitalized
term used herein are defined in the Credit Agreement hereinafter referred to)
the principal amount of _____________________________________DOLLARS AND NO
CENTS ($____________) or, if less, the aggregate unpaid principal amount of all
Advances made by the Lender under the Credit Agreement, and to pay interest
(computed on the basis of actual days elapsed and a year of 360 days, in the
case of interest based on the LIBO Rate, and 365 days, in the case of interest
based on the Base Rate) in like funds on the unpaid principal amount hereof from
time to time outstanding at the rates and times set forth in the Credit
Agreement.
This note is the Note referred to in the Credit Agreement dated
concurrently herewith (as the same may be hereafter from time to time amended,
restated or modified, the "Credit Agreement") between the undersigned and the
Lender. This note is secured, it is subject to certain permissive and mandatory
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in said Credit Agreement.
In the event of default hereunder, the undersigned agrees to pay all costs
and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, presentment, notice of nonpayment, protest, notice of
protest and notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF.
________________________________________
29
<PAGE>
By
-------------------------------------
Title
----------------------------------
<PAGE>
2
SCHEDULE 4.4 TO
CREDIT AGREEMENT
SUBSIDIARIES
<PAGE>
3
SCHEDULE 4.5 TO
CREDIT AGREEMENT
ERISA
<PAGE>
4
SCHEDULE 4.9 TO
CREDIT AGREEMENT
COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC.
<PAGE>
5
SCHEDULE 6.7 TO
CREDIT AGREEMENT
EXISTING LIENS
None
<PAGE>
EXHIBIT 10.17
Rev. 5/5/00
GOVERNMENT SERVICES INDEMNIFICATION AGREEMENT
This GOVERNMENT SERVICES INDEMNIFICATION AGREEMENT (this "Agreement") is
dated as of _______________, 2000 and is made by and between Deluxe Corporation,
a Minnesota corporation ("Deluxe"), and eFunds Corporation, a Delaware
corporation and wholly owned subsidiary of Deluxe ("eFunds").
RECITALS
WHEREAS, Deluxe currently owns all of the issued and outstanding capital
stock of eFunds;
WHEREAS, among other things, eFunds provides online electronic benefits
transfer services on behalf of governmental agencies responsible for the
administration and management of selected entitlement programs, primarily the
Food Stamps and Transitional Aid to Needy Families program (the "Government
Services Business");
WHEREAS, Deluxe and eFunds currently contemplate that eFunds will make an
initial public offering ("IPO") of an amount of its common stock, that, together
with all derivative shares, will reduce Deluxe's ownership of eFunds to not less
than 80.1%;
WHEREAS, Deluxe currently contemplates that, several months following the
IPO, Deluxe will distribute to the holders of its common stock (by means of an
exchange offer and/or a pro rata distribution) all of the shares of eFunds
capital stock then owned by Deluxe (the "Distribution");
WHEREAS, as an integral step in the IPO and Distribution, without which the
IPO and Distribution would not occur in the form contemplated, the parties
desire to enter into this Agreement to set forth their agreement regarding the
obligation of Deluxe to indemnify eFunds and the obligation of eFunds to
indemnify Deluxe with respect to certain costs, liabilities and expenses
incurred in connection with the Government Services Businesses.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Deluxe and eFunds, for themselves,
their successors, and assigns, hereby agree as follows:
1. Loss Contract Reserve. eFunds and Deluxe agree that, as of April 30,
2000, there was a reserve (the "Loss Contract Reserve") in the amount of $29.2
million recorded in the regularly maintained books and records of eFunds (the
"eFunds Books") in connection with the agreements set forth on Exhibit A hereto
(such agreements, excluding all extensions or renewals thereof that are subject
to the approval or agreement, directly or indirectly of eFunds, collectively,
the "Loss Contracts").
<PAGE>
2. Indemnification by Deluxe. Deluxe agrees to indemnify in full eFunds,
its officers, directors, employees, agents, representatives and officers
(collectively, the "eFunds Indemnitees") and hold them harmless from and against
any and all losses, liabilities, deficiencies, damages, expenses or costs
(including reasonable legal and other external advisors' fees and expenses)
(each, an "eFunds Indemnifiable Loss") which any eFunds Indemnitee may suffer,
sustain or become subject to as a result of (a) any increase in the amount of
the Loss Contract Reserve that is attributable to the Loss Contracts, as
determined in accordance with Section 4 hereof, and (b) claims or demands of
anyone not a party to this Agreement arising out of or related to the operation
of the Government Services Business prior to the date the registration statement
filed in connection with the IPO is declared effective by the Securities and
Exchange Commission (the "IPO Date"); provided, however, that Deluxe's aggregate
liability for all eFunds Indemnifiable Losses shall not exceed $14.6 million.
3. Indemnification by eFunds. eFunds agrees to indemnify in full Deluxe,
its officers, directors, employees, agents, representatives and officers
(collectively, the "Deluxe Indemnitees") and hold them harmless from and against
any and all losses, liabilities, deficiencies, damages, expenses or costs
(including reasonable legal and other external advisors fees and expenses)
(each, "Deluxe Indemnifiable Loss," and together with an eFunds Indemnifiable
Loss, the "Indemnifiable Losses") which any Deluxe Indemnitee may suffer,
sustain or become subject to as a result of claims or demands of anyone not a
party to this Agreement arising out of or related to the operation of the
Government Services Business from and after the IPO Date; provided, however,
that a Deluxe Indemnifiable Loss shall not be deemed to include any eFunds
Indemnifiable Loss for which a Deluxe Indemnitee is required to provide
indemnification pursuant to the provisions Section 2 hereof (any claim or demand
of anyone not a party to this Agreement described in Section 2 or Section 3, a
"Third Party Claim").
4. Calculation of Loss Contract Amounts.
(a) eFunds shall determine whether any increase or decrease in the
amount of the Loss Contract Reserve is required to be recorded in the
eFunds Books on a quarterly basis in a manner consistent with the
determination of the amount of the Loss Contract Reserve as of the date of
this Agreement, which principles are set forth on Exhibit B hereto (each
such increase or decrease to the Loss Contract Reserve, excluding decreases
to the Loss Contract Reserve in the ordinary course and the amount of any
eFunds Indemnifiable Loss that is due and payable by Deluxe pursuant to
clause (b) of Section 2 or paid or provided by Deluxe, being referred to
hereinafter as an "Adjustment"). The parties acknowledge that Exhibit B
represents only a general statement of the principles for establishing the
Loss Contract Reserve and any Adjustments thereto. Unless a different
methodology is agreed upon by the parties in accordance with Section 4(d),
notwithstanding Exhibit B and any change to generally accepted accounting
principles, for the purposes of this Agreement (and Deluxe's
indemnification obligations hereunder), eFunds agrees that in determining
the amount of any Adjustment, it will consistently apply the accounting
principles and methodology (including, without limitation, the
<PAGE>
methods followed in establishing allocations of indirect costs and
expenses) that were the basis on which the Loss Contract Reserve was
established as of the date of this Agreement. Unless a different
methodology is agreed upon by the parties in accordance with Section 4(d),
in the event of any disagreement, the parties agree that reference to the
work papers on which the Loss Contract Reserve was calculated as of the
date of this Agreement shall govern the principles and methodology by which
any Adjustment is made to the Loss Contract Reserve.
(b) In the event that eFunds determines, with respect to any fiscal
quarter, that it is required to record an Adjustment in the amount of the
Loss Contract Reserve in accordance with the provisions of Section 4(a), it
will promptly notify Deluxe, specifying the amount and computation thereof
and the reasons for which the Adjustment is necessary and representing that
the Adjustment has been calculated in accordance with Section 4(a). Subject
to the principles set out below, all Adjustments shall be netted (the
amount thereof at any time being referred to as the "Net Adjustment"). At
the time that the Net Adjustment first results in positive number, eFunds
shall record an account receivable from Deluxe in an amount equal to the
Net Adjustment on the eFunds Books (such account receivable, the "eFunds
Receivable"), and Deluxe shall record an account payable in an amount equal
to the amount of the Net Adjustment in Deluxe's regularly maintained books
and records (the "Deluxe Books") in favor of eFunds (such account payable,
the "Deluxe Payable"). Any subsequent quarterly Adjustment shall result in
an increase or decrease, as applicable of an equivalent amount being
recorded as an increase or decrease of the eFunds Receivable on the eFunds
Books and the Deluxe Payable on the Deluxe Books; provided, that, in no
event shall the cumulative amount of the Adjustments result in the amount
of the eFunds Receivable on the eFunds Books or the Deluxe Payable on the
Deluxe Books being less than zero. In the event that the Net Adjustment
becomes a negative number, no further amounts will be recorded in the
eFunds Receivable account or Deluxe Payable account unless and until the
Net Adjustment later becomes a positive number, in which event the
accounting entries described above will be recorded.
(c) Deluxe shall not be required to make a cash payment to eFunds on
account of the Deluxe Payable or eFunds Receivable until the termination of
all of the Loss Contracts (the "Loss Contract Termination Date") and eFunds
has delivered to Deluxe a statement (the "Loss Contract Reserve Statement")
prepared in accordance with this Section 4(c) which shall set forth the
amount of the amount payable owed to eFunds by Deluxe under Section 4(b)
hereof. Within 90 days after the Loss Contract Termination Date, eFunds
shall prepare and deliver to Deluxe the Loss Contract Reserve Statement
which shall be prepared in accordance with the methods and procedures
specified in Section 4(a) hereof. The Loss Contract Reserve Statement shall
be subject to review and verification by Deluxe, and at its option and
expense, by an independent public accounting firm of its choice. eFunds
shall permit Deluxe to have reasonable access to the data and information
on which the Loss Contract Reserve Statement was prepared and the eFunds
employees or representatives who assisted in its preparation. Deluxe shall
be deemed to have accepted the Loss Contract Reserve Statement unless,
within 90 days
<PAGE>
after the date of delivery thereof, Deluxe gives written notice to eFunds
of Deluxe's objection to any item thereon. If Deluxe gives such notice of
objection, Deluxe and eFunds shall attempt to resolve the dispute in
accordance with the provisions of Section 5 hereof.
(d) The parties acknowledge that the actual amount of the reserve for
Loss Contracts in eFunds' reported financial statements may differ from the
amount of the Loss Contract Reserve as determined under this Agreement as a
result of changes in generally accepted accounting principles or eFunds'
accounting policies or practices. If eFunds' determines that a different
methodology is desirable or appropriate in determining the amount of its
reported reserves for Loss Contracts and that such methodology should be
applied to the determination of the Loss Contract Reserve herein, eFunds
may propose such methodology to Deluxe for consideration and, with Deluxe's
consent, apply such methodology to the determination of the Loss Contract
Reserve herein. Deluxe may give or withhold such consent in the exercise of
its sole discretion. If a modification in such methodology is agreed upon
by the parties and would result in an increase or decrease in the amount of
the Loss Contract Reserve, such increase or decrease shall not at the time
of the change in methodology result in an Adjustment, provided that
subsequent changes in the Loss Contract Reserve in accordance with Section
4(a) (as modified by the application of the new methodology in accordance
with this Section 4(d) shall result in Adjustments in accordance with
Section 4.
(e) If there occurs an eFunds Indemnifiable Loss under clause (b) of
Section 2, any amount that is due and payable by Deluxe on account of such
eFunds Indemnifiable Loss shall be added to the Net Adjustment and any
amount with respect such eFunds Indemnifiable Loss that is paid or
otherwise provided for by Deluxe shall be subtracted from the Net
Adjustment. Such additions and subtractions shall be cumulated with other
Adjustments in computing the amount of the Net Adjustment outstanding at
any time and the bookkeeping entries for the eFunds Receivable and Deluxe
Payable shall be made in the same fashion as entries for other Adjustments
as provided in Section 4(b).
5. Indemnification Procedures. As used herein, an "Indemnitee" shall refer
to a Deluxe Indemnitee or an eFunds Indemnitee, as applicable, and the
"Indemnifying Party" shall refer to the party hereto obligated to indemnify such
Indemnitee.
(a) If a Third Party Claim is made against an Indemnitee as to which
such Indemnitee is entitled to indemnification pursuant to Section 2 or 3
hereof (as the case may be), such Indemnitee shall give the Indemnifying
Party notice of such Third Party Claim, as promptly as practicable, but in
any event no later than 15 days after the receipt by the Indemnitee of such
notice; provided, however, that the failure to provide such notice shall
not release the Indemnifying Party from any of its obligations under this
Agreement except to the extent the Indemnifying Party is materially
prejudiced by such failure, and shall not relieve the Indemnifying Party
from any other obligation or liability that it may have to any Indemnitee
otherwise than under this Agreement. If the Indemnifying Party
<PAGE>
acknowledges in writing its obligations to indemnify the Indemnitee
hereunder against any Indemnifiable Losses that may result from such Third
Party Claim, then the Indemnifying Party shall be entitled to assume and
control the defense of such Third Party Claim at its expense and through
counsel of its choice, subject to the approval of the Indemnitee (which
approval shall not be unreasonably withheld or delayed), if it gives notice
of its intention to do so to the Indemnitee within 15 business days of the
receipt of such notice from the Indemnitee; provided, however, that if
there exists or is reasonably likely to exist a conflict of interest that
would make it inappropriate in the reasonable judgment of the Indemnitee
for the same counsel to represent both the Indemnitee and the Indemnifying
Party, then the Indemnitee shall be entitled to retain its own counsel, in
each jurisdiction for which the Indemnitee determines counsel is required
to participate in such defense, at the expense of the Indemnifying Party.
In the event the Indemnifying Party exercises the right to undertake any
such defense against any such Third Party Claim as provided above, the
Indemnitee shall cooperate with the Indemnifying Party in such defense and
make available to the Indemnifying Party, at the Indemnifying Party's
expense, all witnesses, pertinent records, materials and information in the
Indemnitee's possession or under the Indemnitee`s control relating thereto
as is reasonably required by the Indemnifying Party, subject to
reimbursement of reasonable out-of-pocket expenses. Similarly, in the event
the Indemnitee is, directly or indirectly, conducting the defense against
any such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnitee in such defense and make available to the Indemnitee all such
witnesses, records, materials and information in the Indemnifying Party's
possession or under the Indemnifying Party's control relating thereto as is
reasonably required by the Indemnitee, subject to reimbursement of
reasonable out-of-pocket expenses. No such Third Party Claim may be settled
by the Indemnifying Party without the prior written consent of the
Indemnitee (which shall not be unreasonably withheld or delayed) unless
such settlement is without any admission of fault or liability and is
solely for money and includes an unconditional release of each Indemnitee
from any and all Indemnifiable Losses arising out of such action, claim,
suit or proceeding and would not otherwise adversely affect the Indemnitee.
No such Third Party Claim may be settled by the Indemnitee without the
prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed.
(c) All Persons who by their relationship to a party to this Agreement
(including, without limitation, all Affiliates of such party and all
officers, directors, employees and agents of such party and its Affiliates)
are, or may become, entitled to indemnification hereunder shall, as a
condition of their rights to indemnification hereunder, be deemed to have
granted such party an irrevocable power of attorney, coupled with an
interest, with respect to all matters for which any determination may be
made, action may be taken or consent may be given or withheld under this
Section 4, including, without limitation, any determination regarding
selection of counsel and any consent regarding
<PAGE>
settlement, and any such determination, action or consent made, taken,
given or withheld by such party shall be binding up such Person as if made,
taken, given or withheld by such Person personally.
(d) Notwithstanding the foregoing, the Indemnifying Party shall not be
entitled to assume the defense of any Third Party Claim, but shall continue
to be liable for the fees and expenses of counsel incurred by the
Indemnitee in defending such Third Party Claim if the Third Party Claim
seeks an order, injunction or other equitable relief or relief for other
than money damages against the Indemnitee which the Indemnitee reasonably
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages. If such equitable relief or other relief
portion of the Third Party Claim can be so separated from that for money
damages, the Indemnifying Party shall be entitled to assume the defense of
the portion relating to money damages.
6. Disputes. If any dispute arises in connection with this Agreement,
either party by delivery of a notice concerning such dispute, may submit the
dispute for resolution to the Chief Financial Officer of eFunds and the Chief
Financial Officer of Deluxe who will proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through the negotiations of such
individuals within 20 days after the delivery of the notice of such dispute,
such dispute shall be resolved fully and finally in Minneapolis, Minnesota, by
an arbitrator selected pursuant to and an arbitration governed by Commercial
Arbitration Rules of the American Arbitration Association, as modified herein.
The parties will jointly appoint a mutually acceptable independent arbitrator,
seeking assistance in such regard from the American Arbitration Association. The
arbitrator shall resolve the dispute within 30 days after selection and judgment
upon the award rendered by such arbitrator may be entered in any court of
competent jurisdiction. Each of Deluxe, on the one hand, and eFunds, on the
other, shall bear its own fees and expenses in connection with such arbitration
and shall bear 50% of the fees and expenses of the arbitrator.
7. Term and Continuing Indemnity. The term of this Agreement shall commence
upon the IPO Date and shall continue until one year after the Loss Contract
Termination Date or until the all disputes between the parties under Section 6
have been finally settled or adjudicated. Notwithstanding the foregoing, this is
a continuing indemnity and shall not be revoked or terminated by eFunds or
Deluxe until all obligations under or with respect to the Loss Contracts have
been paid or performed in full, with no further recourse whether at law or in
equity, against Deluxe or eFunds, as applicable being available to any third
party with respect to such obligations. The indemnity set forth herein shall be
reinstated if and to the extent that, for any reason, any payments under this
Agreement are rescinded or must be otherwise restored, whether as a result of
any proceedings in bankruptcy or reorganization or otherwise.
<PAGE>
8. Representations and Warranties of eFunds. eFunds hereby represents and
warrants to Deluxe as follows:
(a) eFunds has all requisite power and authority to enter into this
Agreement and to perform its obligations contemplated hereby. The
execution, delivery and performance of this Agreement by eFunds and the
performance of the obligations contemplated hereby have been duly and
validly authorized by all requisite corporate action and no other corporate
proceedings on eFunds's part are necessary to authorize the execution,
delivery or performance of this Agreement. This Agreement has been duly
executed and delivered by eFunds and, assuming due authorization, execution
and delivery by Deluxe, constitutes the valid and binding obligation of
eFunds enforceable in accordance with its terms.
(b) The execution, delivery and performance of this Agreement by
eFunds does not and the performance of the obligations contemplated hereby
will not: (a) contravene any provision of the Certificate of Incorporation
or Bylaws of eFunds; (b) violate or conflict in any material respect with
any foreign, federal, state or local law, statute, ordinance, rule,
regulation or any decree, writ, injunction, judgment or order of any court
or administrative or other governmental body or of any arbitration award
which is either applicable to, binding upon or enforceable against eFunds
or the business or any assets of eFunds; (c) conflict with, result in any
breach of any of the provisions of, or constitute a default (or any event
which would, with the passage of time or the giving of notice or both,
constitute a default) under, result in a violation of, result in the
creation of a right of termination, amendment, modification, abandonment or
acceleration under any indenture, mortgage, lease, license, loan agreement
or other material agreement or instrument which is either binding upon or
enforceable against eFunds; (d) result in the creation of any material
lien, security interest, charge or encumbrance upon eFunds or any of the
assets of eFunds; or (e) require any authorization, consent, approval,
exemption or other action by or notice to any court, commission,
governmental body regulatory authority, agency or tribunal wherever located
or any other third party.
9. Representations and Warranties of Deluxe. Deluxe hereby represents and
warrants to eFunds as follows:
(a) Deluxe has all requisite power and authority to enter into this
Agreement and to perform its obligations contemplated hereby. The
execution, delivery and performance of this Agreement by Deluxe and the
performance of the obligations contemplated hereby have been duly and
validly authorized by all requisite corporate action and no other corporate
proceedings on Deluxe's part are necessary to authorize the execution,
delivery or performance of this Agreement. This Agreement has been duly
executed and delivered by Deluxe and, assuming due authorization, execution
and delivery by eFunds, constitutes the valid and binding obligation of
Deluxe enforceable in accordance with its terms.
<PAGE>
(b) The execution, delivery and performance of this Agreement by
Deluxe does not and the performance of the obligations contemplated hereby
will not: (a) contravene any provision of the Articles of Incorporation or
Bylaws of Deluxe; (b) violate or conflict in any material respect with any
foreign, federal, state or local law, statute, ordinance, rule, regulation
or any decree, writ, injunction, judgment or order of any court or
administrative or other governmental body or of any arbitration award which
is either applicable to, binding upon or enforceable against Deluxe or the
business or any assets of Deluxe; (c) conflict with, result in any breach
of any of the provisions of, or constitute a default (or any event which
would, with the passage of time or the giving of notice or both, constitute
a default) under, result in a violation of, result in the creation of a
right of termination, amendment, modification, abandonment or acceleration
under any indenture, mortgage, lease, license, loan agreement or other
material agreement or instrument which is either binding upon or
enforceable against Deluxe; (d) result in the creation of any material
lien, security interest, charge or encumbrance upon Deluxe or any of the
assets of Deluxe; or (e) require any authorization, consent, approval,
exemption or other action by or notice to any court, commission,
governmental body regulatory authority, agency or tribunal wherever located
or any other third party.
10. Covenants of eFunds. eFunds covenants and agrees as follows:
(a) Without obtaining Deluxe's prior written consent, eFunds shall not
agree to any extension, modification or amendment to any Loss Contract and
shall not waive or relinquish any right or privilege with respect to any
Loss Contract the effect of which would reasonably foreseeably result in
any cost or charge to Deluxe under the provisions of Section 2 of this
Agreement. Notwithstanding the preceding sentence, if eFunds agrees to any
such extension, modification, or amendment or waives or relinquishes any
such right or privilege without first obtaining Deluxe's written consent,
eFunds shall not thereby be deemed in breach of this Agreement, provided
that the Loss Contract Reserve and any Adjustments shall thereafter be
computed as if such extension, modification or amendment had not been
agreed upon by eFunds or such waiver or relinquishment had not occurred.
(b) eFunds shall use reasonable, good faith efforts to promptly bring
the prospect or possibility of an Adjustment to the attention of Deluxe,
and shall provide Deluxe such information concerning the amount, timing and
basis for the Adjustment that would reasonably be necessary to understand
and evaluate the Adjustment and continue to provide Deluxe with such
information as it is developed. Further, eFunds shall use reasonable good
faith efforts to promptly bring to the attention of Deluxe any information
that has come to the attention of eFunds that would reasonably be expected
to result in a Third Party Claim for which indemnification may be sought by
an eFunds Indemnitee under this
<PAGE>
Agreement. At Deluxe's request, Deluxe representatives shall have access at
reasonable times to the data underlying such Adjustment and information
relating to such Third Party Claim, as the case may be, and to the
employees of the Government Services Business and others within eFunds who
have information that is relevant to the Adjustment or Third Party Claim.
(c) Semi-annually eFunds will meet with representatives of Deluxe at a
mutually agreed upon location to provide, using reasonble good faith
efforts, Deluxe with updated projected financial information concerning the
Government Services Business, with particular attention being paid to Loss
Contracts and the adequacy of eFunds' Loss Contract Reserve and any factors
that could result in an Adjustment. In addition, using reasonable good
faith effort, eFunds will provide the Deluxe representatives at that
meeting information that has come to the attention of eFunds that would
reasonably be expected to result in a Third Party Claim for which
indemnification may be sought by an eFunds Indemnitee under this Agreement.
