EXHIBIT 10.17
Rev. 5/5/00
GOVERNMENT SERVICES INDEMNIFICATION AGREEMENT
This GOVERNMENT SERVICES INDEMNIFICATION AGREEMENT (this "Agreement") is
dated as of May 1, 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").
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
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
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
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
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.
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.
(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
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.
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
0000 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Attn: Chief Financial Officer
Facsimile: 000-000-0000
Copy to: General Counsel
Facsimile: (000) 000-0000
If to eFunds:
eFunds Corporation
000 Xxxx Xxxxxx Xxxxxxx
P.O. Box 12536
Xxxxxxxxx, Xxxxxxxxx 00000
Attn: Chief Financial Officer
Facsimile: (000) 000-0000
Copy to: General Counsel
Facsimile: (000) 000-0000
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:
Title:
EFUNDS CORPORATION
By:
-------------------------------------
Name:
Title:
Exhibit A
Loss Contracts
Exhibit B to
Government Services Indemnification Agreement
Between
Efunds Corporation and Deluxe Corporation
Contract Accounting Principles
Statement of General Principles:
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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 Xxxxxx Xxxxxxxx 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:
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
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