(d) eFunds shall use commercially reasonable efforts to manage the
Government Sevices Business so as to minimize the amount of Deluxe's
indemnification obligations under this Agreement.
11. Audits. Deluxe shall have the right, at its sole cost and expense, to
audit eFunds's Books and other records relating to the Government Services
Business at all reasonable times and upon reasonable notice during the term of
this Agreement and for a period of twenty-four (24) months following the
termination of this Agreement.
12. Assignment. Neither party may assign its rights or obligations under
this Agreement, in whole or in part, without the consent of the other party,
which consent may be given or withheld in each party's sole discretion.
13. Entire Agreement. This Agreement contains the entire agreement of the
parties concerning the indemnification obligations of Deluxe and eFunds with
respect to the Government Services Business and may not be amended or modified
except by a writing signed by eFunds and Deluxe.
14. Choice of Law. This Agreement shall be governed by the internal laws
(as opposed to conflicts of law provisions) and decisions of the State of
Minnesota. If any provision of this indemnity shall be prohibited by or invalid
under that law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. EFUNDS AND DELUXE EACH WAIVES ANY
RIGHT TO TRIAL BY JURY. Each of eFunds and Deluxe consents to the jurisdiction
of any local, state or Federal court located within the State of Minnesota, and
waives any objection relating to improper venue of forum non conveniens to the
conduct of any proceeding in any such court.
<PAGE>
15. Notices. All notices, consents, requests, approvals, and other
communications provided for or required herein, and all legal process in regard
thereto, must be in writing and shall be deemed validly given, made or served,
(a) when delivered personally or sent by telecopy to the facsimile number
indicated below with a required confirmation copy sent in accordance with
subsection (c) below; or (b) on the next business day after delivery to a
nationally recognized express delivery service with instructions and payment for
overnight delivery; or (c) on the fifth (5th) day after deposited in any
depository regularly maintained by the United States postal service, postage
prepaid, certified or registered mail, return receipt requested, addressed to
the following addresses or to such other address as the party to be notified
shall have specified to the other party in accordance with this section:
If to Deluxe:
Deluxe Corporation
3680 Victoria Street North
Shoreview, Minnesota 55126
Attn: Chief Financial Officer
Facsimile: 651-481-4477
Copy to: General Counsel
Facsimile: (651) 787-2749
If to eFunds:
eFunds Corporation
400 West Deluxe Parkway
P.O. Box 12536
Milwaukee, Wisconsin 53212
Attn: Chief Financial Officer
Facsimile: (651) 483-7337
Copy to: General Counsel
Facsimile: (651) 787-2749
16. Definitions. Capitalized terms not otherwise defined herein have the
meaning given to them in the IPO and Distribution Agreement dated March 31, 2000
between Deluxe and eFunds.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date and year first written above.
DELUXE CORPORATION
By:
-------------------------------------
Name:
<PAGE>
Title:
EFUNDS CORPORATION
By:
-------------------------------------
Name:
Title:
<PAGE>
Exhibit A
Loss Contracts
<PAGE>
Exhibit B to
Government Services Indemnification Agreement
Between
Efunds Corporation and Deluxe Corporation
Contract Accounting Principles
Statement of General Principles:
- -------------------------------
Long-term service contracts are definitive agreements to provide services over a
period of time in excess of one year and with respect to which efunds has no
contractual right to adjust the prices or terms at or on which its services are
supplied during the term of the contract. Revenues are recognized for all
long-term service contracts when the service is performed. Total revenues for
some long-term service contracts may vary based on the demand for services.
Expenses are recognized when incurred, with the exception of installation costs.
Any installation costs are capitalized and recognized ratably over the life of
the contract, which approximates the anticipated revenue recognition. Any
equipment and software purchased to support a long-term service contract is
capitalized and depreciated or amortized over the life of the related contract
or the life of the asset, whichever is shorter.
In determining the profitability of a long-term service contract, only direct
and allocable indirect costs associated with the contract are included in the
calculation. The appropriateness of allocations of indirect costs depends on the
circumstances and involves the judgment of management, but such costs may
include the costs of indirect labor, contract supervision, tools and equipment,
supplies, quality control and inspection, insurance, repairs and maintenance,
depreciation and amortization and, in some circumstances, support costs. The
method of allocating any indirect costs included in the analysis is also
dependent upon the circumstances and the judgment of management, but the
allocation method must be systematic and rational. General and administrative
costs and selling costs are not included in the analysis.
Provisions for estimated losses on long-term service contracts, if any, are made
in the period in which the loss first becomes probable and reasonably estimable.
Projected losses are based on management's best estimates of a contract's
revenue and costs. Actual losses on individual long-term service contracts are
compared to the loss projections at least quarterly, with any changes in the
estimated total contract loss recognized as they become probable and reasonably
estimable.
In the event an asset impairment loss is recognized on long-lived assets used to
support a long-term service contract, the original estimation of the contract's
costs is revised to reduce the depreciation and amortization associated with the
impaired assets accordingly.
Certain direct costs associated with the electronic benefits transfer contracts
are common to a number of contracts and are attributed to each contract based on
its use of the services associated with these common direct costs. Revenues,
case counts or other applicable statistics are used to attribute these costs to
individual contracts. Costs should be assigned to contracts in the same activity
based costing model as defined in the December 31, 1999 Government Services Life
Cycle Profitability Projections Q1 2000 to Q1 2006 analysis as performed by the
Government Services finance staff and assisted by Arthur Andersen Consulting
(the "1999 analysis"). EFunds Corporate also allocates their costs to Government
Services. The types of costs or manner in which these costs are allocated to
Government Services should not change from the 1999 analysis. The methodology
based on the 1999 analysis should be used unless written agreement of the change
is obtained from Deluxe in accordance with Section 4(d) of the body of the
agreement.
1999 Analysis Principles
As stated in the 1999 analysis, costs are assigned to contracts in the following
manner:
"State Specific Costs" are costs that are directly attributable to a specific
state. State specific costs are:
<PAGE>
Telecommunication
Interchange
Equipment Maintenance
Switching Expense
Supplies
Card Expense
Equipment
Salaries and Benefits
Certain other costs
"Government Services Direct Costs and Other Direct Costs" are allocated based on
drivers as follows: In addition, the second of projected EBT Help Desk Cost
Reduction and projected Voice Telecom Cost Reduction should not significantly
change from those levels projected in the 1999analysis.
Government Services Direct Costs and their allocation methods are:
Green Bay Green Bay calls
Merchant Services Merchant equipment count
New Berlin Merchant Number of merchant calls
EBT Admin Weighted service requirement (1-2-3)
Operations Services Weighted service requirement (1-2-3)
Automatic Response Unit Number of VRU calls
EBT Finance Admin Even to all
State Services Weighted service requirement (1-2-3)
Corporate Charges Even to all
Bus Contingency EBT Weighted service requirement (1-2-3)
EBT Customer Relations Even to all
Product Support Weighted service requirement (0-1-5)
Sales Even to all
Business Contingency G&A Weighted service requirement (1-2-3)
Disaster Recovery Weighted service requirement (1-2-3)
EMEVS Percentages
Product Management Weighted service requirement (1-2-3)
Other Direct Costs and their allocation methods are:
Telecom WAN Network Number of endpoints
Telecom Network Number of conversions
Glendale Building Services Service requirement (1-7-12)
Finance Weighted service requirements
Glendale Office Services Weighted service requirements
DC Common Facility Weighted service requirements
Info Systems Lan Admin Weighted service requirements
Info Systems Lan Equip Weighted service requirements
On-line Database Weighted service requirements
Off-line Support Weighted service requirements
Info Sys Equipment Service requirement (1-2-2)
Info Systems - Del/Serv/Admin Weighted service requirements
Change Management Service requirement (1-4-4)
Tandem Ops Support Service requirement (1-2-2)
Tandem HW/SW Service requirement (1-2-7)
Automation Number of settlement transactions
Human Resources Service requirement (1-2-2)
Telecom Voice Weighted service requirements
User Communication Weighted service requirements
<PAGE>
PD - Advantage Application Number of settlement transactions
Product Development - Settlement Number of settlement transactions
PD - Advantage Settlement Number of settlement transactions
PD - Advantage Foundation Number of settlement transactions
Quality Assurance - IBMITG Weighted service requirements
Standard Government legal costs Weighted service requirements
Standard Government service costs Number of endpoints
Non-Maryland costs Service requirement (1-2-2)
Non-leasing Procurement Cost Weighted service requirements
Leasing Procurement Cost Even to all states
FMAC SAS 70 Even to all states
FMAC Daily Reconciliation Number of reconciliations
FMAC Statement Reconciliation Number of accounts
Employee Compensation Percentages
Government Non-compensation Expense Weighted service requirements
Warm Site Disaster Recovery Weighted service requirements
Disaster Recovery Certification & Testing Number of settlement transactions
Certification of Tandems Weighted service requirements
DC Administration Total Costs Percentages
IBM Processing Number of settlement transactions
EMEVS Hardware and Software Direct to EMEVS
Batch Monitoring Number of settlement transactions
Monitoring, Change and Escalation Repo Service requirement (1-2-6)
Security Even to all states
IBM Processing Number of settlement transactions
EMEVS System Cost Direct to EMEVS
Tech Services - Tandem Weighted service requirements
Education Weighted service requirements
Change Control Number of settlement transactions
IBM EMEVS Direct to EMEVS
Product Develop Spread WSR Weighted service requirements
Product Develop Spread Evenly Even to all states
Certification on Tandem Weighted service requirements
Product Testing Weighted service requirements
<PAGE>
EXHIBIT 10.18
eFunds Corporation
2000 STOCK INCENTIVE PLAN
Section 1. Purpose.
The purpose of the Plan is to promote the interests of the Company and its
stockholders by aiding the Company in attracting and retaining employees,
officers, directors, consultants and advisors capable of assuring the future
success of the Company, by offering such persons incentives to put forth maximum
efforts for the success of the Company's business, and by affording such persons
an opportunity to acquire a proprietary interest in the Company.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean any entity that, directly or indirectly through
one or more intermediaries, is controlled by the Company and any
entity in which the Company has a significant equity interest, in each
case as determined by the Committee. As used in this definition,
"control" shall mean the right, either directly or indirectly, to
elect the majority of the directors of a company without the consent
or acquiescence of any Third Party.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Right, Performance Award, Dividend Equivalent
or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Board" shall mean the board of directors of the Company.
(e) "Certificate" shall mean the Certificate of Incorporation of the
Company, as amended from time to time.
(f) "Code" shall mean the Internal Revenue Code of 1986 of the United
States of America, as amended from time to time, and any regulations
promulgated thereunder.
(g) "Committee" shall mean a committee of the Board designated by the
Board to administer the Plan. The Committee shall consist solely of
Directors appointed from time to time by the Board and shall be
comprised solely of at least that number of Directors with those
qualifications necessary to permit Awards under the Plan to qualify
under Rule 16b-3.
(h) "Common Stock" shall mean the shares of Common Stock of the Company as
provided in the Certificate.
(i) "Company" shall mean eFunds Corporation, a corporation incorporated
under the laws of the State of Delaware, United States of America, and
any successor corporation.
(j) "Director" shall mean a member of the Board.
(k) "Dividend Equivalent" shall mean any right granted under Section 6(e)
of the Plan.
Page 1
<PAGE>
(l) "Eligible Person" shall mean any officer, Director (including a
non-employee Director) or employee of the Company or any of its
Affiliates and any consultant or advisor who provides services to the
Company or any of its Affiliates, as determined by the Committee and
selected by the Committee for an Award under the Plan.
(m) "Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended from time to time, and any regulations promulgated
thereunder.
(n) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the
fair market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee.
Notwithstanding the foregoing, unless otherwise determined by the
Committee, the Fair Market Value of a Share on a given date for
purposes of the Plan shall be, if the Shares are then traded on the
Nasdaq National Market, the last sale price of the Shares as reported
on the Nasdaq National Market on such date or, if the Nasdaq National
Market is not open for trading on such date, on the most recent
preceding date when it is open for trading,
(o) "Option" shall mean an option granted under Section 6(a) of the Plan
that is not intended to meet the requirements of Section 422 of the
Code or any successor provision, and shall include any Reload Option.
(p) "Other Stock-Based Award" shall mean any right granted under Section
6(f) of the Plan.
(q) "Participant" shall mean an Eligible Person designated to be granted
an Award under the Plan.
(r) "Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
(s) "Person" shall mean any natural person, corporation, partnership,
association or trust.
(t) "Plan" shall mean this eFunds Corporation 2000 Stock Incentive Plan,
as amended from time to time.
(u) "Reload Option" shall mean any Option granted under Section 6(a)(iv)
of the Plan.
(v) "Restricted Stock" shall mean any Share issued pursuant to an Award
granted under Section 6(c) of the Plan.
(w) "Restricted Stock Right" shall mean any right granted under Section
6(c) of the Plan.
(x) "Rule 16b-3" shall mean the rule so designated which has been
promulgated by the SEC under the authority of Section 16 of the
Exchange Act, as such rule may be amended from time to time, together
with any successor law or rule.
(y) "SEC" shall mean the United States Securities and Exchange Commission.
(z) "Shares" shall mean shares of Common Stock or such other securities or
property as may become subject to Awards pursuant to an adjustment
made under Section 4(c) of the Plan.
(aa) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
(bb) "Third Party" shall mean any Person other than the Company or any of
its Affiliates.
Section 3. Administration.
(a) Power and Authority of the Committee. The Plan shall be administered
by the Committee. Subject to the express provisions of the Plan and to
applicable law, the Committee shall have full power and authority to:
(i) designate Participants; (ii) determine the type or types of Awards
to be granted to each
Page 2
<PAGE>
Participant under the Plan; (iii) determine the number of Shares to be
covered by (or the method by which payments or other rights are to be
calculated in connection with) each Award; (iv) determine the terms
and conditions of any Award or Award Agreement; (v) subject to Section
7(c) of this Plan, amend the terms and conditions of any Award or
Award Agreement and accelerate the exercisability of any Award or the
lapse of restrictions relating to any Award; (vi) determine whether,
to what extent and under what circumstances Awards may be exercised
with the payment of cash, Shares, promissory notes, other securities,
other Awards or other property, or canceled, forfeited or suspended;
(vii) determine whether, to what extent and under what circumstances
cash, Shares, promissory notes, other securities, other awards, other
property and other amounts issuable or payable by the Company with
respect to an Award under the Plan shall be deferred either
automatically or at the election of the holder thereof or the
Committee; (viii) interpret and administer the Plan and any instrument
or agreement, including an Award Agreement, relating to the Plan; (ix)
establish, amend, suspend or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (x) make any other determination and
take any other action that the Committee deems necessary or desirable
for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan
or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive and binding upon
any Participant, any holder or beneficiary of any Award and any
employee of the Company or its Affiliates and any other Eligible
Person.
(b) Delegation. The Committee may delegate all or any of its powers and
duties under the Plan to one or more Directors, or a committee of
Directors, subject to such terms, conditions and limitations as the
Committee may establish in its sole discretion; provided, however,
that the Committee shall not delegate its powers and duties under this
Plan with regard to Awards granted to officers or directors of the
Company or its Affiliates who are subject to Section 16 of the
Exchange Act.
(c) Power and Authority of the Board of Directors. Notwithstanding
anything to the contrary contained herein, the Board may, at any time
and from time to time, without any further action of the Committee,
exercise the powers and duties of the Committee under the Plan.
Section 4. Shares Available for Awards.
(a) Shares Available. Subject to the provisions of Section 4(c) hereof,
the Shares available for Awards under the Plan shall be authorized,
but unissued, Shares or Shares held in the treasury of the Company.
Subject to adjustment as provided in Section 4(c), the maximum number
of Shares available for granting Awards under the Plan shall be 20% of
the total number of shares of Common Stock then outstanding.
(b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number
of Shares covered by such Award or to which such Award relates shall
be counted on the date of grant of such Award against the aggregate
number of Shares available for grants under the Plan.
Page 3
<PAGE>
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares,
other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase or exchange of Shares or other
securities of the Company, issuance of warrants or other rights to
purchase Shares or other securities of the Company or other similar
corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order
to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any
or all of (i) the number and type of Shares (or other securities or
other property) which thereafter may be made the subject of Awards,
(ii) the number and type of Shares (or other securities or other
property) subject to outstanding Awards and (iii) the purchase or
exercise price with respect to any Award; provided, however, that the
number of Shares covered by any Award or to which such Award relates
shall always be a whole number.
(d) Award Limitations Under the Plan. The maximum number of Shares
available for Awards of Restricted Stock or Restricted Stock Rights
under the Plan shall be 2% of the total number of shares of Common
Stock outstanding, determined as of the date of grant of such Award of
Restricted Stock or Restricted Stock Rights.
Section 5. Eligibility.
Any Eligible Person shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Award and the terms of any
Award, the Committee may take into account the nature of the services rendered
by the respective Eligible Persons, their present and potential contributions to
the success of the Company, and such other factors as the Committee, in its
discretion, shall deem relevant.
Section 6. Awards.
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions
of the Plan as the Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee; provided, however,
that such purchase price shall not be less than 100% of the Fair
Market Value of a Share on the date of grant of such Option,
provided that the per Share exercise price may be set below Fair
Market Value by an amount determined necessary or appropriate by
the Committee to satisfy applicable requirements of law or
government regulation.
(ii) Option Term. The term of each Option shall be fixed by the
Committee, but shall not exceed ten years.
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in
part and the method or methods by which, and the
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form or forms (including, without limitation, cash, Shares,
promissory notes, other securities, other Awards or other
property, or any combination thereof, having a Fair Market Value
on the exercise date equal to the relevant exercise price) in
which, payment of the exercise price with respect thereto may be
made or deemed to have been made.
(iv) Reload Options. The Committee may grant Reload Options,
separately or together with another Option, pursuant to which,
subject to the terms and conditions established by the Committee,
the Participant would be granted a new Option when the payment of
the exercise price of a previously granted option is made by the
delivery of Shares owned by the Participant pursuant to Section
6(a)(iii) hereof or the relevant provisions of another plan of
the Company, and/or when Shares are tendered or withheld as
payment of the amount to be withheld under applicable income tax
laws in connection with the exercise of an Option, which new
Option would be an Option to purchase the number of Shares not
exceeding the sum of (A) the number of Shares so provided as
consideration upon the exercise of the previously granted option
to which such Reload Option relates and (B) the number of Shares,
if any, tendered or withheld as payment of the amount to be
withheld under applicable tax laws in connection with the
exercise of the option to which such Reload Option relates
pursuant to the relevant provisions of the plan or agreement
relating to such option. Reload Options may be granted with
respect to Options previously granted under the Plan or options
previously granted under any other stock option plan of the
Company or may be granted in connection with any Option granted
under the Plan or options granted under any other stock option
plan of the Company at the time of such grant. Such Reload
Options shall have a per Share exercise price equal to the Fair
Market Value of one Share as of the date of grant of the new
Option, provided that the per Share exercise price may be set
below Fair Market Value by an amount determined necessary or
appropriate by the Committee to satisfy applicable requirements
of law or government regulation. Any Reload Option shall be
subject to availability of sufficient Shares for grant under the
Plan. Shares surrendered as part or all of the exercise price of
the Option to which it relates that have been owned by the
optionee less than six months will not be counted for purposes of
determining the number of Shares that may be purchased pursuant
to a Reload Option.
(b) Stock Appreciation Rights. The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants subject to the terms of the
Plan and any applicable Award Agreement. A Stock Appreciation Right
granted under the Plan shall confer on the holder thereof the right to
receive upon exercise thereof the excess of (i) the Fair Market Value
of one Share on the date of exercise (or, if the Committee shall so
determine, at any time during a specified period before or after the
date of exercise) over (ii) the grant price (as the same may be
adjusted under Section 4(c) of the Plan) per Share of the Stock
Appreciation Right as specified by the Committee, which price shall
not be less than 100% of the Fair Market Value of one Share (subject
to any such adjustment) on the date of grant of the Stock Appreciation
Right, provided that the grant price per Share may be set below Fair
Market Value by an
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amount determined necessary or appropriate by the Committee to satisfy
applicable requirements of law or government regulation. Subject to
the terms of the Plan and any applicable Award Agreement, the grant
price, term, methods of exercise, dates of exercise, methods of
settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee, which may
impose upon the exercise of any Stock Appreciation Right such
conditions or restrictions, not inconsistent with the provisions of
the Plan, as it may deem appropriate. The term of any Stock
Appreciation Right shall not exceed ten years.
(c) Restricted Stock and Restricted Stock Rights. The Committee is hereby
authorized to grant Awards of Restricted Stock and Restricted Stock
Rights to Participants subject to the following terms and conditions
and such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted Stock
Rights shall be subject to such restrictions as the Committee may
impose (including, without limitation, any limitation on the
right to vote a share of Restricted Stock or the right to receive
any dividend or other right or property with respect thereto or
with respect to a Restricted Stock Right), which restrictions may
lapse separately or in combination at such time or times, in such
installments or otherwise as the Committee may deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or
certificates, which certificate or certificates shall be held by
the Company or a custodian acting on behalf of the Company, or,
if determined by the Committee and consistent with the rules of
the Nasdaq National Market or any securities exchange on which
the Shares are listed or admitted to trading, any Restricted
Stock granted under the Plan may be evidenced by recording the
issuance of the same in the books and records of the Company.
Such certificate or certificates shall be registered in the name
of the Participant and shall bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such
Restricted Stock. In the case of Restricted Stock Rights, no
Shares shall be issued at the time such Awards are granted.
(iii) Forfeiture; Delivery of Shares. Except as otherwise determined
by the Committee, upon a Participant's termination of employment
(as determined by or under criteria established by the Committee)
with the Company or its Affiliates during the applicable
restriction period, all Shares of Restricted Stock and all
Restricted Stock Rights shall be forfeited and reacquired by the
Company; provided, however, that the Committee may, when it finds
that a waiver would be in the best interest of the Company, waive
in whole or in part any or all remaining restrictions with
respect to Shares of Restricted Stock or Restricted Stock Rights.
Any Share of Restricted Stock that is no longer subject to
restrictions shall be delivered to the holder thereof promptly
after the applicable restrictions lapse or are waived. Upon the
lapse or waiver of restrictions and the restricted period
relating to Restricted Stock Rights evidencing the right to
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receive Shares, such Shares shall be issued and delivered to the
holders of the Restricted Stock Rights, subject to the provisions
of the Plan and any applicable Award Agreement.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Performance Award granted under
the Plan (i) may be denominated or payable in cash, Shares (including,
without limitation, Restricted Stock and Restricted Stock Rights),
other securities, other Awards or other property and (ii) shall confer
on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such
performance periods as the Committee shall establish. Subject to the
terms of the Plan and any applicable Award Agreement, the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award granted, the
amount of any payment or transfer to be made pursuant to any
Performance Award, and any other terms and conditions of any
Performance Award shall be determined by the Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to grant to
Participants Dividend Equivalents under which such Participants shall
be entitled to receive payments (in cash, Shares, other securities,
other Awards or other property as determined in the discretion of the
Committee) equivalent to the amount of cash dividends paid by the
Company to holders of Common Stock of the Company with respect to a
number of Shares determined by the Committee. Subject to the terms of
the Plan and any applicable Award Agreement, such Dividend Equivalents
may have such terms and conditions as the Committee shall determine.
(f) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities
convertible into Shares), as are deemed by the Committee to be
consistent with the purpose of the Plan; provided, however, that such
grants must comply with applicable law. Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall determine
the terms and conditions of such Awards. Shares or other securities
delivered pursuant to a purchase right granted under this Section 6(f)
shall be purchased for such consideration, which may be paid by such
method or methods and in such form or forms (including, without
limitation, cash, Shares, promissory notes, other securities, other
Awards or other property or any combination thereof), as the Committee
shall determine, the value of which consideration shall not be less
than 100% of the Fair Market Value of such Shares or other securities
as of the date such purchase right is granted, provided that the value
of such Shares or other securities may be set below Fair Market Value
by an amount determined necessary or appropriate by the Committee to
satisfy applicable requirements of law or government regulation.
(g) General.
(i) No Cash Consideration for Awards. Awards may be granted for no
cash consideration or for such minimal cash consideration as may
be required by applicable law or may be granted for such cash
consideration as the Committee may determine in its discretion.
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(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for any other
Award or any award granted under any plan of the Company or any
of its Affiliates other than the Plan. Awards granted in addition
to or in tandem with other Awards or in addition to or in tandem
with awards granted under any such other plan of the Company or
any of its Affiliates may be granted either at the same time as
or at a different time from the grant of such other Awards or
awards.
(iii) Forms of Payments Under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to
be made by the Company or an Affiliate upon the grant, exercise
or payment of an Award may be made in such form or forms as the
Committee shall determine (including, without limitation, cash,
Shares, promissory notes, other securities, other Awards or other
property, or any combination thereof), and may be made in a
single payment or transfer, in installments or on a deferred
basis, in each case in accordance with rules and procedures
established by the Committee. Such rules and procedures may
include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents with
respect to installment or deferred payments.
(iv) Limits on Transfer of Awards. No Award and no right under any
such Award shall be transferable by a Participant otherwise than
by will or by the laws of descent and distribution; provided,
however, that if so determined by the Committee, a Participant
may, in the manner established by the Committee, designate a
beneficiary or beneficiaries to exercise the rights of the
Participant and receive any property distributable with respect
to any Award upon the death of the Participant. Notwithstanding
the preceding sentence, if so determined by the Committee, an
Option may be transferred by a Participant to any "Family Member"
(as such term is defined in the General Instructions to Form S-8
(or any successor to such Instructions or Form)) of that
Participant in a manner established by the Committee, provided
that such transfer is not for value (i.e., the Participant making
the transfer may not receive any consideration therefor). Any
Family Member to whom an Option is transferred in accordance with
the preceding sentence shall not make any subsequent transfer of
such Option or any right thereunder otherwise than by will or the
laws of descent and distribution; provided, however, that if so
determined by the Committee, such Family Member may, in the
manner established by the Committee, designate a beneficiary or
beneficiaries to exercise the rights of such Family Member under
the Option and receive any property distributable with respect
thereto upon the death of such Family Member. Each Award or right
under any Award shall be exercisable during the Participant's
lifetime only by the Participant, or if permissible under
applicable law, by the Participant's guardian or legal
representative, excepting an Option that has been transferred to
a Family Member in accordance with the foregoing provisions, in
which event the Option and any rights thereunder may be
exercisable during such Family Member's
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lifetime only by such Family Member or, if permissible under
applicable law, by the Family Member's guardian or legal
representative. Except as provided in this clause (iv), no Award
or right under any such Award may be pledged, alienated, attached
or otherwise encumbered, and any purported pledge, alienation,
attachment or encumbrance thereof shall be void and unenforceable
against the Company or any of its Affiliates.
(v) Term of Awards. Subject to the terms of the Plan, the term of
each Award shall be for such period as may be determined by the
Committee.
(vi) Restrictions; Securities Exchange Listing. All Shares or other
securities delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such restrictions as the
Committee may deem advisable under the Plan, applicable
securities laws, rules or regulations, and other regulatory
requirements, and the Committee may cause appropriate entries to
be made or legends to be placed on the certificates for such
Shares or other securities to reflect such restrictions. If the
Shares or other securities are traded on the Nasdaq National
Market or a securities exchange, the Company shall not be
required to deliver any Shares or other securities covered by an
Award unless and until such Shares or other securities have been
admitted for trading on the Nasdaq National Market or such
securities exchange.
Section 7. Amendment and Termination; Adjustments.
(a) Amendments to the Plan. Subject to the provisions of Section 7(c), the
Board of Directors may amend, alter, suspend, discontinue or terminate
the Plan; provided, however, that, notwithstanding any other provision
of the Plan or any Award Agreement, prior approval of the stockholders
of the Company shall be required for any amendment to the Plan that
requires stockholder approval under the rules or regulations of the
Nasdaq National Market or any securities exchange that are applicable
to the Company.
(b) Waivers. Subject to the provisions of the Plan, the Committee may
waive any conditions of or rights of the Company under any outstanding
award, prospectively or retroactively.
(c) Limitations on Amendments. Neither the Board nor the Committee may
amend, alter, suspend, discontinue or terminate any outstanding Award,
prospectively or retroactively, that would have an adverse effect on
the rights of the Participant with respect to such Award, without the
consent of the Participant or holder or beneficiary thereof, except as
otherwise provided herein or in the Award Agreement.
(d) Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award or Award Agreement in the
manner and to the extent it shall deem desirable to carry the Plan
into effect.
Section 8. Income Tax Withholding.
In order to comply with all applicable income tax laws or regulations, the
Committee may establish such policy or policies as it deems appropriate with
respect to such laws and regulations, including without limitation the
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establishment of policies to ensure that all applicable payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of a
Participant, are withheld or collected from such Participant. In order to assist
a Participant in paying all or a portion of the taxes to be withheld or
collected upon exercise or receipt of (or the lapse of restrictions relating to)
an Award, the Committee, in its discretion and subject to such additional terms
and conditions as it may adopt, may permit the Participant to satisfy such tax
obligation by (a) electing to have the Company withhold a portion of the payment
or transfer otherwise to be made upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes or (b) delivering to the Company Shares or other property
other than Shares issuable upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes. The election, if any, must be made on or before the date
that the amount of tax to be withheld is determined.
Section 9. General Provisions.
(a) No Rights to Awards. No Eligible Person, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Awards under the Plan. The
terms and conditions of Awards need not be the same with respect to
any Participant or with respect to different Participants.
(b) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall
have been duly executed on behalf of the Company and, if requested by
the Company, signed by the Participant and delivered to the Company.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any of its Affiliates from adopting
or continuing in effect other or additional compensation plans or
arrangements, and such arrangements may be either generally applicable
or applicable only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the
Company or any of its Affiliates, nor will it affect in any way the
right of the Company or any of its Affiliates to terminate the
employment of any Participant in its or their employ at any time, with
or without cause. In addition, the Company or any of its Affiliates
may at any time dismiss a Participant in its or their employ from
employment free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of the Plan, any
Award Agreement or any Award, and any rules and regulations relating
to the Plan, any Award Agreement or any Award, shall be determined in
accordance with the laws of the State of Delaware which shall be the
proper law thereof notwithstanding any rules regarding conflict of
laws therein contained under which any other law would be made
applicable.
(f) Severability. If any provision of the Plan, any Award Agreement or any
Award is or becomes or is deemed to be invalid, illegal or
unenforceable in any jurisdiction or would disqualify the Plan, any
Award Agreement or any Award under any law deemed applicable by the
Committee, then
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(i) such provision shall be construed or deemed amended to conform to
applicable laws, or
(ii) if it cannot be so construed or deemed amended without, in the
determination of the Committee, materially altering the purpose
or intent of the Plan, the Award Agreement or the Award, such
provision shall be stricken,
but only as to each jurisdiction, Award Agreement and Award so
affected, and the Plan, as well as each Award Agreement and Award so
affected, shall otherwise remain in full force and effect in
accordance with its original terms.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any of its Affiliates
and a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any of its
Affiliates pursuant to an Award, such right shall be no greater than
the right of any unsecured general creditor of the Company or any such
Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash shall be paid in lieu of any fractional Share
or whether such fractional Share or any rights thereto shall be
canceled, terminated or otherwise eliminated.
(i) Headings. Headings are given to the sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
(j) Other Benefits. No compensation or benefit awarded to or realized by
any Participant in the employ of the Company or any of its Affiliates
under the Plan shall be included for the purpose of computing such
Participant's compensation under any compensation-based retirement,
disability or similar plan of the Company or any of its Affiliates
unless required by law or otherwise provided by such other plan.
Section 10. Effective Date of the Plan.
The Plan shall be approved by the Board of Directors of the Company and shall be
effective as of April 17, 2000, subject to the approval of the stockholder or
stockholders of the Company, which approval may be satisfied by the approval of
Deluxe Corporation, as the sole stockholder of the Company, for purposes of
satisfying the requirements of the Nasdaq National Market.
Section 11. Term of the Plan.
The Plan shall continue in effect until it is discontinued or terminated as
provided in Section 7. No Award shall be granted after the termination of this
Plan. However, unless otherwise expressly provided in this Plan or in an
applicable Award Agreement, any Award theretofore granted may extend beyond the
termination of this Plan, and the authority of the Committee provided for
hereunder with respect to this Plan and any Awards, and the authority of the
Board to amend this Plan, shall extend beyond the termination of this Plan.
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EXHIBIT 10.19
eFunds Corporation
STOCK INCENTIVE PLAN FOR
DELUXE CONVERSION AWARDS
Section 1. Purpose.
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The purpose of the Plan is to provide substitute Options to employees of
the Company and its Affiliates and employees of the Company's parent
corporation, Deluxe Corporation, and its Affiliates, as a result of the
adjustments to be made to outstanding options under the Deluxe Corporation 1984
Stock Option Plan, the Deluxe Corporation Stock Incentive Plan (as amended ) or
the Deluxe Corporation 1998 DeluxeSHARES Plan in connection with the split-off
of Deluxe Corporation's remaining interest in the Company following the
Company's initial public offering of its Common Stock.
Section 2. Definitions.
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As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) when used with reference to the
Company, any entity that, directly or indirectly through one or more
intermediaries, is controlled by the Company and (ii) when used with
reference to Deluxe, any entity that, directly or indirectly through one or
more intermediaries, is controlled by Deluxe. As used in this definition,
"control" shall mean the right, either directly or indirectly, to elect a
majority of the directors of a company without the consent or acquiescence
of any third party.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
(d) "Committee" shall mean a committee of Directors designated by the
Board to administer the Plan. The Committee shall be comprised of not less
than such number of Directors as shall be required to permit Options
granted under the Plan to qualify under Rule 16b-3, and each member of the
Committee shall be a "Non-Employee Director" within the meaning of Rule
16b-3 and an "outside director" within the meaning of Section 162(m) of the
Code. The Company expects to have the Plan administered in accordance with
requirements for "qualified performance-based compensation" within the
meaning of Section 162(m) of the Code.
(e) "Company" shall mean eFunds Corporation, a Delaware corporation,
and any successor corporation.
(f) "Deluxe" shall mean Deluxe Corporation, the parent corporation of
the Company.
<PAGE>
(g) "Deluxe Option" shall mean an Option to purchase shares of Deluxe
common stock which was granted under a Deluxe Option Plan prior to the
Split-Off.
(h) "Deluxe Option Agreement" shall mean the Participant's agreement
with or award from Deluxe containing the terms and conditions of a Deluxe
Option.
(i) "Deluxe Option Plan" shall mean any one of the Deluxe Corporation
1984 Stock Option Plan, the Deluxe Corporation Stock Incentive Plan (as
amended) or the Deluxe Corporation 1998 DeluxeSHARES Plan, whichever Plan
is applicable.
(j) "Director" shall mean a member of the Board.
(k) "eFunds Option" shall mean an Option to purchase Shares pursuant
to the terms of this Plan, which Option is granted as a result of any
adjustments made to an Eligible Person's Deluxe Option under the provisions
of the applicable Deluxe Option Plan in connection with the Split-Off.
(l) "Eligible Person" shall mean any person who holds an outstanding
Deluxe Option immediately prior to the Split-Off.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair
market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee. Notwithstanding
the foregoing, unless otherwise determined by the Committee, the Fair
Market Value of Shares on a given date for purposes of the Plan shall be,
if the Shares are then traded on the Nasdaq National Market, the last sale
price of the Shares as reported on the Nasdaq National Market on such date
or, if the Nasdaq National Market is not open for trading on such date, on
the most recent preceding date when it is open for trading.
(o) "Incentive Stock Option" shall mean an option that is intended to
meet the requirements of Section 422 of the Code or any successor provision
and which, for purposes of this Plan, (i) relates to a Deluxe Option that
was an Incentive Stock Option immediately prior to the Split-Off and (ii)
continues to meet the requirements of Section 422 of the Code or any
successor provision after the Split-Off.
(p) "Non-Qualified Stock Option" shall mean an option that is not
intended to be an Incentive Stock Option.
(q) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option and specifically, for purposes of this Plan, it shall mean an
eFunds Option.
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(r) "Option Agreement" shall mean a written schedule or other document
showing the adjustments made to the Participant's outstanding Deluxe
Options under and pursuant to the terms of the applicable Deluxe Option
Plan, which Option Agreement shall include the number of Shares subject to
the eFunds Options, the exercise price or prices of the eFunds Options and
the expiration date or dates of the eFunds Options. Each Option Agreement
shall be subject to the applicable terms and conditions of the respective
Deluxe Option Plan and Deluxe Option Agreement under and pursuant to which
the Deluxe Options were granted, as adjusted and modified by the terms and
conditions of this Plan and the terms set forth in the Option Agreement. To
the extent that any of the terms in the applicable Deluxe Option Plan or
Deluxe Option Agreement are inconsistent with the terms of this Plan or the
Option Agreement with respect to the eFunds Options, the terms of this Plan
and the Option Agreement shall govern, and if there is any inconsistency
between this Plan and the terms contained in an Option Agreement, the terms
of this Plan shall govern.
(s) "Participant" shall mean an Eligible Person designated to be
granted an Option under the Plan.
(t) "Person" shall mean any individual, corporation, partnership,
association or trust.
(u) "Plan" shall mean this eFunds Corporation Stock Incentive Plan for
Deluxe Conversion Awards, as amended from time to time.
(v) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Exchange Act or any successor rule or
regulation.
(w) "Shares" shall mean shares of Common Stock, par value $0.01 per
share, of the Company or such other securities or property as may become
subject to Options pursuant to an adjustment made under Section 4(c) of the
Plan.
(x) "Split-Off" shall mean the split-off of Deluxe's remaining
interest in the Company following the Company's initial public offering of
the Company's Common Stock in the United States.
(y) "Stock Option Conversion Equation" shall mean the equation
attached as Exhibit A hereto.
Section 3. Administration.
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(a) Power and Authority of the Committee. The Plan shall be
administered by the Committee. Subject to the express provisions of the
Plan and to applicable law, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the number of
Shares to be covered by (or the method by which payments or other rights
are to be calculated in connection with) each Option; (iii) determine the
terms and conditions of any Option or Option Agreement; (iv) amend the
terms and conditions of any Option or Option
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Agreement; (v) accelerate the exercisability of any Option or the lapse of
restrictions relating to any Option; (vi) determine whether, to what extent
and under what circumstances Options may be exercised in cash, Shares,
promissory notes, other securities or other property, or canceled,
forfeited or suspended; (vii) determine whether, to what extent and under
what circumstances cash, Shares, promissory notes, other securities, other
property and other amounts payable with respect to an Option under the Plan
shall be deferred either automatically or at the election of the holder
thereof or the Committee; (vii) interpret and administer the Plan and any
instrument or agreement, including an Option Agreement, relating to the
Plan; (ix) establish, amend, suspend or waive such rules and regulations
and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (x) make any other determination and take
any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the
Plan, all designations, determinations, interpretations and other decisions
under or with respect to the Plan or any Option shall be within the sole
discretion of the Committee, may be made at any time and shall be final,
conclusive and binding upon any Participant, any holder or beneficiary of
any Option and any employee of the Company or any Affiliate.
(b) Delegation. The Committee may delegate its powers and duties under
the Plan to one or more Directors or a committee of Directors, subject to
such terms, conditions and limitations as the Committee may establish in
its sole discretion; provided, however, that the Committee shall not
delegate its powers and duties under the Plan with regard to Options
granted to officers or directors of the Company or any Affiliate who are
subject to Section 16 of the Exchange Act or in such a manner as would
cause the Plan not to comply with the requirements of Section 162(m) of the
Code.
(c) Power and Authority of the Board of Directors. Notwithstanding
anything to the contrary contained herein, the Board may, at any time and
from time to time, without any further action of the Committee, exercise
the powers and duties of the Committee under the Plan.
Section 4. Shares Available for Options.
- ----------------------------------------
(a) Shares Available. Subject to adjustment as provided in Section
4(c) of the Plan, the aggregate number of Shares which may be issued under
all Options under the Plan shall be 9% of the total number of Shares
outstanding as of the Split-Off.
(b) Adjustments. In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash, Shares,
other securities or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the
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number and type of Shares (or other securities or other property) that
thereafter may be made the subject of Options, (ii) the number and type of
Shares (or other securities or other property) subject to outstanding
Options and (iii) the purchase or exercise price with respect to an Option;
provided, however, that the number of Shares covered by an Option or to
which such Option relates shall always be a whole number.
Section 5. Eligibility.
- -----------------------
Any Eligible Person shall be eligible to be designated a Participant.
Section 6. Options.
- -------------------
The Committee is hereby authorized and directed to grant eFunds Options to
Participants with the terms and conditions set forth below. Other than as
specified in this Plan or the Option Agreement, the terms and conditions of the
applicable Deluxe Option Plan and Deluxe Option Agreement to which an eFunds
Option relates shall remain in effect.
(a) Grant of eFunds Options. The eFunds Options to be granted under
the Plan shall be granted immediately prior to the Split-Off of the Company
as a result of adjustments made to outstanding Deluxe Options in connection
with the Split-Off under the applicable Deluxe Option Plan. The number of
eFunds Options granted to a Participant shall be determined based on the
Stock Option Conversion Equation as applied to the number of outstanding
Deluxe Options held by the Participant immediately prior to the Split-Off,
and then rounded up or down to the nearest whole share; provided, however,
that with respect to an Incentive Stock Option the number shall be rounded
down to the nearest whole share.
(b) Option Exercise Price. The eFunds Options granted under the Plan
shall have an exercise price or exercise prices determined based on the
Stock Option Conversion Equation as applied to the original exercise price
or prices of the corresponding outstanding Deluxe Options held by the
Participant immediately prior to the Split-Off as a result of adjustments
made to outstanding Deluxe Options in connection with the Split-Off under
the applicable Deluxe Option Plan. The exercise price of an Incentive Stock
Option under this Plan shall be rounded up to the nearest whole cent.
(c) Vesting. The vesting provisions of the eFunds Options shall be the
same as the Deluxe Options to which the eFunds Options relate, assuming,
for vesting purposes, that the date of grant of the eFunds Options was the
same as the date of grant for the corresponding Deluxe Options; provided,
however, that (i) the vesting provision of options awarded under the 1998
DeluxeSHARES Plan that is conditioned upon the per share price of Deluxe
common stock reaching a market price at least equal to 150% of the per
share purchase price (exercise price) applicable to each such option shall
be modified to require that vesting prior to the third anniversary of the
applicable option award will be conditioned upon the per Share price of
eFunds Common Stock reaching a market price at least equal to 150% of the
per share exercise price determined in accordance with Section 6(b) of the
eFunds Option corresponding to the option issued under the 1998
DeluxeSHARES Plan and (ii) any vesting provision contained in a
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<PAGE>
Deluxe Option Agreement or Deluxe Option Plan relating to a change of
control of Deluxe shall mean, for purposes of the corresponding eFunds
Options, a change of control of eFunds subsequent to the Split-Off.
(d) Exercisability of Options and Option Term. The exercisability
provisions and the term (including the applicability of any early
termination provision) of each eFunds Option shall be the same as the
exercisability provisions and term (including the applicability of any
early termination provision) of the corresponding Deluxe Option to which
the eFunds Option relates, assuming, for such purposes, that the date of
grant of the eFunds Option was the same as the date of grant for the
corresponding Deluxe Option, except that, with respect to eFunds Options
relating to Deluxe Options granted prior to 1998 or granted under the 1998
DeluxeSHARES Plan, the exercisability provisions and term of such Options
based on past employment or contingent upon continued employment shall mean
and include past employment with Deluxe and continued employment with
eFunds for those Participants who are employees of eFunds effective as of
the Split-Off.
(e) Method of Exercising Options.
(i) Subject to the terms and conditions of this Plan, an Option
may be exercised by written notice to the Company, to the attention of
the Secretary. Such notice shall state the election to exercise the
Option, the number of Shares as to which the Option is being
exercised, the manner of payment, the address to which the certificate
representing the Shares should be mailed, and the Participant's social
security number and shall be signed by the person or persons so
exercising the Option. The notice shall be accompanied by payment in
full of the exercise price for all Shares designated in the notice. To
the extent that the Option is exercised after the Participant's death,
the notice of exercise shall also be accompanied by appropriate proof
of the right of such person or persons to exercise the Option.
(ii) Payment of the exercise price shall be made to the Company
through one or a combination of the following methods:
(A) by wire transfer or delivery of a certified or bank
cashier's check payable to the Company or cash, in United States
currency, or such other payment method as may be acceptable to
the Committee; or
(B) delivery of shares of Common Stock acquired by the
Participant more than six months prior to the date of exercise
having a Fair Market Value on the date of exercise equal to the
Option exercise price. The Participant shall duly endorse all
certificates delivered to the Company in blank and shall
represent and warrant in writing that the Participant is the
owner of the shares so delivered, free and clear of all liens,
encumbrances, security interests and restrictions.
(f) Income Tax Withholding. In order to provide the Company with the
opportunity to claim the benefit of any income tax deduction which may be
available to it upon the exercise of the Option, and in order to comply
with all applicable income tax laws or
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<PAGE>
regulations, the Company may take such action as it deems appropriate to
ensure that all applicable income, withholding, social, payroll or other
taxes, which are the sole and absolute responsibility of the Participant,
are withheld or collected from the Participant. A Participant may, at the
Participant's election (the "Tax Election"), satisfy any applicable tax
withholding obligations by (i) electing to have the Company withhold a
portion of the Shares of Common Stock otherwise to be delivered upon
exercise of the Option having a Fair Market Value equal to the amount of
such taxes or (ii) delivering to the Company shares of Common Stock having
a Fair Market Value equal to the amount of such taxes. The Tax Election
must be made on or before the date that the amount of tax to be withheld is
determined.
(g) Restrictions; Securities Exchange Listing. All Shares or other
securities delivered under the Plan pursuant to any Option or the exercise
thereof shall be subject to such restrictions as the Committee may deem
advisable under the Plan, applicable securities laws, rules or regulations,
and other regulatory requirements, and the Committee may cause appropriate
entries to be made or legends to be placed on the certificates for such
Shares or other securities to reflect such restrictions. If the Shares or
other securities are traded on the Nasdaq National Market or a securities
exchange, the Company shall not be required to deliver any Shares or other
securities covered by an Option unless and until such Shares or other
securities have been admitted for trading on the Nasdaq National Market or
such securities exchange.
Section 7. Amendment and Termination; Adjustments.
- --------------------------------------------------
(a) Amendments to the Plan. Subject to the provisions of Section 7(b)
below, the Board of Directors of the Company may amend, alter, suspend,
discontinue or terminate the Plan; provided, however, that, notwithstanding
any other provision of the Plan or any Option Agreement, prior approval of
the stockholders of the Company shall be required for any amendment to the
Plan that requires stockholder approval under the rules or regulations of
the National Association of Securities Dealers, Inc. or any securities
exchange that are applicable to the Company.
(b) Amendments to Options. Subject to the provisions of the Plan, the
Committee may waive any conditions of or rights of the Company under any
outstanding Option, prospectively or retroactively. Except as otherwise
provided herein, the Committee may not amend, alter, suspend, discontinue
or terminate any outstanding Option, prospectively or retroactively, if
such action would adversely affect the rights of the holder of such Option,
without the consent of the Participant or holder or beneficiary thereof.
(c) Correction of Defects, Omissions and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
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<PAGE>
Section 8. General Provisions.
- ------------------------------
(a) No Rights to Options. No Eligible Person, Participant or other
Person shall have any claim to be granted any Option under the Plan, and
there is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Options under the Plan. The
terms and conditions of Options need not be the same with respect to any
Participant or with respect to different Participants.
(b) Option Agreements. No Participant shall have rights under an
Option granted to such Participant unless and until an Option Agreement
shall have been duly executed on behalf of the Company.
(c) No Rights of Stockholders. Neither a Participant nor the
Participant's legal representative shall be, or have any of the rights and
privileges of, a stockholder of the Company with respect to any Shares
issuable upon exercise or payment of any Option, in whole or in part,
unless and until the Shares have been issued.
(d) No Limit on Other Compensation Arrangements. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation plans or
arrangements, and such plans or arrangements may be either generally
applicable or applicable only in specific cases.
(e) No Right to Employment. The grant of an Options shall not be
construed as giving a Participant the right to be retained as an employee
of the Company or any Affiliate nor will it affect in any way the right of
the Company or an Affiliate to terminate such employment at any time, with
or without cause. In addition, the Company or an Affiliate may at any time
dismiss a Participant from employment free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any
Option Agreement.
(f) Governing Law. The internal law, and not the law of conflicts, of
the State of Delaware, shall govern all questions concerning the validity,
construction and effect of the Plan or any Option, and any rules and
regulations relating to the Plan or any Option.
(g) Severability. If any provision of the Plan or any Option is or
becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the Plan or any Option under any law
deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be so
construed or deemed amended without, in the determination of the Committee,
materially altering the purpose or intent of the Plan or the Option, such
provision shall be stricken as to such jurisdiction or Option, and the
remainder of the Plan or any such Option shall remain in full force and
effect.
(h) No Trust or Fund Created. Neither the Plan nor any Option shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Option,
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<PAGE>
such right shall be no greater than the right of any unsecured general
creditor of the Company or any Affiliate.
(i) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall
determine whether cash shall be paid in lieu of any fractional Share or
whether such fractional Share or any rights thereto shall be canceled,
terminated or otherwise eliminated.
(j) Headings. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(k) Other Benefits. No compensation or benefit Optioned to or realized
by any Participant under the Plan shall be included for the purpose of
computing such Participant's compensation under any compensation-based
retirement, disability, or similar plan of the Company unless required by
law or otherwise provided by such other plan.
Section 9. Effective Date of the Plan.
- --------------------------------------
The Plan shall be effective as of April 17, 2000, subject to approval by
Deluxe Corporation, as the sole stockholder of the Company.
Section 10. Term of the Plan.
- -----------------------------
The Plan shall continue until the Options under the Plan are exercised or
terminate. The authority of the Committee provided for hereunder with respect to
the Plan and any Options, and the authority of the Board of Directors of the
Company to amend the Plan, shall extend beyond the termination of the Plan.
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<PAGE>
EXHIBIT A
Stock Option Conversion Equation
MVef = Total Market Value of eFunds immediately prior to the split
MVdx = Total Market Value of New Deluxe immediately prior to the split
E = Original exercise price of a Deluxe Option
N = Original number of Deluxe options outstanding immediately prior to the
split-off
D = Market value per share of Deluxe common stock at the close of trading on
last day prior to split
Ddx = Market value per share of Deluxe common stock based on the volume-weighted
average trading price on the date "after split" trading begins
Def = Market value per share of eFunds common stock based on the volume-weighted
average trading price on the date "after split" trading begins
Pdx = The adjusted exercise price of a Deluxe option as determined below
Pef = The adjusted exercise price of an eFunds option as determined below
Ndx = Adjusted number of Deluxe options after the split-off as determined below
Nef = Adjusted number of eFunds options after the split-off as determined below
1. Adjusted exercise price of a Deluxe option (Pdx):
Ddx * (E / D)
2. Adjusted number of Deluxe options after the split-off (Ndx):
((N * (D - E)) / (Ddx - Pdx))*(MVdx / (MVdx + MVef))
3. Adjusted exercise price of an eFunds option (Pef):
Def * (E / D)
4. Adjusted number of eFunds options after the split-off (Nef):
((N * (D - E)) / (Def - Pef)) * (MVef / (MVef + MVdx))
<PAGE>
EXHIBIT 10.20
FORM OF CHANGE IN CONTROL AGREEMENT
AGREEMENT by and between eFunds Corporation, a Delaware corporation (the
"Company"), and (the "Executive") dated as of _________________, 2000.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to ensure that the
Company will have the continued dedication and service of the Executive,
notwithstanding the possibility, threat or occurrence of a Business Combination
(as defined below) and to encourage the Executive's full support of and
participation in implementing the Company's business strategy involving one or
more significant transactions. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks associated with these types of strategic initiatives, to
encourage the Executive to provide his or her full attention and dedication to
the Company and its business strategies notwithstanding such personal
uncertainty and to provide the Executive with compensation and benefits
arrangements upon the occurrence of a Business Combination which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
that the Executive will continue to receive compensation and benefits
competitive with those of other corporations. Therefore, in order to accomplish
these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
I. Certain Definitions.
-------------------
A. "Affiliate" shall have the meaning defined in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The "Affiliates" of a Person shall also include such
Person's "Associates," as such term is defined in Rule 12b-2
promulgated under the Exchange Act.
B. "Beneficial Owner" shall have the meaning defined in Rule
13d-3 promulgated under the Exchange Act.
C. "Business Combination" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have
been satisfied:
1. any Person or group (as defined in Rule 13d-5 promulgated
under the Exchange Act) of Persons, other than a Person or group
of Persons who are, or would be if the securities of the Company
were registered pursuant to Section 12 of the Exchange Act,
entitled to report their ownership of the Company's securities on
a Schedule 13G in lieu of a Schedule 13D (but only during such
time as such Person or group of Persons remain eligible to use
such Schedule 13G), is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then
outstanding
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securities, excluding, at the time of their original acquisition,
from the securities acquired directly or beneficially by any such
Person or group of Persons any securities acquired directly from
the Company or in connection with a transaction described in
clause (a) of paragraph 3 below (it being understood and agreed
that, during the period preceding the Split-Off Date, the
ownership by Deluxe and any Person Controlled by Deluxe of more
than 20% of the combined voting power of the Company's then
outstanding securities shall not constitute a "Business
Combination" pursuant to this Section I.C.1.); or
2. the individuals who at the date of this Agreement
constitute the Board and any new director (other than a director
whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited
to a consent solicitation, relating to the election of directors
of the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors as
of the date of this Agreement or whose appointment, election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or
3. there is consummated a merger, share exchange,
consolidation or similar transaction (each, a "Transaction")
involving the Company or any Affiliate of the Company with any
other Person, other than (a) a Transaction which would result in
the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving Person or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Affiliate of
the Company, at least 65% of the combined voting power of the
voting securities of the Company or such surviving Person or any
parent thereof outstanding immediately after such merger or
consolidation, or (b) a Transaction effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding
securities (it being understood and agreed that, during the
period preceding the Split-Off Date, the ownership by Deluxe and
any person Controlled by Deluxe of more than 20% of the combined
voting power of the Company's then outstanding securities a
result of any such recapitalization (or similar transaction)
shall not constitute a "Business Combination" pursuant to this
Section I.C.3);
4. the shareholders of the Company approve a plan of
complete liquidation of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the assets of the Company and its
subsidiaries, other than a sale or disposition of all or
substantially all of the assets of the Company and its
subsidiaries to a Person, at least 65% of the combined voting
power of the voting securities of which are owned by shareholders
of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale or
disposition; or
5. if, prior to the Split-Off Date, any of the transactions
described in the foregoing clauses (1), (2), (3) or (4) should
occur with regard to Deluxe (in making such determination, the
2
<PAGE>
word "Deluxe shall be substituted for the words "the Company" in
such clauses and the reference to the "Board" in clause 2 shall
be deemed to refer to the Board of Directors of Deluxe).
D. "Business Combination Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after
the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof shall be hereinafter referred
to as the "Renewal Date"), the Business Combination Period shall be
automatically extended so as to terminate three years from such
Renewal Date, unless at least 120 days prior to the then-current
Renewal Date the Company shall give notice to the Executive that the
Business Combination Period shall not be so extended.
E. "Control" shall mean the right, either directly or indirectly,
to elect a majority of the members of the board of directors (or
similar governing body) of an Person without the consent or
acquiescence of any third party.
F. "Deluxe" shall mean Deluxe Corporation, a Minnesota
corporation.
G. "Effective Date" shall mean the first date during the Business
Combination Period on which a Business Combination occurs.
H. "Person" shall mean any natural person, corporation, limited
liability company, association, partnership (whether general or
limited), joint venture, sole proprietorship, governmental agency,
unit, subdivision or municipality, trust, estate, association,
custodian or any other individual or entity, except that such term
shall not include (i) the Company or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any of its Affiliates, or (iii) an
underwriter temporarily holding securities of the Company as part of a
public offering of such securities.
I. "Split-Off Date" shall mean the date that Deluxe and Persons
Controlled by Deluxe shall cease to own at least 50% of the combined
voting power of the Company's then outstanding securities.
II. Employment Period.
-----------------
Subject to the terms and conditions of this Agreement, the Company hereby
agrees to continue the Executive in its employ, and the Executive hereby agrees
to remain in the employ of the Company for the period commencing on the
Effective Date and ending on the third anniversary of such date (the "Employment
Period").
3
<PAGE>
III. Terms of Employment.
-------------------
A. Position and Duties.
1. Position. Except with the Executive's written consent given in
his or her discretion, during the Employment Period, (a) the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant
of those held, exercised and assigned by the Executive at any time
during the 180-day period immediately preceding the Effective Date and
(b) the Executive's services shall be performed from the location
where the Executive was employed immediately preceding the Effective
Date or at a location less than 50 miles from such location.
2. Attention to the Company's Affairs. During the Employment
Period, and excluding any periods of vacation and sick leave to which
the Executive is entitled, the Executive agrees to devote reasonable
attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (a) serve on
corporate, civic or charitable boards or committees, (b) deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (c) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
B. Compensation.
1. Base Salary. During the Employment Period, the Executive shall
receive an annual base salary (the "Annual Base Salary"), which shall
be paid not less often than monthly, at least equal to twelve times
the monthly base salary paid or payable, including any base salary
which has been earned but deferred, to the Executive by the Company
and its Affiliates immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and
thereafter at least annually. In considering any increase to the
Executive's Annual Base Salary, the Executive will be treated in the
same manner as other members of the Company's senior executive team
and all senior officers of any Person in Control of the Company (such
other senior executive team members and senior officers are herein
collectively referred to as "Peer Executives"). For example, if the
annual base salaries of the Peer Executives are established by
reference to a percentile of comparative market data, the increase, if
any, to Executive's Annual Base Salary shall be established in a like
manner. The annual Base Salary shall not be reduced after any such
increase
4
<PAGE>
and the term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as so increased. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement.
2. Annual Incentive Payment or Bonus. In addition to the Annual
Base Salary, the Executive shall be paid, for each fiscal year ending
during the Employment Period (ratably apportioned in the case of any
fiscal year which is not included within the Employment Period in its
entirety), an annual incentive payment or bonus (the "Annual Incentive
Payment") in cash on the same basis as such incentive payments or
bonuses are paid to other Peer Executives. For example, if annual
incentive payments are created for other Peer Executives, the target
award for the Executive shall be established in the same manner as the
target award for the other Peer Executives (e.g. by reference to a
percentile target based on comparative market data) and the
performance criteria and performance measurements governing any
payment earned by Executive shall be based on the same performance
criteria (such as earnings per share or return of average capital
employed) and performance measurements applied to the other Peer
Executives. Notwithstanding the foregoing, if the payment of a bonus
to other Peer Executives is, in whole or part, not based on objective
performance criteria, Executive's Annual Incentive Payment shall be at
least equal to the average of Executive's Annual Incentive Payments
for the last two full fiscal years prior to the Effective Date or, if
Executive was not in the employment of the Company during any portion
of such two full fiscal years, Executive's target Annual Incentive
Payment for the fiscal year in which the Effective Date occurred (such
amount being herein referred to as the "Recent Annual Incentive
Payment"). Special or one-time awards (such as those associated with a
new hire or promotion or relocation bonuses) shall not be taken into
account when computing the Recent Annual Incentive Payment. During the
Employment Period, the Executive's annual target incentive or bonus
opportunity shall in no event be less favorable to the Executive than
that provided by the Company to the Executive under its annual
incentive or bonus plans during the fiscal year in which the Effective
Date occurred, provided that any special or one time awards (such as
those associated with a new hire or promotion or relocation bonuses)
shall not be taken into account. Each such Annual Incentive Payment
shall be paid no later than the end of the third month of the fiscal
year next following the fiscal year in respect of which the Annual
Incentive Payment is awarded, unless the Executive shall elect to
defer the receipt of such Annual Incentive Payment.
3. Stock Incentive Plans. During the Employment Period, the
Executive shall be entitled to participate in any stock incentive,
option, performance share and other stock-based incentive plans (if
any) on the same basis as other Peer Executives. For example, if other
Peer Executives are awarded stock options or restricted stock units or
shares based on references to comparative market data, Executive's
awards shall be made on the same basis, and shall, in any event,
contain the same terms and conditions, and if applicable, be subject
to the same performance criteria, as applied to awards to other Peer
Executives. Notwithstanding the foregoing, such long-term incentive
opportunities for the Executive shall in no event be less favorable,
in each case and in the aggregate, than those provided by the Company
and its Affiliates for the Executive during the fiscal year during
which the Effective Date occurs, provided that any special or one-time
awards (such as those associated with a new hire or promotion) shall
not be taken into account.
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4. Savings, Retirement and Other Incentive Plans. During the
Employment Period, the Executive shall be entitled to participate in
all other incentive, savings and retirement plans, practices, policies
and programs applicable generally to other Peer Executives, but in no
event shall such plans, practices, policies and programs provide the
Executive with incentive opportunities (measured with respect to both
regular and special incentive opportunities, to the extent, if any,
that such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided for the Executive
at any time during the one year period immediately preceding the
Effective Date or if more favorable to the Executive, those provided
generally at any time after the Effective Date to other Peer
Executives; provided, however, that such benefits may be reduced
pursuant to a general (across-the-board) reduction of such benefits
similarly affecting all Peer Executives.
5. Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under all
welfare benefit plans, practices, policies and programs (including,
without limitation, medical, prescription, dental, disability,
employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to
other Peer Executives but in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at
any time during the one year period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to other Peer
Executives; provided, however, that such benefits may be reduced
pursuant to a general (across-the-board) reduction of such benefits
similarly affecting all Peer Executives.
6. Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its Affiliates
in effect for the Executive at any time during the one year period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to other Peer Executives.
7. Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, use or reimbursement for the use
of an automobile, and payment of related expenses, in accordance with
the most favorable plans, practices, programs and policies of the
Company and its Affiliates in effect for the Executive at any time
during the one year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other Peer Executives; provided,
however, that such benefits may be reduced pursuant to a general
(across-the-board) reduction of such benefits similarly affecting all
Peer Executives.
8. Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to
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exclusive personal secretarial and other assistance, not materially
less favorable than that provided to the Executive by the Company and
its Affiliates at any time during the one year period immediately
preceding the Effective Date or, if more favorable to the Executive,
as provided generally at any time thereafter with respect to other
Peer Executives.
9. Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation and holidays in accordance with the most
favorable plans, policies, programs and practices of the Company and
its Affiliates as in effect for the Executive at any time during the
one year period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other Peer Executives.
IV. Termination of Employment.
-------------------------
A. Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the "Disability" of the Executive
has occurred during the Employment Period, it may, give a Notice of
Termination to the Executive in accordance with Sections IV.D. and XI.B. of
this Agreement of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company or its Affiliates,
as the case may be, shall terminate effective on the 30th day after receipt
of the Notice of Termination by the Executive (unless such date is extended
as provided in Section IV.F.), provided that, the Executive shall not have
returned to full-time performance of his or her duties within such 30 day
notice period. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company or
its Affiliates, as the case may be, on a full-time basis for 180
consecutive days as a result of incapacity due to mental or physical
illness which is determined to be permanent by a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
B. Cause. The Company may terminate the Executive's employment during
the Employment Period with or without Cause. For purposes of this
Agreement, "Cause" shall mean:
1. the willful and continued failure of the Executive to perform
substantially the Executive's material duties with the Company and its
Affiliates (other than any such failure resulting from incapacity due
to physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination for Good Reason
by the Executive pursuant to Section IV.D. hereof), after a written
demand for substantial performance is delivered to the Executive by
the Board which specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the
Executive's duties; or
2. the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company or its Affiliates.
For purposes of this provision, (a) no act or failure to act on
the part of the Executive shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad
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faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company and (b) in the event
of a dispute concerning the application of this provision, no claim by
the Company that Cause exists shall be given effect unless the Company
establishes to the Committee (as defined in Section XI.J.) by clear
and convincing evidence that Cause exists. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by
the Board or upon the instructions of the Chief Executive Officer of
the Company (if Executive is not the Chief Executive Officer) or based
upon the advice of counsel for the Company (or if the Executive is
counsel to the Company, based upon the Executive's own legal
conclusions) shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of
the Company.
C. Good Reason. The Executive's employment during the Employment
Period may be terminated by the Executive with or without Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:
1. except with Executive's written consent given in his or her
discretion, the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section III.A. of this Agreement,
or the taking of any other action which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial or inadvertent action not
taken in bad faith and which is remedied promptly after receipt of
notice thereof given by the Executive;
2. any failure by the Company (or any successor employer) to
comply with any of the provisions of Section III.B. of this Agreement,
other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied promptly after receipt of
notice thereof given by the Executive;
3. any requirement that Executive perform Executive's duties at
any location other than as provided in clause III.A.1(b) hereof or
that the Executive travel for business purposes to a substantially
greater extent than required immediately prior to the Effective Date;
4. any purported termination of the Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section IV.D hereof and otherwise expressly permitted
by this Agreement. For purposes of this Agreement, no such purported
termination shall be effective;
5. any failure by the Company to comply with and satisfy Section
X.C. of this Agreement; or
6. any request or requirement that the Executive take any action
or omit to take any action that is inconsistent with or in violation
of the Company's ethical guidelines and policies as the same existed
within the 120 day period prior to the Effective Date or any
professional ethical guidelines or principles that may be applicable
to the Executive or, if Executive is counsel to the Company,
requesting or requiring Executive to practice in or under the laws of
any jurisdiction
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or appear before any court or other tribunal to or before which
Executive is not admitted to practice.
For purposes of this Section IV.C., any good faith claim of "Good
Reason" made by the Executive shall be presumed to be correct unless
the Company establishes to the Committee by clear and convincing
evidence that Good Reason does not exist. The Executive's right to
terminate the Executive's employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute a
consent to, or a waiver of rights with respect to, any act or failure
to act constituting Good Reason hereunder.
D. Notice of Termination. Any purported termination of the Executive's
employment during the Employment Period (other than by reason of death)
shall be communicated by a Notice of Termination given in accordance with
Section XI.B. of this Agreement. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (1) indicates the specific
termination provision in this Agreement relied upon (or that Executive's
employment is being terminated without Cause or by the Executive without
Good Reason), (2) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (3) if the
"Date of Termination" (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not
more than thirty days after the giving of such notice). Further, a Notice
of Termination for Cause is required to include a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Employer's Board at a meeting of the Employer's
Board called and held for such purpose (after reasonable notice is provided
to the Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Employer's Board), finding that, in the
good faith opinion of the Employer's Board, the Executive is guilty of the
conduct described in subparagraph B.1. or B.2. above, and specifying the
particulars thereof in detail. A failure to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of
Disability, Good Reason or Cause shall not waive any rights hereunder or
preclude the person delivering such from asserting such fact or
circumstance in enforcing rights hereunder;
E. Date of Termination. "Date of Termination" means (1) if the
Executive's employment is terminated for Cause, or by the Executive for
Good Reason or any other reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be
(subject to extension as provided in Section IV.F.), (2) if the Executive's
employment is terminated during the Employment Period other than for Cause
or Disability, the Date of Termination shall be the date on which Executive
is notified of such termination, (3) if the Executive's employment is
terminated by reason of death during the Employment Period, the Date of
Termination shall be the date of death of the Executive and (4) if the
Executive's employment is terminated for Disability, the date Executive's
employment is terminated as provided in Section IV.A.; provided, however,
that the Date of Termination specified in this Section E. may be extended
to the date of termination (if applicable) provided in Section IV.F.
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F. Dispute Concerning Termination. If within fifteen (15) days after
any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section IV.F.), the party
receiving such Notice of Termination notifies the other party that a
dispute exists concerning whether a termination has properly been
characterized as for Cause, Good Reason or Disability, the Date of
Termination shall be extended until the earlier of (i) the date on which
the Employment Period ends or (ii) the date on which the dispute is finally
resolved, either by mutual written agreement of the parties or by a final
judgment, order or decree of an arbitrator or a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided,
however, that the Date of Termination shall be extended by a notice of
dispute given by the Executive only if such notice is given in good faith
and the Executive pursues the resolution of such dispute with reasonable
diligence.
G. Compensation During Dispute. If a purported termination occurs
during the Employment Period and the Date of Termination is extended in
accordance with Section IV.F. hereof, Executive shall continue to receive
the full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary) and the Executive shall
continue as a participant in all compensation, benefit and insurance plans
in which the Executive was participating when the notice giving rise to the
dispute was given until the Date of Termination, as determined in
accordance with Section IV.F. hereof.
H. Pre-Effective Date Actions. For purposes of this Agreement, the
Executive's employment shall be deemed to have been terminated during the
Employment Period by the Company without Cause or by the Executive with
Good Reason, if (i) the Executive's employment is terminated by the Company
without Cause prior to the Effective Date (whether or not a Business
Combination ever occurs) and such termination was at the request or
direction of a Person who has entered into an agreement (or a non-binding
letter of intent or similar instrument) with the Company the consummation
of which would constitute a Business Combination, (ii) the Executive
terminates his or her employment for Good Reason prior to the Effective
Date (whether or not a Business Combination ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request
or direction of such a Person, or (iii) the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason
and such termination or the circumstance or event which constitutes Good
Reason is otherwise in connection with or in anticipation of a Business
Combination (whether or not a Business Combination ever occurs). For
purposes of any determination regarding the applicability of the
immediately preceding sentence, any position taken by the Executive shall
be presumed to be correct unless the Company establishes to the Committee
by clear and convincing evidence that such position is not correct.
V. Post-Termination Obligations.
----------------------------
A. Good Reason; Other Than for Cause. If, during the Employment
Period, Executive's employment shall be terminated other than for Cause,
Disability or by reason of the death of the Executive or if the Executive
shall terminate employment for Good Reason:
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1. the Company shall pay to the Executive in a lump sum in cash
within 5 days after the Date of Termination the aggregate of the
following amounts:
(a) the sum of (i) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (ii) any Annual Incentive Payment paid or payable in
respect of the most recently completed fiscal year of the
Company, to the extent such amount is determinable and not
theretofore paid and (iii), unless otherwise specified by
Executive or prohibited by the terms of any deferral agreement,
any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (i), (ii) and (iii)
shall be hereinafter referred to as the "Accrued Obligations").
In the event the Executive's Annual Incentive Payment is not
determinable on the Date of Termination, such Annual Incentive
Payment shall be paid to the Executive, in a lump sum in cash,
within five days after the date the amount of such Payment is
determinable; and
(b) an amount equal to the product of (i) three and (ii) the
sum of (x) the Executive's Annual Base Salary as of the Date of
Termination and (y) the higher of (A) the Recent Annual Incentive
Payment and (B) the Executive's target Annual Incentive Payment
for the fiscal year in which the Date of Termination occurs; and
(c) an amount equal to the product of three times the higher
of (i) the sum of the amounts that would have been contributed
based on the Reference Amount (defined below) to the Executive's
account under (x) all retirement plans in which the Executive was
eligible to participate immediately prior to the Effective Date
and (y) any excess or supplemental retirement plan in which the
Executive was eligible to participate as of the Effective Date
(the "ERISA Excess Plan") (the ERISA Excess Plan and such
retirement plans, as amended, and any successor or replacement
plans being referred to as the "Plans") as the Plans were in
effect and funded for the fiscal year immediately preceding the
Effective Date or (ii) the sum of the amounts that would have
been contributed based on the Reference Amount, to the Plans in
which the Executive was eligible to participate immediately prior
to the Date of Termination as those Plans were in effect and
funded for the fiscal year immediately preceding the Date of
Termination. For the purposes hereof, the term "Reference Amount"
shall mean an amount equal to one-third of the amount calculated
in clause V.A.1.(b).
2. for three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Executive and/or the
Executive's family shall continue to receive benefits at least equal
to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section III.B.5.
of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other Peer
Executives; provided, however, that if the Executive becomes
re-employed with another employer and is eligible to receive medical
or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary
and supplemental to those provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility (but not the time of
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commencement of benefits) of the Executive for retiree welfare
benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until three
years after the Date of Termination and to have retired on the last
day of such period as a qualified retiree;
3. immediately following the Executive's Date of Termination and,
if a Change of Control shall earlier occur, immediately following the
Change of Control, the Company shall take all such action as may be
required fully and immediately (but without duplication of benefits
under this Section V.A.3.) to:
(a) vest all outstanding, unvested options that may have
been granted to the Executive under the Company's stock incentive
plan or any successor or replacement plan (the "SIP") and permit
the Executive a period equal to the lesser of five years
following that Date of Termination or the remaining term of the
applicable options to exercise such options in accordance with
the provisions of the SIP and any applicable award agreement (as
modified or amended as a result of the actions required by this
clause);
(b) vest all other restricted shares, restricted stock units
or SARs theretofore granted the Executive under the SIP or any
other equity-based compensation plan (except as may be
specifically provided in any given award agreement); and
(c) in the case that the Company is not the surviving
corporation in a Transaction, to provide the Executive with the
economic equivalent of the value that the Executive would have
received had the Company been the surviving corporation of the
Transaction and taken the actions required in clauses (a) and (b)
hereof.
4. the Company shall, at its sole expense as incurred, provide
the Executive with out-placement services the scope and provider of
which shall be selected by the Executive in his or her sole
discretion; and
5. to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided to the Executive or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its Affiliates
(such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").
B. Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term
Other Benefits as utilized in this Section V.B. shall include, without
limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided to the estates and beneficiaries of Peer Executives under such
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plans, programs, practices and policies relating to death benefits, if any,
as in effect with respect to other Peer Executives and their beneficiaries
at any time during the one year period immediately preceding the Effective
Date or, if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with
respect to other Peer Executives and their beneficiaries.
C. Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than
for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in
this Section V.C. shall include, and the Executive shall be entitled after
the Date of Termination to receive, disability and other benefits at least
equal to the most favorable of those generally provided to disabled Peer
Executives and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, as in effect
generally with respect to other Peer Executives and their families at any
time during the one year period immediately preceding the Effective Date
or, if more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter generally with respect to other Peer
Executives and their families
D. Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to or provide the Executive with (1) his or her Annual
Base Salary through the Date of Termination, (2) the amount of any
compensation previously deferred by the Executive and (3) Other Benefits,
in each case to the extent theretofore unpaid. If the Executive terminates
employment during the Employment Period, excluding a termination for Good
Reason or Disability, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the
timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30
days of the Date of Termination.
VI. Non-exclusivity of Rights.
-------------------------
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice for which the
Executive may qualify, nor, subject to Section XI.F., shall anything herein
limit or otherwise affect such rights as the Executive may have under any other
contract or agreement with the Company or any of its Affiliates. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contact or agreement with
the Company or any of its Affiliates or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
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VII. Full Settlement.
---------------
The payment and performance obligations provided for in this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which may be assertable against the Executive or others.
In no event shall the Executive be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and, except as specifically
provided in Section V.A.2. hereof, such amounts shall not be reduced whether or
not the Executive obtains other employment. The Company agrees to pay as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may incur in good faith as a result of any contest (regardless of
the outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). Such payments shall be made within five (5) business days
after delivery of the Executive's written requests for payment accompanied with
such evidence of fees and expenses incurred as the Company reasonably may
require.
VIII. Certain Additional Payments.
---------------------------
A. Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or benefit received or to be received by the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Business Combination or any
Person Affiliated with the Company or such Person, but determined without
regard to any additional payments required under this Section VIII)
(collectively, a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code (or any successor section) or any interest or
penalties are incurred by the Executive with respect to such excise tax
(any such tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section VIII.A., if it shall be determined
that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net
after-tax benefit the Executive would receive if the Gross-Up Payment were
eliminated and the Payments were reduced, in the aggregate, to an amount
(the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount. For purposes of determining whether any of the Payments
will
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be subject to the Excise Tax and the amount of such Excise Tax, (i) all of
the Payments shall be treated as "parachute payments" (within the meaning
of Section 280G(b) of the Code) unless, in the opinion of tax counsel ("Tax
Counsel") reasonably acceptable to the Executive and selected by the
Accounting Firm (as defined below), such payments or benefits (in whole or
in part) do not constitute parachute payments, including by reason of
Section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments"
within the meaning of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the "base amount" (as defined in
Section 280G(b)(3) of the Code) allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
non-cash benefits or any deferred payment or benefit shall be determined by
the Accounting Firm in accordance with the principals of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of
the Gross-Up Payment, the Executive shall be deemed to pay federal income
tax at the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state and locality of
Executive's residence (or, if higher, the state and locality of Executive's
employment) on the Date of Termination (or if there is no Date of
Termination, then the date on which the Gross-Up Payment is calculated for
purposes of this Section VIII.A.), net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.
B. Subject to the provisions of Section VIII.C., all determinations
required to be made under this Section VIII, including whether a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that a
Payment has been made or will be required, as the case may be, or such
earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the Person or group
of Persons effecting a Business Combination, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section VIII., shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment") consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies
pursuant to Section VIII.C. and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the
Executive.
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C. The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he or she gives such notice to
the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
1. give the Company any information reasonably requested by the
Company relating to such claim;
2. take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company;
3. cooperate with the Company in good faith in order to
effectively contest such claim; and
4. permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for
any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section VIII.C., the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, further, however, that if
the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder
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and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
D. If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section VIII.C., the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section VIII.C.)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of any amount advanced by the Company
pursuant to Section VIII.C., a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
E. The Gross-Up Payment shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the amount of
such Gross-Up Payment, and the limitation on such payments set forth in
Section VIII.A. hereof, cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Accounting Firm, of the minimum amount of
such Gross-Up Payment to which the Executive is clearly entitled and shall
pay the remainder of such payments (together with interest on the unpaid
remainder (or on all such payments to the extent the Company fails to make
such payments when due) at 120% of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth
(5th) business day after demand by the Company (together with interest at
120% of the rate provided in section 1274(b)(2)(B) of the Code). At the
time that payments are made under this Agreement, the Company shall provide
the Executive with a written statement setting forth the manner in which
such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Accounting Firm or other advisors or
consultants (and any such opinions or advice which are in writing shall be
attached to the statement).
IX. Confidential Information.
------------------------
During the term of this Agreement and for a period of three (3) years
thereafter, Executive will retain in confidence all proprietary and confidential
information concerning the Company and its Affiliates, including, without
limitation, customer lists, cost and pricing information, employee data, trade
secrets and software and, shall return to the Company or destroy all copies and
extracts thereof (however and on whatever medium recorded), without keeping any
copies thereof. The foregoing obligation with respect to the protection of
confidential information shall not apply to (A) any information which was known
to the Executive prior to disclosure to the Executive by the Company, Deluxe or
any of the Company's
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Affiliates; (B) any information which was in the public
domain prior to its disclosure to the Executive; (C) any information which comes
into the public domain through no fault of the Executive; (D) any information
which the Executive is required to disclose by a court or similar authority or
under subpoena, provided that the Executive provides the Company with notice
thereof and assists, at the Company's sole expense, any reasonable endeavor by
the Company, using appropriate means, to obtain a protective order limiting the
disclosure of such information; and (E) any information which is disclosed to
the Executive by a third party which has a legal right to make such disclosure.
In no event shall an asserted violation of the provisions of this Section IX.
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
X. Successors.
----------
A. This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives. If the Executive shall die while any
amount would still be payable to the Executive hereunder (other than
amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of
the Executive's estate.
B. This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
C. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company
in the same amount and on the same terms as the Executive would be entitled
to hereunder if the Executive were to terminate the Executive's employment
for Good Reason after the Effective Date, except that, for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
XI. Miscellaneous.
-------------
A. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
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This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
B. All notices and other communications hereunder shall be addressed
as follows:
If to the Executive:
If to the Company:
Attn: General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be in
writing and shall be effective five days after mailing, if sent by first
class mail, postage prepaid to the address set forth above, two business
days after mailing if sent by priority or overnight courier (next business
day delivery) or upon transmission if sent by telecopy, with receipt of the
correct answer back.
C. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
D. The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
E. The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for
Good Reason pursuant to Section IV.C. of this Agreement, shall not be
deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
F. The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company
is "at will" and, subject to Section IV.H. hereof, prior to the Effective
Date, the Executive's employment may be terminated by either the Executive
or the Company at any time prior to the Effective Date, in which case the
Executive shall have no further rights under this Agreement, provided that
nothing herein shall be construed to limit or prevent the Executive from
receiving compensation and benefits from the
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Company or its Affiliates that are customarily paid and provided other Peer
Executives who leave the employment of the Company or any of its Affiliates
or which may be payable to the Executive pursuant to the severance
provisions of any employment offer letter between the Executive and the
Company. From and after the Effective Date, this Agreement shall supersede
any other agreement between the parties with respect to the subject matter
hereof (e.g., benefits accruing to the Executive upon termination of
employment following a Business Combination), including the severance
provisions of any such offer letter.
G. The obligations of the Company and the Executive under this
Agreement which by their nature may require either partial or total
performance after the expiration of the term of this Agreement (including,
without limitation, those under Section V. hereof) shall survive such
expiration.
H. All claims by the Executive for benefits under this Agreement shall
be directed to and determined by the Committee and shall be in writing. Any
denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of this Agreement relied
upon. The Committee shall afford a reasonable opportunity to the Executive
for a review of the decision denying a claim and shall further allow the
Executive to appeal to the Committee a decision of the Committee within
sixty (60) days after notification by the Committee that the Executive's
claims has been denied.
I. Notwithstanding any other provision in this Agreement to the
contrary, the Board shall delegate the responsibilities, duties and powers
specified under this Agreement to be observed or performed by the
"Committee" to a committee (the "Committee") consisting of not less than
three individuals who were directors of the Company ("Incumbent Directors")
before any Business Combination; provided, however, that in the event that
fewer than three Incumbent Directors are available at the time of such
delegation or thereafter, the Committee's members may include such
individual or individuals as may be appointed by the Incumbent Directors;
and provided, further, however, the maximum number of individuals
(including directors) appointed to the Committee shall not exceed five.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from the Board, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
eFunds Corporation Executive
By:
------------------------------ -----------------------------------------
John A. Blanchard III
Its: Chief Executive Officer
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EXHIBIT 10.21
eFUNDS CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), Dated May 9, 2000, by and between eFunds
Corporation, a Delaware corporation (the "Company"), and John A. Blanchard III
(the "Executive").
WHEREAS, the Company and the Executive wish to enter into an employment
agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and the Executive set forth below, the Company and
the Executive agree as follows:
I. Certain Definitions.
A. "Affiliate" shall mean a company controlled directly or indirectly by
the Company where "control" shall mean the right, either directly or
indirectly, to elect a majority of the directors thereof without the
consent or acquiescence of any third party.
B. "Beneficial Owner" shall have the meaning defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended.
C. "Business Combination" shall mean the occurrence of either a Change of
Control or an Other Business Combination.
D. "Change of Control" shall be deemed to have occurred if the conditions
set forth in any one of the following paragraphs shall have been
satisfied:
1. any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding
securities, excluding, at the time of their original acquisition,
from the securities acquired directly or beneficially by such
Person any securities acquired directly from the Company or its
Affiliates or in connection with a transaction described in
clause (a) of paragraph 3 below; or
2. the individuals who at the date of this Agreement constitute the
Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination
<PAGE>
for election by the Company's shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors as of
the date of this Agreement or whose appointment, election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or
3. there is consummated a merger or consolidation of the Company or
any Affiliate with any other company, other than (a) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan
of the Company or any Affiliate, at least 65% of the combined
voting power of the voting securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (b) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities; or
4. the shareholders of the Company approve a plan of complete
liquidation of the Company or there is consummated an agreement
for the sale or disposition by the Company of all or
substantially all the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 65% of the combined
voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same proportions
as their ownership of the Company immediately prior to such sale.
5. Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any
transaction or series of integrated transactions immediately
following which the record holders of the common stock of the
Company immediately prior to such transaction or series of
transactions continue to have substantially the same
proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately
following such transaction or series of transactions.
E. "Other Business Combination" shall mean the occurrence of any merger,
exchange, transfer, or other form of business combination or
acquisition (but not including dispositions), whether involving
assets, shares or any other form of ownership interest, by the Company
or any of its Affiliates of or with one or more other corporations,
partnerships or other entities in a single transaction or a series
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<PAGE>
of related transactions for consideration aggregating more than 40% of
the Company's total outstanding equity capitalization (number of
shares outstanding immediately prior to the transaction multiplied by
the average closing price of the Company's shares during the 30 day
period preceding the announcement of the transaction) or more
(regardless of the form of consideration or the method or time of
payment).
F. "Person" shall have the meaning defined in Sections 3(a)(9) and 13(d)
of the Securities Exchange Act of 1934, as amended, except that such
term shall not include (I) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or indirectly,
by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
II. Employment Period. Upon the terms and conditions set forth herein, the
Company hereby employs the Executive, and the Executive accepts such employment,
commencing on the date (the "Start Date") Deluxe Corporation, a Minnesota
corporation, ("Deluxe"), completes an exchange offer pursuant to which Deluxe
distributes all of its shares of the Company's common stock to its shareholders
in exchange for shares of Deluxe common stock (the "Split Off"). The term of
this Agreement shall commence upon the Start Date and shall continue until
December 31, 2002 (the "Employment Period"), unless earlier terminated as
provided in this Agreement. Upon the expiration of the Employment Period, the
Executive's employment with the Company will cease. The parties specifically
agree that any expiration of the Employment Period is not a termination of
employment within the meaning of Section V. of this Agreement. The parties
further agree that this Agreement is contingent upon the occurrence of the Split
Off and that if the Split Off does not so occur, this Agreement shall be void
and of no further effect.
III. Terms of Employment.
A. Position and Duties.
1. During the Employment Period, the Executive agrees to serve as
Chairman and Chief Executive Officer of the Company and to
perform such other reasonable employment duties, consistent with
the Executive's position and as the Board of Directors of the
Company (the "Board") shall assign to him from time to time.
2. During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company
and, to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the Executive's
reasonable efforts to perform faithfully and efficiently such
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<PAGE>
responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (a) serve on
corporate, civic or charitable boards or committees, (b) deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (c) manage personal investments, so long as such
activities do not significantly interfere with the performance of
the Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
B. Compensation.
1. Base Salary. During the Employment Period, the Company shall pay
the Executive an annual base salary ("Annual Base Salary") of
$680,000.00 (or such higher amount as may be determined at the
discretion of the Board), which Annual Base Salary shall be paid
in accordance with the Company's normal payroll procedures and
policies.
2. Annual Bonus. In addition to Annual Base Salary, the Executive
shall be eligible to be paid, for each fiscal year ending during
the Employment Period (ratably apportioned in the case of any
fiscal year which is not included within the Employment Period in
its entirety) an annual bonus (the "Annual Bonus") in cash. The
Executive's target Annual Bonus for each fiscal year during the
Employment Period will be 100% of the Executive's Annual Base
Salary for that fiscal year, provided that the Annual Bonus paid
in each fiscal year during the Employment Period will be subject
to the terms and conditions of the Company's bonus plan
applicable to members of the Company's Executive Team. Each such
Annual Bonus shall be paid no later than the end of the third
month after the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of
such Annual Bonus.
3. Stock Options. During the Employment Period, the Executive shall
be entitled to participate in the eFunds Corporation 2000 Stock
Incentive Plan on the same terms and conditions as other members
of the Company's Executive Team, it being understood and agreed
that Executive will be eligible for option grants commensurate
with his status as Chief Executive Officer.
4. Savings, Retirement and Other Incentive Plans. During the
Employment Period, the Executive shall be entitled to participate
in all other incentive, savings and retirement plans, practices,
policies and programs applicable generally to other members of
the Company's Executive Team.
5. Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under all welfare
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<PAGE>
benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to the
Executive and/or the Executive's family, to the extent applicable
generally to other members of the Company's Executive Team.
6. Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the
policies, practices and procedures of the Company.
7. Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, use or
reimbursement for the use of an automobile, as the case may be,
and payment of related expenses, in accordance with the plans,
practices, programs and policies of the Company.
8. Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation and holidays in accordance with the
plans, policies, programs and practices of the Company.
9. Supplemental Retirement Payment. In recognition of the fact that
the Executive has terminated the October 11, 1995 memorandum from
Deluxe Corporation to the Executive (the "Memorandum"), which
Memorandum was designed to provide the Executive with
supplemental retirement benefits, and in recognition that,
effective as of the Start Date, the Executive has waived any and
all rights to receive any payments and benefits pursuant to the
Memorandum, the Company will pay to the Executive, on or about
January 2, 2003, the total sum of $490,768.00, less legally
required deductions and withholdings. The Executive may elect to
receive this payment in a lump sum or as an actuarially
equivalent annuity over a 15 year period.
IV. Business Combination; Expiration of Employment Period. In the event of a
business combination (as defined in Section I.C.), the Company shall take all
such action as may be required fully and immediately to vest all outstanding,
unvested options that may have been granted to the Executive under the Company's
Stock Incentive Plan and any successor or replacement plan and all other
restricted shares, restricted stock units, and SARs theretofore granted the
Executive under any stock based compensation plan, except as may be otherwise
specifically provided in any given award agreement. Similarly, all outstanding,
unvested options, restricted shares, restricted stock units and SARs theretofore
granted to the Executive under any such plan shall, except as may be otherwise
specifically provided in any given award agreement, fully and immediately vest
upon the expiration of the Employment Period if the Executive remains in the
employ of the Company through such date of expiration.
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V. Termination of Employment.
A. Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give a Notice of
Termination to the Executive in accordance with Sections V.D. and
XII.B. of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of the Notice
of Termination by the Executive (unless such date is extended as
provided in Section V.F.), provided that, within the 30 days after
such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180
consecutive days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative.
B. Cause. The Company may terminate the Executive's employment during the
Employment Period with or without Cause. For purposes of this
Agreement, "Cause" shall mean:
1. the willful and continued failure of the Executive to perform
substantially the Executive's material duties with the Company
(other than any such failure resulting from incapacity due to
physical or mental illness, or any such actual or anticipated
failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section V.D. hereof), after a
written demand for substantial performance is delivered to the
Executive by the Board which specifically identifies the manner
in which the Board believes that the Executive has not
substantially performed the Executive's duties, or
2. the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, (a) no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in the
best interests of the Company and (b) in the event of a dispute
concerning the application of this provision, no claim by the Company
that Cause exists shall be given effect unless the Company establishes
to the Committee (as defined in Section XII.J.) by clear and
convincing evidence that
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<PAGE>
Cause exists. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company.
C. Good Reason. The Executive's employment during the Employment Period
may be terminated by the Executive for Good Reason or without Good
Reason. For purposes of this Agreement, "Good Reason" shall mean:
1. except with Executive's written consent given in his discretion,
the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section III.A. of this
Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
2. any failure by the Company to comply with any of the provisions
of Section III.B. of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
3. the Company's requiring the Executive to maintain his principal
residence at any location outside the metropolitan
Minneapolis-St. Paul, Minnesota area;
4. any purported termination by the Company of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section V.D. hereof
and otherwise expressly permitted by this Agreement. For purposes
of this Agreement, no such purported termination shall be
effective;
5. any failure by the Company to comply with and satisfy Section
XI.C. of this Agreement; or
6. any request or requirement by the Company that the Executive take
any action or omit to take any action that is inconsistent with
or in violation of the Company's ethical guidelines and policies
or any professional ethical guidelines or principles that may be
applicable to the Executive.
For purposes of this Section V.C., any good faith claim of "Good
Reason" made by the Executive shall be presumed to be correct unless
the Company establishes to the Committee by clear and convincing
evidence that Good Reason does not
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exist. The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity
due to physical or mental illness. The Executive's continued
employment shall not constitute a consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good Reason
hereunder.
D. Notice of Termination. Any purported termination of the Executive's
employment during the Employment Period (other than by reason of
death) shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section XII.B. of this
Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (1) indicates the specific termination
provision in this Agreement relied upon (or that Executive's
employment is being terminated by the Company without Cause or by the
Executive without Good Reason), (2) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under
the provision so indicated and (3) if the Date of Termination (as
defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
thirty days after the giving of such notice). Further, a Notice of
Termination for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph B.1. or B.2. above, and specifying the
particulars thereof in detail. The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Disability, Good Reason
or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder;
E. Date of Termination. "Date of Termination" means (1) if the
Executive's employment is terminated by the Company for Cause, or by
the Executive for Good Reason or any other reason, the date of receipt
of the Notice of Termination or any later date specified therein, as
the case may be, (2) if the Executive's employment is terminated
during the term of this Agreement by the Company other than for Cause
or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination, (3) if the
Executive's employment is terminated by reason of death during the
Employment Period, the Date of Termination shall be the date of death
of the Executive and (4) if the Executive's employment is terminated
by the Company for Disability, the date Executive's employment is
terminated as provided in Section V.A.; provided,
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however, the Date of Termination specified in this Section E. may be
extended to the date of termination (if applicable) provided in
Section V.F.
F. Dispute Concerning Termination. If within fifteen (15) days after any
Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section V.F.), the
party receiving such Notice of Termination notifies the other party
that a dispute exists concerning whether a termination has properly
been characterized as for Cause, Good Reason or Disability, the Date
of Termination shall be extended until the earlier of (i) the date on
which the Employment Period ends or (ii) the date on which the dispute
is finally resolved, either by mutual written agreement of the parties
or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); provided, however, that the Date of Termination shall be
extended by a notice of dispute given -------- ------- by the
Executive only if such notice is given in good faith and the Executive
pursues the resolution of such dispute with reasonable diligence.
G. Compensation During Dispute. If a purported termination occurs during
the Employment Period and the Date of Termination is extended in
accordance with Section V.F. hereof, the Company shall continue to pay
the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, salary)
and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the Date
of Termination, as determined in accordance with Section V.F. hereof.
VI. Obligations of the Company upon Termination.
A. Good Reason; Other Than for Cause. If, during the Employment Period,
the Company shall terminate the Executive's employment other than for
Cause or Disability or by reason of the death of the Executive or if
the Executive shall terminate employment for Good Reason:
1. the Company shall pay to the Executive in a lump sum in cash
within 5 days after the Date of Termination the aggregate of the
following amounts:
(a) the sum of (i) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
(ii) any Annual Bonus paid or payable in respect of the most
recently completed fiscal year of the Company, to the extent
such amount is determinable and not theretofore paid, and
(iii) unless otherwise specified by Executive or prhibited
by the terms of any deferral agreement, any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any
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accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in
clauses (i), (ii) and (iii) shall be hereinafter referred to
as the "Accrued Obligations"). In the event Executive's
Annual Bonus for the most recently completed fiscal year of
the Company is not determinable on the Date of Termination,
such Annual Bonus shall be paid to Executive in a lump sum,
in cash, within five days after the date the amount of such
Annual Bonus is determinable; and
(b) an amount equal to the remainder of the Annual Base Salary
that would have been earned by the Executive had the
Executive remained continuously employed throughout the
Employment Period; and
(c) an amount equal to the higher of (i) any Annual Bonus paid
or payable to the Executive in respect of any fiscal year
completed prior to the Date of Termination, including any
portion thereof which has been earned but deferred, or (ii)
the amount of the Annual Bonus(es) that would have been
earned by the Executive had the Executive remained
continuously employed throughout the Employment Period and
had the Executive been awarded a target Annual Bonus of 100%
of the Executive's Annual Base Salary for each remaining
fiscal year in the Employment Period, multiplied, in each
case, by the remaining number of fiscal years which will end
during the remaining portion of the Employment Period.
2. to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided to the Executive or
which the Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the
Company (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
B. Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of
Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate
or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section VI.B.
shall include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company to the estates and
beneficiaries of members of the Company's Executive Team under such
plans, programs, practices and policies relating to death benefits, if
any, as in
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effect with respect to other members of the Company's Executive Team
and their beneficiaries.
C. Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days of
the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section VI.C.
shall include, and the Executive shall be entitled after the Date of
Termination to receive, disability and other benefits at least equal
to the most favorable of those generally provided by the Company to
disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other members of the
Company's Executive Team and their families.
D. Cause; Other than for Good Reason. If the Executive's employment shall
be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other
than the obligation to pay to or provide the Executive with (1) his
Annual Base Salary through the Date of Termination, (2) the amount of
any compensation previously deferred by the Executive, and (3) Other
Benefits, in each case to the extent theretofore unpaid. If the
Executive terminates employment during the Employment Period,
excluding a termination for Good Reason or Disability, this Agreement
shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of
Other Benefits. In such case, all Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination.
VII. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any plan, program, policy
or practice provided by the Company and for which the Executive may qualify,
nor, shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company. Amounts
which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contact or
agreement with the Company or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
VIII. Full Settlement. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
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Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may incur in good faith as a result
of any contest (regardless of the outcome thereof) by the Company, the Executive
or others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof (including
as a result of any contest by the Executive about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"). Such payments shall be
made within five (5) business days after delivery of the Executive's written
requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
IX. Certain Additional Payments by the Company.
A. Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any
payment or benefit received or to be received by the Executive
(whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement with the Company, but determined without regard to any
additional payments required under this Section IX.) (collectively, a
"Payment") would be subject to the excise tax imposed by Section 4999
of the Code (or any successor section) or any interest or penalties
are incurred by the Executive with respect to such or any other excise
tax (any such tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of
this Section IX.A., if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking
into account the Payments and the Gross-Up Payment, would not receive
a net after-tax benefit of at least $50,000 (taking into account both
income taxes and any Excise Tax) as compared to the net after-tax
benefit the Executive would receive if the Gross-Up Payment were
eliminated and the Payments were reduced, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would
not give rise to any Excise Tax, then no Gross-Up Payment shall be
made to the Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount. For purposes of determining whether any
of the Payments will be subject to the Excise Tax and the amount of
such Excise Tax, (i) all of the Payments shall be treated as
"parachute payments" (within the meaning of Section 280G(b) of the
Code (or any successor section)) unless, in the opinion of tax
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<PAGE>
counsel ("Tax Counsel") reasonably acceptable to the Executive and
selected by the Accounting Firm (as defined below), such payments or
benefits (in whole or in part) do not constitute parachute payments,
including by reason of Section 280G(b)(4)(A) of the Code, (ii) all
"excess parachute payments" within the meaning of Section 280G(b)(1)
of the Code shall be treated as subject to the Excise Tax unless, in
the opinion of Tax Counsel, such excess parachute payments (in whole
or in part) represent reasonable compensation for services actually
rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in
excess of the "base amount" (as defined in Section 280G(b)(3) of the
Code) allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Accounting Firm in accordance with the principals of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, the Executive shall be deemed to pay federal
income tax at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made
(determined by giving affect to the maximum loss of itemized
deductions that could be suffered by the Executive by virtue of his
receipt of the Gross-Up Payment) and state and local income taxes at
the highest marginal rate of taxation in the state and locality of
Executive's residence on the Date of Termination (or if there is no
Date of Termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section IX.A.), net of the maximum
reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
B. Subject to the provisions of Section IX.C., all determinations
required to be made under this Section IX., including whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination,
shall be made by Ernst & Young or such other certified public
accounting firm as may be designated by the Executive (the "Accounting
Firm") which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the receipt
of notice from the Executive that a Payment has been made or will be
required, as the case may be, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting a
Business Combination, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section VII., shall be paid by the Company
to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the
Company should have been
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<PAGE>
made ("Underpayment") consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies
pursuant to Section IX.C. and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
C. The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
1. give the Company any information reasonably requested by the
Company relating to such claim,
2. take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
3. cooperate with the Company in good faith in order to effectively
contest such claim, and
4. permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section IX.C., the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a
determination
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<PAGE>
before any administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall determine;
provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed with respect to such advance or with respect
to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
D. If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section IX.C., the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
IX.C.) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of any amount
advanced by the Company pursuant to Section IX.C., a determination is
made that the Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
E. The Gross-Up Payment shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the
amount of such Gross-Up Payment, and the limitation on such payments
set forth in Section IX.A. hereof, cannot be finally determined on or
before such day, the Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Accounting Firm, of the
minimum amount of such Gross-Up Payment to which the Executive is
clearly entitled and shall pay the remainder of such payments
(together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments when
due) at 120% of the rate provided in
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section 1274(b)(2)(B) of the Code) as soon as the amount thereof can
be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the
Company (together with interest at 120% of the rate provided in
section 1274(b)(2)(B) of the Code). At the time that payments are made
under this Agreement, the Company shall provide the Executive with a
written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without
limitation, any opinions or other advice the Company has received from
Tax Counsel, the Accounting Firm or other advisors or consultants (and
any such opinions or advice which are in writing shall be attached to
the statement).
X. Confidential Information. During the term of this Agreement and for a period
of three (3) years thereafter, Executive will retain in confidence all
proprietary and confidential information concerning the Company, including,
without limitation, customer lists, cost and pricing information, employee data,
trade secrets and software and, shall return to the Company or destroy all
copies and extracts thereof (however and on whatever medium recorded), without
keeping any copies thereof. The foregoing obligation with respect to the
protection of confidential information shall not apply to (A) any information
which was known to the Executive prior to disclosure to the Executive by the
Company or Deluxe; (B) any information which was in the public domain prior to
its disclosure to the Executive; (C) any information which comes into the public
domain through no fault of the Executive; (D) any information which the
Executive is required to disclose by a court or similar authority or under
subpoena, provided that the Executive provides the Company with notice thereof
and assists, at the Company's sole expense, any reasonable endeavor by the
Company, using appropriate means, to obtain a protective order limiting the
disclosure of such information; and (E) any information which is disclosed to
the Executive by a third party which has a legal right to make such disclosure.
In no event shall an asserted violation of the provisions of this Section X.
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
XI. Successors.
A. This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives. If the Executive
shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
B. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
C. The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly
and agree to perform this
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Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive
would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason, except that, for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
XII. Miscellaneous.
A. This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and
legal representatives.
B. All notices and other communications hereunder shall be in writing and
shall be, addressed as follows:
If to the Executive:
John A. Blanchard III
9869 Hidden Glade Road
White Bear Lake, MN 55110
If to the Company:
eFunds Corporation
Attn: General Counsel
400 West Deluxe Parkway
P.O. Box 12536
Milwaukee, WI 53212
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be in writing and shall be effective five days after mailing, if
sent by first class, postage prepaid to the address set forth above,
two business days after mailing if sent by priority or overnight
courier (next business day delivery) or upon transmission if sent by
telecopy, with receipt of the correct answer back.
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C. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
D. The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
E. The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section V.C. of this Agreement,
shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
F. From and after the Start Date, this Agreement shall supersede any
other agreement between the parties with respect to the subject matter
hereof provided, including without limitation the Memorandum.
G. The obligations of the Company and the Executive under this Agreement
which by their nature may require either partial or total performance
after the expiration of the term of this Agreement (including, without
limitation, those under Section VI. hereof) shall survive such
expiration.
H. In the event that the Company is a party to a transaction which is
otherwise intended to qualify for "pooling of interests" accounting
treatment then (A) this Agreement shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (B) to the
extent that the application of clause (A) of this Section XII.H. does
not preserve the availability of such accounting treatment, then, the
Company may modify or limit the effect of the provisions of this
Agreement to the extent necessary to qualify the transactions as a
"pooling transaction" and provide the Executive with payments or
benefits as nearly equivalent as possible to those the Executive would
have received absent such modification or limitation; provided,
however, to the extent that any provision of this Agreement would
disqualify the transaction as a "pooling transaction" (including, if
applicable, the entire Agreement) and cannot otherwise be modified or
limited, such provision shall be null and void as of the date hereof.
All determinations under this Section XII.H. shall be made by the
accounting firm whose opinion with respect to "pooling of interests"
is required as a condition to the consummation of such transaction.
I. All claims by the Executive for benefits under this Agreement shall be
directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this
Agreement shall be delivered to the Executive in writing and shall set
forth the specific reasons for the denial and the
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specific provisions of this Agreement relied upon. The Committee shall
afford a reasonable opportunity to the Executive for a review of the
decision denying a claim and shall further allow the Executive to
appeal to the Committee a decision of the Committee within sixty (60)
days after notification by the Committee that the Executive's claim
has been denied.
J. Notwithstanding any other provision in this Agreement to the contrary,
the Board of Directors of the Company shall delegate the
responsibilities, duties and powers specified under this Agreement to
be observed or performed by the "Committee" to a committee (the
"Committee") consisting of not less than three individuals who are
members of the Board of Directors of the Company.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
eFunds Corporation Executive
By: /s/ Calvin W. Aurand, Jr. /s/ John A. Blanchard III
------------------------------ -----------------------------------------
Calvin W. Aurand, Jr. John A. Blanchard III
Chairman of the Compensation
Committee of the Board
of Directors of Deluxe
Corporation
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EXHIBIT 10.22
February 28, 2000
Ms. Debra Janssen
617 W. Green Tree Road
River Hills, WI 53217
Dear Debra:
It is my pleasure to formally offer you the position of President and Chief
Operating Officer of the new eFunds Corporation. This offer will be effective
March 1, 2000. You will report directly to me, and will also serve as a director
of the Company when its new board is constituted at the time of our planned IPO.
In addition, you will join Paul Bristow, Nikhil Sinha, and Steve Coleman as
members of the Executive Leadership Team (ELT) assisting me with overall
corporate direction and management.
The following confirms our discussions regarding your job offer:
Start date: 3/1/00.
Base salary: $400,000 annually, payable monthly. This figure will next be
reviewed for possible adjustment as of January 1, 2001.
Target bonus: Your target bonus will be 50% of base salary, or $200,000
annually. In addition, this figure can range from 0% to 100% of base salary (or
$0 to $400,000), depending upon the Company's performance against board-approved
annual operating plan measures. In all probability, your measures will be
identical to my own.
Stock option grant: Competitive market studies conducted by compensation
consultants suggest that your position should receive annual stock option grants
with value (as determined by the Black-Shoals method) equal to 225% of your base
salary. In addition, the Deluxe Board of Directors has determined that certain
senior officers of the new eFunds will be granted "double options" in this
formative year - i.e. options valued at 450% of your base salary. The exact
number of shares won't be finalized until the IPO, but we intend to grant you a
number of options at the IPO strike price which will vest in thirds, on the
first, second and third anniversary of the IPO, with approximate value of
$1,800,000. The next occasion for another option grant is expected to be on or
about January 1, 2002.
<PAGE>
Automobile allowance: You will receive a monthly automobile allowance of $1,100.
This fee, which is intended to cover auto lease or purchase payments, gas and
maintenance expense, and insurance, and may be used in any way you choose.
Purchase of an automobile is not required, and there are no restrictions on the
type of automobile you may lease or purchase.
Severance: Should your employment be terminated for reasons other than willful
misconduct, gross negligence or unlawful actions toward the Company or toward
others involved with the Company's business (in other words, should you be
terminated because your job performance is judged inadequate, your job is
eliminated or any other similar reason), you will receive a severance package
consisting of one year's base salary, plus a second year of "income
continuation." Income continuation means that, if you are unemployed at the end
of the first year following termination from eFunds, or employed at a salary
level which is less than your eFunds base salary at the time of your
termination, eFunds would continue to pay your base salary (or the difference
between your eFunds base salary and whatever new salary you are earning) for up
to one additional year, or if earlier, until such time as your new salary equals
or exceeds your former eFunds salary.
Change of Control: The Deluxe Compensation Committee is expected to approve a
Change of Control plan on March 29th. This plan is expected to cover you,
Nikhil, Paul, Steve and myself, and is expected to be similar in form to the
existing Deluxe Corporation change of control agreement, a copy of which is
attached.
Insurance: Your existing medical and dental insurance coverage for you and Paul
remains in effect, and will only be adjusted should eFunds Corp. decide to
modify the existing plan. Should that occur, you will receive full coverage to
the extent of that plan. You also remain eligible for 1 times base salary life
insurance coverage at Company cost, and may purchase additional insurance up to
$1 million through the Company's life insurance plan. Finally, you may purchase
dependent life insurance for Paul, up to a maximum of $100,000.
Retirement: While the new eFunds retirement plan has not been finalized, it is
expected to include a Defined Contribution Pension element, a variable "profit
sharing" component, and a 401k plan in which the Company will match your
contributions up to 3% of eligible wages.
Vacation: As is currently the case, you are eligible for 5 weeks of annual
vacation.
Long term disability: Your coverage remains as currently in place, unless the
new eFunds should change the policy later.
Physical exam: The Company pays for annual full physical exams for all
executives over the age of 45.
2
<PAGE>
This agreement will supercede any existing written or oral agreement or
understanding regarding your employment.
Debra, I hope these points resolve any questions or issues for you. If so,
please sign one copy and return it to me at your convenience in the enclosed
envelope. I can't tell you how pleased I am to be working with you to help the
eFunds Corporation develop and realize the great future ahead of us.
Best regards,
Chairman and Chief Executive Officer
Accepted ________________________ Date _______________
3
<PAGE>
EXHIBIT 10.23
February 29, 2000
Dr. Nikhil Sinha
3510 Native Dancer Cove
Austin, Texas 78746
Dear Nikhil:
It is my pleasure to formally offer you the position of Executive Vice
President--Global Corporate Development of eFunds Corporation. This appointment
will be effective as of March 1, 2000. You will be responsible for the
development of a global business strategy for the company and for mergers and
acquisitions and overall business expansion. You will report directly to me, and
will join Debra Janssen, Paul Bristow and Steve Coleman as members of the
Executive Leadership Team (ELT) assisting me with overall corporate direction
and management.
The following confirms our discussions regarding your job offer:
Start date: 3/1/00.
Base salary: $300,000 annually, payable bi-monthly. This figure will next be
reviewed for change as of 1/1/01.
Target bonus: Your target bonus will be 50% of your base salary, or $150,000
annually. In addition, this figure can range from 0-100% of base salary (or $0
to $300,000 annually), depending upon the Company's performance against
board-approved annual operating plan measures. In all probability, your
performance measures will be identical to my own.
Stock Option Grant: Competitive market studies conducted by compensation
consultants suggest that your position should receive a stock option grant with
a value (as determined by the Black-Scholes method) equal to 115% of your base
salary. Because the board of directors has approved a plan for a "double option"
grant equal to two years of options, or 230% of your base salary, your initial
grant will be set to provide approximately $690,000 in value in this formative
year. This initial grant will be granted at the IPO strike price, though the
exact number of shares won't be finalized until the time of our IPO. These
options will vest in thirds on the first, second and third anniversary of the
IPO. The next occasion for another option grant is expected to be on or about
January 1, 2002.
<PAGE>
Automobile allowance: You will receive a monthly automobile allowance of $1,100.
This fee, which is intended to cover auto lease or purchase payments, gas and
maintenance expense, cellular telephone usage and insurance, may be used in any
way you choose. Purchase of an automobile is not required, and there are no
restrictions on the type of automobile you may lease or purchase. This program
is subject to review at the end of 2000, and may not be renewed in subsequent
years.
Financial Planning: You will be eligible for financial planning assistance
through our contracted provider, currently AMG, as provided to other members of
the ELT.
Severance: Should your employment be terminated for reasons other than willful
misconduct, gross negligence or unlawful actions toward the Company or toward or
involving others involved with the Company's business (in other words, should
you be terminated because your job performance is judged inadequate, your job is
eliminated or any other similar reason), you will receive a severance package
consisting of one year's base salary (not bonus), plus a second year of income
continuation. Income continuation means that, if you are unemployed at the end
of the first year following termination from eFunds, or employed at a salary
level which is less than your eFunds base salary at the time of your
termination, eFunds would continue to pay your base salary (or the difference
between your base salary and whatever new salary you are earning) for up to one
additional year, or if earlier, until such time as your new salary equals or
exceeds your former Deluxe salary. As used in the foregoing, your "salary" from
a subsequent employer would include earnings by you through consulting or other
similar endeavors for third persons permitted by the terms of your agreement
with your subsequent employer. In addition, I am pleased to tell you that the
Deluxe Compensation Committee has approved the granting of change in control
agreements for the ELT and we are currently preparing drafts of these contracts.
I expect that these agreements will be similar to those currently applicable to
the executive officers of Deluxe.
Medical/Dental Insurance: Your medical and dental insurance now in effect
carries forward, subject to possible adjustment at year-end 2000 as eFunds
adopts a single insurance plan..
Vision Care: You remain eligible for the Company's vision care program for the
remainder of 2000, and for any such plan that eFunds may adopt in the future.
Life Insurance: You will be eligible for 1 times pay at Company cost but you may
purchase an additional 6 times pay up to $1,000,000 through the Company's life
insurance plan. You may also purchase Dependent life insurance for your spouse
and children, up to $100,000 for your spouse and up to $25,000 for each child
under the age of 19 or age 23 if the child is a full-time student.
Retirement: While the new eFunds retirement plan has not been finalized, it is
expected to include a Defined Contribution Pension element , a variable "profit
sharing" component and a 401(k) plan in which the Company will match your
contributions up to a level of eligible wages to be determined.
2
<PAGE>
Vacation: You will be eligible for 5 weeks of annual vacation.
Long term disability: Your coverage remains as currently in place, unless the
new eFunds should change the policy later.
Physical exam: The Company pays for annual full physical exams for all
executives over the age of 45.
Relocation: As we have discussed, I expect that you will make Austin, TX your
home base through a period to encompass that covered by your recently-completed
retention agreement (twelve months from the IPO date). We will work with you to
arrange rented office space there, if desired. We will also provide clerical and
administrative support and an office whenever you are in Shoreview (or another
headquarters location selected by eFunds). We will revisit the matter of
long-term location at the end of your retention period, and should you and I
then conclude that a change in location is essential for the well being of
eFunds, we will extend to you the full relocation package and support available
to any eFunds officer.
This letter supercedes any prior communication to you regarding the subject
matter herein, including my letter dated April 13, 1999. Without limiting the
generality of the foregoing, this letter shall act to terminate the HDX stock
options described in that letter. We will discuss any additional consideration
for this termination at a later date, although it is our understanding and
agreement that in no event will any future consideration in such regard be less
than $200,000 or exceed $600,000. We will retain an independent third party to
assist us in arriving at a more exact figure, with the goal being to finalize
our discussions on or before May 1, 2000. The exact amount of this future
consideration will be subject to the approval of the compensation committee of
the Board of Directors of eFunds or Deluxe. Subject to receiving the appropriate
approvals, I would expect that this additional consideration will be paid in the
form of an additional stock option grant at the time of the IPO. Recognizing
that the options described in my prior letter were to vest in these
circumstances, the replacement options issued pursuant to this paragraph will be
fully vested upon issuance. This letter does not supercede or amend the terms of
your restricted stock award or your options from Deluxe Corporation or that
certain Release and Discharge Agreement, dated as of October 22, 1999, between
you, Deluxe Corporation and certain others.
Nikhil, I hope these points resolve any questions or issues for you. If so,
please sign one copy and return it to me at your convenience in the enclosed
envelope. Again, welcome to eFunds and to the great future which you and Noelle
will help us create.
Best regards,
/s/ John A. Blandiard III
Accepted /s/ Nikhil Sinha
-----------------------
3
<PAGE>
EXHIBIT 10.24
February 7, 2000
Mr. Paul H. Bristow
4134 Three Lakes Dr.,
Long Grove, Illinois 60047
Dear Paul:
It is my pleasure to formally offer you the position of Executive Vice President
and Chief Financial Officer of the new eFunds Corporation. This offer is
effective March 1, 2000, or sooner if mutually agreed to. You will be
responsible for all financial and accounting operations globally of this
company, and will report directly to me. In addition, you will join Debra
Janssen and Nikhil Sinha as members of the Executive Leadership Team (ELT)
assisting me with overall corporate direction and management.
The following confirms our discussions regarding your job offer:
Start date: 3/1/00, or sooner, as negotiated.
Base salary: $300,000 annually, payable monthly. This figure will next be
reviewed for possible adjustment of January 1, 2001.
Target bonus: Your target bonus will be 50% of base salary, or $150,000
annually. In addition, this figure can range from 0% to 100% of base salary (or
$0 to $300,000), depending upon the company's performance against board-approved
annual operating plan measures. In all probability, your measures will be
identical to my own.
Stock option grant: Competitive market studies conducted by compensation
consultants suggest that your position should receive annual stock option grants
with value (as determined by the Black-Shoals method) equal to 150% of your base
salary. In addition, the Deluxe Board of Directors has determined that senior
officers of the new eFunds will be granted "double options" in this formative
year i.e. options valued at 300% of your base salary. The exact number of shares
won't be finalized for another weeks, but we intend to grant you a number of
options at the IPO strike price (which will vest in thirds, on the first, second
and third anniversary of the IPO) with approximate value of $900,000. The next
occasion for another option grant is expected to be on or about January 1, 2002.
Automobile allowance: You will receive a monthly automobile allowance of $1,100.
This fee, which is intended to cover auto lease or purchase payments, gas and
maintenance expense, and insurance, and may be used in any way you choose.
Purchase of an automobile is not required, and there are no restrictions on the
type of automobile you may lease or purchase.
<PAGE>
Severance: Should your employment be terminated for reasons other than willful
misconduct, gross negligence or unlawful actions toward the Company or toward
others involved with the Company's business (in other words, should you be
terminated because your job performance is judged inadequate, your job is
eliminated or any other similar reason), you will receive a severance package
consisting of one year's base salary, plus a second year of "income
continuation". Income continuation means, that, if you are unemployed at the end
of the first year following termination from eFunds, or employed at a salary
level which is less than your eFunds base salary at the time of your
termination, eFunds would continue to pay your base salary (or the difference
between your eFunds base salary and whatever new salary your are earning) for up
to one additional year, or if earlier, until such time as your new salary equals
or exceeds your former eFunds salary.
Change of Control: Although the new eFunds Board of Directors has not yet been
constituted and therefor cannot formally approve a change of control agreement,
I will be proposing that the new company approve a Change of Control Agreement
essentially identical to the one now in place for the Deluxe Corporation (copy
attached), and that it cover you as Chief Financial Officer along with a small
number of other senior executives, including myself.
Medical/Dental insurance: You are eligible for medical and dental insurance for
you and your family on the first of the month following the date of hire.
Group Home & Group Auto: You are eligible for the Company's group home & auto
insurance program on the first of the month following the date of hire.
Life insurance: You will be eligible for 1 times pay at Company cost, but you
may purchase an additional 6 times pay up to $1,000,000 through the Company's
life insurance plan. You may also purchase Dependant life insurance for your
spouse and children, up to $100,000 for your spouse and up to $25,000 for each
child under the age of 19 or age 23 if the child is a full-time student.
Retirement: You will receive full eligibility at the start of any quarter after
completing twelve months' employment with Deluxe. While the new eFunds
retirement plan has not been finalized, it is expected to include a Defined
Contribution Pension element of 4% of base salary, a variable "profit sharing"
component targeted at 3%, and a 401k plan in which the company will match your
contributions up to 3% of eligible wages. You will be eligible to contribute to
the Deluxe Corporation 401(k) on the first of the month following date of hire,
and you will be eligible for a company match at the start of any quarter after
12 months of service with eFunds.
Vacation: Upon joining Deluxe, you are eligible for 5 weeks of annual vacation.
We do not buy back unused vacation.
Long term disability: You become eligible for LTD on the first of the month
following date of hire, equal to replacement of 60% of your base salary and
target bonus. Plan eligibility is subject to any pre-existing consition as
detailed in the plan document. You may opt to purchase more or less insurance
based on your specific needs.
<PAGE>
Physical exam: The Company pays for annual full physical exams for all
executives over the age of 45.
Relocation: As discussed, relocation to Milwaukee is at your option at this
time. Should we later decide upon a long-term headquarters location there or
elsewhere in the U.S., a full company-paid relocation package will be at your
disposal. Whenever you'd like to see the details of such a plan, I'll have one
of our HR staff explain it in detail.
Drug screening: eFunds requires all new employees to undergo a drug screening
examination at your earliest convenience, with the results to be forwarded to
us. Official employment with Deluxe is subject to successful completion of this
test. Ron Dockery will provide details regarding the specific test results we
must see.
Paul, I hope these points resolve any questions or issues for you. If so, please
sign one copy and return it to me at your convenience in the enclosed envelope.
Again, welcome to eFunds Corporation and to the great future which you and your
family will help us create.
Best regards,
/s/ J. A. Blanchard III
Chairman and Chief Executive Officer
Accepted /s/ P. H. Bristow Date 7 Feb/00
----------------------------------- ------------
<PAGE>
EXHIBIT 10.25
[DELUXE CORPORATION LETTERHEAD]
February 14, 2000
Mr. Steve Coleman
2609 Emerson Avenue South
Minneapolis, MN 55408
Dear Steve:
It is my pleasure to formally offer you the position of Senior Vice President
and General Counsel of the new eFunds Corporation, reporting to me. You will
also serve as a member of the company's senior policy group, along with Debra
Janssen, Nikhil Sinha, Paul Bristow and me. This offer is contingent upon
approval by the Compensation Committee of the Deluxe Board of Directors
(expected February 25th), and will be effective March 1, 2000.
The following confirms our discussions regarding your job offer:
Start date: 3/1/00.
Base salary: $200,000 annually, payable monthly. This figure will next be
reviewed for possible adjustment as of January 1, 2001.
Target bonus: Your target bonus will be 40% of base salary, or $80,000 annually.
In addition, this figure can range from 0% to 80% of base salary (or $0 to
$160,000), depending upon the company's performance against board-approved
annual operating plan measures. In all probability, your measures will be
identical to my own.
Stock option grant: Competitive market studies conducted by compensation
consultants suggest that your position should receive annual stock option grants
with value (as determined by the Black-Schoals method) equal to 100% of your
base salary. In addition, the Deluxe Board of Directors has determined that
certain senior officers of the new eFunds will be granted "double options" in
this formative year -- i.e. options valued at 200% of your base salary. The
exact number of shares won't be finalized for another few weeks, but we intend
to grant you a number of options at the IPO strike price (which will vest in
thirds, on the first, second and third anniversary of the IPO) with approximate
value of $400,000. The next occasion for another option grant is expected to be
on or about January 1, 2002.
Severance: Should your employment be terminated for reasons other than willful
misconduct, gross negligence or unlawful actions toward the Company or toward
others involved with the Company's business (in other words, should you be
terminated because your job performance is judged inadequate, your job is
eliminated or any other similar
<PAGE>
reason), you will receive a severance package consisting of one year's base
salary, plus a second year of "income continuation". Income continuation means
that, if you are unemployed at the end of the first year following termination
from eFunds, or employed at a salary level which is less than your eFunds base
salary at the time of your termination, eFunds would continue to pay your base
salary (or the difference between your eFunds base salary and whatever new
salary you are earning) for up to one additional year, or if earlier, until such
time as your new salary equals or exceeds your former eFunds salary.
Change of Control: Although the new eFunds Board of Directors has not yet been
constituted and therefore cannot formally approve a change of control
agreement, I will be proposing that the new company approve a Change of Control
Agreement essentially identical to the one now in place for the Deluxe
Corporation (copy attached), and that it cover you as Senior Vice President &
General Counsel along with a small number of other senior executives, including
myself.
Medical/Dental Insurance: You are eligible for medical and dental insurance for
you and your family on the first of the month following the date of hire.
Group Home & Group Auto: You are eligible for the Company's group home & auto
insurance program on the first of the month following the date of hire.
Life Insurance: You are eligible for 1 times pay at Company cost, but you may
purchase an additional 6 times pay up to $1,000,000 through the Company's life
insurance plan. You may also purchase Dependent life insurance for your spouse
and children, up to $100,000 for your spouse and up to $25,000 for each child
under the age of 19 or age 23 if the child is a full-time student.
Retirement: While the new eFunds retirement plan has not been finalized, it is
expected to include a Defined Contribution Pension element of 4% of base salary,
a variable "profit sharing" component targeted at 3%, and a 401k plan in which
the company will match your contributions up to 3% of eligible wages.
Vacation: Upon acceptance of this offer, you are eligible for 5 weeks of annual
vacation.
Long term disability: Your coverage remains as currently in place, unless the
new eFunds should change the policy later.
Physical exam: The Company pays for annual full physical exams for all
executives over the age of 45.
This agreement will supercede any existing written or oral agreement or
understanding regarding your employment at Deluxe or with eFunds Corporation.
Steve, I hope these points resolve any questions or issues for you. If so,
please sign one copy and return it to me at your convenience in the enclosed
envelope. I can't tell you how
2
<PAGE>
pleased I am to be working with you to help the eFunds Corporation develop and
realize the great future ahead of us.
Best regards,
/s/ J. A. Blanchard III
Chairman and Chief Executive Officer
Accepted /s/ Steve Coleman Date 2/16/00
-------------------------- -----------------------------
3
<PAGE>
EXHIBIT 10.26
FORM OF
AUTOMATED TELLER MACHINE
CASH AGREEMENT
THIS AGREEMENT is made this __th day of _____, ____, by and between
________________________, a _________ corporation, with an office at
_______________________________________ ("Company"), and DELUXE ELECTRONIC
PAYMENT SYSTEMS, INC., with an office at 400 West Deluxe Parkway, Milwaukee,
Wisconsin 53212 ("Deluxe").
RECITALS
A. Company intends to deploy ATMs in ___________________________
locations _________________, which ATMs are or will be owned by
Company or others and connected to various credit card and debit card
networks (collectively, the "Systems").
B. Company desires to have Deluxe provide Cash Services required to
operate certain of the ATMs located on _________________________, and
other _______________ site(s) as hereinafter or heretofore designated
by Company or such other locations as mutually agreed upon by the
parties, and Deluxe is willing to provide Cash Services to Company
upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the promises set forth
below, and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1. Definitions. Except as otherwise specifically indicated, the
following terms shall have the following meanings in this Agreement (such
meanings to be applicable equally to both the singular and plural forms of the
terms defined):
Automated Teller Machine or ATM means a device which satisfies all
Systems requirements and technical specifications applicable thereto
located at _________________________________ and at which a Cardholder may
initiate and perform an entire set of ATM Transactions.
Card means a credit card, charge card, bank card or debit card that is
issued by a member of any Systems Issuer with the prior express written
approval of a financial institution.
Cardholder means the person who (i) maintains or is authorized to
access an account with an Issuer (and if such account is maintained with an
Issuer in the name of, or may be accessed by, more than one person, all of
such persons), and (ii) uses a Card to originate a Transaction.
Cash Services means the services furnished by Deluxe in supplying the
cash for one or more of the Company's or Merchant's ATMs.
Change in Control shall mean (i) any merger, consolidation or share
exchange of the Company with another entity under circumstances such that,
immediately after such transaction, the shareholders of the Company
immediately before the transaction own less than a majority of the voting
power of the surviving or acquiring entity except that there shall be no
change of control in the event the Company becomes public and its shares
are traded on any local or national market unless such shareholders own
less than 20% of the voting power; (ii) individuals who either (a) are
members of the Board of Directors of the
<PAGE>
Company on the date of this Agreement, or (b) are subsequently appointed as
directors of the Company by, or on the recommendation of, a majority of the
directors of the Company referred to in the foregoing clause (a), cease to
constitute a majority of such Board; or (iii) any sale of all or a majority
of the value of the property, assets, business, income or
revenue-generating capacity, or goodwill of the Company.
Deposit Account means the account or accounts established by Deluxe
into which all credits for cash withdrawn from the ATMs for which Deluxe
provided cash are deposited, and from which no sums may be withdrawn
without the authorization of Deluxe.
Designated Bank means any and all bank(s) listed in Section 2.3 of
this Agreement or as otherwise notified to Company by Deluxe from
time-to-time hereunder and at which Deluxe will deposit cash in accordance
with Section 2.3 of this Agreement.
Issuer means a Systems member that issues Cards to Cardholders for use
in performing Transactions.
Item means the electronic messages which communicate and effect a
Transaction between an Issuer and its Cardholder through the use of a
Terminal.
Member means a member of a System.
Merchant means an individual or entity which owns or leases an ATM and
which contracts with Company for some or all of its services, including
processing and Cash Services.
Network Sponsor means an entity that is a member of the correspondent
network that permits Company to utilize the System.
Participant means an Issuer, Acquirer, Processor, ISO, Cardholder or
Deluxe.
Network means any automatic transaction machine or cash dispensing
machine network in which a Network Sponsor participates and which transmits
through the System.
Processing Services means those services which are necessary to
operate an ATM in accordance with the requirements of the Systems,
including without limitation transaction processing, Settlement, fees,
Systems access, Cardholder deposit resolution, ATM support, Transaction
reporting to Systems, electronic authorization, links to Networks,
transaction switching, and other support services accessed by using certain
plastic cards with magnetically encoded stripes issued by financial
institutions to their account holders allowing such account holders to
perform certain banking, financial and purchase Transactions.
Processor means a company which contracts with Company to provide
Processing Services. The company providing such Processing Services, for
all Terminals subject to this Agreement is Deluxe Electronic Payments
Systems, Inc.
Regulatory Authority means, as the context requires, any Systems, the
State of Minnesota Banking Department, the Office of Thrift Supervision,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, and
any other federal or state agency having jurisdiction over Deluxe or
Company.
Rules means the Operating Rules and Procedures of any Systems or
Regulatory Authority as the same may be amended or supplemented from time
to time.
2
<PAGE>
Settlement means the movement of funds between Participants in
accordance with the Rules.
Settlement Bank means a financial institution designated by Deluxe
from time to time as the depository agent for Settlement.
System means the credit card and debit card networks system of
transmitting Items and other electronic messages and Settlement of
Transactions between Participants.
Terminal means an Automated Teller Machine or ATM.
Transaction means an ATM Transaction which is initiated at a Terminal
through the use of a Card and a Cardholder's personal identification number
("PIN") and is routed through a System.
ARTICLE II
DUTIES AND WARRANTIES OF THE PARTIES
Section 2.1. Deployment of ATMs. Company intends, from time to time, to
install for its own account or for Merchants, ATMs in _______________ and to
provide Cash Services for such ATMs, all in accordance with a separate written
agreement(s) between Company and ________________. Company shall use its best
efforts to give Deluxe a thirty (30) day prior notice of each new ATM location
for which Company requests that Deluxe provide Cash Services hereunder. Company
shall at all times provide Deluxe with accurate up-to-date information
concerning the location, identity and owner of each ATM for which Company
requests that Deluxe provide Cash Services. Deluxe shall not be required to
provide Cash Services for an ATM until Company has provided such information
concerning the ATM to Deluxe and until the expiration of such 30 day period.
For each ATM for which Company requests that Deluxe provide Cash Services,
Deluxe shall be the exclusive provider of Cash Services to such ATM. Company
warrants and covenants that, in connection with the Cash Services provided by
Deluxe hereunder, the cash provided by Deluxe shall not in any manner be
commingled with the cash of any other party.
Section 2.2. Conditions Precedent. As conditions to providing Cash Services
as provided for in this Agreement, and for the purpose of protecting Deluxe's
ownership of the cash provided by it, Deluxe will require, in its sole
discretion, that it be a party to or a beneficiary of Company's agreements with
its armored car carrier(s), for the purpose of assuring that funds or charges
due hereunder will be properly transferred to Deluxe's Deposit Account and that
cash supplied by Deluxe will be properly routed. Deluxe shall also be named as a
loss payee on any insurance policy maintained by the armored car carrier for the
benefit of Company.
Section 2.3. Cash Services. Deluxe shall provide Cash Services under this
Agreement to Company in accordance with and subject to the terms and conditions
of this Agreement, including but not limited to this Section 2 and with Section
3 of this Agreement below.
a) For the purposes of this Agreement, "Designated Bank" shall mean: (i)
for the States of ___________________________________________________
___________________; (ii) for the States of __________________________
___________________________; (iii) for all other States, any such
bank as is designated in writing to Company by Deluxe; and (iv) any
bank that Deluxe may in the future by written notice to Company
substitute in lieu of any bank named above for any specific State(s),
or name as an additional bank for purposes of this provision for any
specific State(s).
b) All funding supply requests by Company (each, a "Cash Order") shall be
sent via telecopier to Deluxe at 414-341-6640, Attention: Rob Schmidt,
or sent via electronic mail, or sent to such other contact as Deluxe
may notify Company in the future in writing. All Cash Orders must be
made in writing and must (i) specify the amount of cash
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<PAGE>
requested, and the date and Designated Bank location of pick up; and
(ii) be made in accordance with written procedures to be provided by
Deluxe to Company within thirty (30) days of execution of this
Agreement ("Cash Order Procedures"). The Cash Order Procedures shall
be deemed a part of and incorporated into this Agreement and may be
modified from time-to-time by Deluxe upon written notice to Company.
c) Deluxe shall transfer funds as needed hereunder to meet requests for
Cash Services as permitted hereunder to Designated Bank(s). For each
Cash Order, Deluxe shall notify the Designated Bank(s) of the date of
pick up, dollar amount and courier location number in accordance with
Designated Bank procedures. Company shall notify its courier of the
Designated Bank location, pick up date and dollar amount to be picked
up for each Cash Order and shall arrange for such funds to be
retrieved from the respective Designated Bank(s) by couriers
reasonably satisfactory to Deluxe and stocked in the appropriate ATMs.
Company covenants that all such couriers shall be bonded and insured
against loss, theft or destruction of such funds.
Section 2.4. Authority of Company. The authority of Company shall extend no
further than is expressly stated in this Agreement. It is the intent and purpose
of this Agreement that Company shall be and at all times remain only an
independent contractor as that term is legally understood and construed, and
nothing herein contained shall be construed or inferred to create the
relationship of employer and employee, partnership, joint venture partner,
agency, consultant or any other relationship between Deluxe and Company.
Section 2.5. Company's Warranties, Representations and Disclosures. Company
warrants and represents to Deluxe as follows:
a) This Agreement is valid, binding and enforceable against Company in
accordance with its terms.
b) Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of its incorporation and
authorized to do business in each state in which the nature of
Company's activities make such authorization necessary or required.
c) Company has the full power and authority to execute and deliver this
Agreement and perform all of its obligations hereunder. The provisions
of this Agreement and the performance of Company of its obligations
hereunder are not in conflict with Company's Articles of
Incorporation, By-Laws, or any agreement, contract, lease or
obligations to which Company is a party or by which it is bound.
d) There is not now pending or threatened against Company, any litigation
or proceeding, judicial, tax or administrative, the outcome of which
might materially adversely affect the continuing operations of
Company.
Section 2.6. Deluxe's Warranties, Representations and Disclosures. Deluxe
warrants and represents to Company as follows:
a) That it has sufficient cash to deploy for the Cash Services
contemplated and agreed to pursuant to this Agreement, and is able to
deliver such cash within the time for which it has contracted
hereunder.
b) This Agreement is valid, binding and enforceable against Deluxe in
accordance with its terms.
c) Deluxe is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of its incorporation and
authorized to do business in each state in which the nature of
Deluxe's activities make such authorization necessary or required.
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<PAGE>
d) Deluxe has the full power and authority to execute and deliver this
Agreement and perform all of its obligations hereunder. The provisions
of this Agreement and the performance of Deluxe of its obligations
hereunder are not in conflict with Deluxe's Articles of Incorporation,
By-Laws, or any agreement, contract, lease or obligations to which
Deluxe is a party or by which it is bound.
Section 2.7. Company's Additional Covenants. Company covenants and agrees
with Deluxe as follows:
a) It will comply with its agreement with the Member(s) and all rules and
regulations promulgated by Systems and all other Rules and Regulatory
Authorities which govern Company's actions or the specific market
where Terminals are located. Company shall be responsible for all
costs, damages, penalties or fines arising out of or relating to a
failure of Company to promptly comply with any of the foregoing.
b) Company shall be responsible for all fees and expenses incurred in
connection with the actions or operations of Company and all fees and
expenses payable to third parties in connection with the Cash Services
and Settlement, including wire fees; fees, expenses and service
charges charged by any Designated Bank, any correspondent bank, or any
Federal Reserve Bank; Settlement charges; Processor charges; and fees
or charges due to any armored car carrier. Nothing herein shall be
construed to make Deluxe liable for any compensation, fees or expenses
due to or which are the responsibility of Company.
c) It will cooperate with Deluxe to reconcile all accounting relating to
the Cash Services and the payment of compensation fees and expenses,
and will, as reasonably requested by Deluxe, provide an accounting for
all disbursements or deployments of cash. Additional Company
responsibilities in this regard are set forth in Exhibit A. Company
shall maintain separate and distinct accounting of Cash Services
provided under this Agreement and Cash Services provided by Deluxe to
Company under the Prior Agreement.
d) The Company shall not use, and shall not permit the use of, cash
supplied by Deluxe pursuant to this Agreement for any purpose other
than stocking of Terminals which are owned or operated by American
Stores and/or such other terminals to which Deluxe has agreed in
writing to supply cash.
e) The Company shall not intentionally permit any cash supplied by Deluxe
pursuant to this Agreement to be subject to any liens, claims and
encumbrances of which the Company is, or should be, aware.
f) The disclosure of proprietary and/or non-public information pertaining
to Deluxe and/or its customers could have a detrimental effect on the
business of Deluxe. The Company will hold all such information that it
receives in the strictest confidence and will not disclose the same to
any person or entity outside the Company and will not disclose the
same to any person within the Company except on an "as needed" basis
and except to the extent that (i) Deluxe authorizes the Company in
writing to disclose such information; (ii) Deluxe releases such
information to the public; (iii) a court or governmental agency
lawfully orders the Company to disclose such information, and the
Company has given Deluxe notice of the order in time for Deluxe to
contest it; (iv) such information becomes generally available to the
public other than as a result of disclosure by the Company; (v) the
Company already knew such information or independently developed it
from sources other than Deluxe; or (vi) such information becomes
available to the Company on a non-confidential basis from a source
other than Deluxe which is entitled to disclose it. Nothing contained
in the foregoing shall be deemed to permit the Company to disclose any
confidential information that it received from Deluxe prior to the
date of this Agreement. Nothing herein, however, shall restrict the
ability of the Company to disclose
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<PAGE>
information to a Regulatory Authority to the extent required by the
Rules or to the Company's auditors, accountants or legal counsel
provided that such recipients are made aware of, and agree to be bound
by, the confidentiality restrictions set forth herein.
Section 2.8. Deluxe's Covenants. Deluxe covenants and agrees with Company
as follows:
a) It will cooperate with Company to reconcile all accounting relating to
the Cash Services and the payment of compensation fees and expenses,
and will, as reasonably requested by Company, provide an accounting
for all disbursements or deployments of cash. Additional Deluxe
responsibilities in this regard are set forth in Exhibit A. Deluxe
shall maintain separate and distinct accounting of Cash Services
provided under this Agreement and Cash Services provided to Company
under the Prior Agreement.
b) It will deliver the cash that is requested by Company in accordance
with Section 2.3 on the projected date at which the cash is needed.
c) It will comply with all applicable laws, rules and regulations
applicable to it in providing the Cash Services and other obligations
herein.
d) The disclosure of proprietary and/or non-public information pertaining
to Company including, but not limited to, margins, payments, fees,
volume of cash, and location of customers or Merchants to others could
have a detrimental effect on the business of Company. Deluxe shall
hold all such information that it receives in the strictest confidence
and will not disclose the same to any person or entity outside Deluxe
and will not disclose the same to any person or entity within Deluxe
except on an "as needed" basis and except to the extent that (i)
Company authorizes Deluxe in writing to disclose such information;
(ii) Company releases such information to the public; (iii) a court or
governmental agency lawfully orders Deluxe to disclose such
information, and Deluxe has given Company notice of the order in time
for Company to contest it; or (iv) such information becomes generally
available to the public other than as a result of a disclosure by
Deluxe; or (v) Deluxe already knew such information or independently
developed such information from sources other than Company or as a
result of this Agreement; or (vi) such information becomes available
to Deluxe on a nonconfidential basis from a source other than Company
which is entitled to disclose it. Nothing contained in the foregoing
shall be deemed to permit Deluxe to disclose any confidential
information that it received from Company prior to the date of this
Agreement. Nothing herein, however, shall restrict the ability of
Deluxe to disclose information to a Regulatory Authority to the extent
required by the Rules or to Deluxe's auditors, accountants or legal
counsel, provided that such recipients are made aware of, and agree to
be bound by, the confidentiality restrictions set forth herein.
ARTICLE III
CASH SERVICES
Section 3.1. Deluxe Cash Services. Deluxe shall provide Cash Services to
Company, and Company shall compensate Deluxe for such services in accordance
with the provisions of Exhibit "A" attached hereto.
Section 3.2. Ownership of Cash. Company acknowledges that all cash provided
by Deluxe under this Agreement for the ATMs is the sole and separate property of
Deluxe and that Company has no right to or any interest in such cash except as
provided in this Agreement. Company covenants and agrees that, without the prior
express written authorization of an officer of Deluxe, it will not directly or
indirectly access, attempt to access or remove any cash from any ATMs which are
subject to this agreement, except through the use of a Card.
Section 3.3. Cash Requirements.
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a) During the Initial Term and any successive Term in accordance with the
provisions of this Agreement, Deluxe shall be required to provide cash
for the ATMs in an aggregate amount not to exceed _________________
dollars ($_____________). If Company's cash requirements exceed in the
aggregate the foregoing stated amount, Deluxe will consider any
written request from Company to increase such aggregate amount but
shall have no obligation to approve any such request.
b) Deluxe shall supply Company with the amount of cash within the time
set forth in the Cash Order Procedures. Deluxe acknowledges that such
cash must be provided timely so that the ATMs can be in operation, but
in no event shall Deluxe be liable or responsible for interruptions or
delays in the delivery of cash beyond its reasonable control or
resulting from the actions or negligence of any third party.
c) Nothing herein shall require Deluxe to supply any cash for use in ATMs
to any location other than ______________________________________ or
as otherwise agreed upon by the parties.
Section 3.4. Protection of Cash.
a) Company specifically covenants, understands and agrees that it will
not under any circumstances:
(i) Place, permit, or cause to be placed, any cash in any ATM for
which Cash Services are being provided by Deluxe, except the cash
provided by Deluxe.
(ii) Alter or change, or permit to be altered or changed, any approved
Settlement arrangements which might result in Deluxe not
receiving credit for any cash withdrawn from the ATMs for which
Deluxe is providing Cash Services.
b) Company shall carry and maintain insurance against the loss or theft
of cash in such amounts as Deluxe shall reasonably require (and in any
event, with coverage limits no greater than the full amount of cash
provided by Deluxe which may be outstanding at any time between
initial deposit by Deluxe in the relevant Designated Bank and
settlement into the Deluxe controlled account), naming Deluxe as loss
payee and providing that it cannot be materially altered or canceled
without the issuer of such policy giving Deluxe at least thirty (30)
days prior notice. Evidence of the existence of the required insurance
coverage shall be provided to Deluxe. Company covenants that each ATM
for which Company requests that Deluxe provide Cash Services shall be
insured against the loss of any cash therein with such insurance
limits and coverages as Deluxe may reasonably request and naming
Deluxe as an additional loss payee. Evidence of the existence of such
required insurance coverage concerning ATM cash shall also be provided
to Deluxe. Nothing herein shall relieve Company of its obligation to
indemnify Deluxe for any loss of Deluxe's cash, including any loss
below the deductible amount of any applicable insurance coverage.
c) Company hereby assigns to Deluxe all of its rights against any armored
car carrier utilized by Company to transport the cash provided by
Deluxe to the ATMs, including its right as loss payee under any
insurance coverage provided by the armored car carrier, and in the
event of a loss (however caused) of any of Deluxe's cash, Company
hereby authorizes Deluxe to collect directly from the armored car
carrier, or its insurance carrier, the amount of its loss. This
assignment shall not relieve Company from any liability it may have to
Deluxe for any loss, stolen or misappropriated cash belonging to
Deluxe.
d) Prior to permitting any armored car carrier to carry cash owned by
Deluxe to one or more of the ATMs, Company shall determine whether
Deluxe has any objection to the
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<PAGE>
utilization of such armored car carrier. If Deluxe objects to such
armored car carrier, Company shall utilize a bonded carrier approved
by Deluxe, which approval shall not be unreasonably withheld. Nothing
in this section 3.4 shall relieve Company from its obligation to
indemnify and save Deluxe harmless as provided in section 5.1.a) of
this Agreement.
e) The Company shall execute and permit to be filed, notice filings on
Forms UCC-1 or such comparable forms as are commonly accepted for
filing for such purposes in the jurisdictions in which (i) the
principal places of business of _________________________________, and
such vault and/or courier service providers, as the parties may
select, respectively, are located, and/or (ii) any ATMs for which Cash
Services are provided are located. The notice filings shall be for the
sole purpose of giving notice that the cash provided by Deluxe and
deployed and deposited in designated ATMs which are set forth in the
notice is owned by Deluxe and not by others. In the event the Company
fails, for any reason, to execute and deliver any such notice filing
forms within ten (10) days of a written request from Deluxe, the
Company hereby designates and appoints any officer of Deluxe as the
true and lawful attorney in fact of the Company for the purpose of
executing and delivering such forms for filing. Such designation and
appointment is irrevocable during the term of this Agreement and is
coupled with an interest.
Section 3.5. Payment of Fees. Deluxe will bill (via FAX) Company monthly,
in arrears, for Cash Services. The bill is due upon receipt.
ARTICLE IV
TERM OF AGREEMENT; TERMINATION
Section 4.1. Initial Term. The Initial Term of this Agreement shall be for
a period of ______________________, commencing on _____________, and shall
continue for successive 12-month periods, unless prior to the expiration of each
Term, either Deluxe or Company gives the other not less than ninety (90) days
prior written notice of its election not to renew or extend this Agreement.
Section 4.2. Termination.
a) Either party shall have the right to terminate this Agreement at any
time, subject to compliance with section 4.2.(b) below upon occurrence
of one or more of the following events:
(i) Failure of either party to observe or perform that party's
obligations to the other hereunder as long as the failure or
non-performance is not due to the actions of the terminating
party; or
(ii) In the event any representation, warranty, statement or
certificate furnished to any party by the other in connection
with this Agreement, or any separate statement or document
delivered or to be delivered hereunder by any party to the other,
is materially adverse to the terminating party and intentionally
untrue as of the date made or delivered.
b) In the event any party wishes to terminate this Agreement pursuant to
subparagraphs a)(i) or a)(ii) of this Section, before this Agreement
may be terminated on such basis, the non-performance must first
continue for a period of thirty (30) days following notice in writing
to the other party; specifying the default and requesting that it be
cured or corrected fully within such time.
c) If Company fails to pay Deluxe its compensation in accordance with the
terms set forth on Exhibit "A" or otherwise fails to make payment of
any sum due hereunder to Deluxe,
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<PAGE>
Deluxe may provide written notice of such monetary default to Company,
and if Company fails to fully cure such monetary default within seven
(7) days following delivery of such notice, Deluxe may at any time
thereafter terminate this Agreement.
d) Notwithstanding any provision in this Agreement to the contrary,
either party may terminate this Agreement at any time by giving
written notice to the other if any Regulatory Authority determines (i)
that it is inappropriate or contrary to then existing laws or
regulations for Deluxe to continue to provide Cash Services and
Company is given not less than sixty (60) days notice of such
regulatory determination (or such shorter period of time as Deluxe may
require in order to comply with the requirements of any Regulatory
Authority); or (ii) that it is inappropriate or contrary to then
existing laws or regulations for Company to continue to provide
processing and other ATM services, or its permits or licenses to
provide such services are terminated or suspended as to any ATM, and
in such case, this Agreement shall not apply to such ATMs but shall
continue with respect to others covered hereunder. In addition, Deluxe
may at any time terminate this Agreement by giving thirty (30) days
advance written notice to Company if Deluxe at any time incurs
material losses in connection with Deluxe's cash or Deluxe reasonably
determines that the continued provision of Cash Services may adversely
affect Deluxe's safety and soundness.
e) Either party may terminate the Agreement, effective immediately, upon
written notice to the other party if the other party (i) becomes
insolvent or declares bankruptcy, (ii) becomes the subject of any
proceedings seeking relief, reorganization, or rearrangement under any
laws relating to insolvency, (iii) makes an assignment for the benefit
of creditors, or (iv) begins the liquidation, dissolution, or winding
up of its business.
f) Deluxe may terminate this Agreement upon thirty (30) days written
notice to Company in the event of a Change in Control.
g) Company may, at its sole election, terminate this Agreement at any
time upon thirty (30) days written notice to Deluxe.
h) In the event of termination, the cash owed Deluxe by Company is the
Balance on the day of termination. Such Balance is due Deluxe within
five (5) business days and shall be deposited in Deluxe's designated
account.
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ARTICLE V
GENERAL PROVISIONS
Section 5.1. Indemnification.
a) Company covenants and agrees to indemnify and hold harmless Deluxe,
its parent or affiliates, and its or their respective officers,
directors, employees and permitted assigns, from and against any and
all direct or contingent liabilities, claims, damages, losses or
expenses, including reasonable attorneys' fees, arising from any
claim, demand or suit against Deluxe as a result of any material
misrepresentation, breach of material warranty or non-fulfillment of
any covenant of this Agreement by Company, unless such liabilities,
claims, damages, losses and expenses therefrom are a result of the
gross negligence or willful acts of Deluxe. In addition, Company shall
indemnify and hold Deluxe harmless against any actions or omissions of
a Merchant, claims of a Cardholder or shortages in or loss of Deluxe's
cash while it is in the custody or care of a party other than Deluxe.
b) Deluxe covenants and agrees to indemnify and hold harmless Company and
its parent or affiliates, and its or their respective officers,
directors, employees and permitted assigns, from and against any and
all direct or contingent liabilities, claims, damages, losses or
expenses, including reasonable attorneys' fees, arising from any
claim, demand or suit against Company as a result of any material
misrepresentation, breach of material representation, warranty,
covenant or agreement made by Deluxe under this Agreement, unless such
liabilities, claims, damages, losses and expenses therefrom are a
result of the gross negligence or willful acts of Company. It is
expressly agreed and understood that Deluxe's duty is limited to
delivering cash to the Designated Bank Account pursuant to Section 2.3
of this Agreement, and that Company has the sole responsibility for
delivery of the cash from any such Designated Bank to the ATMs through
a courier service (which courier service shall be subject to Deluxe's
approval as provided for herein).
c) Each party shall promptly notify the other of any claim, demand, suit,
or threat of suit of which that party becomes aware (except with
respect to a threat of suit one party might institute against the
other) which may give rise to a right of indemnification pursuant to
this Agreement.
d) The parties acknowledge that their respective liability to one another
under this Agreement generally and pursuant to this Section 5.1 shall
be limited to such direct damages as and to the extent the respective
party may show it has sustained and is entitled to recovery pursuant
to this Agreement. In no event shall either party be liable to the
other for any incidental, consequential or other extraordinary damages
such as lost profits or any other indirect damages.
Section 5.2. Compliance with Laws, Rules and Regulations. Deluxe and
Company each represent and warrant to the other that each is familiar with the
requirements of all applicable consumer protection laws and regulations, and
covenants and agrees that each of them will comply in all material respects with
all such laws and regulations, as well as all other applicable laws, rules and
regulations, now and in the future to the extent applicable to the respective
parties and the transactions contemplated by this Agreement.
Section 5.3. Governing Law. This Agreement shall be governed by and
interpreted and construed, and the rights and obligations of the parties hereto
determined in accordance with the internal laws of the State of Wisconsin.
Section 5.4. Severability. In the event that any part of this Agreement is
ruled by the final, non-appealable order or directive of any court or Regulatory
Authority to be invalid or unenforceable, then this Agreement shall be
automatically modified to eliminate that part which is affected thereby. The
remainder of this Agreement shall remain in full force and effect.
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Section 5.5. Survival. All representations, warranties, indemnifications,
and accrued obligations shall survive any expiration, renewal or earlier
termination of this Agreement.
Section 5.6. Acknowledgment of Regulatory and Other Constraints. The
parties hereto acknowledge that Deluxe and Company are subject to the rules,
regulations, orders and requirements which may be imposed by any Regulatory
Authority and Deluxe's Board of Directors. In the event of any requirements
imposed by those entities or agencies, the parties agree that this Agreement
shall be deemed modified to conform to such requirements.
Section 5.7. Arbitration. In the event of any dispute between Deluxe and
Company relating to this Agreement, or their performances hereunder, Deluxe and
Company agree that such dispute shall be resolved by means of arbitration in
Milwaukee, Wisconsin, in accordance with the commercial arbitration rules of the
American Arbitration Association ("AAA"), and judgment upon the award rendered
by the arbitrator(s) may be entered in any court of competent jurisdiction. The
arbitration shall be heard by a panel of one arbitrator, appointed by the AAA.
The arbitration decision shall be binding upon Deluxe and Company. Either party
will forfeit the dispute if this clause is not adhered to by such party.
Depositions may be taken and other discovery obtained during such arbitration
proceedings to the same extent as authorized in civil judicial proceedings in
the State of Wisconsin. The arbitrator(s) shall be limited to awarding
compensatory damages and shall have no authority to award punitive, exemplary or
similar type damages. The prevailing party in the arbitration proceeding shall
be entitled to recover its expenses, including the costs of the arbitration
proceeding and reasonable attorneys' fees.
Section 5.8. Binding Effect. This Agreement and the rights and obligations
created thereunder shall be binding upon and inure solely to the benefit of the
parties hereto and their respective successors and permitted assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any rights or remedies as a third party beneficiary, or
otherwise, under or by reason of this Agreement to any persons, firm or
corporation.
Section 5.9. Notices. All notices, requests, demands and other
communications hereunder (i) shall be in writing; (ii) shall be addressed to the
parties as indicated below unless notified in writing of a change in address;
and (iii) shall be deemed to have been given either when personally delivered or
when sent by regular United States mail, in which event it shall be sent postage
prepaid upon delivery thereof, or, if sent by telegram, telex or facsimile
transmission, upon delivery thereof, as follows:
To Deluxe: Deluxe Electronic Payment Systems, Inc.
400 West Deluxe Parkway
Milwaukee, WI 53212
Fax No. 414/341-5075
Attention: President
To Company:
Section 5.10. Amendments. This is the only Agreement between the parties
regarding the subject matter hereof and may be amended only in writing signed by
all parties, and dated subsequent to the execution of this Agreement.
Section 5.11. Counterparts. This Agreement may be executed and delivered by
the parties hereto in any number of counterparts, and by different parties on
separate counterparts, each of which counterparts, taken together, shall
constitute but one and the same instrument.
Section 5.12. Complete Agreement. This Agreement contains and reflects the
entire agreement between the parties with respect to the subject matter hereof,
and supersedes any prior understandings, agreements or representations by or
between the parties, written or oral, which may have related to the subject
matter hereof in any
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way. The Prior Agreement shall remain in full force and
effect in accordance with its terms and is a separate and distinct agreement
from this Agreement. The parties may at some point amend this Agreement to
supercede and replace the Prior Agreement and shall cooperate with one another
in all reasonable ways to accomplish same.
Section 5.13. Assignment. This Agreement and the respective rights of the
parties hereunder may not be assigned by either party hereto without the prior
written consent of the other except that Deluxe may assign this Agreement to any
other directly or indirectly wholly-owned subsidiary of Deluxe Corporation and
that any business combination, merger, consolidation or share exchange which is
not a Change in Control shall not be considered an assignment by Company.
IN WITNESS WHEREOF, this Agreement is executed by the parties as of the
date and year first above written.
DELUXE ELECTRONIC PAYMENT SYSTEMS, INC.
By________________________________________ By__________________________________
Its_______________________________________ Its_________________________________
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EXHIBIT 21.1
Subsidiaries of eFunds
A. EFunds Corporation (Tustin), a California corporation
B. Deluxe Payment Protection Systems, Inc., a Delaware corporation
f/k/a Electronic Transaction Corporation
C. Chex Systems, Inc., a Minnesota corporation
D. Deluxe Analytical Research Technologies, Inc., a Minnesota corporation
E. eFunds Canada, Inc., a Canadian corporation (Canada)
f/k/a Deluxe Electronic Payment Systems Canada, Inc.
F. Deluxe Electronic Benefits, Inc., a Delaware corporation
G. eFunds Holdings Ltd., a United Kingdom charter
f/k/a DLX Holdings Limited
f/k/a Paperdirect (Europe) Limited
f/k/a Deluxe (UK) Limited
f/k/a Deluxe (Europe) Limited
f/k/a Meaujo (319) Limited
H. eFunds International Limited, a United Kingdom charter
f/k/a Deluxe Data International, Inc.
f/k/a The Software Partnership Limited
I. Deluxe Overseas, Inc., a Minnesota corporation
J. iDLX Corporation, a Minnesota corporatio
f/k/a Deluxe Holdings (International), Inc.
K. iDLX International B.V. (Netherlands), a private limited liability
company of Amsterdam
f/k/a Deluxe Holdings (Netherlands) B.V.
L. iDLX Holdings N.V. (Netherlands), a limited liability company of
Amsterdam.
f/k/a HCL-Deluxe N.V.)
M. iDLX Technology Partners, Inc., a Delaware Corporation
f/k/a HCL-Deluxe, Inc.
f/k/a Deluxe-HCL, Inc.
<PAGE>
N. iDLX Technology Partners Private Limited (India), registered in India
f/k/a HCL Deluxe Private Limited
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of eFunds Corporation
on Form S-1 of our report dated April 3, 2000 (May 12, 2000 as to the effects
of the stock split described in Note 2 and as to Note 15), appearing in the
Prospectus, which is part of this Registration Statement. We also consent to
the reference to us under the headings "Selected Financial Data" and "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
Minneapolis, MN
May 15, 2000
<PAGE>
EXHIBIT 23.3
CONSENT
Reference is made to Amendment No. 1 to the Registration Statement on Form
S-1, and to the Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by eFunds Corporation in connection with its public offering. In
accordance with Rule 438 under the Securities Act of 1933, the undersigned
hereby consents to being named in the Registration Statement, and any subsequent
amendments thereto, as a person who is about to become a director of eFunds
Corporation.
May 12, 2000
/s/ Debra A. Janssen
------------------------------------
Debra A. Janssen
<PAGE>
EXHIBIT 23.4
CONSENT
Reference is made to Amendment No. 1 to the Registration Statement on Form
S-1, and to the Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by eFunds Corporation in connection with its public offering. In
accordance with Rule 438 under the Securities Act of 1933, the undersigned
hereby consents to being named in the Registration Statement, and any subsequent
amendments thereto, as a person who is about to become a director of eFunds
Corporation.
May 12, 2000
/s/ John J. (Jack) Boyle
------------------------------------
John J. (Jack) Boyle
<PAGE>
EXHIBIT 23.5
CONSENT
Reference is made to Amendment No. 1 to the Registration Statement on Form
S-1, and to the Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by eFunds Corporation in connection with its public offering. In
accordance with Rule 438 under the Securities Act of 1933, the undersigned
hereby consents to being named in the Registration Statement, and any subsequent
amendments thereto, as a person who is about to become a director of eFunds
Corporation.
May 12, 2000
/s/ Jack Robinson
------------------------------------
Jack Robinson
<PAGE>
EXHIBIT 23.6
CONSENT
Reference is made to Amendment No. 1 to the Registration Statement on Form
S-1, and to the Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by eFunds Corporation in connection with its public offering. In
accordance with Rule 438 under the Securities Act of 1933, the undersigned
hereby consents to being named in the Registration Statement, and any subsequent
amendments thereto, as a person who is about to become a director of eFunds
Corporation.
May 12, 2000
/s/ Hatim A. Tyabji
------------------------------------
Hatim A. Tyabji
<PAGE>
EXHIBIT 23.7
CONSENT
Reference is made to Amendment No. 1 to the Registration Statement on Form
S-1, and to the Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by eFunds Corporation in connection with its public offering. In
accordance with Rule 438 under the Securities Act of 1933, the undersigned
hereby consents to being named in the Registration Statement, and any subsequent
amendments thereto, as a person who is about to become a director of eFunds
Corporation.
May 12, 2000
/s/ John H. LeFevre
------------------------------------
John H. LeFevre
<PAGE>
EXHIBIT 23.8
CONSENT
Reference is made to Amendment No. 1 to the Registration Statement on Form
S-1, and to the Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by eFunds Corporation in connection with its public offering. In
accordance with Rule 438 under the Securities Act of 1933, the undersigned
hereby consents to being named in the Registration Statement, and any subsequent
amendments thereto, as a person who is about to become a director of eFunds
Corporation.
May 12, 2000
/s/ Lois M. Martin
------------------------------------
Lois M. Martin
<PAGE>
EXHIBIT 23.9
CONSENT
Reference is made to Amendment No. 1 to the Registration Statement on Form
S-1, and to the Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by eFunds Corporation in connection with its public offering. In
accordance with Rule 438 under the Securities Act of 1933, the undersigned
hereby consents to being named in the Registration Statement, and any subsequent
amendments thereto, as a person who is about to become a director of eFunds
Corporation.
May 12, 2000
/s/ Lawrence J. Mosner
------------------------------------
Lawrence J. Mosner
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